<PAGE>
This form of prospectus is filed pursuant to Rule 424(b)(2) under the
Securities Act of 1933, as amended, and relates to Registration Statement
No. 333-59721.
[AMBANC HOLDING CO. LETTERHEAD]
July 31, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Ambanc Holding Co.,
Inc. ("Ambanc"), I cordially invite you to attend the Special Meeting of
Stockholders of Ambanc (the "Special Meeting") to be held at 10:00 a.m., local
time, on September 1, 1998 at the Best Western hotel, located at 10 Market
Street, Amsterdam, New York.
At this important Special Meeting, stockholders will be asked to adopt the
Reorganization and Merger Agreement, dated April 23, 1998 and amended as of June
26, 1998 (the "Merger Agreement"), by and among Ambanc and its wholly owned
subsidiary, Amsterdam Savings Bank, FSB (the "Savings Bank") and AFSALA Bancorp,
Inc. ("AFSALA") and its wholly owned subsidiary, Amsterdam Federal Bank ("AFSALA
Bank"), pursuant to which AFSALA will merge with and into Ambanc, with Ambanc as
the surviving corporation (the "Merger"), and AFSALA Bank will merge with and
into the Savings Bank, with the Savings Bank as the surviving institution. Upon
consummation of the Merger, each outstanding share of AFSALA common stock will
be converted into 1.07 shares of Ambanc common stock (the "Exchange Ratio").
The terms of the Merger Agreement, as well as other important information, are
contained in the accompanying Joint Proxy Statement/Prospectus. Please give
this document your careful attention.
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), Ambanc's financial
advisor in connection with the Merger, has delivered its opinion to the Board of
Directors of Ambanc that the Exchange Ratio is fair to Ambanc from a financial
point of view. A copy of the opinion of Sandler O'Neill is attached to the
accompanying Joint Proxy Statement/Prospectus as Appendix III.
The Board of Directors of Ambanc has carefully reviewed and considered the
terms and conditions of the Merger Agreement. THE BOARD OF DIRECTORS OF AMBANC
HAS CONCLUDED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF AMBANC, AND UNANIMOUSLY
RECOMMENDS THAT AMBANC STOCKHOLDERS VOTE "FOR" THE MERGER AGREEMENT.
I encourage you to attend the Special Meeting in person. Whether or not
you do, please read the Joint Proxy Statement/Prospectus and then complete, sign
and date the proxy card and return it in the enclosed postage-paid envelope.
This will save Ambanc additional expense in soliciting proxies and will ensure
that your shares are represented. Please note that you may vote in person at
the Special Meeting even if you have previously returned the proxy card.
Thank you for your prompt attention to this important matter.
Very truly yours,
Paul W. Baker
Chairman of the Board
<PAGE>
[AFSALA BANCORP LETTERHEAD]
July 31, 1998
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of AFSALA Bancorp, Inc.
("AFSALA"), I cordially invite you to attend the Special Meeting of Stockholders
of AFSALA (the "Special Meeting") to be held at 2:00 p.m., local time, on
September 3, 1998 at the Best Western hotel located at 10 Market Street,
Amsterdam, New York.
At this important Special Meeting, stockholders will be asked to adopt the
Reorganization and Merger Agreement, dated April 23, 1998 and amended as of June
26, 1998 (the "Merger Agreement"), by and among Ambanc Holding Co., Inc.
("Ambanc") and its wholly owned subsidiary, Amsterdam Savings Bank, FSB (the
"Savings Bank") and AFSALA and its wholly owned subsidiary, Amsterdam Federal
Bank ("AFSALA Bank"), pursuant to which AFSALA will merge with and into Ambanc,
with Ambanc as the surviving corporation (the "Merger"), and AFSALA Bank will
merge with and into the Savings Bank, with the Savings Bank as the surviving
institution. Upon consummation of the Merger, each outstanding share of AFSALA
common stock will be converted into 1.07 shares of Ambanc common stock. The
terms of the Merger Agreement, as well as other important information, are
contained in the accompanying Joint Proxy Statement/Prospectus. Please give
this document your careful attention.
FinPro, Inc. ("FinPro"), AFSALA's financial advisor in connection with the
Merger, has delivered its opinion to the Board of Directors of AFSALA that the
Merger is fair and equitable to AFSALA stockholders from a financial point of
view. A copy of the opinion of FinPro is attached to the accompanying Joint
Proxy Statement/Prospectus as Appendix IV.
The Board of Directors of AFSALA has carefully reviewed and considered the
terms and conditions of the Merger Agreement. THE BOARD OF DIRECTORS OF AFSALA
HAS CONCLUDED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF AFSALA, AND UNANIMOUSLY
RECOMMENDS THAT AFSALA STOCKHOLDERS VOTE "FOR" THE MERGER AGREEMENT.
I encourage you to attend the Special Meeting in person. Whether or not
you do, please read the Joint Proxy Statement/Prospectus and then complete, sign
and date the proxy card and return it in the enclosed postage-paid envelope.
This will save AFSALA additional expense in soliciting proxies and will ensure
that your shares are represented. Please note that you may vote in person at
the Special Meeting even if you have previously returned the proxy card.
Thank you for your prompt attention to this important matter.
Sincerely,
John M. Lisicki
President and Chief Executive Officer
<PAGE>
AMBANC HOLDING CO., INC.
11 DIVISION STREET
AMSTERDAM, NEW YORK 12010
(518) 842-7200
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 1, 1998
Notice is hereby given that the Special Meeting of Stockholders (the
"Special Meeting") of Ambanc Holding Co., Inc. ("Ambanc") will be held at
10:00 a.m., local time, on September 1, 1998 at the Best Western hotel, located
at 10 Market Street, Amsterdam, New York.
A proxy card and a Joint Proxy Statement/Prospectus for the Special Meeting
are enclosed. The Special Meeting is for the purpose of considering and acting
upon:
1. The adoption of the Reorganization and Merger Agreement, dated
April 23, 1998 and amended as of June 26, 1998, by and among Ambanc and its
wholly owned subsidiary, Amsterdam Savings Bank, FSB (the "Savings Bank"), and
AFSALA Bancorp, Inc. ("AFSALA") and its wholly owned subsidiary, Amsterdam
Federal Bank ("AFSALA Bank"), pursuant to which AFSALA will merge with and into
Ambanc and AFSALA Bank will merge with and into the Savings Bank, as more fully
described in the accompanying Joint Proxy Statement/Prospectus; and
2. Such other matters as may properly come before the Special Meeting or
any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Special Meeting. Action may be taken on the foregoing proposals at the
Special Meeting on the date specified above, or on any date or dates to which
the Special Meeting may be adjourned or postponed. Stockholders of record at
the close of business on July 24, 1998 are the stockholders entitled to vote at
the Special Meeting and any adjournments or postponements thereof.
You are requested to complete, sign and date the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Special Meeting in person.
By Order of the Board of Directors
Robert Kelly
Secretary
Amsterdam, New York
July 31, 1998
- -------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE AMBANC THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- -------------------------------------------------------------------------------
<PAGE>
AFSALA BANCORP, INC.
161 CHURCH STREET
AMSTERDAM, NEW YORK 12010
(518) 842-5700
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 3, 1998
Notice is hereby given that the Special Meeting of Stockholders (the
"Special Meeting") of AFSALA Bancorp, Inc. ("AFSALA") will be held at 2:00 p.m.,
local time, on September 3, 1998, at the Best Western hotel, located at
10 Market Street, Amsterdam, New York.
A proxy card and a Joint Proxy Statement/Prospectus for the Special Meeting
are enclosed. The Special Meeting is for the purpose of considering and acting
upon:
1. The adoption of the Reorganization and Merger Agreement, dated
April 23, 1998 and amended as of June 26, 1998, by and among Ambanc Holding Co.,
Inc. ("Ambanc") and its wholly owned subsidiary, Amsterdam Savings Bank, FSB
(the "Savings Bank") and AFSALA and its wholly owned subsidiary, Amsterdam
Federal Bank ("AFSALA Bank"), pursuant to which AFSALA will merge with and into
Ambanc and AFSALA Bank will merge with and into the Savings Bank, as more fully
described in the accompanying Joint Proxy Statement/Prospectus; and
2. Such other matters as may properly come before the Special Meeting or
any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Special Meeting. Action may be taken on the foregoing proposals at the
Special Meeting on the date specified above, or on any date or dates to which
the Special Meeting may be adjourned or postponed. Stockholders of record at
the close of business on July 27, 1998 are the stockholders entitled to vote at
the Special Meeting, and any adjournments or postponements thereof.
You are requested to complete, sign and date the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Special Meeting in person.
By Order of the Board of Directors
Sandra M. Hammond
Corporate Secretary
Amsterdam, New York
July 31, 1998
- -------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE AFSALA THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- -------------------------------------------------------------------------------
<PAGE>
JOINT PROXY STATEMENT
OF
AMBANC HOLDING CO., INC.
AND
AFSALA BANCORP, INC.
FOR SPECIAL MEETINGS OF THEIR STOCKHOLDERS
TO BE HELD ON SEPTEMBER 1, 1998 AND
SEPTEMBER 3, 1998, RESPECTIVELY
-----------------------------------
PROSPECTUS
OF
AMBANC HOLDING CO., INC.
-----------------------------------
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Acquisition Merger") of AFSALA Bancorp, Inc., a Delaware corporation
("AFSALA"), with and into Ambanc Holding Co., Inc., a Delaware corporation
("Ambanc"), and the merger (the "Bank Merger") of AFSALA's wholly owned
subsidiary, Amsterdam Federal Bank ("AFSALA Bank") with and into Ambanc's wholly
owned subsidiary, Amsterdam Savings Bank, FSB (the "Savings Bank") as
contemplated by the Reorganization and Merger Agreement, dated April 23, 1998
and amended as of June 26, 1998, by and among Ambanc and the Savings Bank and
AFSALA and AFSALA Bank (the "Merger Agreement"). The Merger Agreement is
included as Appendix I to this Joint Proxy Statement/Prospectus and incorporated
herein by reference.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
shares of the common stock, par value $.01 per share, of Ambanc ("Ambanc Common
Stock") in connection with the solicitation of proxies by the Board of Directors
of Ambanc for use at the Special Meeting of Stockholders of Ambanc (the "Ambanc
Special Meeting") to be held at 10:00 a.m., local time, on September 1, 1998 at
the Best Western hotel, located at 10 Market Street, Amsterdam, New York, and at
any and all adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of shares of the common stock, par value $.10 per share, of AFSALA
("AFSALA Common Stock") in connection with the solicitation of proxies by the
Board of Directors of AFSALA for use at the Special Meeting of Stockholders of
AFSALA (the "AFSALA Special Meeting") to be held at 2:00 p.m., local time, on
September 3, 1998 at the Best Western hotel, located at 10 Market Street,
Amsterdam, New York, and at any and all adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Ambanc, filed as part of the Registration Statement (defined below) with respect
to up to 1,567,008 shares of Ambanc Common Stock to be issued upon consummation
of the Acquisition Merger pursuant to the terms of the Merger Agreement.
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of AFSALA Common Stock issued and outstanding immediately
prior to the Acquisition Merger will be converted into the right to receive 1.07
shares of Ambanc Common Stock (the "Exchange Ratio"), with cash paid in lieu of
fractional share interests. The Merger Agreement provides that if the holders
of Ambanc Common Stock shall have received or shall have become entitled to
receive, without payment therefor, during the period commencing April 18, 1998
and ending with the Acquisition Merger Effective Time (as defined herein),
additional shares of common stock or other securities for their stock by way of
a stock split, stock dividend, reclassification, combination of shares, spinoff
or similar corporate rearrangement, an appropriate adjustment shall be made to
the Exchange Ratio. For a more complete description of the Merger Agreement and
the transactions contemplated thereby, see "The Merger."
i
<PAGE>
The outstanding shares of Ambanc Common Stock are, and the shares of Ambanc
Common Stock offered hereby will be, listed on the National Market tier of the
Nasdaq Stock Market. The last reported sale price of the Ambanc Common Stock on
the Nasdaq Stock Market on July 27, 1998 was $17.00 per share. AFSALA Common
Stock is also listed on the National Market tier of the Nasdaq Stock Market.
The last reported sale price of the AFSALA Common Stock on the Nasdaq Stock
Market on the same date was $18.4375 per share.
This Joint Proxy Statement/Prospectus, the accompanying notices and the
accompanying forms of proxy are first being mailed to stockholders of Ambanc and
AFSALA on or about July 31, 1998.
---------------------------------
THE SHARES OF AMBANC COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AGENCY,
AND NONE OF THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, ANY STATE SECURITIES COMMISSION OR ANY OTHER AGENCY HAS PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF AMBANC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Joint Proxy Statement/Propsectus is July 28, 1998.
---------------------------------
ii
<PAGE>
AVAILABLE INFORMATION
Ambanc and AFSALA are subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy and information statements and other information filed by Ambanc
and AFSALA can be obtained, upon payment of prescribed fees, from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549. In addition, such information can be inspected and copied
at the public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices located at
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. In addition, the
SEC maintains a Web site that contains reports, proxy and information statements
and other information regarding Ambanc's and AFSALA's electronic filings with
the SEC. The address of the SEC's Web site is "http://www.sec.gov."
Ambanc has filed with the SEC a registration statement on Form S-4
(together with all amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Ambanc Common Stock to be issued pursuant to and
as contemplated by the Merger Agreement. This Joint Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the SEC. The Registration Statement is available for inspection
and copying as set forth above. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated by reference in this Joint
Proxy Statement/Prospectus as to the contents of any contract or other document
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (EXCLUDING
EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE, WITHOUT
CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED BY OR ON BEHALF OF AMBANC OR AFSALA, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON. SUCH REQUEST SHOULD BE MADE TO ROBERT
KELLY, SECRETARY, AMBANC HOLDING CO., INC., 11 DIVISION STREET, AMSTERDAM, NEW
YORK 12010-4303, TELEPHONE (518) 842-7200. IN ORDER TO ENSURE TIMELY DELIVERY
OF DOCUMENTS, REQUESTS FOR DOCUMENTS BY AMBANC STOCKHOLDERS SHOULD BE MADE BY
AUGUST 25, 1998 AND REQUESTS FOR DOCUMENTS BY AFSALA STOCKHOLDERS SHOULD BE MADE
BY AUGUST 27, 1998. PERSONS REQUESTING COPIES OF EXHIBITS TO DOCUMENTS WHICH
ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS MAY BE CHARGED
THE COST OF REPRODUCTION AND MAILING.
The following documents previously filed with the SEC by Ambanc
(File No. 0-27036) are hereby incorporated by reference in this Joint
Proxy Statement/Prospectus:
1. The Annual Report on Form 10-K of Ambanc for the fiscal year ended
December 31, 1997 (the "Ambanc 1997 10-K") and the portions of Ambanc's
Proxy Statement for its 1998 Annual Meeting of Stockholders which have
been incorporated by reference into the Ambanc 1997 10-K;
2. The Quarterly Report on Form 10-Q of Ambanc for the quarterly period
ended March 31, 1998;
3. The Current Reports on Form 8-K of Ambanc filed with the SEC on
February 18, 1998, February 24, 1998, March 13, 1998, April 29, 1998, as
amended on Form 8-K/A filed on April 29, 1998, May 14, 1998, June 8,
1998, June 12, 1998, July 1, 1998 and July 7, 1998; and
4. The description of Ambanc Common Stock contained in Ambanc's
Registration Statement on Form 8-A filed on October 20, 1995 (together
with the following portions of Ambanc's Registration Statement on
Form S-1, as amended (Registration No. 33-96654): "Description of
Capital Stock,"
iii
<PAGE>
"Dividends," "Market for Common Stock" and "Restrictions on
Acquisitions of Stock and Related Takeover Provisions") and all
amendments or reports filed for the purpose of updating such
description.
All documents filed by Ambanc with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act from the date of this Joint Proxy
Statement/Prospectus prior to the Ambanc and AFSALA Special Meetings shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
---------------------------------
All information contained in this Joint Proxy Statement/Prospectus with
respect to Ambanc and its subsidiaries has been supplied by Ambanc and all
information with respect to AFSALA and its subsidiaries has been supplied by
AFSALA.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction.
iv
<PAGE>
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS OR INCORPORATES BY REFERENCE
CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. NO SUCH FORWARD-LOOKING
STATEMENT SHOULD BE RELIED UPON AS A PREDICTION OF FUTURE EVENTS. CERTAIN OF
SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "ARE EXPECTED TO," "WILL,"
"WILL ALLOW," "WILL CONTINUE," "WILL LIKELY RESULT," "SHOULD," "WOULD BE,"
"SEEKS," "APPROXIMATELY," "INTENDS," "PLANS," "PROJECTS," "ESTIMATES" OR
"ANTICIPATES" OR SIMILAR EXPRESSIONS OR THE NEGATIVE THEREOF OR OTHER VARIATIONS
THEREOF OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY, PLANS OR
INTENTIONS. IN ADDITION, ALL INFORMATION INCLUDED HEREIN OR THEREIN WITH
RESPECT TO PROJECTED OR FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION,
FINANCIAL PERFORMANCE OR OTHER FINANCIAL OR STATISTICAL MATTERS CONSTITUTE SUCH
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY
DEPENDENT ON ASSUMPTIONS, DATA OR METHODS THAT MAY BE INCORRECT OR IMPRECISE AND
THAT MAY BE INCAPABLE OF BEING REALIZED. SUCH FORWARD LOOKING STATEMENTS INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS
FROM THE PROPOSED MERGER CANNOT BE FULLY REALIZED OR REALIZED WITHIN THE
EXPECTED TIME FRAME; (2) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF AMBANC AND AFSALA ARE GREATER THAN EXPECTED; (3) REVENUES
FOLLOWING THE PROPOSED MERGER ARE LOWER THAN EXPECTED; (4) COMPETITIVE PRESSURE
AMONG DEPOSITORY INSTITUTIONS INCREASES SIGNIFICANTLY; (5) CHANGES IN THE
INTEREST RATE ENVIRONMENT REDUCE INTEREST MARGINS; (6) GENERAL ECONOMIC
CONDITIONS, EITHER NATIONALLY OR IN THE MARKET AREAS IN WHICH THE COMBINED
COMPANY WILL BE DOING BUSINESS, ARE LESS FAVORABLE THAN EXPECTED; OR (7)
LEGISLATION OR REGULATORY CHANGES ADVERSELY AFFECT THE BUSINESSES IN WHICH THE
COMBINED COMPANY WOULD BE ENGAGED.
AS A RESULT OF THE FOREGOING, NO ASSURANCE CAN BE GIVEN AS TO FUTURE
RESULTS OF OPERATIONS OR FINANCIAL CONDITION OR AS TO ANY OTHER MATTERS COVERED
BY ANY SUCH FORWARD-LOOKING STATEMENTS, AND AMBANC AND AFSALA WISH TO CAUTION
INVESTORS NOT TO RELY ON ANY SUCH FORWARD-LOOKING STATEMENTS.
AMBANC AND AFSALA DO NOT UNDERTAKE, AND SPECIFICALLY DISCLAIM ANY
OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES OR
UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
v
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
AVAILABLE INFORMATION.......................................................................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................ iii
TABLE OF CONTENTS.............................................................................................. vi
SUMMARY........................................................................................................ 1
The Parties to the Merger.............................................................................. 1
Ambanc Holding Co., Inc. and Amsterdam Savings Bank, FSB....................................... 1
AFSALA Bancorp, Inc. and Amsterdam Federal Bank................................................ 1
The Meetings........................................................................................... 2
Ambanc Special Meeting......................................................................... 2
AFSALA Special Meeting......................................................................... 2
The Merger............................................................................................. 3
General........................................................................................ 3
Reasons for the Merger; Recommendations of the Boards of Directors............................. 3
Opinions of Financial Advisors................................................................. 3
Effective Time and Closing..................................................................... 4
Exchange Ratio................................................................................. 4
No Appraisal Rights............................................................................ 4
Interests of Certain Persons in the Merger..................................................... 4
Conditions to Consummation of the Merger....................................................... 5
Regulatory Approvals........................................................................... 5
Amendment and Termination of the Merger Agreement.............................................. 5
Stock Option Agreement......................................................................... 6
Expenses....................................................................................... 6
Accounting Treatment........................................................................... 6
Certain Federal Income Tax Consequences of the Merger.......................................... 6
Effect of the Merger on Rights of Stockholders................................................. 7
Nasdaq Listing................................................................................. 7
COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION............................................................... 8
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF AMBANC HOLDING CO., INC. .................................... 10
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF AFSALA BANCORP, INC. ........................................ 12
COMPARATIVE UNAUDITED PER SHARE DATA........................................................................... 14
THE MEETINGS................................................................................................... 16
Ambanc Special Meeting................................................................................. 16
AFSALA Special Meeting................................................................................. 19
THE MERGER..................................................................................................... 23
General................................................................................................ 23
Background of the Merger............................................................................... 23
Reasons for the Merger and Recommendations of the Boards of Directors.................................. 25
Exchange Ratio......................................................................................... 27
Fractional Shares...................................................................................... 27
Treatment of AFSALA Stock Options...................................................................... 28
Opinion of Ambanc's Financial Advisor.................................................................. 28
Opinion of AFSALA's Financial Advisor.................................................................. 32
Effective Times and Closing............................................................................ 36
No Appraisal Rights.................................................................................... 36
Exchange of Certificates............................................................................... 36
The Bank Merger........................................................................................ 37
Interests of Certain Persons in the Merger............................................................. 37
Employee Benefit Plans After the Merger................................................................ 40
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
Representations and Warranties......................................................................... 41
Covenants Pending the Acquisition Merger............................................................... 41
Conditions to Consummation of the Merger............................................................... 43
Amendment and Termination of the Merger Agreement...................................................... 45
Stock Option Agreement................................................................................. 46
Expenses............................................................................................... 48
Regulatory Approvals................................................................................... 49
Accounting Treatment................................................................................... 49
Resales of Ambanc Common Stock by Affiliates........................................................... 49
Certain Federal Income Tax Consequences of the Merger.................................................. 49
Nasdaq Listing......................................................................................... 50
MANAGEMENT AFTER THE MERGER.................................................................................... 51
General................................................................................................ 51
Additional Information Regarding Directors and Executive Officers of
Ambanc Following the Merger............................................................................ 51
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................................................... 55
BUSINESS OF AFSALA BANCORP, INC. .............................................................................. 62
General................................................................................................ 62
Market Area and Competition............................................................................ 62
Lending Activities..................................................................................... 63
Investment Activities.................................................................................. 71
Sources of Funds....................................................................................... 75
Subsidiary Activity.................................................................................... 75
Personnel.............................................................................................. 76
REGULATION OF AFSALA AND AFSALA BANK........................................................................... 76
Regulation of AFSALA................................................................................... 76
Regulation of AFSALA Bank.............................................................................. 76
PROPERTIES OF AFSALA BANCORP, INC. ............................................................................ 79
LEGAL PROCEEDINGS INVOLVING AFSALA BANCORP, INC. .............................................................. 79
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AFSALA BANCORP, INC. ............................................................ 79
General................................................................................................ 79
Asset/Liability Management............................................................................. 79
Average Balance Sheet, Interest Rate, and Yield........................................................ 81
Rate/Volume Analysis................................................................................... 85
Consolidated Financial Condition....................................................................... 87
Comparison of Operating Results for the Three Months Ended March 31, 1998 and 1997..................... 88
Comparison of Operating Results for the Six Months Ended March 31, 1998 and 1997....................... 90
Comparison of Operating Results for the Fiscal Years Ended September 30, 1997 and 1996................. 92
Recent Accounting Pronouncements....................................................................... 94
Liquidity and Capital Resources........................................................................ 95
Impact of the Year 2000................................................................................ 96
Effect of Inflation and Changing Prices................................................................ 96
DESCRIPTION OF AMBANC HOLDING CO., INC. CAPITAL STOCK.......................................................... 97
General................................................................................................ 97
Common Stock........................................................................................... 97
Preferred Stock........................................................................................ 97
Antitakeover Provisions................................................................................ 98
COMPARISON OF RIGHTS OF STOCKHOLDERS OF AMBANC HOLDING CO., INC. AND AFSALA BANCORP, INC. ..................... 98
Introduction........................................................................................... 98
Issuance of Capital Stock.............................................................................. 98
Stockholder Action by Unanimous Consent Not Permitted.................................................. 98
Advance Notice Requirements for Nominations of Directors and Stockholder Proposals..................... 98
Number, Classification and Term of Directors........................................................... 99
Removal of Directors................................................................................... 99
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Cumulative Voting Not Permitted........................................................................ 99
Special Meetings of Stockholders....................................................................... 99
Quorum and Voting Requirements......................................................................... 99
Limitations on Voting or Acquisitions of Capital Stock................................................. 100
Business Combinations with Certain Persons............................................................. 100
"Anti-Greenmail" Provisions............................................................................ 100
Amendment of Certificate and Bylaws.................................................................... 100
LEGAL MATTERS.................................................................................................. 101
EXPERTS........................................................................................................ 101
STOCKHOLDER PROPOSALS.......................................................................................... 101
OTHER MATTERS.................................................................................................. 102
FINANCIAL STATEMENTS OF AFSALA BANCORP, INC. .................................................................. F-1
APPENDICES
I. Reorganization and Merger Agreement (omitting schedules and exhibits)
II. Stock Option Agreement
III. Fairness Opinion of Sandler O'Neill & Partners L.P.
IV. Fairness Opinion of FinPro, Inc.
</TABLE>
viii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
or incorporated by reference in this Joint Proxy Statement/Prospectus. Certain
capitalized terms used in this summary are defined elsewhere in this Joint Proxy
Statement/Prospectus. This summary is not intended to be a complete description
of all material facts regarding Ambanc, the Savings Bank, AFSALA and AFSALA Bank
and the matters to be considered at the Ambanc Special Meeting and the AFSALA
Special Meeting and is qualified in its entirety by, and reference is made to,
the more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the accompanying Appendices and the documents referred to
and incorporated by reference herein.
THE PARTIES TO THE MERGER
AMBANC HOLDING CO., INC. AND AMSTERDAM SAVINGS BANK, FSB
Ambanc, a Delaware corporation, is a savings and loan holding company which
has as its wholly owned subsidiaries the Savings Bank, a federally chartered
savings bank headquartered in Amsterdam, New York, and ASB Insurance Agency,
Inc., a New York corporation which offers mutual funds, annuity products and
brokerage services to the Savings Bank's customers and the general public. At
March 31, 1998, Ambanc had consolidated assets of $519.8 million, deposits of
$324.4 million and stockholders' equity of $60.8 million. Ambanc's principal
executive offices are located at 11 Division Street, Amsterdam, New York, 12010,
telephone number (518) 842-7200.
The principal business of Ambanc, through the Savings 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 Savings Bank's primary market area. The Savings Bank's primary
market area is comprised of Albany, Schenectady, Saratoga, Montgomery, and
Fulton Counties, New York, which are serviced through the Savings Bank's main
office, eleven other banking offices and its operations center. The Savings Bank
also operates two offsite automated teller machines.
For additional information regarding Ambanc and the Savings Bank, see
"Selected Financial Data of Ambanc Holding Co., Inc." and "Incorporation of
Certain Documents by Reference."
AFSALA BANCORP, INC. AND AMSTERDAM FEDERAL BANK
AFSALA, a Delaware corporation, is a savings and loan holding company which
has as its wholly owned subsidiary AFSALA Bank, a federally chartered savings
bank headquartered in Amsterdam, New York. At March 31, 1998, AFSALA had
consolidated assets of $165.9 million, deposits of $138.9 million and
stockholders' equity of $20.1 million. AFSALA's principal executive offices are
located at 161 Church Street, Amsterdam, New York 12010, telephone number (518)
842-5700.
The principal business of AFSALA, through AFSALA Bank, consists of
attracting deposits from the general public and using such funds primarily to
originate loans, including home equity loans, secured by first mortgages on one-
to four-family residences located in its market areas. In addition, AFSALA Bank
originates consumer loans, consisting of personal loans, home improvement loans
and passbook loans. To a much lesser extent, AFSALA Bank also originates
commercial real estate and other commercial loans. One of AFSALA Bank's market
areas consists of the cities of Amsterdam, Gloversville and Johnstown, New York,
and the towns of Amsterdam, Johnstown, Florida, Mohawk, Broadalbin, Mayfield and
Perth, New York. AFSALA Bank's other market area consists of the city of
Oneonta, New York and the town of Oneonta, New York. In December 1997, AFSALA
Bank opened a branch office at a supermarket located in Norwich, New York.
For additional information regarding AFSALA and AFSALA Bank, see "Selected
Financial Data of AFSALA Bancorp, Inc.," "Business of AFSALA Bancorp, Inc." and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of AFSALA Bancorp, Inc."
1
<PAGE>
THE MEETINGS
AMBANC SPECIAL MEETING
Meeting Date. The Ambanc Special Meeting will be held on September 1,
1998, at the Best Western hotel, located at 10 Market Street, Amsterdam, New
York, at 10:00 a.m., local time. See "The Meetings--Ambanc Special Meeting."
Record Date. Only holders of record of shares of Ambanc Common Stock at
the close of business on July 24, 1998 (the "Ambanc Record Date") are entitled
to notice of and to vote at the Ambanc Special Meeting. See "The Meetings--
Ambanc Special Meeting."
Matters to be Considered. At the Ambanc Special Meeting, holders of shares
of Ambanc Common Stock will vote on a proposal to adopt the Merger Agreement.
Ambanc stockholders will also consider and vote upon such other matters as may
properly be brought before the Ambanc Special Meeting and any and all
adjournments or postponements thereof. See "The Meetings--Ambanc Special
Meeting."
Vote Required. The affirmative vote of the holders of at least a majority
of the issued and outstanding shares of Ambanc Common Stock entitled to vote at
the Ambanc Special Meeting is required for adoption of the Merger Agreement. As
of the Ambanc Record Date, there were 4,105,164 shares of Ambanc Common Stock
entitled to be voted at the Ambanc Special Meeting.
Adoption of the Merger Agreement by the stockholders of Ambanc is a
condition to and required for consummation of the Merger. See "The Merger--
Conditions to the Merger."
Security Ownership. As of the Ambanc Record Date, directors and executive
officers of Ambanc and their affiliates were beneficial owners of 278,867 shares
of Ambanc Common Stock (including 84,005 shares underlying stock options
currently exercisable or which will become exercisable within 60 days of July
24, 1998), or approximately 6.66% of the then outstanding shares of Ambanc
Common Stock. As of the Ambanc Record Date, directors and executive officers of
AFSALA and their affiliates were beneficial owners of 1,127 shares of Ambanc
Common Stock, or approximately .02% of the then outstanding shares of Ambanc
Common Stock.
AFSALA SPECIAL MEETING
Meeting Date. The AFSALA Special Meeting will be held on September 3, 1998
at the Best Western hotel, located at 10 Market Street, Amsterdam, New York, at
2:00 p.m., local time. See "The Meetings--AFSALA Special Meeting."
Record Date. Only holders of record of AFSALA Common Stock at the close of
business on July 27, 1998 (the "AFSALA Record Date") are entitled to notice of
and to vote at the AFSALA Special Meeting. See "The Meetings--AFSALA Special
Meeting."
Matters to be Considered. At the AFSALA Special Meeting, holders of shares
of AFSALA Common Stock will vote on a proposal to adopt the Merger Agreement.
AFSALA stockholders will also consider and vote upon such other matters as may
properly be brought before the AFSALA Special Meeting and any and all
adjournments or postponements thereof. See "The Meetings--AFSALA Special
Meeting."
Vote Required. The affirmative vote of the holders of at least a majority
of the issued and outstanding shares of AFSALA Common Stock entitled to vote at
the AFSALA Special Meeting is required for adoption of the Merger Agreement. As
of the AFSALA Record Date, there were 1,319,018 shares of AFSALA Common Stock
entitled to be voted at the AFSALA Special Meeting.
Adoption of the Merger Agreement by the stockholders of AFSALA is a
condition to and required for consummation of the Merger. See "The Merger--
Conditions to the Merger."
2
<PAGE>
Security Ownership. As of the AFSALA Record Date, directors and executive
officers of AFSALA and their affiliates beneficially owned 113,163 shares of
AFSALA Common Stock (including 23,857 shares underlying stock options currently
exercisable or which will become exercisable within 60 days of July 27, 1998),
or approximately 8.43% of the then outstanding shares of AFSALA Common Stock.
As of the AFSALA Record Date, directors and executive officers of Ambanc and
their affiliates beneficially owned 2,350 shares of AFSALA Common Stock, or
approximately 0.18% of the then outstanding shares of AFSALA Common Stock.
THE MERGER
The following summary is qualified in its entirety by reference to the full
text of the Merger Agreement, which is attached hereto as Appendix I and
incorporated by reference herein.
GENERAL
The stockholders of Ambanc and AFSALA are each being asked to consider and
vote upon a proposal to adopt the Merger Agreement, pursuant to which AFSALA
will be merged with and into Ambanc, with Ambanc as the surviving entity (the
"Acquisition Merger") and AFSALA Bank will be merged with and into the Savings
Bank, with the Savings Bank as the surviving entity (the "Bank Merger")
(collectively, the "Merger"). The names of the surviving entities following
the Acquisition Merger and the Bank Merger will be "Ambanc Holding Co., Inc."
and "Mohawk Community Bank," respectively. See "The Merger--General."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Ambanc. The Ambanc Board of Directors (the "Ambanc Board") has unanimously
approved the Merger Agreement and has determined that the Merger and the
issuance of the shares of Ambanc Common Stock pursuant thereto are fair to and
in the best interests of Ambanc and its stockholders. THE AMBANC BOARD
THEREFORE RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT AT THE AMBANC
SPECIAL MEETING.
For a discussion of the factors considered by the Ambanc Board in reaching
its decision to approve the Merger Agreement, see "The Merger--Reasons for the
Merger and Recommendations of the Boards of Directors--Ambanc's Reasons for the
Merger and Board Recommendation."
AFSALA. The AFSALA Board of Directors (the "AFSALA Board") has unanimously
approved the Merger Agreement and has determined that the Merger is fair to and
in the best interests of AFSALA and its stockholders. THE AFSALA BOARD THEREFORE
RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT AT THE AFSALA SPECIAL
MEETING.
For a discussion of the factors considered by the AFSALA Board in reaching
its decision to approve the Merger Agreement, see "The Merger--Reasons for the
Merger and Recommendations of the Boards of Directors--AFSALA's Reasons for the
Merger and Board Recommendation."
OPINIONS OF FINANCIAL ADVISORS
Ambanc. Ambanc has retained Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") as its financial advisor in connection with the transactions
contemplated by the Merger Agreement. Sandler O'Neill has delivered an opinion
to the Ambanc Board that, as of the date of this Joint Proxy
Statement/Prospectus, the Exchange Ratio is fair to Ambanc from a financial
point of view. A copy of the opinion of Sandler O'Neill is attached to this
Joint Proxy Statement/Prospectus as Appendix III and is incorporated by
reference herein. See "The Merger--Opinion of Ambanc's Financial Advisor."
AFSALA. AFSALA has retained FinPro, Inc. ("FinPro") as its financial
advisor in connection with the transactions contemplated by the Merger
Agreement. FinPro has delivered an opinion to the AFSALA Board that, as of the
date of this Joint Proxy Statement/Prospectus, the Merger is fair and equitable
from a financial point of view, to AFSALA's stockholders. A copy of the opinion
of FinPro is attached to this Joint Proxy Statement/Prospectus as Appendix IV
and is incorporated by reference herein. See "The Merger--Opinion of AFSALA's
Financial Advisor."
3
<PAGE>
EFFECTIVE TIME AND CLOSING
The Acquisition Merger will become effective at the time of the filing of a
certificate of merger by Ambanc and AFSALA with the Secretary of State of the
State of Delaware (the "Acquisition Merger Effective Time"). The Bank Merger
will become effective at the time the articles of combination for the Bank
Merger are endorsed by the Office of Thrift Supervision ("OTS"). Consummation
of the Merger will occur only after the adoption of the Merger Agreement by the
requisite votes of AFSALA's and Ambanc's stockholders and the satisfaction or
waiver of all other conditions to consummation of the Merger. The Merger
Agreement provides that the closing of the Merger (the "Closing") is to occur as
promptly as practicable after the adoption of the Merger Agreement by the
stockholders of Ambanc and AFSALA and the satisfaction or waiver of all relevant
conditions of the Merger Agreement. See "The Merger--Effective Time and
Closing."
EXCHANGE RATIO
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of AFSALA Common Stock issued and outstanding immediately
prior to the Acquisition Merger Effective Time will be converted into the right
to receive 1.07 shares of Ambanc Common Stock, subject to adjustment as
described herein. See "The Merger--Exchange Ratio."
NO APPRAISAL RIGHTS
Under the Delaware General Corporation Law, Ambanc's and AFSALA's
stockholders do not have appraisal rights in connection with the transactions
contemplated by the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors, officers and employees of AFSALA and Ambanc may be
deemed to have certain interests in the Merger in addition to their interests
generally as stockholders of AFSALA and Ambanc.
Employment Arrangements. The Merger Agreement provides that by January 1,
1999, or sooner by mutual consent, the Ambanc Board shall appoint John M.
Lisicki, the Chairman, President and Chief Executive Officer of AFSALA and
AFSALA Bank, as President and Chief Executive Officer of Ambanc. Immediately
upon the Bank Merger Effective Time, Ambanc and the Savings Bank's Board of
Directors are to appoint Mr. Lisicki as President and Chief Executive Officer of
the Savings Bank. Mr. Lisicki will be employed under terms providing
compensation and benefits at no less than the amounts payable under his current
employment agreement with AFSALA and AFSALA Bank. Mr. Lisicki's proposed annual
salary would therefore amount to $164,400. In addition, the Merger Agreement
provides that Benjamin W. Ziskin, Vice President of AFSALA and AFSALA Bank, and
James J. Alescio, Treasurer and Chief Financial Officer of AFSALA and AFSALA
Bank, will become executive officers of the Savings Bank after the Merger under
terms providing compensation and benefits at no less than the amounts payable
under their current employment agreements.
Consulting and Termination Agreements with Robert J. Brittain. In order to
facilitate the Merger, Robert J. Brittain, a director of Ambanc and the Savings
Bank, retired as President and Chief Executive Officer of Ambanc and the Savings
Bank effective June 30, 1998. Mr. Brittain continues to serve as a director of
Ambanc and the Savings Bank. In connection with his retirement as President and
Chief Executive Officer, Mr. Brittain executed termination and consulting
agreements with Ambanc and the Savings Bank whereby his employment agreement
with the Savings Bank (which was to expire on December 31, 1999) terminated
effective June 30, 1998 and he will serve as a consultant to Ambanc and the
Savings Bank through December 31, 2000. Under the termination agreement, in
exchange for not becoming associated with any competitor of Ambanc or the
Savings Bank until December 31, 2000, Mr. Brittain is entitled to receive
$40,000 for each year such restriction is in effect (1998, 1999 and 2000),
payable on a monthly basis. Mr. Brittain's major responsibility under the
consulting agreement is to assist the Chairman and the President, at their
request, in evaluating strategic alternatives for current and future business
needs of Ambanc and the Savings Bank. Under the consulting agreement, for his
services thereunder and in lieu of any payments otherwise due under his
terminated employment agreement, Mr. Brittain is entitled to receive an annual
fee of $171,175, payable in equal monthly or semi-monthly installments. The
consulting agreement also provides that Mr. Brittain shall be
4
<PAGE>
compensated for his service as a director or advisory director of Ambanc and/or
the Savings Bank at the rate of $1,150 per month of service from January 1, 1999
until at least May 23, 2001, and be nominated as necessary to enable him to
remain a director or advisory director of Ambanc and/or the Savings Bank until
at least May 23, 2001. So long as Mr. Brittain serves as a director or advisory
director of Ambanc or the Savings Bank, Mr. Brittain will continue to vest in
his options to purchase Ambanc Common Stock and restricted shares of Ambanc
Common Stock.
Directors. The Merger Agreement provides that following the Merger, Ambanc
and the Savings Bank shall create four new positions on their respective Boards
of Directors, to be filled with persons selected by AFSALA and AFSALA Bank,
respectively, including, for both Boards, Mr. Lisicki. Immediately following
the Acquisition Merger effective Time, Ambanc is to create an advisory board of
directors and appoint thereto three persons selected by AFSALA in consultation
with Ambanc.
Additional Information. For additional information regarding the interests
of certain persons in the Merger, including the interests summarized above as
well as the accelerated vesting of AFSALA stock options and restricted stock and
payments to be made upon termination of the Amsterdam Federal Bank Employee
Stock Ownership Plan (the "AFSALA Bank ESOP"), see "The Merger--Interests of
Certain Persons in the Merger."
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of the parties to consummate the Merger are
subject to the satisfaction or waiver of certain conditions specified in the
Merger Agreement, including, among other things, the receipt of the requisite
regulatory and stockholder approvals, the accuracy of the representations and
warranties contained therein, the performance of all obligations imposed by the
Merger Agreement and certain other conditions. See "The Merger--Conditions to
Consummation of the Merger."
REGULATORY APPROVALS
The Merger is subject to the approval of the OTS. Following OTS approval
of the Merger, the United States Department of Justice may review the Merger and
raise objections on antitrust grounds, though objections on such grounds are not
expected. For additional information, see "The Merger--Regulatory Approvals."
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be amended, whether before or after adoption
thereof by the stockholders of AFSALA and Ambanc, by an agreement in writing
executed by the parties thereto and approved by the parties' respective Boards
of Directors. However, after adoption of the Merger Agreement by the
stockholders of AFSALA, no amendment reducing the amount or changing the form of
consideration to be received by such stockholders may be made without the
further approval of such stockholders.
The Merger Agreement may be terminated at any time before the Acquisition
Merger Effective Time, whether before or after adoption of the Merger Agreement
by Ambanc's and AFSALA's stockholders, under certain circumstances, including:
(a) by mutual consent of the parties to the Merger Agreement; (b) at the
election of either party, if the Closing shall not have occurred on or before
January 31, 1999, except as provided in the Merger Agreement; (c) by either
party upon the occurrence of an event which renders satisfaction of one or more
of the conditions to the obligations of such party impossible, except as
provided in the Merger Agreement; and (d) by AFSALA pursuant to a numerical
formula if there is a significant decline in the market value of the Ambanc
Common Stock that does not coincide with a specified decline in the stock prices
of certain other financial institution holding companies. However, in the event
that AFSALA attempts to terminate the Merger Agreement pursuant to the provision
described in clause (d) of the preceding sentence, Ambanc will have the option
to prevent such termination by increasing the consideration to be received by
the holders of AFSALA Common Stock through an adjustment to the Exchange Ratio.
See "The Merger--Amendment and Termination of the Merger Agreement."
5
<PAGE>
STOCK OPTION AGREEMENT
As a condition and inducement to Ambanc's entry into the Merger Agreement,
AFSALA and Ambanc entered into a Stock Option Agreement, dated as of April 24,
1998 (the "Stock Option Agreement"), pursuant to which AFSALA granted to Ambanc
an option (the "Option") to purchase up to 344,500 shares of AFSALA Common Stock
(19.9% of the outstanding shares of AFSALA Common Stock, including shares to be
issued pursuant to the Stock Option Agreement), subject to adjustment as
provided in the Stock Option Agreement, upon or after the occurrence of both an
"Initial Triggering Event" (as defined herein), and a "Subsequent Triggering
Event" (as defined herein), which occur prior to an "Exercise Termination Event"
(as defined herein). The exercise price per share of the Option is $20.75,
subject to adjustment as provided in the Stock Option Agreement. The Stock
Option Agreement also provides that under certain circumstances, AFSALA may be
required to repurchase the Option from Ambanc, or to repurchase shares already
purchased upon exercise of the Option. The Stock Option Agreement further
provides that upon the occurrence of a "Repurchase Event" (as defined herein)
and prior to the occurrence of an "Exercise Termination Event," Ambanc may
surrender the Option to AFSALA for approximately $1.4 million in cash if certain
conditions are met. The Stock Option Agreement may have the effect of
discouraging persons who otherwise might be interested in acquiring all or a
significant interest in AFSALA from considering or proposing such an
acquisition, even if such persons were prepared to pay for the AFSALA Common
Stock a price in excess of that being paid by Ambanc under the Merger Agreement.
For additional information, see "The Merger--Stock Option Agreement" and the
Stock Option Agreement, a copy of which is attached hereto as Appendix II.
EXPENSES
The Merger Agreement provides that each of the parties thereto shall bear
and pay all costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated thereby, except that Ambanc shall pay all
costs and expenses incurred by or on behalf of AFSALA and its subsidiaries for
services rendered by third parties relating to the offering of Ambanc Common
Stock in connection with the Merger. However, if the Closing does not occur,
AFSALA and its subsidiaries will be obligated to reimburse Ambanc immediately
for such costs and expenses paid by it. See "The Merger--Expenses."
ACCOUNTING TREATMENT
Ambanc intends to account for the Merger under the purchase method of
accounting. Accordingly, under generally accepted accounting principles, the
assets and liabilities of AFSALA will be recorded on the books of Ambanc at
their respective fair values at the Acquisition Merger Effective Time. See
"The Merger--Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Ambanc and AFSALA Boards have received an opinion of Silver, Freedman &
Taff, L.L.P., special counsel to Ambanc and the Savings Bank, to the effect
that, for federal income tax purposes:
(i) the Acquisition Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code") and AFSALA and Ambanc will each be a party to the
reorganization;
(ii) except as provided in item (iv) below, no gain or loss will be
recognized by any U.S. Holder (defined as a stockholder of AFSALA who is a
citizen or resident of the United States of America) upon the exchange of
AFSALA Common Stock solely for Ambanc Common Stock in the Acquisition
Merger; the aggregate adjusted tax basis of shares of Ambanc Common Stock
(including a fractional share interest in Ambanc Common Stock deemed
received and redeemed as described below) received by a U.S. Holder will be
the same as the aggregate adjusted tax basis of the shares of the AFSALA
Common Stock exchanged therefor;
(iii) the holding period of Ambanc Common Stock received by a U.S.
Holder in the Acquisition Merger will include the holding period of the
AFSALA Common Stock surrendered and exchanged therefor,
6
<PAGE>
provided that such shares of AFSALA Common Stock were held as a capital
asset by such stockholder at the Acquisition Merger Effective Time; and
(iv) a U.S. Holder who receives cash in lieu of a fractional share
interest in Ambanc Common Stock in the Acquisition Merger will be treated
as having received such fractional share interest and then as having
received the cash in redemption of such fractional share interest. Under
Section 302 of the Code, if such deemed distribution were "substantially
disproportionate" with respect to the U.S. Holder or were "not essentially
equivalent to a dividend" after giving effect to the constructive ownership
rules of the Code, the U.S. Holder would generally recognize capital gain
or loss equal to the difference between the amount of cash received and the
U.S. Holder's adjusted tax basis in the fractional share interest
(determined as described in item (ii) above). Such capital gain or loss
would be long-term capital gain or loss if the U.S. Holder's holding period
in a fractional share interest (determined as described in item (iii)
above) is more than one year. A long-term capital gain of a non-corporate
U.S. Holder is generally subject to a maximum tax rate of 28% if the
holding period exceeds one year but does not exceed 18 months and to a
maximum tax rate of 20% if the holding period exceeds 18 months.
The opinion is subject to various assumptions and qualifications, including
that all conditions precedent in the Merger Agreement have been performed or
waived prior to the Acquisition Merger Effective Time. The opinion is based
entirely upon the Code, regulations currently in effect or proposed thereunder,
current administrative rulings and practice and judicial authority, all of which
are subject to change, possibly with retroactive effect.
AFSALA stockholders are urged to consult their personal tax advisors
concerning the specific tax consequences to them of the Merger, including the
applicability and effect of various state, local and foreign tax laws. For
additional information regarding the federal income tax consequences of the
Merger, see "The Merger--Certain Federal Income Tax Consequences of the Merger."
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
As a result of the Merger, stockholders of AFSALA, a Delaware corporation,
will become stockholders of Ambanc, a Delaware corporation. For a comparison of
the respective rights of stockholders of Ambanc and AFSALA, as defined by
Delaware law and the respective corporate governance documents of Ambanc and
AFSALA, see "Comparison of Rights of Stockholders of Ambanc Holding Co., Inc.
and AFSALA Bancorp, Inc."
NASDAQ LISTING
Both Ambanc Common Stock (symbol: AHCI) and AFSALA Common Stock (symbol:
AFED) are currently listed on the National Market tier of the Nasdaq Stock
Market. Ambanc will submit an application for listing on the National Market
tier of the Nasdaq Stock Market the shares of Ambanc Common Stock to be issued
to the stockholders of AFSALA in the Merger and to be reserved for issuance
pursuant to AFSALA stock options converted to Ambanc options following the
Merger.
7
<PAGE>
COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION
The following table sets forth the comparative market prices for Ambanc Common
Stock and AFSALA Common Stock and the quarterly cash dividends per share
declared, for the periods indicated. The market prices of Ambanc Common Stock
and AFSALA Common Stock for the periods indicated represent closing prices of
such stock as quoted on the Nasdaq Stock Market. The stock prices do not
include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
AMBANC COMMON STOCK AFSALA COMMON STOCK/(1)/
--------------------------- ---------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------- ---------
1996 CALENDAR YEAR
<S> <C> <C> <C> <C> <C> <C>
First Quarter.......................... $10.500 $ 9.375 $ --- $ --- $ --- $ ---
Second Quarter......................... 10.000 9.375 --- --- --- ---
Third Quarter.......................... 10.625 9.500 --- --- --- ---
Fourth Quarter......................... 11.750 10.000 --- 12.250 11.250 ---
1997 CALENDAR YEAR
First Quarter.......................... 14.875 11.125 --- 14.375 11.750 ---
Second Quarter......................... 16.625 12.500 --- 14.875 12.500 0.04
Third Quarter.......................... 16.500 15.125 0.05 17.875 14.688 0.04
Fourth Quarter......................... 19.750 15.375 0.05 19.500 17.750 0.06
1998 CALENDAR YEAR
First Quarter.......................... 19.375 16.750 0.06 20.438 17.125 0.07
Second Quarter......................... 20.000 16.500 0.06 20.750 17.875 0.07
Third Quarter (through July 27, 1998).. 19.250 17.000 --- 19.000 18.125 ---
____________
(1) Trading in AFSALA Common Stock commenced in October 1996 following the conversion of AFSALA Bank from
mutual to stock form.
</TABLE>
8
<PAGE>
The following table sets forth the last reported sale prices per share of
Ambanc Common Stock and AFSALA Common Stock and the equivalent per share price
for AFSALA Common Stock giving effect to the Merger on (i) April 22, 1998, the
last trading day preceding public announcement of the signing of the Merger
Agreement; and (ii) July 27, 1998, the last practicable date prior to the
mailing of this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AMBANC AFSALA EQUIVALENT PRICE PER
COMMON STOCK COMMON STOCK AFSALA SHARE/(1)/
------------ ------------ --------------------
<S> <C> <C> <C>
April 22, 1998..... $19.625 $20.750 $20.999
July 27, 1998...... $17.000 $18.4375 $18.190
</TABLE>
___________________________
(1) The equivalent price per share of AFSALA Common Stock at each specified date
is an amount equal to 1.07 multiplied by the last reported sale price for
Ambanc Common Stock on the date specified. The market value of the Merger
consideration at the time of the Merger will depend on the market value of a
share of Ambanc Common Stock at such time. See "The Merger--Exchange
Ratio."
As of July 27, 1998, the 4,105,164 outstanding shares of Ambanc Common
Stock were held by approximately 1,092 record owners and the 1,319,018
outstanding shares of AFSALA Common Stock were held by approximately _____
record owners.
The timing and amount of the future dividends of Ambanc will depend upon
earnings, cash requirements, Ambanc's financial condition and other factors
deemed relevant by the Ambanc Board. Dividends may also be limited by certain
regulatory restrictions. See the Ambanc 1997 10-K for a description of such
restrictions, which is incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF AMBANC HOLDING CO., INC.
The following table sets forth, for the periods indicated, certain summary
historical data for Ambanc. The information is derived in part from, and should
be read in conjunction with, the separate consolidated financial statements and
related notes included in the Ambanc 1997 10-K and Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998, which are incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." Consolidated
historical financial and other data regarding Ambanc at or for the three months
ended March 31, 1998 and 1997 is unaudited. In the opinion of Ambanc
management, all adjustments (consisting solely of normal recurring adjustments)
that are necessary for a fair presentation for such periods or dates have been
made. Data regarding Ambanc at and for the three months ended March 31, 1998 may
not be indicative of results as of and for the fiscal year ending December 31,
1998. All information as of a date before December 26, 1995 (the date of the
Savings Bank's conversion from mutual to stock form and on which Ambanc became
the sole stockholder of the Savings Bank) relates to the Savings Bank only.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA:
Total assets $519,831 $478,117 $510,444 $472,421 $438,944 $343,334 $332,902
Securities available for sale 204,640 202,733 205,842 200,539 74,422 --- ---
Investment securities --- --- --- --- --- 53,390 57,797
Loans receivable, net 283,716 248,080 281,123 248,094 249,991 261,581 220,647
Deposits 324,448 311,471 333,265 298,082 311,239 293,152 294,780
Borrowed funds 116,650 102,310 111,550 108,780 --- 19,000 ---
Shareholders' equity 60,754 60,819 61,202 61,518 76,015 27,414 25,464
SELECTED CONSOLIDATED OPERATIONS DATA:
Total interest and dividend income $ 9,009 $ 8,675 $ 35,566 $ 32,348 $ 25,582 $ 23,806 $ 23,789
Total interest expense 5,147 4,655 19,654 16,435 12,746 10,192 10,885
-------- -------- -------- -------- -------- -------- --------
Net interest income 3,862 4,020 15,912 15,913 12,836 13,614 12,904
Provision for loan losses 225 363 1,088 9,450 1,522 1,107 1,689
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses 3,637 3,657 14,824 6,463 11,314 12,507 11,215
Other income 325 234 1,826 920 1,512 905 1,196
Other expenses 3,154 2,815 12,197 13,148 11,383 11,340 9,659
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes and cumulative
effect of a change in accounting
principle 808 1,076 4,453 (5,765) 1,443 2,072 2,752
Income tax provision (benefit) 362 424 1,693 (1,929) 586 122 671
-------- -------- -------- -------- -------- -------- --------
Cumulative effect of a change in accounting
principle related to SFAS No. 109 --- --- ---- --- --- --- (600)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 446 $ 652 $ 2,760 $ (3,836) $ 857 $ 1,950 $ 2,681
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share/(1)/ $ 0.12 $0.16 $ 0.70 ($0.81) N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per share/(1)/ $ 0.11 $0.16 $ 0.69 ($0.81) N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
Dividend payout ratio 50.0% N/A 14.3% N/A N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA:
Performance Ratios:
Return (loss) on average assets/(2)(5)/ 0.35% 0.55% 0.56% (0.84)% 0.25% 0.59% 0.83%
Return (loss) on average equity/(2)(5)/ 2.94 4.22 4.52 (5.24) 3.00 7.36 11.00
Interest rate spread information:
Average during period 2.41 2.74 2.58 2.74 3.36 4.01 3.85
Net interest margin/(3)(5)/ 3.18 3.53 3.36 3.66 3.87 4.34 4.19
Efficiency ratio/(4)/ 75.26 63.57 69.81 62.50 68.18 63.46 61.06
Ratio of other expenses to average total assets/(5)/ 2.50 2.37 2.48 2.86 3.37 3.38 2.97
Ratio of average interest-earning assets to average
interest-bearing liabilities 118.20 119.18 118.93 124.26 113.31 110.24 109.53
Asset Quality Ratios:
Non-performing assets to total assets at end of
period/(2)/ 0.62 1.06 0.67 1.18 2.72 4.15 5.06
Non-performing loans to total loans 1.07 1.76 1.16 1.94 3.48 3.97 5.07
Allowance for loan losses to non-performing loans 127.81 83.87 117.07 70.47 30.10 21.42 28.59
Allowance for loan losses to loans receivable 1.37 1.47 1.34 1.37 1.05 0.85 1.47
Capital Ratios:
Equity to total assets at end of period/(2)/ 11.69 12.72 11.99 13.02 17.32 7.98 7.65
Average equity to average assets/(2)/ 11.99 13.01 12.42 15.95 8.30 7.96 7.52
Other Data:
Number of full-service offices 12 9 12 9 9 7 6
</TABLE>
____________________
/(1)/ Earnings per share were not calculated for 1995 and prior periods since
Ambanc had no stock outstanding prior to its initial public offering
completed on December 26, 1995.
/(2)/ 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.
/(3)/ Net interest income divided by average interest-earning assets.
/(4)/ The efficiency ratio represents other expenses (excluding real estate
owned and repossessed assets expenses, net), divided by the sum of net
interest income and other income (excluding net gains (losses) on
securities transactions).
/(5)/ Ratios for the three month periods have been annualized.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF AFSALA BANCORP, INC.
The following table sets forth, for the periods indicated, certain summary
historical data for AFSALA. The information is derived in part from, and should
be read in conjunction with, the separate consolidated financial statements of
AFSALA and related notes contained elsewhere herein. Consolidated historical
financial and other data regarding AFSALA at or for the six months ended
March 31, 1998 and 1997 is unaudited. In the opinion of AFSALA management, all
adjustments (consisting solely of normal recurring adjustments) that are
necessary for a fair presentation for such periods or dates have been made.
Data regarding AFSALA at or for the six months ended March 31, 1998 may not be
indicative of results as of and for the fiscal year ending September 30, 1998.
All information as of a date before September 30, 1996 (the date of AFSALA
Bank's conversion from mutual to stock form and on which AFSALA became the sole
stockholder of AFSALA Bank) relates to AFSALA Bank only.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
MARCH 31, YEARS ENDED SEPTEMBER 30,
-------------------- --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA:
Total assets $165,925 $152,254 $160,407 $153,677 $127,962 $113,882 $105,038
Securities available for sale 41,051 23,367 37,705 17,132 2,563 --- ---
Investment securities 22,176 41,912 35,264 35,000 46,723 46,100 39,841
Loans receivable, net 76,823 72,420 75,819 70,677 65,447 58,623 52,813
Deposits 138,893 128,356 135,316 126,460 116,073 102,016 94,672
Borrowed funds 1,706 1,622 1,416 1,816 2,303 2,791 2,728
Shareholders' equity 20,129 21,087 20,619 20,591 7,914 7,302 6,646
SELECTED CONSOLIDATED OPERATIONS DATA:
Total interest and dividend income $ 5,532 $ 5,239 $ 10,769 $ 9,165 $ 8,041 $ 6,886 $ 6,764
Total interest expense 2,908 2,656 5,515 5,325 4,528 3,592 3,741
-------- -------- -------- -------- -------- -------- --------
Net interest income 2,624 2,583 5,254 3,840 3,513 3,294 3,023
Provision for loan losses 50 150 250 230 165 293 217
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses 2,574 2,433 5,004 3,610 3,348 3,001 2,806
Other income 193 228 406 388 275 221 187
Other expenses 1,869 1,804 3,597 3,724 2,731 2,245 1,938
-------- -------- -------- -------- -------- -------- --------
Income before taxes 898 857 1,813 274 892 977 1,055
Income tax provision 331 305 624 63 284 321 364
-------- -------- -------- -------- -------- -------- --------
Net income $ 567 $ 552 $ 1,189 $ 211 $ 608 $ 656 $ 691
======== ======== ======== ======== ======== ======== ========
Basic earnings per share/(1)/ $0.46 $0.41 $0.89 N/A N/A N/A N/A
======== ======== ======== ======== ======== ========= =========
Diluted earnings per share/(1)/ $0.44 $0.41 $0.88 N/A N/A N/A N/A
======== ======== ======== ======== ======== ========= =========
Dividend payout ratio 28.26% N/A 8.99% N/A N/A N/A N/A
======== ========= ======== ========= ======== ========= =========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
MARCH 31, YEARS ENDED SEPTEMBER 30,
------------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA:
Performance Ratios:
Return on average assets (net income
divided by average total assets)/(2)/ 0.71% 0.74% 0.77% 0.16% 0.51% 0.60% 0.69%
Return on average equity (net income
divided by average equity)/(2)/ 5.68 5.31 5.65 2.55 8.00 9.41 10.97
Net interest rate spread 2.81 2.89 2.89 2.69 2.78 2.89 2.74
Net interest margin 3.47 3.61 3.57 3.02 3.08 3.17 3.19
Yield on average earning assets for the
period ended 7.31 7.31 7.33 7.22 7.06 6.62 7.13
Efficiency ratio/(3)/ 64.99 64.14 63.21 71.45 72.15 63.58 60.00
Expense ratio/(2)(4)/ 2.30 2.41 2.32 2.27 2.28 2.01 1.91
Average interest-earning assets to
average interest-bearing liabilities 116.95 119.10 118.40 108.05 107.59 107.96 111.41
Asset Quality Ratios:
Non-performing assets to total assets, at
period end 0.37 0.38 0.31 0.51 0.47 0.64 1.08
Non-performing loans to total assets 0.35 0.38 0.29 0.51 0.47 0.64 1.01
Non-performing loans to total loans 0.73 0.79 0.61 1.09 0.90 1.23 2.00
Allowance for loan losses to non-
performing loans 199.46 174.35 236.09 112.40 113.57 85.62 39.04
Allowance for loan losses to loans
receivable 1.47 1.38 1.44 1.23 1.02 1.05 0.78
Capital and Other Ratios:
Equity to total assets at period end 12.13 13.85 12.85 13.40 6.18 6.41 6.33
Average equity to average total assets 12.59 13.88 13.68 6.21 6.34 6.36 6.29
Other Data:
Number of full-service offices 6 4 5 4 4 2 2
</TABLE>
__________________________
/(1)/ Earnings per share were not calculated for 1996 and prior periods since
AFSALA had no stock outstanding prior to its initial public offering
completed on September 30, 1996.
/(2)/ Ratios for the six month periods have been annualized.
/(3)/ Total non-interest expenses, excluding other real estate owned expenses,
acquisition-related expenses associated with this merger, and the special
one-time SAIF assessment in September 1996, as a percentage of net
interest income and total non-interest income, excluding net gain (loss)
on securities transactions. Acquisition-related expenses associated with
this merger were approximately $29,000 for the six months ended March 31,
1998. The special one-time SAIF assessment in September 1996 was
approximately $702,000.
/(4)/ Total non-interest expenses, excluding other real estate owned expenses,
acquisition-related expenses associated with this merger, and the special
one-time SAIF assessment in September 1996, as a percentage of average
total assets. Acquisition-related expenses associated with this merger
were approximately $29,000 for the six months ended March 31, 1998. The
special one-time SAIF assessment in September 1996 was approximately
$702,000.
13
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows unaudited comparative per share data for Ambanc
and AFSALA Common Stock on a historical basis, and on a pro forma combined basis
and a pro forma equivalent basis for AFSALA giving effect to the Merger
accounted for under the purchase method of accounting. See "The Merger--
Accounting Treatment."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ---------------------
AFSALA
Equivalent
Ambanc AFSALA Combined Per Share
------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Book value per share at:/(2)/
December 31, 1997 $15.92 $16.19/(1)/ $16.84 $18.01
March 31, 1998 15.95 16.45 17.16 18.36
Cash dividends declared per share:/(3)/
Year ended December 31, 1997 0.10 0.08/(1)/ 0.10 0.11
Three months ended March 31, 1998 0.06 0.07 0.06 0.06
Basic earnings per share:/(4)/
Year ended December 31, 1997 0.70 0.89/(1)/ 0.64 0.68
Three months ended March 31, 1998 0.12 0.21 0.12 0.13
Diluted earnings per share:/(4)/
Year ended December 31, 1997 0.69 0.88/(1)/ 0.63 0.67
Three months ended March 31, 1998 0.11 0.20 0.11 0.12
</TABLE>
_________________________
/(1)/ In the case of AFSALA, the information presented at or for the year ended
December 31, 1997 is at or for its fiscal year ended September 30, 1997.
/(2)/ Historical book value per share for both Ambanc and AFSALA excludes
unallocated ESOP shares and unvested restricted stock awards. The pro
forma combined book value per common share represents the March 31, 1998
historical combined shareholders' equity of Ambanc and AFSALA, including
the effect of pro forma adjustments. The pro forma shareholders' equity at
March 31, 1998 was divided by the number of shares of Ambanc Common Stock
outstanding at December 31, 1997 and March 31, 1998 (excluding unallocated
ESOP shares and unvested restricted stock awards), plus the product of the
number of shares of AFSALA Common Stock outstanding at September 30, 1997
and March 31, 1998 (including the effect of the pro forma adjustments
related to the AFSALA ESOP termination and the accelerated vesting of the
AFSALA restricted stock awards) and the Exchange Ratio (1.07). The pro
forma AFSALA equivalent book value per share amounts represent the pro
forma combined book value per share amounts multiplied by the Exchange
Ratio of 1.07.
/(3)/ The pro forma combined cash dividends declared per common share represent
the historical cash dividends declared per share on Ambanc Common Stock.
The pro forma AFSALA equivalent cash dividends declared per share
represent the cash dividends declared on one share of Ambanc Common Stock
multiplied by the Exchange Ratio of 1.07. No assurance can be made that
equivalent dividends will be paid in the future. The amount of dividends
payable will be dependent upon, among other things, the earnings and
financial condition of the combined company.
/(4)/ Pro forma combined earnings per share amounts are based upon the combined
historical net income amounts, including the effect of pro forma
adjustments, and pro forma combined weighted average basic and diluted
shares outstanding. The pro forma combined weighted average basic and
diluted shares outstanding for the
14
<PAGE>
periods indicated include the weighted average number of basic and diluted
shares of Ambanc Common Stock outstanding for the periods indicated plus
the product of the weighted average number of basic and diluted shares of
AFSALA Common Stock outstanding for the periods indicated (including the
effect of the pro forma adjustments related to the AFSALA ESOP termination
and the accelerated vesting of the AFSALA restricted stock awards) and the
Exchange Ratio of 1.07. The pro forma AFSALA equivalent earnings per share
amounts represent the pro forma combined earnings per share amounts
multiplied by the Exchange Ratio of 1.07.
The information shown above should be read in conjunction with the
historical consolidated financial statements of Ambanc and related notes
thereto, which are incorporated by reference herein, the historical consolidated
financial statements of AFSALA and related notes thereto, included herein, and
the unaudited pro forma condensed combined financial statements included herein.
See "Incorporation of Certain Documents by Reference," "Consolidated Financial
Statements of AFSALA Bancorp, Inc." and "Unaudited Pro Forma Condensed Combined
Financial Statements" for a description of the assumptions and adjustments used
in preparing the unaudited pro forma condensed combined financial statements.
The unaudited pro forma comparative per share data has been included for
comparative purposes only and does not purport to be indicative of the results
of operations that actually would have been obtained if the Merger had been
effected on the dates indicated or of those results that may be obtained in the
future.
15
<PAGE>
THE MEETINGS
AMBANC SPECIAL MEETING
Place, Time and Date. The Ambanc Special Meeting will be held at the Best
Western hotel, located at 10 Market Street, Amsterdam, New York at 10:00 a.m.,
local time, on September 1, 1998. This Joint Proxy Statement/Prospectus is
being sent to holders of Ambanc Common Stock and accompanies a form of proxy
(the "Ambanc Proxy") which is being solicited by the Ambanc Board for use at the
Ambanc Special Meeting and at any and all adjournments or postponements thereof.
Matters to Be Considered. At the Ambanc Special Meeting, holders of shares
of Ambanc Common Stock will vote on a proposal to adopt the Merger Agreement.
Ambanc stockholders will also consider and vote upon such other matters as may
properly be brought before the Ambanc Special Meeting and at any and all
adjournments or postponements thereof. As of the date hereof, the Ambanc Board
knows of no business that will be presented for consideration at the Ambanc
Special Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
Ambanc Record Date; Vote Required. The Ambanc Board has fixed the close of
business on July 24, 1998 (the "Ambanc Record Date") as the date for determining
holders of Ambanc Common Stock who will be entitled to notice of and to vote at
the Ambanc Special Meeting. As of the Ambanc Record Date there were outstanding
and entitled to vote at the Ambanc Special Meeting 4,105,164 shares of Ambanc
Common Stock.
Each holder of record of shares of Ambanc Common Stock on the Ambanc Record
Date will be entitled to cast one vote per share on each proposal presented at
the Ambanc Special Meeting. Such vote may be exercised in person or by properly
executed proxy. The presence, in person or by properly executed proxy, of the
holders of at least one-third of all shares of Ambanc Common Stock entitled to
vote at the Ambanc Special Meeting is necessary to constitute a quorum.
Abstentions and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons as to certain proposals on which such beneficial owners
or persons are entitled to vote their shares but with respect to which the
brokers or nominees have no discretionary power to vote without such
instructions) will be treated as shares present at the Ambanc Special Meeting
for purposes of determining the presence of a quorum.
The affirmative vote of the holders of at least a majority of the issued
and outstanding shares of Ambanc Common Stock entitled to vote at the Ambanc
Special Meeting is required for adoption of the Merger Agreement. Therefore,
abstentions and broker non-votes will have the same effect as votes against
adoption of the Merger Agreement.
As of the Ambanc Record Date, the directors and executive officers of
Ambanc and their affiliates beneficially owned in the aggregate 278,867 shares
of Ambanc Common Stock (including 84,005 shares underlying stock options
currently exercisable or which will become exercisable within 60 days of July
24, 1998) or approximately 6.66% of the then outstanding shares of Ambanc
Common Stock entitled to vote at the Ambanc Special Meeting. As of such date,
the directors and executive officers of AFSALA and their affiliates beneficially
owned in the aggregate 1,127 shares of Ambanc Common Stock.
Proxies. Shares of Ambanc Common Stock represented by properly executed
proxies received prior to or at the Ambanc Special Meeting will, unless such
proxies have been revoked, be voted at the Ambanc Special Meeting and any
adjournments or postponements thereof, in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed Ambanc Proxy, the shares represented thereby will be voted FOR adoption
of the Merger Agreement.
Any Ambanc Proxy given pursuant to this solicitation may be revoked at any
time before it is voted. Proxies may be revoked by (i) filing with the
Secretary of Ambanc at or before the Ambanc Special Meeting a written notice of
revocation bearing a later date than the Ambanc Proxy, (ii) duly executing a
subsequent proxy relating to the same
16
<PAGE>
shares and delivering it to the Secretary of Ambanc at or before the Ambanc
Special Meeting, or (iii) attending the Ambanc Special Meeting and voting in
person (although attendance at the Ambanc Special Meeting will not in and of
itself constitute revocation of a proxy). Any written notice revoking a proxy
should be delivered to Robert Kelly, Secretary, Ambanc Holding Co., Inc., 11
Division Street, Amsterdam, New York 12010-4303.
If any other matters are properly presented at the Ambanc Special Meeting
for consideration, the persons named in the Ambanc Proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. As of the date hereof, the Ambanc Board knows of no such other
matters.
In addition to solicitation by mail, directors, officers and employees of
Ambanc who will not be specifically compensated for such services may solicit
proxies from the stockholders of Ambanc, personally or by telephone, telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy material to beneficial owners. In addition, Ambanc has engaged Regan &
Associates to assist Ambanc in distributing proxy material and contacting record
and beneficial owners of Ambanc Common Stock. Ambanc has agreed to pay Regan &
Associates $4,000, plus out-of-pocket expenses not to exceed $2,250 for its
services to be rendered on behalf of Ambanc. Ambanc will bear its own expenses
in connection with the solicitation of proxies for the Ambanc Special Meeting.
See "The Merger--Expenses."
HOLDERS OF AMBANC COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING AMBANC PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
17
<PAGE>
Voting Securities and Certain Holders Thereof. The following table sets
forth, as of July 24, 1998, information regarding beneficial ownership of Ambanc
Common Stock by: (i) those persons or entities known by management to
beneficially own more than five percent of the outstanding shares of Ambanc
Common Stock; (ii) each director of Ambanc; and (iii) the directors and
executive officers of Ambanc as a group. An asterisk in the percent of class
column denotes beneficial ownership of less than 1%.
<TABLE>
<CAPTION>
Shares Beneficially Percent of
Beneficial Owner Owned/(3)/ Class
- ---------------------------------- ------------------- -----------
<S> <C> <C>
5% Owners
Ambanc Holding Co., Inc. 433,780/(1)/ 10.57%
Employee Stock Ownership Plan
11 Division Street
Amsterdam, New York 12010
Janus Capital Corp. 310,650/(2)/ 7.57%
100 Fillmore Street, Suite 300
Denver, Colorado 80206-4923
Directors
Lauren T. Barnett 33,348/(4)/ *
Robert J. Brittain 59,017/(5)/ 1.43%
Charles S. Pedersen 15,148/(4)/ *
John J. Daly 16,648/(4)/ *
Lionel H. Fallows 15,648/(4)(6)/ *
Marvin R. LeRoy, Jr. 5,534/(7)/ *
William A. Wilde, Jr. 13,648/(4)/ *
Paul W. Baker 13,648/(4)/ *
Robert J. Dunning, DDS 17,748/(4)/ *
Carl A. Schmidt, Jr. 15,648/(4)/ *
Directors and executive officers 278,867/(8)/ 6.66%
as a group (15 persons)
</TABLE>
- ------------------
/(1)/ The amount reported represents shares of Ambanc Common Stock held by the
Ambanc Holding Co., Inc. Employee Stock Ownership Plan (the "Ambanc
ESOP"). As of the Ambanc Record Date, 103,525 shares of Ambanc Common
Stock held by the Ambanc ESOP had been allocated to accounts of
participants. First Bankers Trust Company, N.A., Quincy, Illinois, as the
trustee of the Ambanc ESOP, may be deemed to beneficially own the shares
held by the Ambanc ESOP which have not been allocated to the accounts of
participants or which have been allocated but may not be voted by the
participants. Pursuant to the terms of the Ambanc ESOP, participants in
the Ambanc ESOP have the right to direct the voting of shares allocated to
participant accounts. Unallocated shares held by the Ambanc ESOP are voted
by the plan trustee in the same manner that the plan trustee is directed
to vote by the majority of the plan participants who directed the plan
trustee as to the manner of voting the shares allocated to their plan
accounts.
/(2)/ As reported by Janus Capital Corp. ("Janus"), on a Schedule 13G filed with
the SEC under the Exchange Act. Janus reported shared voting and
dispositive power with respect to all shares reported in its Schedule 13G.
Thomas H. Bailey, President and Chief Executive Officer of Janus, owns
approximately 12% of the stock of Janus. As a result of his position, Mr.
Bailey may have the power to exercise or direct the exercise of the shared
voting and dispositive policies held by Janus with respect to the Ambanc
Common Stock.
18
<PAGE>
/(3)/ The nature of beneficial ownership for shares reported in this column is
sole voting and dispositive power, except as otherwise noted in these
footnotes. Included in the shares beneficially owned by the directors are
options to purchase shares of Ambanc Common Stock, which are currently
exercisable or which will become exercisable within 60 days of the Ambanc
Record Date, as follows: Mr. Brittain - 25,078 shares and each other
director - 4,514 shares.
/(4)/ Includes 6,100 restricted shares of Ambanc Common Stock over which such
individual has voting but no dispositive power.
/(5)/ Includes 20,333 restricted shares of Ambanc Common Stock over which
Mr. Brittain has voting but no dispositive power.
/(6)/ Reported shared voting and investment power with respect to 1,000 shares
of Ambanc Common Stock owned by his spouse.
/(7)/ Reported shared voting and dispositive power with respect to 20 shares of
Ambanc Common Stock owned by his children who reside with him.
/(8)/ This amount includes shares held directly, as well as shares held jointly
with family members, shares held in retirement accounts, held in a
fiduciary capacity, held by certain of the group members' families, or
held by trusts of which the group member is a trustee or substantial
beneficiary, with respect to which shares the group member may be deemed
to have sole or shared voting and/or investment powers. This amount also
includes options to purchase 84,005 shares of Ambanc Common Stock granted
to directors and executive officers which are currently exercisable or
which will become exercisable within 60 days of the Ambanc Record Date.
AFSALA SPECIAL MEETING
Place, Time and Date. The AFSALA Special Meeting will be held at the Best
Western hotel, located at 10 Market Street, Amsterdam, New York, at 2:00 p.m.,
local time, on September 3, 1998. This Joint Proxy Statement/Prospectus is
being sent to holders of AFSALA Common Stock, and accompanies a form of proxy
(the "AFSALA Proxy") which is being solicited by the AFSALA Board for use at the
AFSALA Special Meeting and at any and all adjournments or postponements thereof.
Matters to Be Considered. At the AFSALA Special Meeting, holders of AFSALA
Common Stock will vote upon a proposal to adopt the Merger Agreement. Holders
of AFSALA Common Stock will also consider and vote upon such other matters as
may properly be brought before the AFSALA Special Meeting and any and all
adjournments or postponements thereof. As of the date hereof, the AFSALA Board
knows of no business that will be presented for consideration at the AFSALA
Special Meeting, other than the matters described in this Joint Proxy
Statement/Prospectus.
AFSALA Record Date; Vote Required. The AFSALA Board has fixed the close of
business on July 27, 1998 (the "AFSALA Record Date"), as the date for
determining holders of AFSALA Common Stock who will be entitled to notice of,
and to vote at, the AFSALA Special Meeting. As of the AFSALA Record Date, there
were outstanding and entitled to vote at the AFSALA Special Meeting 1,319,018
shares of AFSALA Common Stock.
Each holder of record of AFSALA Common Stock on the AFSALA Record Date will be
entitled to cast one vote per share on each proposal presented at the AFSALA
Special Meeting. Such vote may be exercised in person or by properly executed
proxy. The presence, in person or by properly executed proxy, of the holders of
a majority of the outstanding shares of AFSALA Common Stock entitled to vote at
the AFSALA Special Meeting is necessary to constitute a quorum. Abstentions and
broker non-votes will be treated as shares present at the AFSALA Special Meeting
for purposes of determining the presence of a quorum.
The affirmative vote of the holders of at least a majority of the issued and
outstanding shares of AFSALA Common Stock entitled to vote at the AFSALA Special
Meeting is required for adoption of the Merger Agreement. Therefore, abstentions
and broker non-votes will have the same effect as votes against adoption of the
Merger Agreement.
As of the AFSALA Record Date, the directors and executive officers of AFSALA
and their affiliates beneficially owned in the aggregate 113,163 shares of
AFSALA Common Stock (including 23,857 shares underlying stock options currently
exercisable or which will become exercisable within 60 days of July 27, 1998),
or approximately 8.43% of the then outstanding shares of AFSALA Common Stock
entitled to vote at the AFSALA Special Meeting. As of the AFSALA Record Date,
the directors and executive officers of Ambanc and their affiliates
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beneficially owned in the aggregate 2,350 shares of AFSALA Common Stock, or
0.18% of the then outstanding shares of AFSALA Common Stock entitled to vote at
the AFSALA Special Meeting.
Proxies. Shares of AFSALA Common Stock represented by properly executed
proxies received prior to or at the AFSALA Special Meeting will, unless such
proxies have been revoked, be voted at the AFSALA Special Meeting and any
adjournments or postponements thereof in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed AFSALA Proxy, the shares represented thereby will be voted FOR adoption
of the Merger Agreement.
Any AFSALA Proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted by delivering to
the Secretary of AFSALA at 161 Church Street, Amsterdam, New York 12010 on or
before the taking of the vote at the AFSALA Special Meeting, a written notice of
revocation bearing a later date than the proxy or a later dated proxy relating
to the same shares of AFSALA Common Stock or by attending the AFSALA Special
Meeting and voting in person. Attendance at the AFSALA Special Meeting will not
in itself constitute the revocation of a proxy.
If any other matters are properly presented at the AFSALA Special Meeting for
consideration, the persons named in the AFSALA Proxy or acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.
As of the date hereof, the AFSALA Board knows of no such other matters.
In addition to solicitation by mail, directors, officers and employees of
AFSALA who will not be specifically compensated for such services may solicit
proxies from the stockholders of AFSALA, personally or by telephone, telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy material to beneficial owners. In addition, AFSALA has engaged Regan &
Associates to assist AFSALA in distributing proxy materials and contacting
record and beneficial owners of AFSALA Common Stock. AFSALA has agreed to pay
Regan & Associates $3,250 plus out-of-pocket expenses not to exceed $1,750 for
its services to be rendered on behalf of AFSALA. Unless the Closing does not
occur, Ambanc will bear all expenses incurred by AFSALA in connection with the
solicitation of proxies for the AFSALA Special Meeting. See "The Merger--
Expenses."
HOLDERS OF AFSALA COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING AFSALA PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
HOLDERS OF AFSALA COMMON STOCK SHOULD NOT FORWARD STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
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Voting Securities and Certain Holders Thereof. The following table sets
forth, as of July 27, 1998, information regarding beneficial ownership of AFSALA
Common Stock by: (i) those persons or entities known by management to be
beneficial owners of more than 5% of the outstanding shares of AFSALA Common
Stock, (ii) each director of AFSALA, including AFSALA's Chief Executive
Officer, John M. Lisicki; and (iii) the directors and executive officers of
AFSALA as a group. An asterisk in the percent of class column denotes
beneficial ownership of less than 1%.
<TABLE>
<CAPTION>
Shares Beneficially Percent of
Beneficial Owner Owned Class
- ------------------------------------ ------------------- -----------
<S> <C> <C>
5% Owners /(9)/
Amsterdam Federal Bank
Employee Stock Ownership Plan
(the "AFSALA Bank ESOP")
161 Church Street
Amsterdam, New York 110,780/(1)/ 8.40%
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 74,100/(3)/ 8.23%
Jewelcor Management, Inc., et. al
100 N. Wilkes-Barre Boulevard
Wilkes-Barre, Pennsylvania 18702 108,500/(3)/ 5.61%
Directors
Dr. Ronald S. Tecler 19,037/(4)(5)(6)/ 1.44%
John A. Tesiero, Jr. 17,037/(4)(6)/ 1.29%
John A. Kosinski, Jr. 12,127/(4)(6)/ *
Joseph G. Opalka 9,537/(4)(5)(6)/ *
Florence B. Opiela 4,537/(4)(6)/ *
John M. Lisicki 22,467/(4)(7)/ 1.69%
Dr. Daniel J. Greco 8,537/(4)(5)(6)/ *
Directors and executive officers
as a group (9 persons) 113,163/(8)/ 8.43%
</TABLE>
____________________
/(1)/ The AFSALA Bank ESOP purchased such shares for the exclusive benefit of
plan participants with funds borrowed from AFSALA. These shares are held
in a suspense account and are allocated among AFSALA Bank ESOP
participants annually on the basis of compensation as the AFSALA Bank ESOP
debt is repaid. The AFSALA Board has appointed a committee consisting of
the Compensation and Benefits Committee of AFSALA Bank comprised of non-
employee directors Greco, Tecler and Opalka to serve as the AFSALA Bank
ESOP administrative committee ("ESOP Committee") Marine Midland Bank
serves as trustee of the AFSALA Bank ESOP (the "ESOP Trustee"). The ESOP
Committee or the AFSALA Board instructs the ESOP Trustee regarding
investment of AFSALA Bank ESOP plan assets. The ESOP Trustee must vote all
shares allocated to participant accounts under the ESOP as directed by
participants. Unallocated shares and shares for which no timely voting
direction is received will be voted by the ESOP Trustee as directed by the
Board or the ESOP Committee. As of the AFSALA Record Date, 13,848 shares
had been allocated under the AFSALA Bank ESOP to participant accounts.
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<PAGE>
As reported by Jewelcor Management, Inc. ("JMI") and the other members of
a group formed with JMI under Section 13(d) of the Exchange Act (the
"Group") on Amendment No. 3 to a Schedule 13D filed with the SEC on July
24, 1998. JMI reported sole voting and dispositive power over 106,600
shares. Seymour Holtzman, a member of the Group, is Chairman of the Board
and Chief Executive Officer of JMI and Jewelcor Inc., the sole stockholder
of JMI ("Jewelcor"). Jewelcor is a wholly owned subsidiary of S.H.
Holdings, Inc. Mr. Holtzman and his wife, also a member of the Group, own
as tenants by the entireties a majority interest in S.H. Holdings, Inc.
and Mr. Holtzman is Chairman and President of S.H. Holdings, Inc. The
members of the Group other than JMI reported beneficial ownership as
follows: Mr. Holtzman: shared voting and dispositive power over 250
shares; Mr. Holtzman's wife: none; Allison Holtzman Garcia, Mr. Holtzman's
daughter: sole voting and dispositive power over 500 shares; Custodial
Account f/b/o Allison Holtzman Garcia ("AHG Custodial Account"): sole
voting and dispositive power over 350 shares; Trust f/b/o Steven Holtzman,
Mr. Holtzman's son ("SH Trust"): sole voting and dispositive power over
150 shares; Custodial Account f/b/o Olivia Garcia, Mr. Holtzman's
granddaughter ("OG Custodial Account"): sole voting and dispostive power
over 150 shares; Custodial Account f/b/o Chelsea Holtzman, Mr. Holtzman's
other granddaughter ("CH Custodial Account"): sole voting and dispositive
power over 500 shares; S.H. Holdings, Inc.: none; Jewelcor: none. Mr.
Holtzman is the custodian for the OG Custodial Account. Mr. Holtzman's
wife is the custodian for the AHG and CH Custodial Accounts. Mr.
Holtzman's brother-in-law is the trustee of the SH Trust.
/(3)/ Based on Amendment No. Three to a Schedule 13G, dated May 29, 1998, filed
with the SEC. According to such amended Schedule 13G, Wellington
Management Company, LLP had sole voting and dispositive power as to no
shares, and shares voting and dispositive power as to 74,000 shares.
/(4)/ Includes shares of AFSALA Common Stock held directly as well as by spouses
or minor children, in trust, and other indirect ownership, over which
shares the individuals effectively exercise sole or shared voting and
investment power, unless otherwise indicated.
/(5)/ Excludes 110,780 shares of AFSALA Common Stock held under the AFSALA Bank
ESOP for which individuals serve as members of the ESOP Committee or
Trustee Committee. Such individuals disclaim beneficial ownership with
respect to such shares held in a fiduciary capacity.
/(6)/ Excludes 2,327 shares of AFSALA Common Stock awarded under the Amsterdam
Federal Bank Restricted Stock Plan ("RSP") which are subject to forfeiture
and for which no voting control is exercised by the individual as of the
AFSALA Record Date. Includes options to purchase 1,455 shares of AFSALA
Common Stock which are currently exercisable or exercisable within 60 days
of the AFSALA Record Date.
/(7)/ Excludes 11,638 shares of AFSALA Common Stock awarded under the RSP which
are subject to forfeiture and for which no voting control is exercised by
the individual as of the Ambanc Record Date. Includes options to purchase
7,274 shares of AFSALA Common Stock which are currently exercisable or
which will become exercisable within 60 days of the AFSALA Record Date.
/(8)/ Excludes 110,780 shares of AFSALA Common Stock held under the ESOP for
which individuals serve as members of the ESOP Committee or Such
individuals disclaim beneficial ownership with respect to such shares held
in a fiduciary capacity. Includes shares of AFSALA Common Stock held
directly as well as by spouses or minor children, in trust and other
indirect ownership, over which shares the individuals effectively exercise
sole or shared voting and investment power, unless otherwise indicated.
Excludes 38,169 of 47,711 restricted shares of AFSALA Common Stock awarded
pursuant to the RSP. Of such 47,711 shares, 9,542 vested on May 30, 1998,
and the remaining 38,169 shares are scheduled to vest annually over four
years at the rate of 20% per year, beginning May 30, 1999. Unvested shares
are voted by the trustee of the RSP, as directed by the RSP Committee. The
members of the RSP Committee disclaim beneficial ownership of such shares
held in such fiduciary capacity. Includes 23,857 shares of AFSALA Common
Stock subject to options granted pursuant to AFSALA's 1997 Stock Option
Plan which are currently exercisable or which will become exercisable
within 60 days of the AFSALA Record Date.
/(9)/ By holding the Option granted pursuant to the Option Agreement, Ambanc may
be deemed to beneficially own approximately 19.9% of the shares of AFSALA
Common Stock. See "The Merger--Stock Option Agreement."
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<PAGE>
THE MERGER
The information below includes a summary of the material terms of the
Merger Agreement, which is qualified in its entirety by reference to the full
text of the Merger Agreement. A copy of the Merger Agreement is attached hereto
as Appendix I and incorporated by reference herein. All stockholders are urged
to read the Merger Agreement in its entirety.
GENERAL
Pursuant to the Merger Agreement, AFSALA will be merged with and into
Ambanc, with Ambanc as the surviving entity (the "Acquisition Merger") and
AFSALA Bank will then be merged with and into the Savings Bank, with the Savings
Bank as the surviving entity (the "Bank Merger" and together with the
Acquisition Merger, the "Merger"). The names of the entities surviving the
Acquisition Merger and the Bank Merger will be "Ambanc Holding Co., Inc." and
"Mohawk Community Bank," respectively. As soon as possible after the conditions
to consummation of the Merger described below have been satisfied or waived, and
unless the Merger Agreement has been terminated pursuant to the provisions
described below, Ambanc and AFSALA will file a certificate of merger with the
Secretary of State of the State of Delaware for the Acquisition Merger, and
articles of combination with the OTS for the Bank Merger. The Acquisition Merger
will become effective upon the filing of the certificate of merger with the
Secretary of State of the State of Delaware (the "Acquisition Merger Effective
Time"). The Bank Merger will become effective at the time the articles of
combination are endorsed by the OTS (the "Bank Merger Effective Time").
At the Acquisition Merger Effective Time, each outstanding share of AFSALA
Common Stock will be converted into the right to receive 1.07 shares of Ambanc
Common Stock, subject to adjustment as provided in the Merger Agreement. See "-
- -Exchange Ratio." Each stockholder of AFSALA will then be entitled to exchange
AFSALA Common Stock certificates for Ambanc Common Stock certificates and
thereupon cease to be a stockholder of AFSALA, and the separate corporate
existence of AFSALA shall cease.
Under the Merger Agreement, Ambanc may at any time change the method of
effecting the Merger if and to the extent it deems such change to be necessary,
except that no such change may (i) alter the amount or kind of consideration to
be received by AFSALA's stockholders, (ii) adversely affect the tax treatment to
AFSALA's stockholders as a result of receiving shares of Ambanc Common Stock in
the Merger or (iii) materially impede or delay receipt of any approval required
for the Merger.
BACKGROUND OF THE MERGER
Ambanc's Background of the Merger. In October 1997, members of the Ambanc
Board met socially with members of the AFSALA Board and discussed the concept of
a combination of the companies. In December 1997, Ambanc requested Sandler
O'Neill to provide a preliminary analysis as to whether a combination with
AFSALA was economically feasible. On December 10, 1997, Sandler O'Neill made a
presentation to the Ambanc Merger and Acquisition Committee ("Committee")
regarding a possible business combination with AFSALA. Based in part on this
presentation, the Committee determined to proceed with further examination of
the potential business combination. On January 29 and February 18, 1998, the
Committee met with Sandler O'Neill and counsel and developed a merger strategy
and a preliminary term sheet for presentation to AFSALA. Negotiations took
place in February, March and early April regarding the terms of a potential
merger. The Committee met again on March 26, 27 and 30, 1998 to discuss the
status of the negotiations and authorized counsel to prepare a merger agreement
for submission to AFSALA. During April 1998, the parties negotiated the terms of
the merger agreement, including the exchange ratio, and the agreement was
presented to the Ambanc Board on April 21, 1998. Sandler O'Neill and counsel
were present at that meeting and reviewed the merger agreement from both a legal
and financial perspective with the Ambanc Board. The Ambanc Board approved the
execution of the Merger Agreement on April 21, 1998. The Merger Agreement was
not executed by Ambanc until the afternoon of April 23 when Ambanc first
received and reviewed the AFSALA disclosure schedules required by the Merger
Agreement.
AFSALA's Background of the Merger. On September 30, 1996, AFSALA Bank
completed its conversion to the stock form of organization and AFSALA
concurrently offered 1,454,750 shares of AFSALA Common Stock
23
<PAGE>
(the "Conversion"). Prior to the Conversion, AFSALA Bank had approximately $8.4
million of equity. After the Conversion, AFSALA's stockholders' equity, on a
consolidated basis, increased to over $20 million. Beginning in 1997 and
continuing into 1998, the AFSALA Board recognized the challenges posed in
investing the new capital from the Conversion in a manner that would result in a
reasonable return to AFSALA's stockholders without posing significant additional
credit risks to AFSALA and AFSALA Bank. The AFSALA Board was aware that
competition for the limited deposit, lending and investment opportunities for
AFSALA intensified following the stock conversion in December 1995 of Ambanc,
AFSALA's primary competitor, which was already approximately three times the
asset size of AFSALA Bank, as it raised significant additional capital through a
concurrent public offering of stock. Consequently, there were two savings banks
flush with additional capital directly competing in the same market area for
deposits, lending and investment opportunities.
The AFSALA Board also observed the consolidation taking place among banks
and thrift institutions in the nation in general, and in New York in particular.
Over this same period, the level and nature of bank and thrift institution
merger and acquisition activity in New York significantly impacted the banking
marketplace and the competitive environment in which AFSALA operates. The
AFSALA Board assessed the impact of consolidation on AFSALA's marketplace and
its competitive position.
Since the completion of the Conversion, as a result of all of these
factors, the AFSALA Board periodically evaluated the strategic and competitive
position of AFSALA, its near-term and longer-term business prospects, its
management resources and performance and the strategic options and opportunities
available to AFSALA. From time to time during this same period, AFSALA received
inquiries and unsolicited and informal indications of interest from other
banking companies regarding the possible merger or other similar business
combination between it and other banking companies. In light of the Conversion
and the need to deploy additional capital and the changing marketplace and
competitive position, AFSALA retained FinPro in late 1997 to assist it in
developing a long-term budget, financial projections, a strategic plan and a
review of the operations, financial position and branching strategy of AFSALA.
In addition, FinPro compared AFSALA's overall financial performance and
condition to its peer group, identified AFSALA's strengths and weaknesses,
analyzed and assessed AFSALA's stock price, trading history, liquidity and float
and evaluated its day-to-day trading price relative to its peer group.
Upon review of FinPro's report and analysis, the AFSALA Board considered
the need to generate a reasonable return on the new capital resulting from the
Conversion, the increasing competition in AFSALA Bank's market area, the
continuing trend of consolidation in the banking industry and the further
concentration of market share and consolidation of operations by larger regional
banking companies. The AFSALA Board concluded from this review and analysis
that it could enhance stockholder value over the next several years by remaining
independent and in reliance on internal, rather than external, growth
strategies. As a result of this analysis, AFSALA concluded that a sale of
AFSALA at this time was neither appropriate nor necessary in order to enhance
shareholder value in AFSALA. Subsequent to reaching this conclusion, in October
1997 members of the AFSALA Board met socially with members of the Ambanc Board
and discussed the concept of a combination of the companies. In December 1997,
the AFSALA Board determined not to proceed with further discussions with Ambanc.
In February 1998, AFSALA was again approached by Ambanc regarding a possible
merger of the two companies. In March 1998, after sharing certain business,
financial and management information regarding each other, discussions between
AFSALA and Ambanc regarding a possible business combination began in earnest.
Ambanc proposed structuring the Merger in a manner whereby AFSALA's President
and Chief Executive Officer and four of AFSALA's directors would survive the
Merger, and the other members of AFSALA's senior management would be offered
positions with the surviving company. In particular, Ambanc proposed that
AFSALA's President and Chief Executive Officer would become President and Chief
Executive Officer of the resulting bank upon consummation of the Merger and
President and Chief Executive Officer of Ambanc no later than January 1, 1999,
and possibly sooner by mutual consent. As AFSALA considered this preliminary
indication of interest submitted by Ambanc, FinPro was retained in March 1998 as
the financial advisor to assist the AFSALA Board in evaluating this possible
business combination. Although the AFSALA Board believed that remaining
independent was an appropriate course of action for AFSALA based on its and
FinPro's analyses, as the AFSALA Board considered the advice and analysis of
FinPro and the possible expense savings and competitive advantages that could be
achieved through a combination of these two competitors, the attractiveness of
the Merger became apparent.
24
<PAGE>
With the advice of FinPro, the AFSALA Board considered some of the
advantages which could be derived from a business combination with Ambanc,
including significant cost savings and expense reduction, the accretion to
earnings that would result from the combination, greater stockholder liquidity,
increased market recognition, additional product offerings and consolidation of
administrative functions. The AFSALA Board also reviewed management's internal
business plans, and considered the possibility that AFSALA's stockholders could
receive more value through the Merger then they would receive if AFSALA remained
as an independent entity, even if management were able to meet its goals for
operating AFSALA independently. The Board also considered the impact of having
AFSALA's management responsible for managing the resulting company and bank.
The AFSALA Board authorized management to allow Ambanc representatives to
conduct due diligence on AFSALA. At the same time, representatives of AFSALA
were permitted to conduct due diligence on Ambanc. Both parties conducted and
completed their due diligence during early April 1998. After completing their
due diligence, the parties proceeded immediately toward the execution of a
definitive merger agreement.
The AFSALA Board, management of AFSALA and FinPro met several times during
March and April 1998, to assess and consider, among other things, the terms and
conditions of the preliminary indication of interest. At these meetings, FinPro
made detailed presentations relating to the preliminary indication of interest
from Ambanc, as well as updated background information relating to the value of
AFSALA and recent merger and acquisition pricing. The AFSALA Board decided that
Ambanc's preliminary indication of interest was favorable and merited further
negotiation. The AFSALA Board reviewed and discussed the potential terms of a
transaction, including the impact on employees and stockholders and a draft form
of merger agreement provided by Ambanc. Following extensive discussion, the
AFSALA Board voted to authorize management to negotiate the terms of a proposed
definitive merger agreement with Ambanc for its consideration.
During the next several days, management and Ambanc and their financial and
legal advisors engaged in negotiations concerning the terms of a transaction and
a proposed definitive merger agreement.
On April 21, 1998, the AFSALA Board, together with FinPro and AFSALA's
legal counsel, met again to consider the proposed definitive merger agreement
with Ambanc. At that meeting, FinPro gave the Board its opinion that the
consideration to be received by the stockholders of AFSALA from Ambanc was fair
from a financial point of view. After extensive discussion, the AFSALA Board
voted to approve the Merger Agreement. The Merger Agreement was subsequently
executed by the parties on April 23, 1998.
REASONS FOR THE MERGER AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Ambanc's Reasons for the Merger and Board Recommendation. The Ambanc Board
has determined that the Merger is in the best interests of Ambanc and its
stockholders and has unanimously approved the Merger Agreement. In reaching its
determination, the Ambanc Board considered a number of factors, without
assigning any relative weights to such factors, including but not limited to the
following:
(i) the Ambanc Board's familiarity with and review of AFSALA's business,
operations, financial condition, earnings and prospects;
(ii) the anticipated cost savings and efficiencies available to the
combined company as a result of the Merger;
(iii) the current and prospective economic, competitive and regulatory
environment;
(iv) the opinion of Sandler O'Neill that the Exchange Ratio is fair from a
financial point of view, Ambanc;
(v) the nature and compatibility of the respective management and
business philosophies of Ambanc and AFSALA;
(vi) the proposed management of Ambanc and the Savings Bank following the
Merger; and
25
<PAGE>
(vii) the terms of the Merger Agreement and the Stock Option Agreement.
THE AMBANC BOARD UNANIMOUSLY RECOMMENDS THAT AMBANC STOCKHOLDERS VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
AFSALA's Reasons for the Merger and Board Recommendation. The AFSALA Board
believes that the Merger is in the best interests of AFSALA and its stockholders
and has unanimously approved the Merger Agreement.
In reaching its determination that the Merger is in the best interest of
AFSALA and its stockholders, the AFSALA Board considered a number of factors
both from a short-term and long-term perspective, including, without limitation,
the following:
(i) the AFSALA Board's familiarity with and review of Ambanc's business,
operations, financial condition, earnings and prospects;
(ii) the current and prospective economic environment and competitive and
regulatory constraints facing financial institutions and particularly
AFSALA;
(iii) the opportunities for growth, significant reductions in expenses,
and the possibility that the Merger will be immediately accretive to the
earnings of the combined company;
(iv) the possibility that the Merger will create the premier financial
institution in the Amsterdam market in terms of deposits and lending market
share;
(v) the ability to generate an acceptable return on equity without
taking undue risk;
(vi) the AFSALA Board's review, based in part on presentations by FinPro
and the due diligence reviews by management, as well as its financial and
legal advisors of the business, operations, financial condition, earnings
and prospects of Ambanc, particularly in view of the proposed management of
Ambanc by the current senior executive officers of AFSALA;
(vii) the advice of FinPro that the business combination with, and the
acquisition proposal by, Ambanc was fair and equitable to AFSALA's
stockholders from a financial point of view;
(viii) the AFSALA Board's evaluation of the risks to consummation of the
Merger, including, among others, the risks associated with obtaining all
necessary regulatory approvals without the imposition of any condition
which differs from conditions customarily imposed in approving acquisitions
of the type contemplated by the Merger Agreement and compliance with which
would materially adversely affect the reasonably anticipated benefits of
the transactions to Ambanc; and
(ix) the terms and conditions of the Merger Agreement, Stock Option
Agreement and the other documents executed in connection with the Merger.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the AFSALA Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination.
THE AFSALA BOARD UNANIMOUSLY RECOMMENDS THAT AFSALA STOCKHOLDERS VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
EXCHANGE RATIO
At the Acquisition Merger Effective Time, each share of AFSALA Common Stock
issued and outstanding immediately prior to the Acquisition Merger Effective
Time will be converted into and represent solely the right to
26
<PAGE>
receive 1.07 shares of Ambanc Common Stock (the "Exchange Ratio"), subject to
adjustment as hereinafter described. At the Acquisition Merger Effective Time,
the holders of certificates representing shares of AFSALA Common Stock shall
cease to have any rights as stockholders of AFSALA, except the right to receive
the Merger consideration. Any shares of AFSALA Common Stock held by AFSALA or
any of its subsidiaries (except for shares held in any qualified plan of AFSALA
or any of its subsidiaries or otherwise held in a fiduciary capacity or in
satisfaction of a debt previously contracted) or by Ambanc or any of Ambanc's
subsidiaries (other than in a fiduciary capacity) at the Acquisition Merger
Effective Time shall cease to exist, and the certificates for such shares shall
thereafter be canceled and no shares of capital stock of Ambanc shall be issued
or exchanged therefor.
The Merger Agreement provides that if prior to the Acquisition Merger
Effective Time, the holders of Ambanc Common Stock shall have received or shall
become entitled to receive, without payment therefore, during the period
commencing on April 18, 1998 and ending with the Acquisition Merger Effective
Time, any additional shares of Ambanc Common Stock or other securities for their
stock by way of a stock split, stock dividend, reclassification, combination of
shares, spinoff or similar corporate rearrangement or Ambanc shall exchange
Ambanc Common Stock for a different number or kind of shares or securities
("Stock Adjustment"), then the Exchange Ratio shall be proportionately adjusted
for such Stock Adjustment.
Under certain circumstances, the Exchange Ratio could be adjusted upward
pursuant to certain provisions of the Merger Agreement. Specifically, the Merger
Agreement provides that AFSALA may elect to terminate the Merger Agreement if:
(i) the Average Closing Price (defined as the average of the per share closing
prices of Ambanc Common Stock as reported on the Nasdaq National Market for the
20 consecutive trading days ending on the Determination Date defined as the
tenth trading day prior to the Closing date) is less than $15.70 and (ii) (x)
the number obtained by dividing the Average Closing Price on the Determination
Date by $19.625 is less than (y) the number obtained by dividing the Index Price
(generally defined as the weighted average closing price per share of the common
stock of 19 select financial institution companies) on the Determination Date by
the Index Price on April 22, 1998 and subtracting 0.20 from the quotient in this
clause (ii) (y). However, if AFSALA makes such an election, Ambanc may prevent
the termination of the Merger Agreement by adjusting the Exchange Ratio upward
(and thereby increasing the number of shares of Ambanc Common Stock to be
received upon exchange of AFSALA Common Stock). See "--Amendment and Termination
of the Merger Agreement."
Based on the last reported sale price for Ambanc Common Stock on the Nasdaq
Stock Market on July 27, 1998 ($17.00 per share), the value of 1.07 shares of
Ambanc Common Stock as of that date would have been approximately $18.19. The
market value of Ambanc Common Stock to be received in the Merger is subject to
fluctuation. Fluctuations in the market price of Ambanc Common Stock would
generally result in an increase or decrease in the value of the consideration to
be received by AFSALA stockholders in the Merger. An increase in the market
value of Ambanc Common Stock would generally increase the value of the
consideration to be received by AFSALA stockholders in the Merger. A decrease
in the market value of Ambanc Common Stock would generally have the opposite
effect.
FRACTIONAL SHARES
No certificates representing fractional shares of Ambanc Common Stock will
be issued upon the surrender for exchange of certificates representing AFSALA
Common Stock, and such fractional share interests will not entitle the owner
thereof to vote or receive dividends or to any rights of a stockholder of
Ambanc. Each stockholder of AFSALA who otherwise would be entitled to a
fractional share of Ambanc Common Stock in the Merger will receive a cash
payment in lieu thereof in an amount determined by multiplying the fractional
share interest to which such stockholder would otherwise be entitled by the
average closing price of Ambanc Common Stock as reported on the Nasdaq Stock
Market for the five trading days immediately preceding the Acquisition Merger
Effective Time.
TREATMENT OF AFSALA STOCK OPTIONS
At the Acquisition Merger Effective Time, each option outstanding under
AFSALA's 1997 Stock Option Plan (the "AFSALA Stock Option Plan"), whether or not
then exercisable, shall continue outstanding as an option to purchase, in place
of the purchase of AFSALA Common Stock, the number of shares (rounded to the
nearest whole share) of Ambanc Common Stock that would have been received by the
optionee in the Acquisition Merger had the
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option been exercised in full for shares of AFSALA Common Stock immediately
prior to the Acquisition Merger upon the same terms and conditions under the
relevant option as were applicable immediately prior to the Acquisition Merger
Effective Time, except for appropriate pro rata adjustments as to the relevant
option price for shares of Ambanc Common stock substituted therefor so that the
aggregate option exercise price of shares subject to an option immediately
following the assumption and substitution shall be the same as the aggregate
option exercise price for such shares immediately prior to such assumption and
substitution. Ambanc will assume at the Acquisition Merger Effective Time each
such option, and it is intended that such assumption will be undertaken in such
a manner that will not constitute a "modification" under Section 424 of the Code
as to any stock option which is an "incentive stock option." See "--Interests of
Certain Persons in the Merger" for additional information regarding outstanding
AFSALA stock options.
OPINION OF AMBANC'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of January 9, 1998 (the "Sandler
O'Neill Agreement"), Ambanc retained Sandler O'Neill as an independent financial
advisor in connection with Ambanc's consideration of a possible business
combination with AFSALA. Sandler O'Neill is a nationally recognized investment
banking firm whose principal business specialty is banks and savings
institutions. In the ordinary course of its investment banking business,
Sandler O'Neill is regularly engaged in the valuation of such businesses and
their securities in connection with mergers and acquisitions and other corporate
transactions.
In connection with its consideration of the Merger, the Board of Directors
of Ambanc requested Sandler O'Neill to render its opinion as to the fairness of
the Exchange Ratio to Ambanc from a financial point of view. On April 21, 1998,
Sandler O'Neill delivered to the Ambanc Board its oral opinion, subsequently
confirmed in writing, that, as of such date, the Exchange Ratio was fair to
Ambanc from a financial point of view. Sandler O'Neill has also delivered to
the Ambanc Board a written opinion dated the date of this Joint Proxy
Statement/Prospectus (the "Sandler O'Neill Fairness Opinion") which is
substantially identical to the April 21, 1998 opinion. THE FULL TEXT OF THE
SANDLER O'NEILL FAIRNESS OPINION, WHICH SETS FORTH THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH RENDERING SUCH OPINION, IS ATTACHED AS
APPENDIX III TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO APPENDIX III. AMBANC'S STOCKHOLDERS ARE URGED TO
READ THE SANDLER O'NEILL FAIRNESS OPINION IN ITS ENTIRETY IN CONNECTION WITH
THEIR CONSIDERATION OF THE PROPOSED MERGER.
THE SANDLER O'NEILL FAIRNESS OPINION WAS PROVIDED TO THE AMBANC BOARD FOR
ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO TO AMBANC. IT DOES NOT ADDRESS THE UNDERLYING
BUSINESS DECISION OF AMBANC TO ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF
AMBANC COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE AMBANC SPECIAL
MEETING WITH RESPECT TO THE MERGER OR ANY OTHER MATTER RELATED THERETO.
In connection with rendering its April 21, 1998 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of such
analyses, but does not purport to be a complete description of all the analyses
underlying Sandler O'Neill's opinion. The preparation of a fairness opinion is
a complex process involving subjective judgments and is not necessarily
susceptible to a partial analysis or summary description. Sandler O'Neill
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and processes underlying its opinion. In performing its analyses,
Sandler O'Neill made numerous assumptions with respect to industry performance,
business and economic conditions and various other matters, many of which cannot
be predicted and are beyond the control of Ambanc, AFSALA and Sandler O'Neill.
Any estimates contained in Sandler O'Neill's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates on the values of companies do not
purport to be appraisals or necessarily reflect the prices at which companies or
their securities may actually be sold. Because such estimates are inherently
subject to uncertainty, none of Ambanc, AFSALA or Sandler O'Neill assumes
responsibility for their accuracy.
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Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of Ambanc Common Stock on
April 20, 1998 of $19.25 and an Exchange Ratio of 1.07, Sandler O'Neill
calculated an implied transaction value per share of AFSALA of $20.60. Based
upon AFSALA's December 31, 1997 financial information and an Exchange Ratio of
1.07, Sandler O'Neill calculated the price to tangible book value, price to last
twelve months' normalized earnings and deposit premium. This analysis yielded a
price to tangible book value multiple of 141%, a price to last twelve months'
earnings multiple of 22.15x and a deposit premium of 6.68%.
Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of Ambanc Common Stock and AFSALA Common Stock, and
the relationship between the movements in the prices of Ambanc Common Stock and
AFSALA Common Stock, respectively, to movements in certain stock indices,
including the Standard & Poor's 500 Index, the Nasdaq Banking Index and a
selected composite group of publicly traded savings institutions (identified
below).
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Ambanc, AFSALA and two groups of selected institutions. The first group
consisted of Ambanc and AFSALA and the following thirteen publicly traded New
York savings institutions (the "Regional Group"): Flushing Financial Corp., MSB
Bancorp, Inc., Carver Bancorp Inc., Warwick Community Bancorp, Yonkers Financial
Corp., Financial Bancorp Inc., Catskill Financial Corp., Skaneateles Bancorp
Inc., The Elmira Savings Bank, Peekskill Financial Corp., SFS Bancorp Inc., GSB
Financial Corp. and Albion Banc Corp. Sandler O'Neill also compared Ambanc and
AFSALA to a group of fifteen publicly traded savings institutions which had a
return on equity (based on last twelve months' earnings) of greater than 16% and
a price-to-tangible book value of greater than 210% (the "Highly-Valued Group").
The Highly-Valued Group was comprised of Metropolitan Financial Corp., CFSB
Bancorp Inc., People's Bancshares Inc., Great Southern Bancorp Inc., NASB
Financial Inc., Home Federal Bancorp, MetroWest Bank, Coastal Financial Corp.,
Highland Bancorp Inc., Progress Financial Corp., PVF Capital Corp., Warren
Bancorp Inc., Lawrence Savings Bank, First Citizens Corp. and Ipswich Savings
Bank. The analysis compared publicly available financial information for Ambanc
and AFSALA and the median data for each of the Regional Group and the Highly-
Valued Group as of and for each of the years ended December 31, 1992 through
December 31, 1997.
Analyses of Selected Merger Transactions. Sandler O'Neill reviewed 62
transactions announced from April 16, 1997 to April 17, 1998 (the "Analysis
Period") involving publicly traded savings institutions as acquired institutions
with transaction values greater than $10 million and less than $200 million
("Nationwide Transactions") and 18 transactions announced during the Analysis
Period involving publicly traded savings institutions in New York, Pennsylvania,
Massachusetts, New Jersey, Connecticut and New Hampshire as acquired
institutions with transaction values greater than $10 million and less than $200
million ("Regional Transactions"). Sandler O'Neill reviewed the ratios of
transaction value to last twelve months' net income, transaction value to
tangible book value, transaction value to book value, tangible book premium to
core deposits, transaction value to total deposits and transaction value to
total assets and computed high, low, mean and median ratios and premiums for the
respective groups of transactions. These multiples were applied to AFSALA's
financial information as of and for the twelve months ended December 31, 1997.
Based upon the median multiples for Nationwide Transactions, Sandler O'Neill
derived an imputed range of values per share of AFSALA Common Stock of $18.40 to
$26.97. Based upon the median multiples for Regional Transactions, Sandler
O'Neill derived an imputed range of values per share of AFSALA Common Stock of
$18.31 to $29.78.
No company involved in the transactions included in the above analysis is
identical to Ambanc or AFSALA and no transaction included in the above analysis
is identical to the Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Ambanc and AFSALA and the companies to which they are being
compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of AFSALA through the year 2002 under various
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circumstances, assuming AFSALA performed in accordance with the earnings
forecasts of its management and certain variations thereof. To approximate the
terminal value of AFSALA Common Stock at December 31, 2002, Sandler O'Neill
applied price to earnings multiples ranging from 10x to 28x and applied
multiples of tangible book value ranging from 110% to 200%. The dividend income
streams and terminal values were then discounted to present values using
different discount rates (ranging from 9% to 14%) chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of AFSALA Common Stock. This analysis, assuming the current dividend payout
ratio and management's earnings forecasts, indicated an imputed range of values
per share of AFSALA Common Stock of between $10.85 and $34.66 when applying the
price to earnings multiples, and an imputed range of values per share of AFSALA
Common Stock of between $13.07 and $28.12 when applying multiples of tangible
book value. In connection with its analysis, Sandler O'Neill used sensitivity
analyses to consider the effects changes in the underlying assumptions
(including variations with respect to the growth rate of assets, net interest
spread, non-interest income, non-interest expenses and dividend payout ratio)
would have on the resulting present value.
Sandler O'Neill noted that the discounted dividend stream and terminal
value analysis is a widely used valuation methodology, but the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, and the results thereof are not necessarily indicative of actual values or
actual future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the Merger on Ambanc, based upon an Exchange Ratio of 1.07,
Ambanc's and AFSALA's current and projected income statements and balance
sheets, and assumptions regarding the economic environment, accounting and tax
treatment of the Merger, charges associated with the Merger, operating
efficiencies and other adjustments discussed with the senior managements of
Ambanc and AFSALA. This analysis indicated that the Merger would be accretive
to Ambanc's earnings per share in all periods analyzed, and slightly dilutive to
tangible book value per share of Ambanc's Common Stock through the end of 1999
and accretive thereafter. The actual results achieved by Ambanc may vary from
projected results and the variations may be material.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total securities, total net loans, total
deposits, total borrowings, total tangible equity, and last twelve months'
("LTM") net income to be made by Ambanc and AFSALA to the combined institution
based on data at and for the twelve months ended December 31, 1997. This
analysis indicated that AFSALA's implied contribution was 23.9% of total assets,
27.0% of total securities, 21.3% of total net loans, 29.0% of total deposits,
1.6% of total borrowings, 24.7% of total tangible equity, and 30.8% of LTM net
income. Based upon an Exchange Ratio of 1.07, holders of the AFSALA Common
Stock would own approximately 25.2% of the outstanding shares of the combined
institution.
In connection with rendering its April 21, 1998 opinion, Sandler O'Neill
reviewed, among other things: (i) the Merger Agreement and exhibits thereto;
(ii) the Stock Option Agreement; (iii) certain publicly available financial
statements of Ambanc and other historical financial information provided by
Ambanc that Sandler O'Neill deemed relevant; (iv) certain publicly available
financial statements of AFSALA and other historical financial information
provided by AFSALA that Sandler O'Neill deemed relevant; (v) certain financial
analyses and forecasts of Ambanc prepared by and reviewed with management of
Ambanc and the views of senior management of Ambanc regarding Ambanc's past and
current business operations, results thereof, financial condition and future
prospects; (vi) certain financial analyses and forecasts of AFSALA prepared by
and reviewed with management of AFSALA and the views of senior management of
AFSALA regarding AFSALA's past and current business operations, results thereof,
financial condition and future prospects; (vii) the pro forma impact of the
Merger on Ambanc; (viii) the publicly reported historical price and trading
activity for Ambanc's and AFSALA's common stock, including a comparison of
certain financial and stock market information for Ambanc and AFSALA with
similar publicly available information for certain other companies the
securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as
Sandler O'Neill considered relevant.
In connection with rendering the Sandler O'Neill Fairness Opinion, Sandler
O'Neill confirmed the appropriateness of its reliance on the analyses used to
render its April 21, 1998 opinion by performing procedures to
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update certain of such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon, without independent verification, the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler O'Neill does not assume any responsibility or liability therefor.
Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities (contingent
or otherwise) of Ambanc or AFSALA or any of their subsidiaries, or the
collectibility of any such assets, nor was it furnished with any such
evaluations or appraisals. Sandler O'Neill is not an expert in the evaluation
of allowances for loan losses and it has not made an independent evaluation of
the adequacy of the allowance for loan loses of Ambanc or AFSALA, nor has it
reviewed any individual credit files relating to Ambanc or AFSALA. With
Ambanc's consent, Sandler O'Neill has assumed that the respective aggregate
allowances for loan losses for both Ambanc and AFSALA are adequate in all
material respects and will be adequate on a pro forma basis for the combined
entity. In addition, Sandler O'Neill has not conducted any physical inspection
of the properties or facilities of Ambanc or AFSALA. With respect to all
financial information and projections reviewed with each company's management,
Sandler O'Neill assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of Ambanc
and AFSALA and that such performances will be achieved. Sandler O'Neill
expressed no opinion as to such financial projections or the assumptions on
which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the Merger
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements and that the conditions precedent in the Merger
Agreement are not waived. Sandler O'Neill also assumed, with Ambanc's consent,
that there has been no material change in Ambanc's and AFSALA's assets,
financial condition, results of operations, business, or prospects since the
date of the last consolidated financial statements made available to them, that
the Merger will be accounted for using the purchase method of accounting, that
Ambanc and AFSALA will remain as going concerns for all periods relevant to its
analyses and that the Merger will qualify as a tax-free reorganization for
federal income tax purposes.
Under the Sandler O'Neill Agreement, Ambanc will pay Sandler O'Neill a
transaction fee in connection with the Merger, a substantial part of which is
contingent upon the consummation of the Merger. Under the terms of the Sandler
O'Neill Agreement, Ambanc will pay Sandler O'Neill a transaction fee of
$150,000, of which $50,000 has been paid and the remainder of which will be paid
when the Merger is consummated. Sandler O'Neill has also received a retainer fee
of $25,000 and a fee of $50,000 for rendering its fairness opinion. Ambanc has
also agreed to reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with its engagement up to a maximum of $7,500
and to indemnify Sandler O'Neill and its affiliates and their respective
partners, directors, officers, employees, agents and controlling persons against
certain expenses and liabilities, including liabilities under securities laws.
Sandler O'Neill has in the past provided and may in the future provide
other financial advisory services to Ambanc and has received and will receive
compensation for such services. In the ordinary course of its business, Sandler
O'Neill may actively trade the equity securities of Ambanc and AFSALA and their
respective affiliates for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
OPINION OF AFSALA'S FINANCIAL ADVISOR
As of March 13, 1998, AFSALA retained FinPro, a financial consulting firm,
on the basis of FinPro's experience, to render a written fairness opinion to the
AFSALA Board and stockholders of AFSALA. FinPro has been in the business of
consulting for the banking and thrift industries for ten years, including the
appraisal and valuation of banking and thrift institutions and their securities
in connection with mergers, acquisitions and other transactions. FinPro has
knowledge of and experience with the New York banking and thrift market and
financial
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organizations operating in that market. FinPro reviewed the negotiated terms of
the Merger Agreement, including governance matters.
Prior to being retained for this assignment, FinPro had provided
professional services and products to AFSALA. The revenues derived from such
services and products are insignificant when compared to the FinPro's total
gross revenues. FinPro is not affiliated in any way with AFSALA or Ambanc or
their respective affiliates.
On April 21, 1998, in connection with its consideration of the Merger
Agreement, FinPro issued an oral opinion to the AFSALA Board that, in its
opinion as financial consultants, the Exchange Ratio established as part of the
Merger as provided in the Merger Agreement was fair and equitable, from a
financial perspective, to AFSALA and its stockholders. On May 20, 1998 a
written opinion confirming the oral opinion was submitted. A copy of the
opinion, updated as of the date of this Joint Proxy Statement/Prospectus, is
attached as Appendix IV to this Joint Proxy Statement/Prospectus and should be
read in its entirety by AFSALA stockholders. FinPro's written opinion does not
constitute an endorsement of the Merger or a recommendation to any stockholder
as to how such stockholder should vote at the AFSALA Special Meeting.
In rendering its opinion, FinPro reviewed certain publicly available
information concerning AFSALA and Ambanc, including each party's audited
financial statements and annual and quarterly reports filed with the SEC. FinPro
considered many factors in making its evaluation. In arriving at its opinion
regarding the fairness of the transaction, FinPro also reviewed: (i) the Merger
Agreement dated April 23, 1998; (ii) the most recent independent auditors'
reports to the Boards of Directors of each organization; (iii) the March 31,
1998 Report of Condition and Income for each organization; (iv) the Rate
Sensitivity Analysis reports for each organization; (v) each organization's
listing of marketable securities showing rate, maturity, and market value as
compared to book value; (vi) each organization's internal loan classification
list; (vii) a listing of other real estate owned for each organization; (viii)
the budget and long range operating plan of each organization; (ix) the minutes
of the Board of Directors meetings for each organization; (x) the most recent
Board report for AFSALA; (xi) the listing and description of significant real
properties for each organization; and (xii) the directors and officers liability
and blanket bond insurance policies for each organization. FinPro led due
diligence on Ambanc as part of a team that included, among others,
representatives of AFSALA. FinPro conducted an on-site review of each
organization's historical performance and current financial condition and
performed a market area analysis.
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In addition, FinPro discussed with the management of AFSALA and Ambanc the
relative operating performance and future prospects of each organization,
primarily with respect to the current level of their earnings and future
expected operating results, giving weight to FinPro's assessment of the future
of the thrift industry and each organization's performance within the industry.
FinPro compared the results of operations of AFSALA and Ambanc with the results
of operations of all New York Savings Institutions.
<TABLE>
<CAPTION>
New York New York
Public Thrift Public Thrift
AFSALA Ambanc Average Median
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Return on Average Assets 0.77% 0.56% 0.82% 0.82%
Return on Average Equity 5.65% 4.52% 7.44% 6.72%
Asset Growth During 1997 4.38% 8.05% 11.06% 8.05%
Yield on Interest Bearing Assets 7.33% 7.42% 7.53% 7.42%
Cost of Interest Bearing Liabilities 4.44% 4.94% 4.42% 4.44%
Net Interest Margin 3.57% 3.32% 3.64% 3.71%
Non-interest Income/Average Assets 0.26% 0.21% 0.35% 0.28%
Operating Expense/Average Assets 2.07% 2.20% 1.84% 1.80%
Non-performing Assets/Total Assets 0.31% 0.58% 0.90% 0.70%
Loan Loss Reserves/Loans 1.44% 1.34% 1.05% 1.04%
Loan Loss Reserves/Non-performing Assets 221.60% 129.09% 97.09% 83.49%
Efficiency Ratio 63.55% 69.81% 57.38% 54.52%
Tangible Capital/Assets 13.00% 9.88% 10.21% 8.57%
Core Capital/Risk Adjusted Assets 29.70% 23.42% 22.48% 17.50%
</TABLE>
Source: The SNL DataSource, SNL Securities, Year End 1997 Data
Many variables affect the value of savings institutions, not the least of
which is the uncertainty of future events, so that the relative importance of
the valuation variable differs in different situations, with the result that
appraisal theorists argue about which variables are the most appropriate ones on
which to focus. However, most appraisers agree that the primary financial
variables to be considered are earnings, equity, dividends or dividend-paying
capacity, asset quality and cash flow. In addition, in most instances, if not
all, value is further tempered by non-financial factors such as marketability,
voting rights or block size, history of past sales of the company's stock,
nature and relationship of the other shareholdings in the company, and special
ownership or management considerations.
FinPro analyzed the total transaction price for the Merger on a cash
equivalent fair market value basis using the standard evaluation techniques (as
discussed below) including comparable sales multiples, net present value, return
on investment and the price equity index based on certain assumptions of
projected growth, earnings and dividends.
Net Asset Value. Net asset value is the value of the net equity of a
thrift, including every kind of property and value. This approach normally
assumes liquidation on the date of appraisal with the recognition of securities
gains or losses, real estate appreciation or depreciation, adjustments to the
loan loss reserve, discount to the loan portfolio and changes in the net value
of other assets. As such, it is not the best approach to use when valuing a
going concern, because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect prevailing
prices and yields (which is often of limited accuracy because readily available
data is often lacking), it still results in a liquidation value for the concern.
Furthermore, since this method does not take into account the values
attributable to the going concern such as the interrelationship among the
company's assets and liabilities, customer relations, market presence, image and
reputation, and staff expertise and depth, little weight is given by FinPro to
the net asset value method of valuation.
Market Value. Market value is generally defined as the price, established
on an "arms-length" basis, at which knowledgeable, unrelated buyers and sellers
would agree. Market value is frequently used to determine the price of a
minority block of stock when both the quantity and the quality of the
"comparable" data are deemed sufficient.
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However, the relative thinness of the specific market for the stock of the
thrift institution being appraised may result in the need to review alternative
markets for comparative pricing purposes. The "hypothetical" market value for a
small thrift with a thin market for its stock is normally determined by
comparison to the average price to earnings, price to equity and dividend yield
of local or regional publicly-traded thrift issues, adjusting for significant
differences in financial performance criteria and for any lack of marketability
or liquidity. The market value in connection with the evaluation of control of a
thrift is determined by the previous sales of thrifts in the state or region. In
valuing a business enterprise, when sufficient comparable trade data is
available, the market value deserves greater weight than the net asset value and
similar emphasis as the investment value as discussed below.
FinPro maintains substantial files concerning the prices paid for thrift
institutions nationwide. The database includes transactions involving New York
thrift organizations and thrift organizations in the Mid Atlantic region of the
United States over the last five years. The database provides comparable
pricing and financial performance data for thrift organizations sold or
acquired. Organized by different peer groups, the data present averages of
financial performance and purchase price levels, thereby facilitating a valid
comparative purchase price analysis. In analyzing the transaction value of
AFSALA, FinPro has considered the market approach and has evaluated price to
earnings and price to equity multiples of all New York savings institution
organizations and regional savings institution organizations with deal values of
less than $50 million.
Comparable Sales Multiples. FinPro calculated an "Adjusted Equity Value"
of $22.68 per share, based on AFSALA's March 31, 1998 equity and the median
price to book value multiple of 1.6393 for New York thrift organizations sold
between March 31, 1995 and March 31, 1998. FinPro calculated an "Adjusted
Earnings Value" of $14.16 per share, based on AFSALA's March 31, 1998 adjusted
quarterly earnings annualized and the median price to earnings multiple of 15.49
for New York thrift organizations sold between March 31, 1995 and March 31,
1998. FinPro calculated and "Adjusted Equity Value" of $21.39 per share, based
on AFSALA's March 31, 1998 equity and the median price to book value multiple of
1.5462 for New Jersey, New York, Pennsylvania, Maryland and Delaware thrift
organizations with a deal value less than $50 million sold between March 31,
1995 and March 31, 1998. FinPro calculated an "Adjusted Earnings Value" of
$18.18 per share, based on AFSALA's March 31, 1998 adjusted quarterly earnings
annualized and the median price to earnings multiple of 19.88x for New Jersey,
New York, Pennsylvania, Maryland and Delaware organizations with a deal value
less than $50 million sold between March 31, 1995 and March 31, 1998. The
financial performance characteristics of the regional banking organizations
vary, sometimes substantially, from those of AFSALA. When the variance is
significant for relevant performance factors, adjustments to the price multiples
are appropriate when comparing them to the transaction value.
Investment Value. The investment value is sometimes referred to as the
income value or earnings value. One investment value method frequently used
estimates the present value of an enterprise's future earnings or cash flow.
Another common investment value method is to determine the level of current
annual benefits (earnings, cash flow, dividends, etc.), and then capitalize one
or more of the benefit types using an appropriate capitalization rate such as an
earnings or dividend yield. Yet another method of calculating investment value
is a cash flow analysis of the ability of a thrift institution to service
acquisition debt obligations (at a certain price level) while providing
sufficient earnings for reasonable dividends and capital adequacy requirements.
In connection with the cash flow analysis, the return on investment that would
accrue to a prospective buyer at the transaction value is calculated. The
investment value methods which were analyzed in connection with this transaction
were the net present value analysis, and the return on investment analysis,
which are discussed below.
Net Present Value Analysis. The investment of earnings value of any thrift
institution's stock is an estimate of present value of the future benefits,
usually earnings, cash flow or dividends, which will accrue to the stock. An
earnings value is calculated using the March 31, 1998 quarterly figures as a
base, assuming a consistent return on equity and assuming annual future earnings
stream over a period of time of no less than ten years and the residual value of
the institution assumed to be the acquisition value based on the acquisition
price to earnings multiple of Mid Atlantic thrifts between March 31, 1995 and
March 31, 1998 with a deal value of less than $50 million. FinPro's
computations were based on an analysis of the thrift industry, the economic and
competitive situations in AFSALA's market area, its current financial condition
and historical levels of growth and earnings. Using a net present value
discount rate of 10%, an acceptable discount rate considering the risk-return
relationship most investors would demand
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for an investment of this type as of the valuation date, the "Net Present Value
of Future Earnings," equaled $12.05 per share.
Return on Investment Analysis. Return on investment (ROI) analysis
analyzes the ten year return of an equity investment equal to AFSALA's book
value at March 31, 1998, (i) assuming a constant adjusted return on equity of
6.61%, with a liquidation at 19.88x (the median price to earnings multiple for
Mid Atlantic thrift acquisitions announced between March 31, 1995 and March 31,
1998 with a deal value of less than $50 million) the earnings in the year 2009;
and (ii) assuming a gradual increasing adjusted return on equity from 6.61% to
9.00%, with a liquidation at 19.88x (the median price to earnings multiple for
Mid Atlantic thrift acquisitions announced between March 31, 1995 and March 31,
1998 with a deal value of less than $50 million) the earnings in the year 2009.
Both scenarios assumed a 36% tax rate. This ROI analysis provides a benchmark
for assessing the validity of the fair market value of a majority block of
stock. The ROI analysis is one approach to valuing a going concern, and is
directly impacted by the earnings stream, dividend payout levels and levels of
debt, if any. Other financial and non-financial factors indirectly affect the
ROI; however, these factors more directly influence the level of ROI an investor
would demand from an investment in a majority block of stock of a specific
thrift at a certain point in time. The ROI, assuming a constant return on
equity with liquidation at 19.88x earnings per share in 2009 is 3.66%. The ROI,
assuming a gradual increasing in return on equity with liquidation at 19.88x
earnings per share in 2009, is 6.97%.
Price Equity Index Analysis. Furthermore, a price level indicator, the
equity index, may be used to confirm the validity of the transaction value. The
equity index adjusts the price to equity multiple in order to facilitate a more
accurate price level comparison with comparable thrift institutions, regardless
of differing levels of equity capital. The equity index is derived by
multiplying the price to equity multiple by the equity-to-assets ratio. The
following table sets forth the average price equity indices for all New York
transactions, for transactions in New Jersey, New York, Pennsylvania, Maryland
and Delaware for transactions less than $50 million, and for AFSALA. For
AFSALA, the transaction value was calculated as the conversion ratio of 1.07
shares of Ambanc Common Stock for each share of AFSALA Common Stock outstanding
times a market price of $19.00 per share for Ambanc Common Stock.
<TABLE>
<CAPTION>
Price Equity Index
------------------
<S> <C>
AFSALA 17.42
New York Thrift Median 15.18
Thrifts in the Mid Atlantic Region with a
Deal Size Less Than $50 Million, Median 15.29
</TABLE>
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to-transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net present
value analysis. In FinPro's experience with thrift majority block stock
valuations, it has determined that a relationship does exist between the net
present value of an "average" thrift organization and the transaction value of a
majority block of the thrift organization's stock. The transaction value-to-net
present value ratio equals 168.69% for AFSALA, which falls within FinPro's
expected range. There are many other factors to consider, when valuing a going
concern, which do not directly impact the earnings stream and the net present
value but which do exert a degree of influence over the fair market value of a
going concern. These factors include, but are not limited to, the general
condition of the industry, the economic and competitive situations in the market
area and the expertise of the management of the organization being valued.
When the net asset value, market value and investment value methods are
subjectively weighed, using the appraiser's experience and judgment, it is
FinPro's opinion that the proposed transaction is fair.
FinPro considered this transaction as a merger of equals rather than a
purchase. Consideration was given to the levels of earnings per share, equity
per share and dividends per share appreciation or dilution percentages between
the merger partners over the next three to five years after consummation. A
merger is usually completed with the hopes of realizing economies of scale and
earnings enhancement opportunities, thereby providing a benefit to AFSALA
stockholders that otherwise might not be attainable. To justify the fairness of
the transaction for AFSALA stockholders, it is important to project, based upon
realistic projections of future performance, a positive
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impact for AFSALA stockholders. FinPro projected that AFSALA stockholders will
have a higher level of earnings per share, equity per share and dividends per
share after the Merger with Ambanc than they would on a stand-alone basis. The
primary focus has been on short-term and long-term earnings per share, equity
per share and dividends per share appreciation potential for AFSALA
stockholders.
Neither AFSALA nor Ambanc imposed any limitations upon the scope of the
investigation to be performed by FinPro in formulating its opinion. In
rendering its opinion, FinPro did not independently verify the asset quality and
financial condition of AFSALA or Ambanc, but instead relied upon the data
provided by or on behalf of AFSALA and Ambanc to be true and accurate in all
material respects.
For its services as AFSALA's financial advisor for the Merger, including
the rendering of its opinion referred to above, AFSALA has paid FinPro aggregate
fees of $125,000. AFSALA also agreed to reimburse FinPro for reasonable out-of-
pocket expenses.
EFFECTIVE TIMES AND CLOSING
The closing of the Merger (the "Closing") is to occur as promptly as
practicable after the adoption of the Merger Agreement by the stockholders of
Ambanc and AFSALA and within 30 days of the satisfaction or waiver of all
relevant conditions of the Merger Agreement. The Acquisition Merger Effective
Time will occur upon the filing by Ambanc and AFSALA of a certificate of merger
with the Secretary of State of the State of Delaware and the Bank Merger
Effective Time will occur upon endorsement of the articles of combination by the
OTS.
NO APPRAISAL RIGHTS
In accordance with the Delaware General Corporation Law, Ambanc's and
AFSALA's stockholders do not have appraisal rights in connection with the
transactions contemplated by the Merger Agreement.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Acquisition Merger Effective Time but not
later than ten business days thereafter, the exchange agent retained by Ambanc
(the "Exchange Agent") will send a notice and transmittal form to each AFSALA
stockholder of record at such date whose shares of AFSALA Common Stock have been
converted into shares of Ambanc Common Stock, advising such stockholder of the
effectiveness of the Acquisition Merger and the procedure for surrendering to
the Exchange Agent outstanding certificates formerly evidencing AFSALA Common
Stock in exchange for new certificates of Ambanc Common Stock and for cash in
lieu of any fractional interest. Promptly following receipt of such notice and
transmittal form, holders of AFSALA Common Stock should surrender their
certificates in accordance with the specified procedures. Upon surrender, each
AFSALA Common Stock certificate will be canceled.
Until surrendered, certificates that prior to the Acquisition Merger
Effective Time represented shares of AFSALA Common Stock will be deemed for all
purposes to evidence ownership of the number of shares of Ambanc Common Stock
into which the shares of AFSALA Common Stock formerly represented thereby were
converted and the right to receive cash in lieu of any fractional interest.
Until such certificates are so surrendered, no dividend or distribution payable
to holders of Ambanc Common Stock as of any record date subsequent to the
Acquisition Merger Effective Time will be paid to the holders of such
certificates. However, upon surrender of such certificates, there will be paid
to the record holder of the certificates of Ambanc Common Stock issued in
exchange therefor the amount of dividends or distributions that theretofore have
become payable with respect to such shares of Ambanc Common Stock along with the
amount of cash, if any, payable to the holder in lieu of fractional shares. No
interest will be payable with respect to such dividends or cash paid in lieu of
fractional shares.
If any certificate for shares of Ambanc Common Stock is to be issued in a
name other than the name in which the surrendered certificate is registered, it
will be a condition of issuance that the certificate so surrendered be properly
endorsed and otherwise in proper form for transfer and that the person
requesting the issuance of such certificate either pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of the
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certificate in a name other than the registered holder of the certificate
surrendered or establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
HOLDERS OF AFSALA COMMON STOCK SHOULD NOT SURRENDER THEIR CERTIFICATES
UNTIL THEY RECEIVE WRITTEN INSTRUCTIONS FROM THE EXCHANGE AGENT.
THE BANK MERGER
Following the Acquisition Merger, AFSALA Bank will merge with and into the
Savings Bank, with the Savings Bank as the surviving institution. The Bank
Merger will be undertaken subject to and upon the terms and conditions contained
in the Merger Agreement and in the Plan of Merger between AFSALA Bank and the
Savings Bank. At the Bank Merger Effective Time, the shares of AFSALA Bank
common stock issued and outstanding immediately prior thereto will be canceled
and the shares of capital stock of the Savings Bank outstanding immediately
prior thereto will constitute the only outstanding shares of capital stock of
the Savings Bank. Following consummation of the Bank Merger, the charter and
bylaws of the Savings Bank in effect immediately before the Bank Merger will be
the charter and bylaws of the Savings Bank immediately after the Bank Merger,
the current home office of the Savings Bank will continue to be the home office
of the Savings Bank, the former home office of AFSALA Bank and all branch
offices of the Savings Bank and former branches of AFSALA Bank will, to the
extent provided in the Plan of Merger for the Bank Merger, be branch offices of
the Savings Bank and the liquidation account established by AFSALA Bank in
connection with its conversion from mutual to stock form will be assumed in full
by the Savings Bank. Following the Bank Merger, the Savings Bank will operate
under the name "Mohawk Community Bank." For additional information, see
"--Management after the Merger," and "--Interests of Certain Persons in the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors, officers and employees of AFSALA and Ambanc may be
deemed to have certain interests in the Merger in addition to their interests
generally as stockholders of AFSALA and Ambanc. These interests are summarized
below.
Employment Agreements and Arrangements. The Merger Agreement provides that
by January 1, 1999, or sooner by mutual consent, the Ambanc Board shall appoint
John M. Lisicki, the Chairman, President and Chief Executive Officer of AFSALA
and AFSALA Bank, as President and Chief Executive Officer of Ambanc. Immediately
upon the Bank Merger Effective Time, Ambanc and the Savings Bank's Board of
Directors are to appoint Mr. Lisicki as President and Chief Executive Officer of
the Savings Bank. Mr. Lisicki will be employed under terms providing
compensation and benefits at no less than the amounts payable under his current
employment agreement with AFSALA and AFSALA Bank. Mr. Lisicki's proposed annual
salary would therefore amount to $164,400. In addition, the Merger Agreement
provides that Benjamin W. Ziskin, Vice President of AFSALA and AFSALA Bank, and
James J. Alescio, Treasurer and Chief Financial Officer of AFSALA and AFSALA
Bank, will become executive officers of the Savings Bank after the Merger under
terms providing compensation and benefits at no less than the amounts payable
under their current employment agreements.
Under their current employment agreements with AFSALA Bank ("Current
Agreements"), in the event that Mr. Lisicki's, Ziskin's or Alescio's employment
is involuntarily terminated in connection with or within 12 months after a
change in control of AFSALA or AFSALA Bank, such individual shall be paid an
amount (a "termination amount") equal to 2.99 times his "base amount" (as
defined under Section 280G of the Code), payable either in a lump sum or in
periodic payments over 36 months or the remaining term of the employment
agreement. If Messrs. Lisicki, Ziskin and Alescio had been entitled to receive
termination amounts as of July 27, 1998, such amounts would have been $336,332,
$197,301 and $143,482, respectively. Ambanc has agreed to honor and assume the
obligations of the Current Agreements following the Merger. Alternatively,
Messrs. Lisicki, Ziskin and Alescio may waive their rights under the Current
Agreements, including their rights to the termination payment described above,
and become parties to new employment agreements with Ambanc and the Savings Bank
("New Agreements").
Each New Agreement would provide for a minimum base salary in the amount of
the officer's current base salary (plus, in the case of Mr. Lisicki, the amount
of his current Board fees) and for the payment of bonuses in the discretion of
the Board of Directors of Ambanc and the Savings Bank. Total compensation under
each New Agreement may not be less than the annual total value of the
compensation and benefits under the Current Agreements. Mr. Lisicki's New
Agreement would be for a term of three years and
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Messrs. Ziskin's and Alescio's New Agreements would be for terms of two years,
each commencing on the date of the Closing ("Commencement Date"). The term of
each New Agreement would be extended for an additional year (in addition to the
then-remaining term) on the first anniversary of the Commencement Date and on
each anniversary thereafter, subject to approval of the Boards of Directors of
such extension. The New Agreements would entitle the officers to participate in
all employee benefit and retirement plans in which the Savings Bank's and
Ambanc's executive officers participate.
Under each New Agreement, if the officer's employment were involuntarily
terminated by Ambanc or the Savings Bank other than in connection with a change
in control or for cause, then (i) the Savings Bank and Ambanc would be required
to pay to the officer during the remaining term of the New Agreement his salary
at the rate in effect as of the date of termination and (ii) the Savings Bank
and Ambanc would be required to provide to the officer during the remaining term
of the New Agreement substantially the same benefits as the Savings Bank and
Ambanc maintained for their executive officers immediately prior to the date of
termination. Each New Agreement would provide that if the officer's employment
were terminated in connection with or within 12 months after a change in
control, the officer would be entitled to receive from Ambanc and the Savings
Bank a lump sum payment in cash of an amount equal to 299% of the officer's
"base amount" and substantially the same health benefits as the Savings Bank and
Ambanc maintained for their executive officers immediately prior to the change
in control.
Change in Control Severance Agreements. On April 21, 1998, AFSALA Bank
entered into change in control severance agreements (the "Change in Control
Agreements") with three non-executive officer employees of AFSALA Bank. Each
Change in Control Agreement provides for a term of one year, which may be
extended for an additional one year period in the discretion of AFSALA Bank's
Board of Directors, on or before each annual anniversary of the effective date
of the Change in Control Agreement. Under each Change in Control Agreement, in
the event of the involuntary termination of the employee's employment (other
than for "just cause") in connection with or within 12 months after a change in
control of AFSALA or AFSALA Bank (which occurred upon execution of the Merger
Agreement), the employee shall be entitled to be paid an amount equal to 100% of
the compensation paid by AFSALA Bank to the employee during the 12 month period
prior to the change in control (the "Severance Payment"), and the costs
associated with maintaining coverage under AFSALA Bank's medical and dental
insurance reimbursement plans similar to that in effect on the termination date
for a period of one year thereafter (the "Severance Benefit"). The Severance
Payment would be paid, at the option of the employee, over the 12 month period
following termination of employment or in one lump sum payment paid within 30
days of such termination. The Severance Payment and Severance Benefit would be
reduced to the extent necessary such that the amounts of the Severance Payment
and Severance Benefit, when added to all other payments to be made by AFSALA or
AFSALA Bank to the employee, do not constitute an "excess parachute payment"
within the meaning of Section 280G of the Code.
Each Change in Control Agreement also provides that the employee may
voluntarily terminate her employment within 12 months following a change in
control of AFSALA or AFSALA Bank and receive the Severance Payment and Severance
Benefit, upon the occurrence of or within 90 days after any of the following
events which have not been consented to in writing by the employee: (i) the
employee is required to move her principal residence to or perform her principal
employment functions at a location more than 35 miles from the employee's
current primary office; (ii) in the organizational structure of AFSALA and
AFSALA Bank, the employee is required to report to a person or persons at a
management level below the reporting level in effect prior to the change in
control; (iii) the employee's base salary and employee benefits received as of
the date of the change in control are not maintained by AFSALA or AFSALA Bank;
(iv) the employee is assigned duties and responsibilities other than those
normally associated with her current position; or (v) the employee's
responsibilities or authority have in any way been materially diminished or
reduced.
Based on compensation paid by AFSALA Bank within the 12 month period
preceding the date of the Merger Agreement to the three employees who are
parties to Change in Control Agreements, it is expected that the aggregate
amount of the Severance Payments that would be payable to such employees, if
they are entitled to such payments under the terms of their respective
agreements, would be approximately $119,451.
Consulting and Termination Agreements with Robert J. Brittain. In order to
facilitate the Merger, Robert J. Brittain, a director of Ambanc and the Savings
Bank, retired as President and Chief Executive Officer of Ambanc
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and the Savings Bank effective June 30, 1998. In connection with his retirement
as President and Chief Executive Officer, Mr. Brittain executed termination and
consulting agreements with Ambanc and the Savings Bank whereby his employment
agreement with the Savings Bank (which was to expire on December 31, 1999)
terminated effective June 30, 1998 and he will serve as a consultant to Ambanc
and the Savings Bank through December 31, 2000.
Under the termination agreement, in exchange for not becoming associated
directly or indirectly with any competitor of Ambanc or the Savings Bank until
December 31, 2000, whether as a shareholder (other than as a holder of not more
than 1% of the outstanding voting shares of a publicly traded company), partner,
employee or consultant, Mr. Brittain is entitled to receive $40,000 for each
year such restriction is in effect (1998, 1999 and 2000), payable on a monthly
basis.
The consulting agreement calls for Mr. Brittain to provide such consulting
services to Ambanc and the Savings Bank as the Chairman of the Board or
President and Chief Executive Officer of Ambanc and/or the Savings Bank may
reasonably request. Mr. Brittain's major responsibility is to assist the
Chairman and the President, at their request, in evaluating strategic
alternatives for current and future business needs of Ambanc and the Savings
Bank. For his services under the consulting agreement and in lieu of any
payments otherwise due under his terminated employment agreement, Mr. Brittain
is entitled to receive an annual fee of $171,175, payable in monthly or semi-
monthly installments. Ambanc and the Savings Bank must also pay for medical
insurance coverage for Mr. Brittain and his wife on the same basis as is
provided to senior executives through December 31, 1999 and must allow Mr.
Brittain to pay for such coverage for himself and his wife, as a participant in
Ambanc's or the Savings Bank's medical insurance plans, for the period from
January 1, 2000 through the date on which Mr. Brittain becomes eligible to
receive Medicare benefits. Mr. Brittain is entitled to be reimbursed by Ambanc
and the Savings Bank for normal travel expenses, if any, incurred in connection
with performing his services under the consulting agreement, and is entitled to
be provided secretarial, telephone and other support services as well as other
equipment which Mr. Brittain reasonably requests to assist him in the
performance of his services under the consulting agreement.
The consulting agreement also provides that Mr. Brittain shall be
compensated for his service as a director or advisory director of Ambanc and/or
the Savings Bank at the rate of $1,150 per month of service from January 1, 1999
until at least May 23, 2001, and be nominated as necessary to enable him to
remain a director or advisory director of Ambanc and/or the Savings Bank until
at least May 23, 2001. So long as Mr. Brittain serves as a director or advisory
director of Ambanc or the Savings Bank, he will continue to vest in his options
to purchase Ambanc Common Stock and restricted shares of Ambanc Common Stock.
As of July 24, 1998, Mr. Brittain held an option to purchase 100,312 shares of
Ambanc Common Stock at an exercise price of $13.75 per share; as of such date
25% of the option had vested (i.e., became exercisable), with the remaining 75%
scheduled to vest in equal annual installments on May 23, 1999, 2000 and 2001,
respectively. As of July 24, 1998, 6,778 of 27,111 restricted shares of Ambanc
Common Stock awarded to Mr. Brittain had vested; the remaining 20,333 unvested
restricted shares are scheduled to vest in equal annual installments on May 23,
1999, 2000 and 2001, respectively. The total compensation Mr. Brittain is
expected to receive under the consulting and termination agreements is
approximately $173,000 greater than the total compensation he would have
received under his terminated employment agreement.
As a result of his retirement, Mr. Brittian forfeited his right to receive
future allocations under the Ambanc Holding Co., Inc. Employee Stock Ownership
Plan (the "Ambanc ESOP"). The value of Mr. Brittain's allocation under the
Ambanc ESOP for 1997 was approximately $54,000.
Directors. The Merger Agreement provides that on or before the Acquisition
Merger Effective Time, Ambanc shall create four new positions on the Ambanc
Board, to be filled with persons selected by AFSALA in consultation with Ambanc,
including Mr. Lisicki. The Merger Agreement also provides that on or before the
Bank Merger Effective Time, the Savings Bank shall create four new positions on
its Board of Directors, to be filled with persons selected by AFSALA Bank in
consultation with the Savings Bank, including Mr. Lisicki.
Immediately following the Acquisition Merger Effective Time, Ambanc is to
create an advisory board of directors and appoint thereto three persons selected
by AFSALA, in consultation with Ambanc. Advisory directors will be paid an
advisory director board fee in an amount yet to be determined.
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Stock Options. Under the terms of the AFSALA Stock Option Plan, options
granted thereunder which have not yet vested will vest and become exercisable in
full upon a change in control of AFSALA or AFSALA Bank (which will occur upon
consummation of the Acquisition Merger). At the Acquisition Merger Effective
Time, unvested options to purchase AFSALA Common Stock granted to the directors
and executive officers of AFSALA held as of the Acquisition Merger Effective
Time will vest and become exercisable in full and convert into options to
purchase shares of Ambanc Common Stock, as follows: Mr. Lisicki: 31,131 shares
at an exercise price of $12.97 per share; Mr. Ziskin: 19,924 shares at an
exercise price of $12.97 per share; Mr. Alescio: 13,698 shares at an exercise
price of $12.97 per share; and each non-employee director: 6,225 shares at an
exercise price of $12.97 per share.
For information regarding currently exercisable stock options held by the
above-referenced persons, see "The Meetings--AFSALA Special Meeting-Voting
Securities and Certain Holders Thereof." For additional information regarding
the treatment of AFSALA stock options in the Merger, see "--Treatment of Stock
Options."
Restricted Stock. Under the terms of AFSALA Bank's Restricted Stock Plan
and Trust Agreement (the "RSP"), awards of restricted shares of AFSALA Common
Stock thereunder are held in trust and earned (i.e., released, free of
restrictions) by participants at the rate of 20% each year following the award
date. The RSP provides that upon a change in control of AFSALA or AFSALA Bank
(which will occur upon consummation of the Acquisition Merger), all outstanding
awards shall be immediately 100% earned and non-forfeitable (i.e., released to
participants, free of restrictions). At the Acquisition Merger Effective Time,
unearned awards of restricted stock held by directors and executive officers of
AFSALA as of the Acquisition Merger Effective Time will automatically be earned
in full and converted into shares of Ambanc Common Stock, as follows: Mr.
Lisicki:12,453 shares; Mr. Ziskin: 7,969 shares; Mr. Alescio: 5,418 shares; and
each non-employee director: 2,490 shares.
Indemnification and Insurance. The Merger Agreement provides that for a
period of six years following the Acquisition Merger Effective Time, Ambanc and
the Savings Bank shall indemnify, and advance expenses in matters that may be
subject to indemnification to, persons who served as directors and officers of
AFSALA or AFSALA Bank or any other subsidiaries of AFSALA on or before the
Acquisition Merger Effective Time with respect to liabilities and claims (and
related expenses, including attorney fees) made against them resulting from
their service as such prior to the Acquisition Merger Effective Time in
accordance with and subject to the requirements and other provisions of the
Certificate of Incorporation or Charter and Bylaws of AFSALA and AFSALA Bank as
in effect on the date of the Merger Agreement and applicable law. The Merger
Agreement further provides that Ambanc shall cause the persons serving as
officers and directors of AFSALA immediately prior to the Acquisition Merger
Effective Time to be covered for a period of 18 months from the Acquisition
Merger Effective Time by the directors' and officers' liability insurance policy
maintained by AFSALA (provided that Ambanc may substitute therefor policies of
at least the same coverage and amounts containing terms and conditions which are
not materially less advantageous than such policy) with respect to acts or
omissions occurring prior to the Acquisition Merger Effective Time which were
committed by such officers and directors in their capacity as such. However,
the Merger Agreement also provides that in no event shall Ambanc be required to
expend more than 150% of the amount currently expended by AFSALA on an annual
basis to maintain or procure insurance coverage for such 18 month period.
AFSALA Bank ESOP. Under the Merger Agreement, the AFSALA Bank ESOP will
terminate at the Acquisition Merger Effective Time. Prior to the Acquisition
Merger Effective Time, the ESOP Trustee will attempt to sell (the "Sale") a
sufficient number of unallocated shares of AFSALA Common Stock held by the
AFSALA Bank ESOP to retire the AFSALA Bank ESOP's outstanding debt to AFSALA
(incurred to allow the AFSALA Bank ESOP to purchase shares of AFSALA Common
Stock in AFSALA's initial public offering). Unallocated shares of AFSALA Common
Stock remaining after the Sale will, at the Acquisition Merger Effective Time,
be allocated to participant accounts on a pro rata basis based upon each
participant's compensation. Amounts held in participant accounts (including
shares which had theretofore been allocated to participant accounts) will then
immediately be distributed to participants. Based on the currently outstanding
balance of the loan from AFSALA to the AFSALA Bank ESOP and the closing price
per share of AFSALA Common Stock on the Nasdaq Stock Market on July 24, 1998 of
$18.250, if the Acquisition Merger Effective Time had occurred on such date, an
additional 7,055, 3,812, and 3,374, shares of AFSALA Common Stock would have
been allocated to the respective ESOP accounts of Messrs. Lisicki, Ziskin and
Alescio.
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EMPLOYEE BENEFIT PLANS AFTER THE MERGER
The Merger Agreement provides that employees of AFSALA and its subsidiaries
who become employees of Ambanc or a subsidiary thereof after the Acquisition
Merger Effective Time shall be eligible to participate in all benefit plans
sponsored by Ambanc or any Ambanc subsidiary to the same extent as other
similarly situated employees of Ambanc or any Ambanc subsidiary, (i) with full
credit for prior service with AFSALA or its subsidiaries for purposes of
vesting, eligibility for participation and other purposes other than determining
the amount of benefit accruals under any defined benefit plan, (ii) without any
waiting periods, evidence of insurability, or application of any pre-existing
condition limitations, and (iii) with full credit for claims arising prior to
the Acquisition Merger Effective Time for purposes of deductibles, out-of-pocket
maximums, benefit maximums and all other similar limitations for the applicable
plan year during which the Merger is consummated. Under the Merger Agreement,
Ambanc must honor all accrued vacation leave for the employees of AFSALA and its
subsidiaries following the Acquisition Merger Effective Time. Except as
otherwise provided in the Merger Agreement, AFSALA's health and dental insurance
plans will not be terminated by reason of the Merger but will continue
thereafter as plans of Ambanc until such time as the employees of AFSALA and its
subsidiaries are integrated into Ambanc's or one of its subsidiaries' health and
dental insurance plans. Ambanc and its subsidiaries are required under the
Merger Agreement to take such steps as are necessary or required to integrate
the employees of AFSALA and its subsidiaries into such plans as soon as
practicable after the Acquisition Merger Effective Time.
REPRESENTATIONS AND WARRANTIES
Ambanc and the Savings Bank and AFSALA and AFSALA Bank have made certain
representations and warranties relating to, among other things, the parties'
respective organization, corporate authority relative to the Merger Agreement,
capital stock, the filing of regulatory reports, books and records, financial
statements, compliance with laws, employee benefit plans and properties. For
detailed information on such representations and warranties, see Articles II and
III of the Merger Agreement, attached hereto as Appendix I.
COVENANTS PENDING THE ACQUISITION MERGER
In the Merger Agreement, Ambanc, the Savings Bank, AFSALA and AFSALA Bank
have agreed to use their best efforts, and to take all actions necessary or
appropriate, to consummate the transactions contemplated by the Merger
Agreement. The parties to the Merger Agreement have also agreed that prior to
the Acquisition Merger Effective Time, AFSALA and its subsidiaries, including
AFSALA Bank, will conduct their businesses only in the ordinary course, and
maintain their books and records in accordance with past practices and not take
any action that would (i) adversely affect the ability to obtain any
governmental approvals required to consummate the Merger, or (ii) adversely
affect AFSALA's ability to perform its obligations under the Merger Agreement or
the Stock Option Agreement. In addition, AFSALA may not, without the prior
written consent of Ambanc: (i) declare, set aside or pay any dividend or make
any other distribution with respect to AFSALA's capital stock, except for the
declaration and payment of regular quarterly cash dividends in an amount not to
exceed $.07 per share of AFSALA Common Stock with respect to any full calender
quarter after April 23, 1998; (ii) reacquire any of its outstanding shares of
capital stock (AFSALA repurchased 59,422 outstanding shares of AFSALA Common
Stock after obtaining Ambanc's prior consent to such repurchase); (iii) except
as provided in the Merger Agreement, issue, sell or buy any shares of capital
stock of AFSALA or any subsidiary thereof, except shares of AFSALA Common Stock
issued pursuant to the AFSALA Stock Option Plan and the Stock Option Agreement;
(iv) effect any stock split, stock dividend or other reclassification of AFSALA
Common Stock; or (v) grant any options or issue any warrants exercisable for or
securities convertible or exchangeable into capital stock of AFSALA or any
subsidiary thereof or grant any stock appreciation or other rights with respect
to shares of capital stock of AFSALA or any subsidiary thereof.
Under the Merger Agreement, AFSALA and its subsidiaries also may not,
except as provided in the Merger Agreement, without the prior written consent of
Ambanc:
(i) sell or dispose of any significant assets of AFSALA or any
subsidiary thereof other than in the ordinary course of business
consistent with past practices;
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(ii) merge or consolidate AFSALA or any subsidiary thereof with or
otherwise acquire any other entity, or file any applications or make
any contract with respect to branching by AFSALA Bank or acquire or
construct, or enter into any agreement to acquire or construct, any
interest in real property (other than with respect to security
interests in properties securing loans and properties acquired in
settlement of loans in the ordinary course) or make improvements to
real property in the aggregate in excess of $50,000;
(iii) change the articles or certificate of incorporation, charter
documents or other governing instruments of AFSALA or any subsidiary
thereof, except as provided in the Merger Agreement or as required
by law;
(iv) grant to any executive officer, director or employee of AFSALA or
any subsidiary thereof any increase in annual compensation, or any
bonus type payment, except for normal individual increases in
compensation to employees in the ordinary course of business
consistent with past practice;
(v) adopt any new or amend or terminate any existing employee benefit
plans or arrangements of any type except as contemplated by the
Merger Agreement;
(vi) authorize severance pay or other benefits for any officer, director
or employee of AFSALA or any subsidiary thereof;
(vii) incur any material indebtedness or obligation or enter into or
extend any material agreement or lease, except in the ordinary
course of business consistent with past practices;
(viii) engage in any lending activities other than in the ordinary course
of business consistent with past practices;
(ix) form any new subsidiary or cause or permit a material change in the
activities presently conducted by any subsidiary of AFSALA or make
additional investments in subsidiaries, except as provided in the
Merger Agreement;
(x) purchase any debt securities or derivative securities, including CMO
or REMIC products, that are defined as "high risk mortgage
securities" under OTS Thrift Bulletin No. 52 dated January 10, 1992
as revised or purchase certain derivatives contracts or structured
notes;
(xi) purchase any equity securities other than Federal Home Loan Bank
stock;
(xii) make any investment which would cause AFSALA Bank to not be a
qualified thrift lender under Section 10(m) of the Home Owners' Loan
Act of 1934, or not to be a "domestic building and loan association"
as defined in Section 7701(a)(19) of the Code;
(xiii) make any loan with a principal balance of $500,000 or more;
(xiv) authorize capital expenditures other than in the ordinary course of
business;
(xv) adopt or implement any change in its accounting principles,
practices or methods other than as may be required by generally
accepted accounting principles or by a regulatory authority or adopt
or implement any change in its methods of accounting for Federal
income tax purposes; or
(xvi) make any loan in which participation interests therein are to be
sold to other persons or entities or acquire a participation
interest in a loan originated by another person or entity in excess
of $250,000.
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Notwithstanding the foregoing, AFSALA Bank is permitted to engage in any of
the foregoing activities exclusively with the Savings Bank.
Under the Merger Agreement, AFSALA also may not authorize or permit any
representative of AFSALA or any subsidiary thereof to initiate contact with any
person or entity in an effort to solicit, initiate or encourage any "takeover
proposal" (generally defined as any proposal other than as contemplated by the
Merger Agreement, for a merger or other business combination involving AFSALA or
AFSALA Bank, for the acquisition of a 10% or greater equity interest in AFSALA
or AFSALA Bank or for the acquisition of a substantial portion of the assets of
AFSALA or AFSALA Bank other than loans or securities sold in the ordinary
course) or, except as the fiduciary duties of the AFSALA Board may otherwise
require, cooperate with, negotiate with or enter into an agreement with any
party relating to a takeover proposal. Further, AFSALA has agreed to give
prompt written notice to Ambanc upon becoming aware of any takeover proposal.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Ambanc, the Savings Bank, AFSALA and AFSALA Bank to
effect the Merger are subject to the following conditions: (i) the holders of
the outstanding shares of Ambanc Common Stock and AFSALA Common Stock shall have
adopted the Merger Agreement, and an amendment to AFSALA Bank's Federal Stock
Charter shall have been effected making inapplicable to Ambanc and the Savings
Bank certain restrictions therein; (ii) no order, decree or injunction shall
have been entered and remain in force restraining or prohibiting the Merger in
any legal, administrative, arbitration, investigatory or other proceedings;
(iii) to the extent required by applicable law or regulation, all approvals of
or filings with any governmental authority shall have been obtained or made and
any waiting periods shall have expired in connection with the consummation of
the Merger and all other statutory or regulatory requirements for the valid
consummation of the Merger and related transactions shall have been satisfied;
(iv) the Registration Statement of which this Joint Proxy Statement/Prospectus
is a part shall have been declared effective and shall not be subject to a stop
order of the SEC and, if the offer and sale of Ambanc's Common Stock in the
Acquisition Merger pursuant to the Merger Agreement is subject to the blue sky
laws of any state, shall not be subject to a stop order of any state securities
commissioner; and (v) receipt of an opinion of Silver, Freedman & Taff, L.L.P.,
special counsel to Ambanc and the Savings Bank, in form and content reasonably
satisfactory to Ambanc and AFSALA, as to certain of the federal income tax
consequences of the Merger. See "--Certain Federal Income Tax Consequences of
the Merger."
The obligations of Ambanc and the Savings Bank to effect the Merger and the
transactions contemplated by the Merger Agreement are subject to the following
additional conditions, to the extent not waived: (i) Ambanc shall have received
from Malizia, Spidi, Sloane & Fisch, P.C., special counsel to AFSALA and AFSALA
Bank, an opinion dated as of the date of Closing covering certain matters; (ii)
in addition to governmental approvals, AFSALA and AFSALA Bank shall have
obtained all necessary third party consents or approvals in connection with the
Merger, the absence of which would materially and adversely affect AFSALA and
its subsidiaries, taken as a whole; (iii) Ambanc shall have received a letter
from AFSALA's independent public accountants regarding certain financial
information included in this Joint Proxy Statement/Prospectus and other matters;
(iv) between the date of the Merger Agreement and the date of Closing, there
shall not have occurred any material adverse change in the financial condition,
business, results of operations or assets of AFSALA and its subsidiaries, taken
as a whole, other than any such change attributable to or resulting from any
change in law, regulation or generally accepted accounting principles which
impairs both AFSALA Bank and other comparably sized thrift institutions in a
substantially similar manner, and other than any such change attributable to or
resulting from changes in economic conditions applicable to depository
institutions generally or in general levels of interest rates affecting both
AFSALA and comparably sized thrift institutions to a similar extent and in a
similar manner; (v) the representations and warranties of AFSALA and AFSALA Bank
shall be true in all material respects at the Acquisition Merger Effective Time
with the same effect as though made at the Acquisition Merger Effective Time (or
on the date when made in the case of any representation or warranty which
specifically relates to an earlier date), except for events or occurrences
arising after the date of the Merger Agreement which, individually or
collectively, are not reasonably likely to result in a material adverse effect
on the business, financial condition or results of operations of AFSALA and the
AFSALA subsidiaries, taken as a whole; AFSALA and AFSALA Bank shall have
performed all obligations and complied with each covenant, in all material
respects, and all conditions under the Merger Agreement required on their parts
to be performed or complied
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with at or prior to the Acquisition Merger Effective Time; and AFSALA shall have
delivered to Ambanc a certificate, dated the Acquisition Merger Effective Time
and signed by its chief executive officer and chief financial officer, to such
effect; (vi) neither AFSALA nor any subsidiary thereof shall be a party to any
pending litigation, reasonably probable of being determined adversely to AFSALA
or any subsidiary thereof, which would have a material adverse effect on the
business, financial condition or results of operations of AFSALA and its
subsidiaries, taken as a whole; (vii) all governmental approvals required by the
Merger Agreement to consummate the transactions contemplated thereby shall have
been obtained without the imposition of any conditions which Ambanc reasonably
and in good faith determines to be unduly burdensome upon the conduct of the
business of Ambanc or the Savings Bank; (viii) Ambanc shall have received letter
agreements from all affiliates of AFSALA regarding restrictions on resale of
Ambanc Common Stock received by them in the Acquisition Merger to ensure
compliance with applicable resale restrictions imposed under the federal
securities laws; (ix) Ambanc shall not have exercised its right to terminate the
Merger Agreement in the event of the discovery of certain environmental problems
with respect to certain of AFSALA's properties (see "--Amendment and Termination
of the Merger Agreement"); and (x) AFSALA shall have granted to Ambanc the
Option under the Stock Option Agreement.
The obligations of AFSALA and AFSALA Bank to effect the Merger and the
transactions contemplated by the Merger Agreement are subject to the following
additional conditions, to the extent not waived: (i) AFSALA shall have received
from Silver, Freedman & Taff, L.L.P, special counsel to Ambanc and the Savings
Bank, an opinion dated as of the date of Closing covering certain matters; (ii)
the representations and warranties of Ambanc and the Savings Bank shall be true
in all material respects at the Acquisition Merger Effective Time with the same
effect as though made at the Acquisition Merger Effective Time (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); Ambanc and the Savings Bank shall have performed
all obligations and complied with each covenant, in all material respects, and
all conditions under the Merger Agreement required on their parts to be
performed or complied with at or prior to the Acquisition Merger Effective Time;
and Ambanc shall have delivered to AFSALA a certificate, dated the date of the
Acquisition Merger Effective Time and signed by its chief executive officer and
chief financial officer, to such effect; (iii) certificates for the required
number of whole shares of Ambanc Common Stock, as determined in accordance with
the Merger Agreement, and cash for fractional share interests shall have been
delivered to the Exchange Agent; (iv) in addition to governmental approvals,
Ambanc and the Savings Bank shall have obtained all necessary third party
consents or approvals in connection with the Merger, the absence of which would
materially and adversely affect Ambanc and its subsidiaries, taken as a whole;
(v) the shares of Ambanc Common Stock issuable pursuant to the Merger Agreement
shall have been approved for listing on the Nasdaq Stock Market, subject to
official notice of issuance; (vi) between the date of the Merger Agreement and
the date of Closing, there shall not have occurred any material adverse change
in the financial condition, business, results of operations or assets of Ambanc
and its subsidiaries, taken as a whole, other than any such change attributable
to or resulting from any change in law, regulation or generally accepted
accounting principles which impairs both the Savings Bank and other comparably
sized thrift institutions in a substantially similar manner, other than any such
change attributable to or resulting from changes in economic conditions
applicable to depository institutions generally or in general levels of interest
rates affecting both the Savings Bank and other comparably sized thrift
institutions to a similar extent and in a similar manner; (vii) neither Ambanc
nor any subsidiary thereof shall be a party to any pending litigation,
reasonably probable of being determined adversely to Ambanc or any subsidiary
thereof, which would have a material adverse effect on the business, financial
condition or results of operations of Ambanc and its subsidiaries, taken as a
whole; (viii) AFSALA shall have received, as of the date of this Joint Proxy
Statement/Prospectus or as of a date not more than five business days prior to
the date hereof, the written opinion of FinPro regarding the fairness from a
financial point of view of the consideration to be received by AFSALA's
stockholders in the Acquisition Merger; and (ix) neither Ambanc nor any of its
subsidiaries, including the Savings Bank, shall be a party to any agreement or
memorandum of understanding with, or commitment letter to, or board of directors
resolution submitted to or similar undertaking made to, or be subject to any
order or directive by, or be a recipient of any supervisory letter from, any
governmental authority which restricts materially the conduct of Ambanc's
business or has a material adverse effect upon the Acquisition Merger or upon
the financial condition of Ambanc and its subsidiaries taken as a whole, and
neither Ambanc nor its subsidiaries shall have been advised by any governmental
or regulatory authority that such authority is contemplating issuing or
requesting, or considering the appropriateness of issuing or requesting, any of
the foregoing.
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There can be no assurance that the conditions to consummation of the Merger
will be satisfied or waived. In the event the conditions to either Ambanc's and
the Savings Bank's or AFSALA's and AFSALA Bank's obligations become impossible
to satisfy in any material respect, Ambanc or AFSALA, as the case may be, may
generally elect to terminate the Merger Agreement. See "--Amendment and
Termination of the Merger Agreement."
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT
Amendment. The Merger Agreement may be amended, whether before or after
adoption thereof by the stockholders of Ambanc and AFSALA, by an agreement in
writing executed by the parties thereto and approved by the parties' respective
Boards of Directors. However, after adoption of the Merger Agreement by
AFSALA's stockholders, no amendment reducing the amount of or changing the form
of consideration to be received by such stockholders may be made without the
further approval of such stockholders.
Termination. The Merger Agreement may be terminated at any time before the
Acquisition Merger Effective Time, whether before or after adoption thereof by
the stockholders of Ambanc and AFSALA: (i) by mutual consent of the parties;
(ii) at the election of either party, if the Closing shall not have occurred on
or before January 31, 1999, or such later date as may be agreed to in writing by
the parties; provided however that the right to terminate under this provision
will not be available to any party whose failure to perform an obligation has
been the cause of, or has resulted in, the failure of the Closing to occur on or
before such date; (iii) by Ambanc upon delivery of written notice of termination
to AFSALA if any event occurs which renders impossible the satisfaction in any
material respect of one or more of the conditions to the obligations of Ambanc
and the Savings Bank to effect the Merger as set forth in the Merger Agreement
and noncompliance is not waived by Ambanc; provided however that the right to
terminate under this provision will not be available to Ambanc where Ambanc's or
the Savings Bank's failure to perform an obligation has been the cause of, or
has resulted in, the failure of the Closing to occur on or before such date;
(iv) by AFSALA upon delivery of written notice of termination to Ambanc if any
event occurs which renders impossible the satisfaction in any material respect
of one or more of the conditions to the obligations of AFSALA and AFSALA Bank to
effect the Merger as set forth in the Merger Agreement and noncompliance is not
waived by AFSALA; provided however that the right to terminate under this
provision will not be available to AFSALA where AFSALA's or AFSALA Bank's
failure to perform an obligation has been the cause of, or has resulted in, the
failure of the Closing to occur on or before such date; (v) by AFSALA at any
time during the five day period commencing two days after the Determination Date
(defined as the tenth trading day prior to the date of Closing) if both (i) the
Average Closing Price (defined as the average of the per share closing prices of
Ambanc Common Stock as reported on the Nasdaq National Market for the 20
consecutive trading days ending on the Determination Date) is less than $15.70
and (ii) (x) the number obtained by dividing the Average Closing Price on the
Determination Date by $19.625 (the "Ambanc Ratio") is less than (y) the number
obtained by dividing the Index Price (generally defined as the weighted average
closing price per share of the common stock of 19 select financial institution
companies) on the Determination Date by the Index Price on April 22, 1998 and
subtracting 0.20 from the quotient in this clause (ii) (y) (the "Index Ratio").
If AFSALA elects to terminate the Merger Agreement pursuant to the
provision described in item (v) above, it must give notice to Ambanc within the
aforementioned five day period. During the five day period commencing with its
receipt of such notice, Ambanc shall have the option of adjusting the Exchange
Ratio to equal the lesser of (i) a number equal to a quotient (rounded to the
nearest one-thousandth), the numerator of which is the product of $15.70
multiplied by the Exchange Ratio (as then in effect) and the denominator of
which is the Average Closing Price, and (ii) a number equal to a quotient
(rounded to the nearest one-thousandth), the numerator of which is the Index
Ratio multiplied by the Exchange Ratio (as then in effect) and the denominator
of which is the Ambanc Ratio. In the event that Ambanc makes its election and
provides proper notice, no termination will occur and the Merger Agreement will
remain in full force and effect.
In the event the Merger Agreement is terminated and abandoned pursuant to
the provisions outlined above, the Agreement shall become void and have no
effect, except for certain provisions of the Merger Agreement relating to
brokers and finders, publicity, expenses and confidentiality. In addition, any
termination by Ambanc or AFSALA pursuant to provisions of the Merger Agreement
outlined in items (iii) and (iv) of the second paragraph preceding this
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paragraph will not relieve the breaching party for an uncured intentional and
willful breach of a representation, warranty, covenant or agreement giving rise
to such termination.
Except for agreements and covenants that by their terms are intended to be
performed after the Acquisition Merger Effective Time, the representations,
warranties, covenants and agreements of the parties set forth in the Merger
Agreement shall not survive the Acquisition Merger Effective Time, and shall be
terminated and extinguished at the Acquisition Merger Effective Time. From and
after the Acquisition Merger Effective Time, none of the parties shall have any
liability to the other on account of any breach or failure of any of those
representations, warranties and agreements, except with respect to agreements of
the parties which by their terms are intended to be performed after that time
and with respect to liability for fraud, deception or intentional
misrepresentation.
The Merger Agreement provides that Ambanc has the right, within 15 days of
the date thereof, to order, and shall within 40 days (subject to extension with
the consent of AFSALA) after ordering receive, a Phase I Environmental Risk
Report ("Report") on (i) all commercial real estate owned by, (ii) all offices
and premises used as facilities by, and (iii) all properties which serve as
security for any commercial real estate loan having an original principal
balance of $500,000 or more of AFSALA and AFSALA Bank. In the event that Ambanc
believes in good faith that such Report indicates a reasonable likelihood that
the costs to cleanup, remove, remediate, or take any other action necessary to
bring any such property or properties into material compliance with AFSALA's or
any AFSALA subsidiary's obligations under any environmental laws will exceed
$250,000 in the aggregate, Ambanc shall, within 15 days of its receipt of such
Report, provide AFSALA with written notice to that effect. Ambanc shall
thereafter order within 15 days of receipt of such Report and shall within 30
days of ordering receive a Phase II Environmental Risk Report ("Phase II
Report") to confirm such belief. If such Phase II Report confirms Ambanc's good
faith belief that the aggregate cost to cleanup, remove, remediate or take such
other action necessary to bring the examined properties into material compliance
with AFSALA's or any AFSALA subsidiary's obligations under any environmental
laws will exceed $250,000, then Ambanc will have the right to terminate the
Merger Agreement by providing written notice thereof to AFSALA within seven days
of receiving the Phase II Report. Ambanc has not ordered any reports pursuant
to this provision.
STOCK OPTION AGREEMENT
As an inducement to and a condition of Ambanc's willingness to enter into
the Merger Agreement, AFSALA and Ambanc entered into the Stock Option Agreement,
pursuant to which AFSALA granted to Ambanc an option (the "Option"), to purchase
up to an aggregate of 344,500 shares of AFSALA Common Stock (19.9% of the issued
and outstanding shares of such stock, including shares of AFSALA Common Stock to
be issued pursuant to the Stock Option Agreement), subject to adjustment as
described below, at a price per share of $20.75, subject to adjustment as
described below (the "Option Price"). Under the Stock Option Agreement,
Ambanc, or any other holder of the Option (the "Holder"), may exercise the
Option if both an Initial Triggering Event (as hereinafter defined) and a
Subsequent Triggering Event (as hereinafter defined), shall have occurred prior
to the occurrence of an Exercise Termination Event (as hereinafter defined), and
provided further that the Holder provides notice of such exercise to AFSALA
within six months of such Subsequent Triggering Event (unless extended as
permitted under the Stock Option Agreement).
The Stock Option Agreement provides that in the event of any change in, or
distributions in respect of, AFSALA Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type and number of shares of AFSALA Common
Stock purchasable upon exercise of the Option shall be appropriately adjusted
and proper provision shall be made so that, in the event that any additional
shares of AFSALA Common Stock are to be issued or otherwise become outstanding
as a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of AFSALA Common Stock that remain subject to the
Option shall be increased so that, after such issuance and together with shares
of AFSALA Common Stock previously issued pursuant to the exercise of the Option
(as adjusted on account of any of the foregoing changes in the AFSALA Common
Stock), it equals 19.9% of the number of shares of AFSALA Common Stock then
issued and outstanding, including shares of AFSALA Common Stock to be issued
pursuant to the Stock Option Agreement. The Stock Option Agreement further
provides that if the number of shares of AFSALA Common Stock purchasable upon
exercise of the Option is adjusted as provided above, the Option Price
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shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of AFSALA Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the number of shares of AFSALA Common Stock purchasable after the adjustment.
The Stock Option Agreement may have the effect of discouraging persons who
otherwise might be interested in acquiring all or a significant interest in
AFSALA from considering or proposing such an acquisition, even if such persons
were prepared to pay for the AFSALA Common Stock a price in excess of that being
paid by Ambanc in the Acquisition Merger.
The term "Initial Triggering Event" includes generally the following
events: (i) the entry, without Ambanc's prior written consent, by AFSALA or any
significant subsidiary thereof into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person other than Ambanc or any
Ambanc subsidiary or the recommendation by the AFSALA Board that AFSALA's
stockholders approve or accept any Acquisition Transaction other than as
contemplated by the Merger Agreement; (ii) any person other than Ambanc or any
subsidiary thereof shall have acquired beneficial ownership of 10% or more of
the outstanding shares of AFSALA Common Stock; (iii) the stockholders of AFSALA
have voted and failed to adopt the Merger Agreement at a meeting held for that
purpose, or failure by AFSALA to hold such a meeting as required by the Merger
Agreement, in either case, after public disclosure of a proposed Acquisition
Transaction; (iv) the AFSALA Board shall have withdrawn or modified in a manner
adverse to Ambanc its recommendation that AFSALA stockholders adopt the Merger
Agreement, or shall have authorized, recommended or proposed (or publicly
announced its intention to authorize, recommend or propose) an agreement to
engage in an Acquisition Transaction with any person other than Ambanc or a
subsidiary thereof; (v) any person other than Ambanc or any subsidiary thereof
shall have filed with the SEC a registration statement or preliminary proxy or
tender offer materials with respect to a potential exchange or tender offer that
would constitute an Acquisition Transaction; (vi) AFSALA shall have willfully
breached any covenant or obligation contained in the Merger Agreement in
anticipation of engaging in an Acquisition Transaction and following such breach
Ambanc would be entitled to terminate the Merger Agreement; or (vii) any person
other than Ambanc or any subsidiary thereof shall have filed an application or
notice with the OTS or other regulatory authority for approval to engage in an
Acquisition Transaction.
The term "Subsequent Triggering Event" means (i) the acquisition by any
person other than Ambanc or any subsidiary thereof of beneficial ownership of
25% or more of the then outstanding shares of AFSALA Common Stock; or (ii) the
entry by AFSALA or any significant subsidiary thereof into an agreement to
engage in an Acquisition Transaction with any person other than Ambanc or any
subsidiary thereof (or a recommendation by the AFSALA Board that the AFSALA
stockholders approve or accept any Acquisition Transaction other than as
contemplated by the Merger Agreement) (except that the percentage contained in
clause (iii) of the definition of Acquisition Transaction below shall be 25%
instead of 10%).
An "Acquisition Transaction" generally means (i) a merger or consolidation
or similar transaction involving AFSALA or any subsidiary thereof other than
certain transactions involving solely AFSALA and its wholly owned subsidiaries,
which are permitted under the Merger Agreement; (ii) a purchase, lease or other
acquisition of all or any substantial part of the assets or deposits of AFSALA
or any subsidiary thereof; or (iii) a purchase or other acquisition of
securities representing 10% or more of the voting power of AFSALA or any
subsidiary thereof. The term "Exercise Termination Event" includes generally
(i) the Acquisition Merger Effective Time; (ii) termination of the Merger
Agreement in accordance with the Merger Agreement if the termination occurs
prior to the occurrence of an Initial Triggering Event, except a termination by
Ambanc due to a willful breach of certain specified covenants of AFSALA under
the Merger Agreement (a "Listed Termination"); or (iii) the passage of 18 months
(or such longer period as may be provided by an extension under the terms of the
Stock Option Agreement) after termination of the Merger Agreement if such
termination occurs after the occurrence of an Initial Triggering Event or is a
Listed Termination.
The Stock Option Agreement also contains provisions whereby AFSALA may be
required to repurchase the Option from Ambanc or the current Holder, or to
repurchase shares acquired upon exercise of the Option ("Option Shares") from
the current owner of such shares ("Owner"). Specifically, after the occurrence
of a Repurchase Event and prior to an Exercise Termination Event, and at the
request of the Holder, AFSALA would be obligated to purchase the Option from the
Holder for a price equal to the amount by which the market price/offer price (as
defined
47
<PAGE>
below) exceeds the Option Price multiplied by the number of shares for which the
Option may be exercised. The market/offer price is defined as the higher of (i)
the price per share of AFSALA Common Stock at which a tender or exchange offer
therefor has been made; (ii) the price per share of AFSALA Common Stock to be
paid by any third party pursuant to an agreement with AFSALA; (iii) the highest
closing price per share of AFSALA Common Stock during the six-month period
preceding the date on which the Holder gives notice of its repurchase request;
or (iv) a price per share of AFSALA Common Stock determined from the net price
paid by a third party for all or substantially all of AFSALA's assets or
deposits. AFSALA would likewise be required to repurchase Option Shares from the
Owner, at the request of the Owner, after a Repurchase Event. Further, following
a Repurchase Event and prior to the occurrence of an Exercise Termination Event
or the repurchase by AFSALA of the Option (or any portion thereof) or any Option
Shares, Ambanc may surrender the Option to AFSALA in exchange for cash in an
amount equal to $1.4 million (i) plus, if applicable, Ambanc's purchase price
with respect to any Option Shares and (ii) minus, if applicable, the excess of
the net cash amounts, if any, received by Ambanc from any arm's length sales of
Option Shares to any unaffiliated party over the purchase price of such Option
Shares.
A Repurchase Event shall be deemed to have occurred upon (i) the
acquisition by any person (other than Ambanc or any subsidiary thereof) of
beneficial ownership of 50% or more of the then outstanding shares of AFSALA
Common Stock; or (ii) the consummation of any Acquisition Transaction, except
that the percentage referred to in the third clause of the definition of
Acquisition Transaction shall be 50% instead of 10%. The Holder or Owner may
exercise its right to require AFSALA to repurchase the Option or any Option
Shares as described above by providing notice and surrendering certain
documents. AFSALA would then be required to provide appropriate payment,
subject to applicable laws and regulations, within five days thereafter. In the
event that AFSALA is precluded by law or regulation from repurchasing, in its
entirety, the Option or Option Shares from the Holder or Owner, as the case may
be, AFSALA is nonetheless required to comply to the extent possible, and the
Holder and/or Owner, as the case may be, may revoke its notice of repurchase in
its entirety, or to the extent of any prohibition on AFSALA's ability to comply.
The Stock Option Agreement also provides that in the event that prior to an
Exercise Termination Event, AFSALA enters into an agreement (i) to consolidate
with or merge into or engage in a plan of exchange with any person other than
Ambanc or a subsidiary thereof and AFSALA shall not be the surviving or
continuing entity of such transaction; (ii) to permit any person, other than
Ambanc or a subsidiary thereof, to merge into AFSALA or be acquired by AFSALA in
a plan of exchange and AFSALA shall be the continuing or surviving entity, but
in connection with such transaction the outstanding shares of AFSALA Common
Stock shall be changed into or exchanged for stock or other securities of any
other person or cash or any other property or the then outstanding shares of
AFSALA Common Stock shall after such merger or plan of exchange represent less
than 50% of the outstanding shares or share equivalents of the merged or
acquiring company; or (iii) to sell or otherwise transfer all or a substantial
part of its or its subsidiary's assets or deposits to any person, other than
Ambanc or a subsidiary thereof, then the agreement governing such transaction
must provide that the Option shall be converted into or exchanged for a
substitute option ("Substitute Option"), at the election of the Holder, of
either the acquiring entity or any person controlling that entity. The
Substitute Option would have substantially the same terms as the Option. The
Stock Option Agreement provides that at the request of the Holder of the
Substitute Option or the Owner of shares acquired thereunder, the Substitute
Option issuer must repurchase the Substitute Option or the Substitute Option
Shares at a price set forth in the Option Agreement.
Neither AFSALA nor Ambanc may assign any rights or obligations under the
Stock Option Agreement to any person without the express written consent of the
other party, except that in the event a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event, Ambanc may assign its rights
and obligations under the Stock Option Agreement subject to certain
restrictions.
EXPENSES
The Merger Agreement provides that each of the parties thereto shall bear
and pay all costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated thereby, except that Ambanc shall pay all
costs and expenses incurred by or on behalf of AFSALA and its subsidiaries for
services rendered by third parties relating to the offering of Ambanc Common
Stock in connection with the Merger. However, if the Closing does not
48
<PAGE>
occur, AFSALA and its subsidiaries will be obligated to reimburse Ambanc
immediately for such costs and expenses paid by it.
REGULATORY APPROVALS
The Merger is subject to the approval of the OTS. Ambanc filed an
application for approval of the Merger with the OTS on July 6, 1998 and
anticipates receiving such approval late in the third quarter or early in the
fourth quarter of 1998. There can be no assurance as to the receipt or timing
of such approval.
It is a condition to Ambanc's and the Savings Bank's obligations to effect
the Merger that all requisite governmental approvals be obtained without the
imposition of any conditions which Ambanc reasonably and in good faith
determines to be unduly burdensome upon the conduct of the business of Ambanc or
the Savings Bank. There can be no assurance that any such approval will not
contain terms, conditions or requirements which cause such approval to fail to
satisfy such condition to Ambanc's and the Savings Bank's obligations to effect
the Merger.
Under federal law, a period of 30 days, subject to reduction to 15 days by
the OTS with concurrence of the United States Department of Justice (the
"Department of Justice"), must expire following approval by the OTS within which
period the Department of Justice may file objections to the Merger under the
federal antitrust laws. The Department of Justice could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the Merger unless acceptable accommodations are
made. While the parties believe that the likelihood of such action by the
Department of Justice is remote in this case, there can be no assurance that the
Department of Justice will not initiate such a proceeding.
ACCOUNTING TREATMENT
It is intended that the Merger will be treated as a purchase for accounting
purposes. Accordingly, under generally accepted accounting principles, the
assets and liabilities of AFSALA will be recorded on the books of Ambanc at
their respective fair values at the Acquisition Merger Effective Time.
RESALES OF AMBANC COMMON STOCK BY AFFILIATES
The shares of Ambanc Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any stockholder who may be deemed to
be an "affiliate" of AFSALA under the Securities Act as of the date of the
AFSALA Special Meeting. Affiliates of AFSALA may not sell their shares of Ambanc
Common Stock acquired in connection with the Merger except pursuant to an
effective registration statement under the Securities Act covering such shares
or in compliance with Rule 145 under the Securities Act or another applicable
exemption from the registration requirements of the Securities Act. Persons who
may be deemed to be affiliates of AFSALA generally include individuals or
entities that control, are controlled by or under common control with AFSALA,
and may include certain officers and directors of AFSALA as well as certain
principal stockholders of AFSALA.
Under the Merger Agreement, AFSALA is required to use its best efforts to
cause each person who may be deemed an affiliate of AFSALA to deliver a letter
agreement to Ambanc designed to ensure compliance by such person with the
Securities Act. Persons who become affiliates of Ambanc following the Merger
will be subject to additional restrictions on their abilities to sell shares of
Ambanc Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Set forth below is a discussion of federal income tax consequences of the
Merger to Ambanc, AFSALA and AFSALA stockholders who are citizens or residents
of the United States. THE FOLLOWING DISCUSSION REPRESENTS THE OPINION OF
SILVER, FREEDMAN & TAFF, L.L.P., SPECIAL COUNSEL TO AMBANC AND THE SAVINGS BANK,
AS TO THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THE
DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
ADOPTION OF THE MERGER AGREEMENT. FURTHER, THE DISCUSSION DOES NOT ADDRESS THE
TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
49
<PAGE>
PARTICULAR AFSALA STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL
INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-
EXEMPT ORGANIZATIONS, NON-UNITED STATES STOCKHOLDERS AND PERSONS WHO ACQUIRED
THEIR SHARES AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE,
TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS
AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION.
HOLDERS OF AFSALA COMMON STOCK ARE URGED TO CONSULT THEIR PERSONAL TAX
ADVISERS AS TO THE EFFECT OF THEIR OWN PARTICULAR FACTS AND CIRCUMSTANCES ON THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO THE EFFECT
OF ANY STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAX LAWS.
Subject to the assumptions, conditions and limitations expressed in the
opinion of Silver, Freedman & Taff, L.L.P., a copy of which has been filed as
Exhibit 8 to the Registration Statement, for federal income tax purposes:
(i) the Acquisition Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code and AFSALA
and Ambanc will each be a party to the reorganization;
(ii) except as provided in item (iv) below, no gain or loss will be
recognized by any U.S. Holder (defined as a stockholder of AFSALA who is a
citizen or resident of the United States of America) upon the exchange of
AFSALA Common Stock solely for Ambanc Common Stock in the Acquisition
Merger; the aggregate adjusted tax basis of shares of Ambanc Common Stock
(including a fractional share interest in Ambanc Common Stock deemed
received and redeemed as described below) received by a U.S. Holder will be
the same as the aggregate adjusted tax basis of the shares of the AFSALA
Common Stock exchanged therefor;
(iii) the holding period of Ambanc Common Stock received by a U.S.
Holder in the Acquisition Merger will include the holding period of the
AFSALA Common Stock surrendered and exchanged therefor, provided that such
shares of AFSALA Common Stock were held as a capital asset by such
stockholder at the Acquisition Merger Effective Time; and
(iv) a U.S. Holder who receives cash in lieu of a fractional share
interest in Ambanc Common Stock in the Acquisition Merger will be treated
as having received such fractional share interest and then as having
received the cash in redemption of such fractional share interest. Under
Section 302 of the Code, if such deemed distribution were "substantially
disproportionate" with respect to the U.S. Holder or were "not essentially
equivalent to a dividend" after giving effect to the constructive ownership
rules of the Code, the U.S. Holder would generally recognize capital gain
or loss equal to the difference between the amount of cash received and the
U.S. Holder's adjusted tax basis in the fractional share interest
(determined as described in item (ii) above). Such capital gain or loss
would be long-term capital gain or loss if the U.S. Holder's holding period
in a fractional share interest (determined as described in item (iii)
above) is more than one year. A long-term capital gain of a non-corporate
U.S. Holder is generally subject to a maximum tax rate of 28% if the
holding period exceeds one year but does not exceed 18 months and to a
maximum tax rate of 20% if the holding period exceeds 18 months.
The opinion of Silver, Freedman & Taff, L.L.P. is based entirely upon the
Code, regulations currently in effect or proposed thereunder, current
administrative rulings and practice and judicial authority, all of which are
subject to change, possibly with retroactive effect. No ruling has been or will
be requested from the Internal Revenue Service ("IRS"), including any ruling as
to federal income tax consequences of the Merger to Ambanc, AFSALA or AFSALA
stockholders. Unlike a ruling from the IRS, an opinion of counsel or
independent certified public accountants is not binding on the IRS. There can
be no assurance that the IRS will not take a position contrary to the positions
reflected in such opinion or that such opinion would be upheld by a court if
challenged.
50
<PAGE>
NASDAQ LISTING
Ambanc Common Stock is currently listed on the National Market tier of the
Nasdaq Stock Market under the symbol "AHCI." Ambanc will submit an application
for listing on the Nasdaq Stock Market the shares of Ambanc Common Stock to be
issued to the stockholders of AFSALA in the Merger and to be reserved for
issuance pursuant to AFSALA stock options assumed by Ambanc in the Merger.
MANAGEMENT AFTER THE MERGER
GENERAL
It is anticipated that, following consummation of the Acquisition Merger,
the Ambanc Board will generally consist of the current members of such Board and
the officers of Ambanc will generally be the current officers of Ambanc. It is
also anticipated that, following consummation of the Bank Merger, the Board of
Directors of the Savings Bank will generally consist of the current members of
such Board and the officers of the Savings Bank will generally be the current
officers of the Savings Bank. In addition, the Merger Agreement provides that
by January 1, 1999, or sooner by mutual consent, the Ambanc Board shall appoint
John M. Lisicki, the Chairman, President and Chief Executive Officer of AFSALA
and AFSALA Bank, as President and Chief Executive Officer of Ambanc. Immediately
upon the Bank Merger Effective Time, Mr. Lisicki is to be appointed President
and Chief Executive Officer of the Savings Bank. In addition, the Merger
Agreement provides that Benjamin W. Ziskin, Vice President of AFSALA and AFSALA
Bank, and James J. Alescio, Treasurer and Chief Financial Officer of AFSALA and
AFSALA Bank, will become officers of the Savings Bank after the Merger. The
Merger Agreement also provides that following the Merger, Ambanc and the Savings
Bank shall create four new positions on their respective Boards of Directors, to
be filled with persons selected by AFSALA and AFSALA Bank, respectively,
including, for both Boards, Mr. Lisicki. The Merger Agreement further provides
that promptly after the Acquisition Merger Effective Time, the Ambanc Board
shall establish a special committee of the Ambanc Board for the purpose of
providing an orderly transition to a smaller board of directors. In addition,
immediately following the Acquisition Merger Effective Time, Ambanc is to create
an advisory board of directors and appoint to such board three persons selected
by AFSALA, in consultation with Ambanc. For additional information, see "The
Merger--Interests of Certain Persons in the Merger."
In order to facilitate the Merger, Robert J. Brittain, a director of Ambanc
and the Savings Bank, retired as President and Chief Executive Officer of Ambanc
and the Savings Bank effective June 30, 1998. Mr. Brittain continues to serve
as a director of Ambanc and the Savings Bank. See "The Merger--Interests of
Certain Persons in the Merger" for a description of the termination and
consulting agreements entered into with Mr. Brittain upon his retirement as
President and Chief Executive Officer.
ADDITIONAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS OF AMBANC
FOLLOWING THE MERGER
Information regarding the business experience and compensation of Ambanc's
current executive officers and directors and certain transactions between Ambanc
and the Savings Bank and their current officers and directors is incorporated by
reference herein. See "Incorporation of Certain Documents by Reference."
Set forth below is information regarding the business experience of Messrs.
Lisicki, Ziskin and Alescio.
Mr. Lisicki. Mr. Lisicki, age 51, joined AFSALA Bank in 1978 as Vice
President, and became President and Chief Executive Officer and a Director of
AFSALA Bank in 1983. Mr. Lisicki has also served as President and Chief
Executive Officer of AFSALA since its formation. Mr. Lisicki is a current
member and immediate past Chairman of the Board of Trustees of Amsterdam
Memorial Hospital, a member of the Board and former President of Industries for
Amsterdam, a member of the Board and former Vice President of the Amsterdam Free
Library, a member of the Board of the Sarah J. Sanford Home for Elderly Women,
former Board member and President of the Foundation of Liberty Enterprises, and
a former Board member of Hospice Foundation, the Amsterdam City Center, and the
Advisory Board of St. Mary's Hospital.
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<PAGE>
Mr. Ziskin. Mr. Ziskin, age 39, served as Treasurer of AFSALA Bank from
1985 to 1993 and was appointed Vice President of AFSALA Bank in 1989 and of
AFSALA upon its formation. Mr. Ziskin is a Board member and past Treasurer of
the Capital District League of Savings Institutions and is a Board member and
Finance Committee Chairman of the Montgomery County Chapter of the New York
State Association for Retarded Children. He is also a past Board member, past
Treasurer and past President of Montgomery Transitional Services, a past Board
member, past Secretary and past Chairman of the Amsterdam Housing Authority and
a past Board member of the Amsterdam City Center, Montgomery County Big
Brothers/Big Sisters and the St. Mary's Hospital at Amsterdam Foundation.
Mr. Alescio. Mr. Alescio, age 36, served as Assistant Treasurer of AFSALA
Bank from 1984 to 1987 and was appointed Treasurer and Chief Financial Officer
of AFSALA Bank in 1993 and of AFSALA upon its formation. From 1987 to 1993, Mr.
Alescio was a senior accountant with John G. Gilooly, C.P.A.'s, an independent
public accounting firm. Mr. Alescio is a member of the American Institute of
Certified Public Accountants and the New York Society of Certified Public
Accountants.
Set forth below is information regarding the compensation of Messrs.
Lisicki, Ziskin and Alescio.
Compensation Table. The following table sets forth the cash and non-cash
compensation earned by Mr. Lisicki during the years presented. All compensation
was paid by AFSALA Bank. Because neither Mr. Ziskin nor Mr. Alescio had a
salary and bonus during the fiscal year ended September 30, 1997 which exceeded
$100,000, compensation information for such officers is not presented in the
table below.
<TABLE>
<CAPTION>
=========================================================================================================================
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
YEAR ($)(1) ($) ($)(2) ($) (#) ($)(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John M. Lisicki, President 1997 $144,692 $ --- $22,062 $201,840(4) 36,368(5) $14,563(6)
and Chief Executive 1996 127,000 --- 19,105 --- --- 6,479
Officer 1995 110,452 3,000 18,390 --- --- 5,522
=========================================================================================================================
</TABLE>
- ----------------------------
(1) Includes director fees.
(2) Includes the accrual of $20,312, $17,355 and $16,640 of salary under the
Supplemental Retirement Plan for the fiscal years ended September 30, 1997,
1996 and 1995, respectively. See "- Supplemental Retirement Plan." Also
includes the value of automobile use during the fiscal years ended
September 30, 1997, 1996 and 1995.
(3) Includes AFSALA Bank's payment of term life insurance premiums amounting to
$1,440, $1,188 and $1,008 and matching contributions of $5,329, $5,291 and
$4,514 to AFSALA Bank's 401(k) Plan on behalf of Mr. Lisicki for the fiscal
years ended September 30, 1997, 1996 and 1995, respectively.
(4) Represents the award of 14,547 restricted shares of AFSALA Common Stock
under the RSP as of May 30, 1997, on which date the market value of such
stock was $13.875 per share. Dividend rights associated with such stock are
accrued and held in arrears to be paid at the time that such shares become
non-forfeitable. As of September 30, 1997, based upon the market price per
share of AFSALA Common Stock of $17.875, such award of 14,547 shares had an
aggregate value of $260,028. Twenty percent of such award vested and became
non-forfeitable on May 30, 1998, with the remaining 80% scheduled to vest
and become non-forfeitable in equal annual installments on May 30, 1999,
2000, 2001 and 2002, respectively. As discussed elsewhere herein, however,
at the Acquisition Merger Effective Time, all restricted shares awarded
under the RSP which have not yet vested will immediately vest and become
non-forfeitable and convert into shares of Ambanc Common Stock. See
"Merger--Interests of Certain Persons in the Merger-Restricted Stock."
(5) The option has an exercise price of $13.875 per share, representing the
market value per share of the AFSALA Common Stock on the date of grant.
Twenty percent of the option vested and became non-forfeitable on May 30,
1998, with the remaining 80% scheduled to vest in equal annual installments
on May 30, 1999, 2000, 2001 and 2002, respectively. As noted elsewhere
herein, however, at the Acquisition Merger Effective Time, such option, to
the extent not yet vested, will vest and become exercisable in full and
convert into an option to purchase 38,914 shares of Ambanc Common Stock at
an exercise price of $12.97 per share. See "The Merger--Interests of
Certain Persons in the Merger-Stock Options" and "--Treatment of Stock
Options."
(6) In addition to amounts described in footnote (3) above, includes the value
of 436 shares of AFSALA Common Stock allocated to Mr. Lisicki's account
under the AFSALA Bank ESOP based upon the market value of such shares as of
September 30, 1997 of $17.875 per share.
Employment Agreements. In September 1997, AFSALA Bank entered into
employment agreements with Messrs. Lisicki, Ziskin and Alescio. The agreements
provide for annual base salaries to be paid to Messrs. Lisicki,
52
<PAGE>
Ziskin and Alescio of $150,000, $79,500 and $70,000, respectively. Mr. Lisicki's
agreement provides for a three year term and Messrs. Ziskin's and Alescio's
agreements provide for two year terms; each agreement may be extended annually
for an additional one year term by AFSALA Bank's Board of Directors. Under each
agreement, if AFSALA Bank terminates the employee's employment without "just
cause," the employee is entitled to a continuation of his salary from the date
of termination through the remaining term of the agreement and AFSALA Bank must
pay the cost of the employee obtaining all health, life, disability and other
benefit programs in which the employee would have been entitled to participate
through the remaining term of the agreement at levels comparable to those being
provided to the employee at the date of termination of employment. Each
employment agreement provides that in the event of the involuntary termination
of the employee's employment without "just cause" in connection with or within
12 months after a change in control of AFSALA or AFSALA Bank, the employee will
be entitled to be paid an amount (a "termination amount") equal to 2.99 times
his "base amount" (as defined in Section 280G of the Code), payable either in a
lump sum or in periodic payments over 36 (in the case of Mr. Lisicki) or 24 (in
the case of Mr. Ziskin and Mr. Alescio) months or the remaining term of the
employment agreement. If Messrs. Lisicki, Ziskin and Alecio had been entitled to
receive termination amounts as of July 27, 1998, such amounts would have been
$336,332, $197,301 and $143,482, respectively. As discussed elsewhere herein,
the Merger Agreement provides that Ambanc will honor the terms and assume the
obligations of Messrs. Lisicki's, Ziskin's and Alescio's current employment
agreements. Each of Messrs. Lisicki, Ziskin and Alescio has the option of
waiving his rights under his current employment agreement and becoming a party
to a new employment agreement with Ambanc and the Savings Bank. For additional
information regarding the new employment agreements and the expected employment
arrangements of Messrs. Lisicki, Ziskin and Alescio following the Merger, see
"The Merger--Interests of Certain Persons in the Merger-Employment Agreements
and Arrangements."
Supplemental Retirement Plan. AFSALA Bank adopted a supplemental
retirement plan ("SERP") for the benefit of Messrs. Lisicki and Ziskin in
connection with the termination of AFSALA Bank's defined benefit retirement plan
in fiscal 1994. The SERP was amended as of March 17, 1998. The purpose of the
SERP is to furnish Messrs. Lisicki and Ziskin with supplemental post-retirement
benefits in addition to those which will be provided to them under AFSALA Bank's
401(k) Plan. After an analysis of the retirement benefits provided to all
employees, AFSALA Bank determined that most employees would benefit more from a
401(k) savings plan than a defined benefit retirement plan. The SERP was
intended to compensate Messrs. Lisicki and Ziskin such that when their benefits
under the SERP are added to their benefits under AFSALA Bank's 401(k) Plan, the
total benefits are approximately equal to the benefits Messrs. Lisicki and
Ziskin would have received under the terminated defined benefit retirement plan.
Annually, sums equal to 16.90% and 6.19% of Messrs. Lisicki's and Ziskin's
respective annual salaries are expensed and funded by AFSALA Bank for the
purpose of providing the target benefits under the SERP ("Deferred Compensation
Accounts"). Upon the officer's termination of employment by AFSALA Bank (other
than for cause) the supplemental retirement benefits consisting of the total of
the then-current value of all amounts credited to the officer's Deferred
Compensation Account shall be payable to the officer. The SERP provides that
AFSALA Bank may pay the benefits either as a single lump sum payment, by
purchasing a straight life or joint and survivor annuity, or in monthly
installments over five, ten, or fifteen years. Upon receipt of benefits under
the SERP, for federal income tax purposes, the officer will recognize ordinary
income in the amount of such benefits received and AFSALA Bank will be entitled
to a tax return deduction for the amount of benefits paid as compensation
expense at that time. For the fiscal year ended September 30, 1997, AFSALA
Bank's expenses associated with the SERP totaled approximately $24,000.
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<PAGE>
The following tables set forth information concerning stock options granted
to Mr. Lisicki during the 1997 fiscal year.
<TABLE>
<CAPTION>
=============================================================================
OPTION GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH) EXPIRATION DATE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John M. Lisicki 36,368/(1)/ 35.70% $13.875 May 30, 2007
=============================================================================
</TABLE>
__________________
(1) The option is scheduled to vest in 20% annual increments, which began May
30, 1998. As discussed elsewhere herein, at the Acquisition Merger
Effective Time, such option, to the extent not yet vested, will vest and
become exercisable in full and convert into an option to purchase 38,914
shares of Ambanc Common Stock at an exercise price of $12.97 per share. See
"The Merger--Interest of Certain Persons in the Merger--Stock Options" and
"--Treatment of Stock Options."
<TABLE>
<CAPTION>
===============================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
- -----------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED VALUE ------------------------------------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#)(1) ($) ($)(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John M. Lisicki N/A N/A --- 36,368 --- $145,472
===============================================================================================
</TABLE>
- ------------------
(1) The option is scheduled to vest in 20% annual increments, which began May
30, 1998. As discussed elsewhere herein, at the Acquisition Merger
Effective Time, such option, to the extent not yet vested, will vest and
become exercisable in full and convert into an option to purchase 38,914
shares of Ambanc Common Stock at an exercise price of $12.97 per share. See
"The Merger--Interest of Certain Persons in the Merger--Stock Options" and
"--Treatment of Stock Options."
(2) Represents aggregate market value of the option (based upon the exercise
price of $13.875 per share and the closing market price of AFSALA Common
Stock on September 30, 1997 of $17.875 per share).
Certain Transactions. AFSALA Bank, like many financial institutions, has
followed a policy of granting various types of loans to officers and directors.
Such loans (i) have been made in the ordinary course of business, (ii) were made
on substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
AFSALA Bank's other customers and (iii) do not involve more than the normal risk
of collectibility or present other unfavorable features. All loans by AFSALA
Bank to its directors and executive officers are subject to OTS regulations
restricting loans and other transactions with affiliated persons of AFSALA Bank.
54
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
("pro forma financial statements") are based on the historical financial
statements of Ambanc and AFSALA and have been prepared to illustrate the effect
of the Merger. Consummation of the Merger is subject to a number of conditions,
and no assurance can be given that the Merger will be consummated on the
currently anticipated terms, or at all.
The following unaudited pro forma condensed combined balance sheet as of
March 31, 1998 is based on the unaudited historical consolidated balance sheets
of Ambanc and AFSALA at that date, assuming that the Merger had been consummated
on March 31, 1998 and accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined statements of income reflect the
combination of the historical results of operations of (i) Ambanc for the fiscal
year ended December 31, 1997 and of AFSALA for the fiscal year ended September
30, 1997, and (ii) of both Ambanc and AFSALA for the three months ended March
31, 1998. Due to the different fiscal year ends of Ambanc and AFSALA, the
historical results of operations of AFSALA for the three months ended December
31, 1997 have been excluded from the unaudited pro forma condensed combined
statements of income. AFSALA's interest and dividend income for the three
months ended December 31, 1997 was $2.8 million, net income was $311 thousand,
and basic and diluted earnings per share were $0.25 and $0.24, respectively.
AFSALA's interest and dividend income for the three months ended December 31,
1996 was $2.6 million, net income was $270 thousand, and basic and diluted
earnings per share were each $0.20.
The unaudited pro forma condensed combined statements of income give effect
to the Merger using the purchase method of accounting and assume that (i) the
Merger occurred as of the beginning of the respective periods presented and (ii)
the amount of initial goodwill equaled the amount reflected in the unaudited pro
forma condensed combined balance sheet as of March 31, 1998.
These pro forma financial statements should be read in conjunction with the
historical financial statements and related notes of Ambanc and AFSALA
incorporated by reference or included in this Joint Proxy Statement/Prospectus.
As noted above, the Merger will be accounted for using the purchase method
of accounting. Accordingly, the pro forma adjustments made for the purpose of
preparing the pro forma financial statements are based upon certain assumptions
and estimates regarding the amount of goodwill (which represents the excess of
the total acquisition cost over the fair value of the net assets acquired) which
will arise from the Merger and the period over which such goodwill will be
amortized. The actual goodwill arising from the Merger will be based on the
excess of the total acquisition cost over the fair value of the net assets
acquired, based on fair value estimates and other information determined as of
the date the Merger is consummated. For purposes of the pro forma financial
statements, it is assumed that the fair value of AFSALA's assets and liabilities
is equal to historical cost, as reflected in AFSALA's historical consolidated
financial statements. The actual fair value adjustments to the accounts of
AFSALA, which are not expected to be material, will be made on the basis of
appraisals and evaluations that will be made as of the date the Merger is
consummated and may, therefore, differ from those reflected in these pro forma
financial statements. In the opinion of Ambanc's management, the estimates used
in the preparation of these pro forma financial statements are reasonable under
the circumstances.
The combined company expects to achieve benefits from the Merger including
operating cost savings and revenue enhancements. The pro forma earnings set
forth in this section do not reflect any potential cost savings or revenue
enhancements which are expected to result from the combination of operations of
Ambanc and AFSALA and, accordingly, may not be indicative of the results of
future operations. No assurances can be given with respect to the ultimate
level of cost savings or revenue enhancements to be realized. As a result, the
unaudited pro forma condensed combined statements of income are not necessarily
indicative of either the results of operations that would have occurred had the
Merger been effective at the beginning of the respective periods or of future
results of the combined company. In addition, the consummation of the Merger is
subject to satisfaction of a number of conditions, and no assurance can be given
that the Merger will be consummated on the currently anticipated terms, or at
all.
55
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AMBANC HOLDING CO., INC. AND AFSALA BANCORP, INC.
<TABLE>
<CAPTION>
At March 31, 1998
--------------------------------------------------------
Ambanc AFSALA Pro Forma Note(s) Pro Forma
Adjustments Combined
-------- -------- ----------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 6,831 $ 4,584 $ 269 1G, 1I $ 11,684
Federal funds sold............................. 9,000 6,350 15,350
Term deposits with the Federal Home
Loan Bank..................................... --- 11,000 11,000
-------- -------- -------- --------
Cash and cash equivalents.................. 15,831 21,934 269 38,034
-------- -------- -------- --------
Securities available for sale, at fair value... 204,640 41,051 22,176 4 267,867
Investment securities held to maturity......... --- 22,176 (22,176) 4 ---
Loans receivable, net of unamortized fees...... 287,668 77,965 365,633
Allowance for loan losses.................... (3,952) (1,142) (5,094)
-------- -------- --------
Loan receivable, net......................... 283,716 76,823 360,539
-------- -------- --------
Accrued interest receivable.................... 3,015 1,322 4,337
Premises and equipment, net.................... 3,021 1,786 4,807
Federal Home Loan Bank of New York
stock, at cost................................ 3,498 565 4,063
Other assets................................... 6,110 268 623 1G, 1H 7,001
Goodwill....................................... --- --- 8,891 1J 8,891
-------- -------- -------- --------
Total assets............................... $519,831 $165,925 $ 9,783 $695,539
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits..................................... $324,448 $138,893 $463,341
Advances from borrowers for taxes
and insurance............................... 1,319 319 1,638
Other borrowed funds......................... 116,650 1,706 118,356
Accrued expenses and other liabilities....... 16,660 4,878 21,538
-------- -------- --------
Total liabilities.......................... 459,077 145,796 604,873
-------- -------- --------
Shareholders' equity:
Preferred stock.............................. --- --- ---
Common stock................................. 54 145 3 2C 57
(145) 3
Additional paid-in capital................... 52,482 13,525 1,183 1G, 1H 68,930
1,549 1E
14,899 2E
(14,708) 3
Retained earnings, substantially restricted.. 26,648 9,456 (1,215) 1G, 1H 26,648
(8,241) 3
Treasury stock, at cost...................... (13,461) (1,379) 13,461 2D ---
1,379 3
Common stock acquired by ESOP................ (3,180) (969) 969 1G (3,180)
Unearned RRP shares issued................... (1,420) (655) 655 1H (1,420)
Accumulated other comprehensive income....... (369) 6 (6) 3 (369)
-------- -------- -------- --------
Total shareholders' equity................. 60,754 20,129 9,783 90,666
-------- -------- -------- --------
Total liabilities and shareholders'
equity................................... $519,831 $165,925 $ 9,783 $695,539
======== ======== ======== ========
</TABLE>
See "Notes to the Unaudited Pro Forma Condensed Combined Financial Statements."
56
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
AMBANC HOLDING CO., INC. AND AFSALA BANCORP, INC.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------------
Pro Forma Pro Forma
Ambanc AFSALA Adjustments Note(s) Combined
-------- ------ ------------- ------- -----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Interest and dividend income................ $9,009 $2,747 $11,756
Interest expense............................ 5,147 1,449 6,596
------ ------ -------
Net interest income....................... 3,862 1,298 5,160
Provision for loan losses................... 225 15 240
------ ------ -------
Net interest income after provision for
loan losses.............................. 3,637 1,283 4,920
------ ------ -------
Non-interest income......................... 325 101 426
------ ------ -------
Non-interest expenses:
Compensation and benefits................. 1,585 483 (92) 5 1,976
Occupancy and equipment................... 413 140 553
Other..................................... 1,156 342 148 6 1,646
------ ------ -------
Total non-interest expenses............. 3,154 965 8 4,175
------ ------ -------
Income before taxes..................... 808 419 1,171
Income tax expense.......................... 362 163 27 5 552
------ ------ -------
Net income.............................. $ 446 $ 256 9 $ 619
====== ====== =======
Earnings per share:
Basic..................................... $ 0.12 $ 0.21 9 $ 0.12
====== ====== =======
Diluted................................... $ 0.11 $ 0.20 9 $ 0.11
====== ====== =======
Average shares outstanding:
Basic..................................... 3,829 1,223 252 7 5,304
Diluted................................... 3,928 1,273 238 7 5,439
</TABLE>
See "Notes to Unaudited Pro Forma Condensed Combined Financial Statements."
57
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
AMBANC HOLDING CO., INC. AND AFSALA BANCORP, INC.
<TABLE>
<CAPTION>
Year Ended
---------------------------
December 31, September 30,
1997 1997
--------------------------- Pro Forma Pro Forma
Ambanc AFSALA Adjustments Note(s) Combined
------------ ------------- ----------- ------- ---------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Interest and dividend income................. $35,566 $10,769 $46,335
Interest expense............................. 19,654 5,515 25,169
------- ------- -------
Net interest income...................... 15,912 5,254 21,166
Provision for loans losses................... 1,088 250 1,338
------- ------- -------
Net interest income after provision
for loan losses......................... 14,824 5,004 19,828
------- ------- -------
Non-interest income.......................... 1,826 406 2,232
------- ------- -------
Non-interest expenses:
Compensation and benefits.................. 6,086 1,577 (204) 5 7,459
Occupancy and equipment.................... 1,539 534 2,073
Other...................................... 4,572 1,486 593 6 6,651
------- ------- -------
Total non-interest expenses.............. 12,197 3,597 8 16,183
------- ------- -------
Income before taxes...................... 4,453 1,813 5,877
Income tax expense........................... 1,693 624 65 5 2,382
------- ------- -------
Net income............................... $ 2,760 $ 1,189 9 $ 3,495
======= ======= =======
Earnings per share:
Basic...................................... $ 0.70 $ 0.89 9 $ 0.64
======= ======= =======
Diluted.................................... $ 0.69 $ 0.88 9 $ 0.63
======= ======= =======
Average shares outstanding:
Basic...................................... 3,941 1,338 217 7 5,496
Diluted.................................... 3,982 1,347 214 7 5,543
</TABLE>
See "Notes to Unaudited Pro Forma Condensed Combined Financial Statements."
58
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1: The adjustments to estimate the amount of goodwill used in the
preparation of the unaudited pro forma condensed combined balance sheet are
summarized below (in thousands, except share data):
<TABLE>
<S> <C> <C> <C> <C>
Shares of AFSALA common stock outstanding 1,378,440 (A)
Exchange ratio 1.07
----------
Equivalent number of Ambanc common shares 1,474,931
Per share price of Ambanc common stock $ 19.23 (B)
----------
Consideration for AFSALA common stock
outstanding $ 28,363
Outstanding AFSALA stock options 145,475 (C)
Exchange ratio 1.07
--------
Equivalent number of Ambanc stock options 155,658
Estimated fair value of an Ambanc stock option $ 9.95 (D)
--------
Estimated fair value of stock options exchanged $ 1,549 (E)
----------
Total estimated consideration $ 29,912
Historical net assets acquired $ (20,129) (F)
Effect of AFSALA Bank ESOP termination $ (1,169) (G)
Effect of vesting of AFSALA's Restricted
Stock Plan shares $ (423) (H)
Estimated direct costs of acquisition $ 700 (I)
----------
Estimated goodwill (excess of the total
acquisition cost over the fair value of the
net assets acquired) $ 8,891 (J)
==========
</TABLE>
(A) The number of shares of outstanding AFSALA Common Stock to be exchanged
will be those shares outstanding immediately prior to the Merger. The
number of AFSALA shares outstanding on March 31, 1998 has been used in the
pro forma computations.
(B) Represents the average closing price of Ambanc Common Stock for the period
three days before, after and including the announcement date of April 23,
1998.
(C) The number of AFSALA stock options to be exchanged for equivalent Ambanc
stock options will be those AFSALA stock options outstanding immediately
prior to the Merger. In accordance with the AFSALA Stock Option Plan and
the Merger Agreement, all unvested AFSALA stock options immediately vest at
the time of the Merger. The number of AFSALA stock options outstanding on
March 31, 1998 has been used in the pro forma computations.
(D) The estimated fair value of an Ambanc stock option was estimated as of the
announcement date (April 23, 1998) using the Black-Scholes option-pricing
model with the following assumptions: expected life of 5 years; expected
volatility of 40%; dividend yield of 1.20%; and risk-free interest rate of
5.66%.
(E) Represents the estimated fair value of the Ambanc stock options to be
issued to AFSALA stock option holders as part of the Merger. See also (D).
(F) Represents AFSALA's total shareholders' equity as of March 31, 1998.
(G) In accordance with the Merger Agreement, the AFSALA Bank ESOP will
terminate at the time of the Merger. The AFSALA Bank ESOP will attempt to
sell sufficient unallocated shares in the open market to provide funds to
allow it to fully repay the debt outstanding to AFSALA. The remaining
unallocated shares held by the
59
<PAGE>
AFSALA Bank ESOP will be allocated to plan participants, for which AFSALA
will record an expense equal to the then-current fair value of the shares
allocated. AFSALA will receive a tax deduction for the shares allocated
based on the original cost to the AFSALA Bank ESOP of $10.00 per share.
The following entry would have been recorded by AFSALA to reflect the
AFSALA Bank ESOP termination if the Merger had been completed on March 31,
1998 (market price of AFSALA Common Stock on March 31, 1998 was $20.44 per
share). The income tax benefit is computed at an assumed marginal effective
tax rate of 40%. The net result is an increase in AFSALA's shareholders'
equity of $1,169 as of March 31, 1998, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash $ 969
Compensation expense, net of tax (retained earnings) 822
Current tax refund (other assets) 200
Common stock acquired by ESOP $ 969
Additional paid-in capital 1,022
</TABLE>
(H) Immediately prior to the closing of the Merger, the unearned AFSALA
Restricted Stock Plan (RSP) shares at AFSALA will immediately vest, in
accordance with the provisions of the RSP. AFSALA will record the
remaining unearned compensation as an expense in the period of the vesting,
net of the related tax effects. In addition, AFSALA will receive a tax
deduction (recorded directly to equity) equal to the excess of the market
price of the shares at the vesting date over the market price of the shares
on the grant date ($13.50).
The following entry would have been recorded by AFSALA to reflect the
immediate vesting of the unearned RSP shares if the transaction had been
completed on March 31, 1998 (market price of AFSALA common stock on March
31, 1998 was $20.44 per share). The income tax benefit is computed at an
assumed marginal effective tax rate of 40%. The net result is an increase
in AFSALA's shareholders' equity of $423 as of March 31, 1998, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Compensation expense, net of tax (retained earnings) $393
Current tax refund (other assets) 423
Unearned RRP shares issued $655
Additional paid-in capital 161
</TABLE>
(I) Represents the estimated direct acquisition costs for investment banking,
legal and accounting fees. As these costs are expected to be paid out in
cash prior to or within a short period of time following consummation of
the Merger, the pro forma financial statements reflect the cash outlay.
(J) For purposes of the unaudited pro forma financial statements, it is assumed
that the adjustment of AFSALA's assets and liabilities to fair value would
not be material; therefore the entire excess cost is attributable to
goodwill. Goodwill is expected to be amortized on a straight-line basis
over 15 years. The final determination of the fair value of AFSALA's
assets and liabilities will be made as of the consummation of the Merger
and after appraisals and evaluations are complete.
60
<PAGE>
NOTE 2: As stated in Note 1, had the Merger occurred as of March 31, 1998,
Ambanc would have issued 1,474,931 shares of Ambanc Common Stock in exchange for
all outstanding shares of AFSALA Common Stock. In connection with the Merger,
Ambanc plans to issue shares out of treasury stock, to the extent possible, in
exchange for the outstanding AFSALA shares. The following shows the impact on
Ambanc's equity accounts had the Merger taken place as of March 31, 1998 (in
thousands, except share data):
<TABLE>
<S> <C> <C> <C> <C>
Total shares of Ambanc to be issued (see Note 1) 1,474,931
Ambanc shares held in its treasury stock portfolio 1,163,832 (A)
----------
Shares of Ambanc to be issued from
authorized and unissued shares 311,099
Price of Ambanc Common Stock $19.23 (B)
----------
Fair value of new common shares to be issued $ 5,982
Less: par value of Ambanc Common Stock $ 3 (C)
----------
Increase to additional paid-in capital $ 5,979
Ambanc shares held in its treasury stock portfolio 1,163,832 (A)
Price of Ambanc Common Stock $ 19.23 (B)
----------
Increase in Ambanc equity $ 22,381
Less: cost basis of treasury shares $ 13,461 (D)
----------
Increase to additional paid-in capital $ 8,920
----------
Total increase to additional paid-in capital $ 14,899 (E)
==========
</TABLE>
(A) The number of Ambanc treasury shares to be issued in exchange for
outstanding AFSALA shares will be those held immediately prior to the
Merger, up to a maximum equal to the amount of shares required to be issued
by Ambanc to AFSALA stockholders in accordance with the Merger Agreement.
The number of Ambanc treasury shares held as of March 31, 1998 has been
used in the pro forma computations.
(B) See Note 1, (B).
(C) Represents 311,099 new shares of Ambanc Common Stock to be issued, with a
par value of $.01 per share.
(D) Represents the cost basis of the Ambanc treasury shares held as of
March 31, 1998.
(E) Costs related to the registration and offering of securities will be a
direct reduction of additional paid-in capital and are not expected to be
material to the total value of the offering.
NOTE 3: Represents the elimination of AFSALA's equity accounts, after giving
effect to the pro forma adjustments in Note 1.
NOTE 4: Represents the reclassification of the securities acquired from AFSALA
from investment securities held to maturity to securities available for sale.
The adjustment to fair value would not be material.
NOTE 5: Represents the elimination of the expense related to the AFSALA Bank
ESOP and RSP, net of the related tax effects. See also Note 1, (G) and (H).
NOTE 6: This adjustment reflects the amortization of goodwill, computed in
Note 1, on a straight-line basis over a period of 15 years. The goodwill
amortization is not necessarily indicative of the amount which will actually be
recorded when the Merger is consummated. See also Note 1, (J).
NOTE 7: The adjustments to average shares outstanding (both basic and diluted)
reflect the termination of the AFSALA Bank ESOP, the accelerated vesting of
AFSALA's RSP awards, and the adjustment of AFSALA's average shares outstanding
and common stock equivalents (stock options) to equivalent Ambanc average shares
outstanding and common stock equivalents using the Exchange Ratio of 1.07.
61
<PAGE>
NOTE 8: No pro forma adjustments have been made to non-interest expenses for
one-time costs associated with facilitating the Merger, or for expected cost
savings which Ambanc and AFSALA believe will be derived from the elimination of
duplicative administrative functions and other operating efficiencies. However,
there can be no assurance that any such cost savings will in fact be realized.
NOTE 9: The net income and earnings per share amounts reflected herein do not
purport to be indicative of actual results that would have been realized had the
Merger in fact occurred on the dates indicated, nor do they purport to be
indicative of results of operations that may be achieved in the future. In
addition, no adjustments have been made to non-interest expenses for expected
cost savings, or one-time costs associated with facilitating the Merger as
described in Note 8 above, or for revenue enhancements expected to result from
the Merger.
BUSINESS OF AFSALA BANCORP, INC.
GENERAL
AFSALA is a Delaware-chartered corporation organized in June 1996 at the
direction of AFSALA Bank to acquire all of the capital stock that AFSALA Bank
issued upon AFSALA Bank's conversion from the mutual to stock form of ownership
(the "Conversion") completed on September 30, 1996. As of March 31, 1998,
AFSALA had total consolidated assets of $165.9 million, total consolidated
deposits of $138.9 million and total consolidated stockholders' equity of $20.1
million, or 12.1% of total assets. The only subsidiary of AFSALA is AFSALA
Bank. As such, references herein to AFSALA Bank include AFSALA unless the
context otherwise indicates.
AFSALA is a unitary savings and loan holding company which, under existing
laws, generally is not restricted in the types of business activities in which
it may engage, provided that AFSALA Bank retains a specified amount of its
assets in housing-related investments. AFSALA does not employ any persons other
than officers, but utilizes the support staff of AFSALA Bank from time to time.
AFSALA Bank attracts deposits from the general public and uses such
deposits primarily to originate loans, including home equity loans, secured by
first mortgages on one- to four-family residences in its market areas. AFSALA
Bank also originates consumer loans, consisting of personal loans, home
improvement loans, and passbook loans, and to a much lesser extent, AFSALA Bank
originates commercial real estate loans and other commercial loans. Although
the total loan portfolio still consists of a small amount of education loans,
AFSALA Bank ceased making such loans in June 1994.
The principal sources of funds for AFSALA Bank's lending activities are
deposits, the repayment and maturity of loans and sale, maturity and call of
securities, and Federal Home Loan Bank ("FHLB") advances. The principal source
of income is interest on loans and securities. The principal expense is
interest paid on deposits.
AFSALA Bank is subject to examination and comprehensive regulation by the
OTS and its deposits have been federally insured by the Savings Association
Insurance Fund ("SAIF") and its predecessor, the Federal Savings and Loan
Insurance Corporation ("FSLIC"), since 1937. AFSALA Bank is a member of and
owns capital stock in the FHLB of New York, which is one of the 12 regional
banks in the FHLB System.
MARKET AREA AND COMPETITION
AFSALA Bank operates five offices and an operations center. The main
office, the operations center, and two branch offices are located in Amsterdam,
New York, in Montgomery County. One branch office, opened in October 1994, is
in a Shop N Save Supermarket located in Gloversville, New York, in Fulton
County, and one branch office, opened in May 1995, is in a Shop N Save
Supermarket located in Oneonta, New York, in Otsego County. Based on AFSALA
Bank's branch locations and deposit activity, AFSALA Bank has two market areas.
Both market areas are defined by existing boundaries. One market area consists
of the Cities of Amsterdam, Gloversville, Johnstown, and the Towns of Amsterdam,
Johnstown, Florida, Mohawk, Broadalbin, Mayfield, and Perth. The other
62
<PAGE>
market area consists of the City of Oneonta and Town of Oneonta. In December
1997, AFSALA Bank opened another branch office in a Price Chopper supermarket
located in Norwich, New York.
Economic growth in AFSALA Bank's market areas remains dependent upon the
local economy. The deposit and loan activity of AFSALA Bank is significantly
affected by economic conditions in its market areas. The economies of AFSALA
Bank's market areas have remained stagnant for several years. The largest
employers in AFSALA Bank's market areas are smaller sized manufacturers. Trade,
service, and government related industries are other employers. Because there
are no major employers in these market areas, many residents commute to
Schenectady County or to Albany for employment. AFSALA Bank has been able to
increase its market share in originating first mortgage loans on residential
properties within its market areas, even though total first mortgage loan
originations in AFSALA Bank's market areas have been declining. AFSALA Bank has
also increased its market share of deposits and consumer loans for at least the
last five years.
AFSALA Bank has been able to maintain its position in mortgage loan
originations, market share, and deposit accounts throughout its market areas by
virtue of its local presence, competitive pricing, and referrals from existing
customers. AFSALA Bank is one of many financial institutions serving its market
areas.
The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in AFSALA Bank's market areas. Competition for funds
also includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition varies depending upon market conditions and comes
from other insured financial institutions such as commercial banks, thrift
institutions, credit unions, and multi-state regional banks, and mortgage
bankers, many of whom have far greater resources than AFSALA Bank.
LENDING ACTIVITIES
General. AFSALA Bank's loan portfolio predominantly consists of mortgage
loans secured by one- to four-family residences. AFSALA Bank emphasizes home
equity loans secured by first and second mortgage loans on one-to four-family
residences. AFSALA Bank also originates consumer loans, consisting of personal
loans, home improvement loans, and passbook loans. To a lesser extent, AFSALA
Bank originates commercial real estate loans and other commercial loans.
Although the loan portfolio still consists of a small amount of education loans,
AFSALA Bank ceased making such loans in June 1994.
At March 31, 1998, loans secured by first mortgages on one- to four-family
residences totaled $44.0 million, or 56.46%, of AFSALA Bank's total loan
portfolio. Prior to 1988, AFSALA Bank purchased loans; however, it is the
current practice of AFSALA Bank not to purchase loans. Other than educational
loans which were sold, AFSALA Bank does not sell loans, and AFSALA Bank is
primarily a portfolio lender. For its mortgage loan portfolio, AFSALA Bank
originates fixed rate and adjustable-rate mortgage loans. At March 31, 1998,
adjustable-rate residential mortgage loans totaled approximately 47.91% of
AFSALA Bank's residential mortgage loans.
Loan originations are generally obtained from existing customers, members
of the local community, and referrals from real estate brokers, attorneys,
accountants, and current and past customers within AFSALA Bank's lending area.
AFSALA Bank also advertises on an extensive basis in the local print media and
periodically advertises on radio and television. Mortgage loans originated by
AFSALA Bank in its portfolio generally include due-on-sale clauses that provide
AFSALA Bank with the contractual right to deem the loan immediately due and
payable in the event that the borrower transfers ownership of the property
without AFSALA Bank's consent.
63
<PAGE>
Analysis of Loan Portfolio. The following table sets forth information
concerning the composition of AFSALA Bank's loan portfolio in dollar amounts and
in percentages of the total loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, ----------------------------------
1998 1997 1996
--------------- --------------- ---------------
$ % $ % $ %
------- ------ ------- ------ ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loans:
- ------------------------------
Real Estate Loans:
Residential.................. $44,020 56.46% $44,908 58.38% $43,966 61.44%
Commercial................... 3,967 5.09 3,665 4.76 3,015 4.21
Home equity.................. 19,376 24.85 17,677 22.98 14,666 20.50
------- ------ ------- ------ ------- ------
Total real estate loans... 67,363 86.40 66,250 86.12 61,647 86.15
------- ------ ------- ------ ------- ------
Consumer Loans:
Personal secured/(1)/........ 3,842 4.93 3,875 5.04 3,943 5.51
Personal unsecured........... 443 .57 475 0.62 432 0.60
Education.................... 76 .10 86 0.11 91 0.13
Home improvement............. 2,068 2.65 1,790 2.32 1,560 2.18
Passbook..................... 801 1.03 938 1.22 779 1.09
------- ------ ------- ------ ------- ------
Total consumer loans...... 7,230 9.27 7,164 9.31 6,805 9.51
------- ------ ------- ------ ------- ------
Commercial Loans............... 3,372 4.33 3,513 4.57 3,104 4.34
------- ------ ------- ------ ------- ------
Total loans............... 77,965 100.00% 76,927 100.00% 71,556 100.00%
====== ====== ======
Less:
Allowance for loan losses.... 1,142 1,108 879
------- ------- -------
Net loans receivable...... $76,823 $75,819 $70,677
======= ======= =======
</TABLE>
- --------------------------
/(1)/ Includes loans secured by, among other things, automobiles, boats, and
mobile homes.
Loan Maturity Tables. The following table sets forth the estimated
maturity of AFSALA Bank's loan portfolio at September 30, 1997. The table does
not include the effects of possible prepayments or scheduled repayments. All
mortgage loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
At September 30, 1997
----------------------------------------------------------
Residential Commercial Commercial Other
Real Estate/(1)/ Real Estate Loans Loans Total
---------------- ----------- ---------- ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Non-performing................. $ 312 $ -- $ 10 $ 147 $ 469
======= ======= ====== ====== =======
AMOUNTS DUE:
Within 1 year.................. $ 281 $ 40 $1,534 $2,057 $ 3,912
1 to 5 years................... 7,221 591 761 2,058 10,631
More than 5 years.............. 55,082 3,034 1,218 3,050 62,384
------- ------- ------ ------ -------
Total due after one year....... 62,303 3,625 1,979 5,108 73,015
------- ------- ------ ------ -------
Total amount due............... $62,584 $ 3,665 $3,513 $7,165 $76,927
======= ======= ====== ====== =======
LESS:
Allowance for loan losses..................................................... 1,108
-------
Net loans receivable........................................................ $75,819
=======
</TABLE>
- -------------------
/(1)/ Includes home equity loans.
64
<PAGE>
The following table sets forth the dollar amount of all loans contractually
due after September 30, 1998, and shows the amount of such loans which have pre-
determined interest rates and which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
At September 30, 1997
--------------------------------------
Fixed Rates Adjustable Rates Total
----------- ---------------- -------
(In thousands)
<S> <C> <C> <C>
Residential real estate/(1)/..... $40,923 $21,380 $62,303
Commercial real estate........... 3,033 592 3,625
Commercial loans................. 1,979 -- 1,979
Other loans...................... 5,066 42 5,108
------- ------- -------
Total.......................... $51,001 $22,014 $73,015
======= ======= =======
</TABLE>
- ----------------
/(1)/ Includes home equity loans.
One- to Four-Family Residential Loans. AFSALA Bank's primary lending
activity consists of the origination of one- to four-family residential mortgage
loans secured by properties located in AFSALA Bank's primary market areas.
AFSALA Bank generally originates owner-occupied one- to four-family residential
mortgage loans in amounts up to 80% of the lesser of the appraised value or
selling price of the mortgaged property without requiring mortgage insurance.
AFSALA Bank will originate a mortgage loan in an amount up to 95% of the lesser
of the appraised value or selling price of a mortgaged property; however,
mortgage insurance is required for the amount in excess of 80% of such value.
Non-owner-occupied residential mortgage loans are originated up to 75% of the
lesser of the appraised value or selling price of the property on a fixed rate
basis only. AFSALA Bank, on a very limited basis, also originates construction
permanent loans on one- to four-family residences. AFSALA Bank retains all
mortgage loans that it originates. Adjustable-rate mortgage loans, which can
adjust annually or every three or five years over the life of the loan depending
on the terms of the loan, can have maturities of up to 30 years. Fixed rate
loans can have maturities of up to 15 or 20 years depending on the terms of the
loan. AFSALA Bank also originates a fixed rate 8 year balloon loan with
principal and interest payments calculated using a 30 year amortization.
For all adjustable-rate mortgage loans, AFSALA Bank requires the borrower
to qualify at the fully indexed rate after the first adjustment. AFSALA Bank's
adjustable-rate mortgage loans provide for periodic interest rate adjustments of
plus or minus 1% to 2% per year with a maximum adjustment over the term of the
loan as set forth in the loan agreement and usually ranges from 4% to 6.5% above
the initial interest rate depending on the terms of the loan. Adjustable-rate
mortgage loans typically reprice every year, although some adjust every three or
five years, and provide for terms of up to 30 years with most loans having terms
of between 15 and 30 years. AFSALA Bank offers adjustable-rate loans with
initial interest rates set below the fully indexed rate.
AFSALA Bank offers adjustable-rate mortgage loans indexed to the one year
U.S. Treasury bill rate. Interest rates charged on mortgage loans are
competitively priced based on market conditions and AFSALA Bank's cost of funds.
Generally, AFSALA Bank's standard underwriting guidelines for mortgage loans
conform to the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") guidelines and most of AFSALA Bank's
loans can be sold in the secondary market. However, it is the current practice
of AFSALA Bank to remain a portfolio lender.
Commercial Loans. AFSALA Bank originates a limited amount of commercial
real estate and other commercial loans. Commercial real estate loans consist of
loans made for the purpose of purchasing the commercial real estate used as
collateral and includes loans secured by mixed residential and commercial use
property, professional office buildings, and restaurants. Commercial loans,
other than commercial real estate loans, consist of, among other things,
commercial lines of credit, commercial vehicle loans, and working capital loans
and are typically secured by residential or commercial property, receivables or
inventory, or some other form of collateral. AFSALA
65
<PAGE>
Bank requires a personal guarantee from the principal of the commercial
enterprise on all commercial loans. Loans secured by commercial property may be
originated in amounts up to 75% of the appraised value for a maximum term of 15
years.
Home Equity Loans. AFSALA Bank originates home equity loans secured by
first and second mortgages on residential real estate. The loans are originated
as fixed rate loans with terms of 3 to 15 years. The loans are generally
subject to an 80% combined loan-to-value ratio, including any other outstanding
mortgages or liens. However, AFSALA Bank may occasionally permit a higher loan-
to-value ratio based on other factors, such as the strength and credit history
of the applicant and the terms of the loan. AFSALA Bank has emphasized these
loans as a means of supplementing its mortgage loan origination volume.
Consumer Loans. AFSALA Bank offers consumer loans in order to provide a
wider range of financial services to its customers. Federal savings
associations are permitted to make secured and unsecured consumer loans up to
35% of their assets. In addition, savings associations have lending authority
above the 35% limitation for certain consumer loans, such as home equity, home
improvement, mobile home, and savings account or passbook loans. AFSALA Bank
originates secured and unsecured consumer loans, consisting of personal loans,
home improvement loans, and passbook loans.
Loan Underwriting Risks. Adjustable-rate mortgage loans decrease the risks
associated with changes in interest rates by periodically repricing, but involve
other risks because as interest rates increase, the underlying payments by the
borrower increase, thus increasing the potential for default. At the same time,
the marketability of the underlying collateral may be adversely affected by
higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic interest rate adjustment permitted by the
adjustable-rate mortgage loan documents, and, therefore is potentially limited
in effectiveness during periods of rapidly rising interest rates. These risks
have not had an adverse effect on AFSALA Bank.
While commercial real estate and consumer or other loans provide benefits
to AFSALA Bank's asset/liability management program by reducing AFSALA Bank's
exposure to interest rate changes, due to their generally shorter terms, and
producing higher yields, such loans may entail significant additional credit
risks compared to owner-occupied residential mortgage lending. However, AFSALA
Bank believes that the higher yields and shorter terms compensate AFSALA Bank
for the increased credit risk associated with such loans. In addition, home
equity loans provide certain benefits compared to longer term, fixed rate, one-
to four-family residential loans; home equity loans provide reduced interest
rate risk due to their shorter terms and provide higher yields. However, these
benefits may not compensate for the increased credit risk that results from not
holding the first lien on the underlying collateral for home equity loans.
Commercial lending entails significant additional risks when compared with
one- to four-family residential lending. For example, commercial loans
typically involve larger loan balances to single borrowers or groups of related
borrowers, the payment experience on such loans typically is dependent on the
successful operation of the project and these risks can be significantly
impacted by the cash flow of the borrowers and supply and demand conditions in
the market for commercial office, retail, and warehouse space. In periods of
decreasing cash flows, the commercial borrower may permit a lapse in general
maintenance of the property causing the value of the underlying collateral to
deteriorate.
In addition, due to the type and nature of the collateral, and, in some
cases the absence of collateral, consumer lending generally involves more credit
risk when compared with one- to four-family residential lending. Consumer
lending collections are typically dependent on the borrower's continuing
financial stability, and thus, are more likely to be adversely effected by job
loss, divorce, illness, and personal bankruptcy. In most cases, any repossessed
collateral for a defaulted consumer loan will not provide an adequate source of
repayment of the outstanding loan balance. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower and is
usually turned over to a collection agency.
Loan Approval Authority and Underwriting. AFSALA Bank has established
various lending limits for its officers and maintains an Executive Loan
Committee comprised of the President, Chief Lending Officer and two
66
<PAGE>
members of the Board of Directors. A report of all mortgage loans originated is
presented to the Board of Directors monthly. Upon receipt of a completed loan
application from a prospective borrower, a credit report is generally ordered,
income and certain other information is verified and, if necessary, additional
financial information is requested. An appraisal from an independent licensed
fee appraiser of the real estate intended to be used as security for a proposed
loan is obtained. For construction/permanent loans, funds advanced during the
construction phase are held in a loan-in-process account and disbursed based
upon various stages of completion in accordance with the results of inspection
reports that are based upon physical inspection of the construction by a loan
officer. For real estate loans, each title is reviewed by the attorney for
AFSALA Bank to determine the necessity for title insurance. Historically, AFSALA
Bank has not required title insurance except in those instances where the
attorney has seen a need for title insurance. Borrowers must also obtain fire
and casualty insurance (for loans on property located in a flood zone, flood
insurance is required) prior to the closing of the loan. AFSALA Bank is named as
mortgagee/loss payee of this insurance.
Loan Commitments. AFSALA Bank issues written commitments to prospective
borrowers on all approved mortgage loans which generally expire within 60 days
of the date of issuance. AFSALA Bank charges no commitment fees or points to
lock in rates or to secure commitments. In some instances, after a review of
the rate, terms, and circumstances, commitments may be renewed or extended
beyond the 60 day limit. At March 31, 1998, AFSALA Bank had $597,000 of
outstanding commitments on residential mortgage loans and $116,000 in
undisbursed funds related to construction loans. Management believes that less
than 5% of loan commitments expire. Furthermore, at March 31, 1998, AFSALA Bank
had $292,000 in unused personal lines of credit and $40,000 in standby letters
of credit.
Loans to One Borrower. Regulations limit loans-to-one borrower or an
affiliated group of borrowers in an amount equal to 15% of unimpaired capital
and unimpaired surplus of AFSALA Bank. AFSALA Bank is authorized to lend up to
an additional 10% of unimpaired capital and unimpaired surplus if the loan is
fully secured by readily marketable collateral. AFSALA Bank's maximum loan-to-
one borrower limit as set by the Board of Directors is 10% of unimpaired capital
and surplus.
At March 31, 1998, AFSALA Bank's largest lending relationship was comprised
of loans secured by commercial and residential properties, in addition to
equipment, inventory and receivables aggregating approximately $805,000 located
in AFSALA Bank's market areas. The second largest lending relationship
consisted of loans secured by commercial and residential properties aggregating
approximately $717,000 at March 31, 1998, located in AFSALA Bank's market areas.
Likewise, the third largest lending relationship consisted of loans secured by
commercial and residential properties, in addition to equipment, inventory and
receivables aggregating approximately $662,000 at March 31, 1998 located in
AFSALA Bank's market areas. At March 31, 1998, all of these loans were
performing in accordance with their terms.
Loan Delinquencies. Loans are reviewed on a monthly basis and are placed
on non-accrual status when considered doubtful of collection by management.
Generally, loans past due 90 days or more as to principal or interest and, in
the opinion of management, not adequately secured to ensure the collection of
the entire outstanding balance of the loan, including accrued interest, are
placed on non-accrual status. Interest accrued and unpaid at the time a loan is
placed on non-accrual status is charged against interest income. Subsequent
cash payments, if any, are generally applied to reduce the outstanding principal
balance.
67
<PAGE>
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, accruing loans which are past due 90 days or more
as to principal or interest payments, and foreclosed assets. As of the dates
indicated, AFSALA Bank had no loans categorized as troubled debt restructurings.
<TABLE>
<CAPTION>
At September 30,
-----------------
At March 31, 1998 1997 1996
----------------- ------- -------
<S> <C> <C> <C>
(Dollars in thousands)
Non-accruing loans:
Residential real estate/(1)/..................... $ 464 $ 312 $ 624
Commercial real estate........................... --- --- ---
Consumer and commercial loans.................... 109 157 92
------- ------- -------
Total......................................... $ 573 $ 469 $ 716
======= ======= =======
Accruing loans past due 90 days or more:
Residential real estate/(1)/..................... $ --- $ --- $ ---
Commercial real estate........................... --- --- ---
Consumer and commercial loans.................... --- --- 66
------- ------- -------
Total......................................... $ --- $ --- $ 66
======= ======= =======
Total non-performing loans......................... $ 573 $ 469 $ 782
======= ======= =======
Foreclosed assets:
Residential real estate(1)....................... --- 31 ---
Commercial real estate........................... 43 --- ---
Consumer and commercial.......................... --- --- ---
------- ------- -------
Total......................................... 43 31 ---
======= ======= =======
Total non-performing assets........................ $ 616 $ 500 $ 782
======= ======= =======
Allowance for loan losses.......................... $ 1,142 $ 1,108 $ 879
======= ======= =======
Coverage of non-performing loans(2)................ 199.46% 236.09% 112.40%
======= ======= =======
Non-performing assets as a percentage of total
assets............................................ 0.37% 0.31% 0.51%
======= ======= =======
</TABLE>
- ---------------------
/(1)/ Includes home equity loans.
/(2)/ Calculated as the period end allowance for loan losses as a percentage of
the period end non-performing loans.
Interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $20,000, $30,000
and $33,000 for the six months ended March 31, 1998 and the years ended
September 30, 1997 and 1996, respectively and $5,000, $9,000 and $29,000 was
collected and included in AFSALA Bank's interest income from non-accrual loans
for the six months ended March 31, 1998 and the years ended September 30, 1997
and 1996.
Classified Assets. OTS regulations provide for a classification system for
problem assets of insured institutions. Under this classification system,
problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered substandard if it is inadequately
protected by the current equity 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 as 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
68
<PAGE>
reserve is not warranted. Assets may be designated "special mention" because of
potential weakness that does not currently warrant classification in one of the
aforementioned categories.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. 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 by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
In accordance with its classification of assets policy, AFSALA Bank
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 March 31, 1998, AFSALA Bank had
classified $561,000 of loans as substandard, $358,000 of loans as doubtful, and
none as loss.
Foreclosed Real Estate. Real estate acquired by AFSALA Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as other real estate
owned until it is sold. When property is acquired, it is recorded at the fair
value at the date of foreclosure less estimated costs of disposition.
AFSALA Bank records loans as in-substance foreclosures if AFSALA Bank has
taken possession of the collateral regardless of whether formal foreclosure
proceedings have been instituted. In-substance foreclosures are accounted for
as real estate acquired through foreclosure; however, title to the collateral
has not been acquired by AFSALA Bank. There may be significant other expenses
incurred such as legal and other servicing costs involved with in substance
foreclosures and foreclosed real estate. At March 31, 1998, other real estate
owned consisted of one commercial real estate property and amounted to $43,000.
Allowance for Loan Losses. Management regularly performs an analysis to
identify the inherent risk of loss in its loan portfolio. This analysis
includes evaluation of concentrations of credit, past loss experience, current
economic conditions, amount and composition of the loan portfolio (including
loans being specifically monitored by management), estimated fair value of
underlying collateral, loan commitments outstanding, delinquencies, and other
factors.
AFSALA Bank will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although AFSALA Bank maintains its allowance for
loan losses at a level that it considers to be adequate to provide for the
inherent risk of loss in its loan portfolio, there can be no assurance that
future losses will not exceed estimated amounts or that additional provisions
for loan losses will not be required in future periods. In addition, AFSALA
Bank's determination as to the amount of its allowance for loan losses is
subject to review by the OTS, as part of its examination process, which may
result in the establishment of an additional allowance based upon the judgment
of the OTS after a review of the information available at the time of the OTS
examination.
69
<PAGE>
Analysis of Allowance for Loan Losses. The following table sets forth
information with respect to AFSALA Bank's allowance for loan losses at the dates
indicated:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended September 30,
March 31, -------------------
1998 1997 1996
----------- ------- -------
<S> <C> <C> <C>
Total loans outstanding (end of period)........... $77,965 $76,927 $71,556
======= ======= =======
Average total loans outstanding (period to date).. $76,850 $73,678 $68,878
======= ======= =======
Allowance for loan loss at beginning of period.... $ 1,108 $ 879 $ 678
Loan charge-offs:
Residential real estate(1)...................... --- (1) (11)
Commercial real estate.......................... --- --- ---
Consumer and commercial loans................... (16) (22) (18)
------- ------- -------
Total charge-offs............................ (16) (23) (29)
------- ------- -------
Total recoveries.................................. --- 2 ---
------- ------- -------
Loan charge-offs, net of recoveries............... (16) (21) (29)
Provision charged to operations................... 50 250 230
------- ------- -------
Allowance for loan losses at end of period........ $ 1,142 $ 1,108 $ 879
======= ======= =======
Ratio of net charge-offs during the period to
average loans outstanding during the period..... 0.04%/(2)/ 0.03% 0.04%
======= ======= =======
Provision as a percentage of average loans........ 0.13%/(2)/ 0.34% 0.33%
======= ======= =======
Allowance as a percentage of total loans (end of
period).......................................... 1.46% 1.44% 1.23%
======= ======= =======
</TABLE>
- ------------------
/(1)/ Includes home equity loans.
/(2)/ Annualized.
70
<PAGE>
Allocation of the Allowance for Loan Losses. The following table sets
forth the allocation of the allowance for loan losses by category as prepared by
AFSALA Bank. In management's opinion, the allocation has, at best, a limited
utility. It is based on management's assessment as of a given point in time of
the risk characteristics of each of the component parts of the total loan
portfolio and is subject to changes as and when the risk factors of each such
component part change. The allocation is not indicative of either the specific
amounts or the loan categories in which future charge-offs may be taken, nor
should it be taken as an indicator of future loss trends. In addition, by
presenting the allocation, management does not mean to imply that the allocation
is exact or that the allowance has been precisely determined from the
allocation. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
At March 31, 1998 1997 1996
------------------------ ------------------------ ------------------------
Percent of Percent of Percent of
Amount of Loans in Each Amount of Loans in Each Amount of Loans in Each
Loan Loss Category to Loan Loss Category to Loan Loss Category to
Allowance Total Loans Allowance Total Loans Allowance Total Loans
--------- ------------- --------- ------------- --------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allocation of allowance for
loan losses/(1)/:
Residential real estate/(2)/... $ 300 81.31% $ 231 81.36% $201 81.94%
Commercial real estate......... 33 5.09 31 4.76 23 4.21
Consumer and commercial
loans......................... 352 13.60 403 13.88 232 13.85
Unallocated.................... 457 --- 443 -- 423 ---
------ ------ ------ ------ ---- ------
Total..................... $1,142 100.00% $1,108 100.00% $879 100.00%
====== ====== ====== ====== ==== ======
</TABLE>
- ------------------------------
/(1)/ Percentages represent loans to gross loans in each category.
/(2)/ Includes home equity loans.
INVESTMENT ACTIVITIES
General. AFSALA Bank is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short term
securities and certain other investments. See "Regulation of AFSALA and AFSALA
Bank--Regulation of AFSALA Bank-Liquidity Requirements." AFSALA Bank has
maintained a liquidity portfolio in excess of regulatory requirements.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives and upon management's judgment as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of future yield levels, as well as management's projections as to
the short term demand for funds to be used in AFSALA Bank's loan origination and
other activities. AFSALA Bank classifies its investments as securities available
for sale or investments securities held to maturity in accordance with SFAS No.
115. At March 31, 1998, AFSALA Bank's investment portfolio policy allowed
investments in instruments such as U.S. Treasury obligations, U.S. federal
agency or federally sponsored agency obligations, municipal obligations,
mortgage-backed securities, banker's acceptances, certificates of deposit,
federal funds, including FHLB overnight and term deposits (up to six months), as
well as investment grade corporate bonds, commercial paper and the mortgage
derivative products described below. The Board of Directors may authorize
additional investments.
AFSALA Bank's securities available for sale and investment securities held
to maturity portfolios at March 31, 1998 did not contain securities of any
issuer with an aggregate book value in excess of 10% of AFSALA Bank's equity,
excluding those issued by the United States Government or its agencies.
Mortgage-Backed Securities. To supplement lending activities, AFSALA Bank
has invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages, the principal
and interest payments on which are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation
71
<PAGE>
interests in the form of securities, to investors such as AFSALA Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include FHLMC, Government National Mortgage
Association ("GNMA"), and FNMA.
AFSALA Bank's mortgage-backed securities, other than collateralized
mortgage obligations ("CMOs"), are classified as investment securities held to
maturity at March 31, 1998 and were all issued by GNMA, FHLMC, or FNMA and
represented participating interests in direct pass-through pools of long-term
mortgage loans originated and serviced by the issuers of the securities.
Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable-
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. As a result,
the interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed rate or adjustable-rate), as well as prepayment risk, are passed on
to the certificate holder. The life of a mortgage-backed pass-through security
is equal to the life of the underlying mortgages. Mortgage-backed securities
issued by FHLMC, FNMA, and GNMA make up a majority of the pass-through
certificates market.
AFSALA Bank also invests in CMOs, a type of mortgage-backed security, and
as of March 31, 1998 maintains CMOs classified as securities available for sale.
Substantially all of AFSALA Bank's CMOs were issued by GNMA, FHLMC, or FNMA.
CMOs have been developed in response to investor concerns regarding the
uncertainty of cash flows associated with the prepayment option of the
underlying mortgagor and are typically issued by government agencies, government
sponsored enterprises, and special purpose entities established by financial
institutions and other similar institutions. Some CMO instruments are most like
traditional debt instruments because they have stated principal amounts and
traditionally defined interest rate terms. Purchasers of certain other CMO
instruments are entitled to the excess, if any, of the issuer's cash inflows,
including reinvestment earnings, over the cash outflows for debt servicing and
administrative expenses. CMOs may include instruments designated as residual
interests, which represent an equity ownership interest in the underlying
collateral, subject to the first lien of the investors in the other classes of
the CMO and may be riskier than many regular CMO interests. At March 31, 1998,
all of AFSALA Bank's CMOs consisted of regular interests and did not include any
residual interests or interest-only or principal only securities. The
securities are backed by mortgages on one- to four-family residential real
estate and have contractual maturities up to 30 years in the case of adjustable
rate and 15 years in the case of fixed rate mortgage-backed securities.
At March 31, 1998, AFSALA Bank held CMOs in its securities available for
sale portfolio with a fair value of $4.4 million resulting in a net unrealized
loss of approximately $22,000. AFSALA Bank held mortgage-backed securities in
its investment securities held to maturity portfolio with an amortized cost of
$10.6 million at March 31, 1998. The average yield on CMOs available for sale
and mortgage-backed securities held to maturity at March 31, 1998 was 6.49% and
7.06%, respectively.
72
<PAGE>
Securities Portfolio. The following table sets forth the carrying value of
AFSALA Bank's securities at the dates indicated. At March 31, 1998, the
approximate fair value of AFSALA Bank's securities available for sale was $41.1
million resulting in a net unrealized gain of $5,700, net of taxes.
<TABLE>
<CAPTION>
At September 30,
----------------
At March 31, 1998 1997 1996
----------------- ------- -------
(In thousands)
<S> <C> <C> <C>
Securities available for sale, at fair value:
U.S. Government and agency securities..................... $33,827 $29,158 $ 8,779
States and political subdivisions......................... 2,863 3,536 4,993
Collateralized mortgage obligations....................... 4,361 5,011 3,360
------- ------- -------
Total securities available for sale.................... $41,051 $37,705 $17,132
======= ======= =======
Investment securities held to maturity, at amortized cost:
U.S. Government and agency securities..................... $11,546 $24,036 $22,787
Mortgage-backed securities................................ 10,584 11,182 12,172
Other..................................................... 46 46 41
------- ------- -------
Total investment securities held to maturity........... $22,176 $35,264 $35,000
======= ======= =======
</TABLE>
73
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for AFSALA Bank's securities portfolio at March 31, 1998 by contractual
maturity. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
At March 31, 1998
-------------------------------------------------------------
Less than 1 to Over 5 to
1 year 5 years 10 years
-------------------------------------------------------------
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Securities available for
sale:
U.S. Government and
agencies securities.......... $1,499 6.28% $8,501 6.43% $22,802 6.99%
States and political
subdivisions................. 1,797 4.05 1,060 3.97 --- ---
Collateralized mortgage
obligations.................. --- --- --- --- --- ---
------ ---- ------ ---- ------- ----
Total securities available
for sale................. $3,296 5.02% $9,561 6.16% $22,802 6.99%
====== ==== ====== ==== ======= ====
Investment securities held
to maturity:
U.S. Government and
agencies securities.......... $6,296 5.42% $2,500 6.51% $ 1,750 7.55%
Mortgaged-backed
securities................... 474 6.81 792 6.13 1,769 7.61
Other......................... --- --- --- --- --- ---
------ ---- ------ ---- ------- ----
Total investment
securities held to
maturity.................. $6,770 5.51% $3,292 6.42% $ 3,519 7.58%
====== ==== ====== ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1998
-------------------------------------------------
Over 10 Total
years Securities
-------------------------------------------------
Amortized Average Amortized Average Fair
Cost Yield Cost Yield Value
--------- -------- --------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Securities available for
sale:
U.S. Government and
agencies securities............ $1,000 6.72% $33,802 6.80% $33,827
States and political
subdivisions................... --- --- 2,857 4.02 2,863
Collateralized mortgage
obligations.................... 4,383 6.49 4,383 6.49 4,361
------ ---- ------- ---- -------
Total securities available
for sale.................... $5,383 6.54% $41,042 6.58% $41,051
====== ==== ======= ==== =======
Investment securities held
to maturity:
U.S. Government and
agencies securities............ $1,000 7.60% $11,546 6.17% $11,586
Mortgaged-backed
securities..................... 7,549 7.04 10,584 7.06 10,692
Other........................... 46 --- 46 --- 46
------ ---- ------- ---- -------
Total investment
securities held to
maturity................... $8,595 7.07% $22,176 6.58% $22,324
====== ==== ======= ==== =======
</TABLE>
74
<PAGE>
SOURCES OF FUNDS
General. Deposits are the major source of AFSALA Bank's funds for lending
and other investment purposes. AFSALA Bank also derives funds from the (1)
amortization and prepayment of loans, (2) sales, maturities, and calls of
securities, and (3) operations. Scheduled loan principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and market
conditions. AFSALA Bank may also borrow funds from the FHLB as a source of
funds.
Deposits. Consumer and commercial deposits are attracted principally from
within AFSALA Bank's primary market areas through the offering of a selection of
deposit instruments including savings accounts, NOW accounts, money market
accounts, and time deposits or certificate of deposit accounts. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate, among other factors.
The interest rates paid by AFSALA Bank on deposits are set weekly at the
direction of the asset/liability management committee. AFSALA Bank determines
the interest rate to offer the public on new and maturing accounts by reviewing
the market interest rates offered by competitors, AFSALA Bank's need for funds,
and the current cost of money. AFSALA Bank reviews, weekly, the interest rates
being offered by other financial institutions within its market areas.
Regular savings, money market, and NOW accounts constituted $59.3 million,
or 42.7% of AFSALA Bank's deposit portfolio at March 31, 1998. Non-interest
bearing deposits constituted $7.8 million or 5.6% of AFSALA Bank's deposit
portfolio at March 31, 1998. Time deposits constituted $71.8 million, or 51.7%
of the deposit portfolio, of which $9.7 million, or 7.0% of the deposit
portfolio, were time deposits with balances of $100,000 or more. As of
March 31, 1998, AFSALA Bank had no brokered deposits.
Time Deposits. The following table indicates the amount of AFSALA
Bank's time deposits of $100,000 or more by time remaining until maturity as of
March 31, 1998.
<TABLE>
<CAPTION>
Amount of
Maturity Period Time Deposits
--------------------------- --------------
(In thousands)
<S> <C>
Within three months............... $3,616
Three through six months.......... 1,967
Six through twelve months......... 1,451
Over twelve months................ 2,681
------
Total........................ $9,715
======
</TABLE>
Borrowings. AFSALA Bank may obtain advances from the FHLB of New York to
supplement its supply of lendable funds. Advances from the FHLB of New York are
typically secured by a pledge of AFSALA Bank's stock in the FHLB of New York and
a portion of AFSALA Bank's first mortgage loans. Each FHLB borrowing has its
own interest rate, which may be fixed or variable, and range of maturities.
AFSALA Bank, if the need arises, may also access the Federal Reserve Bank
discount window to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. At March 31, 1998, AFSALA Bank had $1.7 million in
fixed rate long-term borrowings outstanding from the FHLB of New York. At
March 31, 1998, AFSALA Bank had no other borrowings outstanding.
SUBSIDIARY ACTIVITY
AFSALA has one wholly-owned subsidiary, AFSALA Bank, which is organized
under the laws of the United States and conducts business as Amsterdam Federal
Bank. AFSALA Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1%
75
<PAGE>
of assets when such additional investment is utilized primarily for community
development purposes. At March 31, 1998, AFSALA Bank had one wholly-owned
subsidiary, AFS Service Corp., organized under the laws of New York. AFS Service
Corp. was formed in October 1995 to act as an agent for the sale of Savings Bank
Life Insurance. AFSALA Bank's investment in its subsidiary totaled $1,000 at
March 31, 1998. As of March 31, 1998, AFS Service Corp. had not conducted any
business.
PERSONNEL
AFSALA has no employees other than officers. At March 31, 1998, AFSALA
Bank had 46 full-time and 10 part-time employees. None of AFSALA Bank's
employees are represented by a collective bargaining group.
REGULATION OF AFSALA AND AFSALA BANK
Set forth below is a brief description of certain laws which relate to the
regulation of AFSALA and AFSALA Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
REGULATION OF AFSALA
General. AFSALA is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, AFSALA 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 AFSALA and its non-
savings association subsidiaries, should such subsidiaries be formed, which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association. This regulation and
oversight is intended primarily for the protection of the depositors of AFSALA
Bank and not for the benefit of stockholders of AFSALA.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, AFSALA generally is not subject to activity restrictions, provided
AFSALA Bank satisfies the Qualified Thrift Lender ("QTL") test or meets the
definition of a domestic building and loan association pursuant to section 7701
of the Internal Revenue Code of 1986, as amended (the "Code"). If AFSALA
acquired control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
AFSALA and any of its subsidiaries (other than AFSALA Bank or any other SAIF-
insured savings association) would become subject to the activity restrictions
applicable to multiple savings and loan holding companies (which includes the
activity limitations imposed on bank holding companies) unless the other
associations each also qualify as a QTL or meet the definition of a domestic
building and loan association and were acquired in a supervisory acquisition.
See "--Regulation of AFSALA Bank-Qualified Thrift Lender Test."
Federal Securities Law. AFSALA is subject to filing and reporting
requirements by virtue of having its common stock registered under the Exchange
Act. Furthermore, company stock held by persons who are affiliates (generally
officers, directors, and principal stockholders) of AFSALA may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If AFSALA meets specified current public information
requirements, each affiliate of AFSALA is able to sell in the public market,
without registration, a limited number of shares in any three-month period.
REGULATION OF AFSALA BANK
General. As a federally chartered, SAIF-insured savings association,
AFSALA Bank is subject to extensive regulation by the OTS and the Federal
Deposit Insurance Corporation ("FDIC"). Lending activities and other
investments must comply with various federal statutory and regulatory
requirements. AFSALA Bank is also subject to certain reserve requirements
promulgated by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board").
76
<PAGE>
Insurance of Deposit Accounts. AFSALA Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.
As a member of the SAIF, AFSALA Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits prior to September 30, 1996.
The FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits. In 1996, the annual insurance
premium for most BIF members was lowered to $2,000. The lower insurance
premiums for BIF members placed SAIF members at a competitive disadvantage to
BIF members.
Effective September 30, 1996, federal law was revised to mandate a one-time
special assessment on SAIF members, such as AFSALA Bank, of approximately .657%
of deposits held on March 31, 1995 in order to recapitalized the SAIF. Beginning
January 1, 1997, the deposit insurance assessment for SAIF and BIF members was
reduced to zero for well capitalized and highly rated institutions. The
assessments are subject to change based upon the need to maintain the SAIF at
their required reserve levels (1.25% of insured deposits) and the risk
classification of the institution. Both the SAIF and BIF members remain subject
to an assessment to repay outstanding bonds issued by the Financing Corporation
("FICO") to resolve thrift failures in the 1980s, SAIF members paid a FICO
assessment of about .625% of deposits for the first half of 1998 while BIF
members paid as assessment of about .125% annual basis through the end of 1999.
During this same period, BIF members will be assessed approximately .013% of
deposits. After 1999, assessments for BIF and SAIF members are expected to be
the same once BIF members fully participate in the assessment. As a result of
these changes, beginning January 1, 1997, total amount of assessment on AFSALA
Bank declined by approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of adjusted total assets, (2) a leverage ratio (core capital) equal to at least
3% of adjusted total assets, and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets. AFSALA Bank's regulatory capital exceeded
all minimum regulatory capital requirements applicable to it as of March 31,
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of AFSALA Bancorp, Inc.-Liquidity and Capital Resources."
Savings associations with a greater than "normal" level of interest rate
exposure may, in the future, be subject to a deduction from capital for an
interest rate risk ("IRR") component for purposes of calculating their risk-
based capital requirement.
Dividend and Other Capital Distribution Limitations. OTS regulations
require AFSALA Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to AFSALA, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to AFSALA.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 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, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. At
March 31, 1998, AFSALA Bank was a Tier 1 institution. In the event AFSALA
Bank's capital fell below its fully phased-in requirement or the OTS notified it
that it was in need of more than normal supervision, AFSALA Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file
77
<PAGE>
a notice or application for capital distributions (such as cash dividends)
declared below specified amounts. Under the proposed regulation, savings
associations which are eligible for expedited treatment under current OTS
regulations are not required to file a notice or an application with the OTS if
(i) the savings association would remain at least adequately capitalized
following the capital distribution and (ii) the amount of the capital
distribution does not exceed an amount equal to the savings association's net
income for that year to date, plus the savings association's retained net income
for the previous two years. Thus, under the proposed regulation, only
undistributed net income for the prior two years may be distributed in addition
to the current year's undistributed net income without the filing of an
application with the OTS. Savings associations which do not qualify for
expedited treatment or which desire to make a capital distribution in excess of
the specified amount, must file an application with, and obtain the approval of,
the OTS prior to making the capital distribution. Under certain other
circumstances, savings associations will be required to file a notice with OTS
prior to making the capital distribution. All savings associations which are
subsidiaries of holding companies will be required to file a notice with the OTS
prior to making a capital distribution. The OTS proposed limitations on capital
distributions are similar to the limitations imposed upon national banks. AFSALA
is unable to predict whether or when the proposed regulation will become
effective.
In addition, AFSALA Bank may not declare or pay a cash dividend on its
capital stock if the effect thereof would be to reduce the regulatory capital of
AFSALA Bank below the amount required for the liquidation account established in
connection with the Conversion.
Qualified Thrift Lender Test. Savings institutions must meet either the
QTL test pursuant to OTS regulations or the definition of a domestic building
and loan association in section 7701 of the Code. If AFSALA Bank maintains an
appropriate level of certain specified investments (primarily residential
mortgages and related investments, including certain mortgage-related
securities) and otherwise qualifies as a QTL or a domestic building and loan
association, it will continue to enjoy full borrowing privileges from the FHLB
of New York. The required percentage of investments under the QTL test is 65%
of portfolio assets while the Code requires investments of 60% of portfolio
assets. An association must be in compliance with the QTL test or definition of
domestic building and loan association on a monthly basis in 9 out of every 12
months. As of March 31, 1998, AFSALA Bank was in compliance with its QTL
requirement and met the definition of a domestic building and loan association.
There can be no assurance that AFSALA Bank will continue to meet the QTL
requirements or the definition of a domestic building and loan association in
future periods.
Liquidity Requirements. All savings associations 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. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations.
Federal Home Loan Bank System. AFSALA 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.
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) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At March 31,
1998, AFSALA Bank was in compliance with these requirements.
PROPERTIES OF AFSALA BANCORP, INC.
AFSALA owns no real property but utilizes the offices of AFSALA Bank.
AFSALA Bank operates from its main office and five branch offices. In addition,
AFSALA Bank leases space in the Amsterdam Riverfront Center. A majority of this
space is used as an operations center and houses the loan servicing, accounting,
bookkeeping and
78
<PAGE>
proof departments, marketing and business development, and branch operations.
The remaining space is used as a branch office with an ATM.
LEGAL PROCEEDINGS INVOLVING AFSALA BANCORP, INC.
AFSALA and AFSALA Bank, from time to time, are parties to routine
litigation, which arises in the normal course of business, such as claims to
enforce liens, condemnation proceedings on properties in which AFSALA Bank holds
security interests, claims involving the making and servicing of real property
loans, and other issues incident to the business of AFSALA and AFSALA Bank. No
claims or lawsuits were pending or threatened at March 31, 1998 that would be
considered material to the financial position of AFSALA Bank and AFSALA.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AFSALA BANCORP, INC.
GENERAL
On September 30, 1996, AFSALA completed its initial public stock offering
in connection with AFSALA Bank's conversion from mutual to stock form, issuing
1,454,750 shares of AFSALA Common Stock at a price of $10.00 per share. Net
proceeds to AFSALA were $13.6 million after conversion costs. Approximately $1.1
million of the proceeds were utilized to fund a loan by AFSALA to the AFSALA
Bank ESOP which purchased 110,780 shares of AFSALA Common Stock in the offering.
AFSALA is not an operating company and has not engaged in any significant
business to date. As such, references herein to AFSALA Bank subsequent to
September 30, 1996 include AFSALA unless the context otherwise indicates.
AFSALA Bank's results of operations are primarily dependent on its net
interest income, which is the difference between the interest and dividend
income earned on its assets, primarily loans and investments, and the interest
expense on its liabilities, primarily deposits and borrowings. Net interest
income may be affected significantly by general economic and competitive
conditions and policies of regulatory agencies, particularly those with respect
to market interest rates. The results of operations are also significantly
influenced by the level of non-interest expenses, such as employee salaries and
benefits, other income, such as fees on deposit-related services, and AFSALA
Bank's provision for loan losses.
AFSALA Bank is a community-oriented financial institution offering a
variety of financial services. Management's strategy has been to try to achieve
a high loans to assets ratio and a high proportion of lower-costing, non-time
deposit accounts in the deposit portfolio. At March 31, 1998, AFSALA Bank's
loans receivable, net, to assets ratio was 46.3%. At March 31, 1998, $67.1
million or 48.3% of total deposits were in non-time deposits accounts.
ASSET/LIABILITY MANAGEMENT
AFSALA Bank's net interest income is sensitive to changes in interest
rates, as the rates paid on its interest-bearing liabilities generally change
faster than the rates earned on its interest-earning assets. As a result, net
interest income will frequently decline in periods of rising interest rates and
increase in periods of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest
income, AFSALA Bank manages its interest rate sensitivity and asset/liability
products through its asset/liability management committee. The asset/liability
management committee meets weekly to determine the rates of interest for loans
and deposits and consists of AFSALA Bank's President and Chief Executive
Officer, Vice President and Chief Lending Officer, and Treasurer and Chief
Financial Officer. Rates on deposits are primarily based on AFSALA Bank's needs
for funds and on a review of rates offered by other financial institutions in
AFSALA Bank's market areas. Interest rates on loans are primarily based on the
interest rates offered by other financial institutions in AFSALA Bank's market
areas as well as AFSALA Bank's cost of funds.
79
<PAGE>
In an effort to reduce interest rate risk and protect itself from the
negative effects of rapid or prolonged changes in interest rates, AFSALA Bank
has instituted certain asset and liability management measures, including (i)
originating, for its portfolio, a large base of adjustable-rate residential
mortgage loans and (ii) maintaining substantial levels of interest-bearing term
deposits, federal funds, and securities with one to five year terms to maturity.
The asset/liability management committee manages the interest rate
sensitivity of AFSALA Bank through the determination and adjustment of
asset/liability composition and pricing strategies. The committee then monitors
the impact of the interest rate risk and earnings consequences of such
strategies for consistency with AFSALA Bank's liquidity needs, growth, and
capital adequacy. AFSALA Bank's principal strategy is to reduce the interest
rate sensitivity of its interest-earning assets and to match, as closely as
possible, the maturities of interest-earning assets with interest-bearing
liabilities.
Net Portfolio Value. In order to encourage savings associations to reduce
their interest rate risk, the OTS adopted a rule incorporating an interest rate
risk ("IRR") component into the risk-based capital rules. The IRR component is a
dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated present value of total assets
("PV") will require the institution to deduct from its capital 50% of that
excess change. The rules provide that the OTS will calculate the IRR component
quarterly for each institution. AFSALA Bank, based on asset size and risk-based
capital, has been informed by the OTS that it is exempt from this rule.
Nevertheless, the following table presents AFSALA Bank's NPV at September 30,
1997, as calculated by the OTS, based on quarterly information voluntarily
provided to the OTS by AFSALA Bank.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
--------------------------------------- -----------------------------------------------
Change in NPV
Rates $Amount $ Change/(1)/ $ Change/(2)/ Ratio/(3)/ Change/(4)/
--------- ------- ------------- ------------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp 13,264 (7,482) (36)% 8.59% -404 bp
+300 bp 15,394 (5,352) (26) 9.80 -283 bp
+200 bp 17,419 (3,326) (16) 10.90 -173 bp
+100 bp 19,221 (1,524) (7) 11.86 -77 bp
0 bp 20,745 12.63
-100 bp 22,003 1,258 6 13.24 61 bp
-200 bp 23,865 3,120 15 14.15 152 bp
-300 bp 26,322 5,576 27 15.32 269 bp
-400 bp 29,235 8,489 41 16.67 404 bp
</TABLE>
_______________
/(1)/ Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
/(2)/ Calculated as the amount of change in the estimated NPV dividend by the
estimated NPV assuming no change in interest rates.
/(3)/ Calculated as the estimated NPV divided by present value of total assets.
/(4)/ Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming
no change in interest rates.
Although the OTS has informed AFSALA Bank that is not subject to the IRR
component discussed above, AFSALA Bank is still subject to interest rate risk
and, as can be seen above, changes in interest rates may reduce AFSALA Bank's
NPV. The OTS has the authority to require otherwise exempt institutions to
comply with the rule concerning interest rate risk.
At September 30, 1997, a change in interest rates of a positive 200 basis
points would have resulted in a 173 basis point decrease in NPV as a percentage
of the present value of AFSALA Bank's total assets. A change in interest rates
of a negative 200 basis points would have resulted in a 152 basis point increase
in the NPV as a percentage of
80
<PAGE>
the present value of AFSALA Bank's total assets. Utilizing the OTS IRR
measurement described above, AFSALA Bank, at September 30, 1997, would have been
considered by the OTS to have been subject to "normal" IRR and no additional
amount would be required to be deducted from risk-based capital.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations 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 AFSALA Bank's assets and liabilities would perform as
set forth above. In addition, certain shortcomings are inherent in the preceding
NPV tables since the data reflect hypothetical changes in NPV based upon
assumptions used by the OTS to evaluate AFSALA Bank as well as other
institutions. The experience of AFSALA Bank has been that net interest income
declines with increases in interest rates and that net interest income increases
with decreases in interest rates. Generally, during periods of increasing
interest rates, AFSALA Bank's interest rate sensitive liabilities would reprice
faster than its interest rate sensitive assets causing a decline in AFSALA
Bank's interest rate spread and margin. This would result from an increase in
AFSALA Bank's cost of funds that would not be immediately offset by an increase
in its yield on earning assets. An increase in the cost of funds without an
equivalent increase in the yield on earning assets would tend to reduce net
interest income. AFSALA Bank's interest rate spread increased for the fiscal
year ended September 30, 1997 from the fiscal year ended September 30, 1996 from
2.69% to 2.89%. AFSALA Bank's interest rate spread decreased for the three
months ended March 31, 1998 to 2.83% from 2.97% for the three months ended March
31, 1997. The interest rate spread for the six months ended March 31, 1998 was
2.81%, as compared to 2.89% for the six months ended March 31, 1997.
In times of decreasing interest rates, fixed rate assets could increase in
value and the lag in repricing of interest rate sensitive assets could be
expected to have a positive effect on AFSALA Bank's net interest income.
AVERAGE BALANCE SHEET, INTEREST RATE, AND YIELD
The following table sets forth certain information relating to AFSALA's
average balance sheet and reflects the average yield on assets and average cost
of liabilities. Such yields and costs are derived by dividing income or expense
by the average balance of assets or liabilities, respectively, for the years
presented. Average balances are derived from daily balances, however, some
balances are derived from month-end balances where management does not believe
the use of month-end balances has caused any material difference in the
information presented. There have been no tax equivalent adjustments made to the
yields.
81
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Cost/(1)/ Balance Paid Cost/(1)/
-------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold............................... $ 9,501 $ 128 5.46% $ 6,974 $ 88 5.12%
Term deposits with the FHLB...................... 5,015 68 5.50 2,581 35 5.50
Securities available for sale/(2)/............... 35,666 572 6.50 18,286 269 5.97
Investment securities held to maturity........... 25,420 421 6.72 42,988 704 6.64
FHLB of NY stock................................. 565 10 7.18 565 9 6.46
Net loans receivable/(3)/........................ 75,787 1,548 8.28 72,292 1,518 8.52
-------- ------ ---- -------- ------ ----
Total interest-earning assets.................. 151,954 2,747 7.33 143,686 2,623 7.40
------ ---- ------ ----
Non-interest earning assets........................ 7,678 6,679
-------- --------
Total assets................................... $159,632 $150,365
======== ========
Interest-bearing liabilities:
Savings accounts................................. $ 35,960 266 3.00 $ 35,696 264 3.00
NOW accounts..................................... 12,053 67 2.25 10,781 61 2.29
Money market accounts............................ 10,347 109 4.27 8,818 88 4.05
Time deposit accounts............................ 70,069 976 5.65 63,997 879 5.57
Escrow accounts.................................. 314 2 2.58 261 2 3.11
FHLB of NY long term borrowings.................. 1,745 29 6.74 1,651 29 7.12
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities............. 130,488 1,449 4.50 121,204 1,323 4.43
------ ---- ------ ----
Non-interest bearing deposits...................... 7,847 7,403
Other non-interest bearing liabilities............. 1,308 756
Equity............................................. 19,989 21,002
-------- --------
Total liabilities and equity................... $159,632 $150,365
======== ========
Net interest income................................ $1,298 $1,300
====== ======
Interest rate spread............................... 2.83% 2.97%
==== ====
Net interest margin................................ 3.46% 3.67%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities........... 116.45% 118.55%
======== ========
</TABLE>
_____________
/(1)/ Annualized.
/(2)/ Average securities available for sale are included at approximate fair
value. The adjustment to approximate fair value is not considered
material.
/(3)/ Calculated net of allowance for loan losses. Includes non-accrual loans.
82
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended March 31,
----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Cost/(1)/ Balance Paid Cost/(1)/
-------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold................................ $ 6,830 $ 182 5.34% $ 7,630 $ 198 5.20%
Term deposits with the FHLB....................... 2,480 68 5.50 5,220 142 5.46
Securities available for sale/(2)/................ 37,319 1,210 6.50 17,536 504 5.76
Investment securities held to maturity............ 28,764 939 6.55 40,856 1,340 6.58
FHLB of NY stock.................................. 565 20 7.10 565 18 6.39
Net loans receivable/(3)/......................... 75,729 3,113 8.24 71,871 3,037 8.47
-------- ------ ---- -------- ------ ----
Total interest-earning assets.............. 151,687 5,532 7.31 143,678 5,239 7.31
------ ---- ------ ----
Non-interest earning assets......................... 7,423 6,631
-------- --------
Total assets............................... $159,110 $150,309
======== ========
Interest-bearing liabilities:
Savings accounts.................................. $ 35,848 536 3.00 $ 35,685 533 3.00
NOW accounts...................................... 12,002 136 2.27 10,822 124 2.30
Money market accounts............................. 10,393 219 4.23 8,485 168 3.97
Time deposit accounts............................. 69,412 1,954 5.65 63,641 1,767 5.57
Escrow accounts................................... 327 4 2.45 299 4 2.68
FHLB of NY long term borrowings................... 1,721 59 6.88 1,701 60 7.07
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities......... 129,703 2,908 4.50 120,633 2,656 4.42
------ ---- ------ ----
Non-interest bearing deposits....................... 8,084 7,569
Other non-interest bearing liabilities.............. 1,286 1,239
Equity.............................................. 20,037 20,868
-------- --------
Total liabilities and equity............... $159,110 $150,309
======== ========
Net interest income................................. $2,624 $2,583
====== ======
Interest rate spread................................ 2.81% 2.89%
==== ====
Net interest margin................................. 3.47% 3.61%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities............... 116.95% 119.10%
======== ========
</TABLE>
_____________
/(1)/ Annualized.
/(2)/ Average securities available for sale are included at approximate fair
value. The adjustment to approximate fair value is not considered
material.
/(3)/ Calculated net of allowance for loan losses. Includes non-accrual loans.
83
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Cost Balance Paid Cost
--------- -------- ------ -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold.......................... $ 7,625 $ 406 5.32% $ 6,543 $ 334 5.10%
Term deposits with the FHLB................. 2,603 142 5.46 2,369 131 5.53
Securities available for sale/(1)/.......... 23,147 1,415 6.11 13,640 742 5.44
Investment securities held to maturity...... 40,360 2,636 6.53 35,734 2,185 6.11
FHLB of NY stock............................ 565 37 6.55 566 37 6.54
Net loans receivable/(2)/................... 72,675 6,133 8.44 68,127 5,736 8.42
-------- ------- ---- -------- ------ ----
Total interest-earning assets............. 146,975 10,769 7.33 126,979 9,165 7.22
------- ---- ------ ----
Non-interest earning assets................... 6,906 6,384
-------- --------
Total assets.............................. $153,881 $133,363
======== ========
Interest-bearing liabilities:
Savings accounts............................ $ 36,047 1,081 3.00 $ 35,560 1,067 3.00
NOW accounts................................ 11,174 258 2.31 9,871 224 2.27
Money market accounts....................... 9,002 364 4.04 6,681 257 3.85
Time deposit accounts....................... 65,982 3,689 5.59 62,919 3,624 5.76
Escrow accounts............................. 305 8 2.62 440 9 2.05
FHLB of NY long term borrowings............. 1,627 115 7.07 2,047 144 7.03
-------- ------- ---- -------- ------ ----
Total interest-bearing liabilities........ 124,137 5,515 4.44 117,518 5,325 4.53
------- ---- ------ ----
Non-interest bearing deposits................. 7,845 6,640
Other non-interest bearing liabilities........ 842 924
Equity........................................ 21,057 8,281
-------- --------
Total liabilities and equity.............. $153,881 $133,363
======== ========
Net interest income........................... $ 5,254 $3,840
======= ======
Interest rate spread.......................... 2.89% 2.69%
==== ====
Net interest margin........................... 3.57% 3.02%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities......... 118.40% 108.05%
======== ========
</TABLE>
_____________
/(1)/ Average securities available for sale are included at approximate fair
value. The adjustment to approximate fair value is not considered
material.
/(2)/ Calculated net of allowance for loan losses. Includes non-accrual loans.
84
<PAGE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of AFSALA for the periods indicated. For
each category of interest earning assets and interest bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate) and (ii) changes in rates (changes in
rate multiplied by old volume). Increases and decreases due 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>
Three Months Ended March 31,
1998 vs. 1997
---------------------------------
Increase (Decrease) Total
Due to Increase
---------------------
Volume Rate (Decrease)
--------- -------- ---------
<S> <C> <C> <C>
Interest and dividend income:
Federal funds sold....................... $ 33,991 $ 6,229 $ 40,220
Term deposits with FHLB of NY............ 32,739 --- 32,739
Securities available for sale............ 276,978 25,871 302,849
Investment securities held to maturity... (291,628) 8,362 (283,266)
FHLB of NY stock, at cost................ --- 1,464 1,464
Net loans receivable..................... 73,108 (42,972) 30,136
--------- -------- ---------
Total interest and dividend
income.............................. 125,188 (1,046) 124,142
--------- -------- ---------
Interest expense:
Savings accounts......................... 1,780 --- 1,780
NOW accounts............................. 7,415 (1,028) 6,387
Money market accounts.................... 15,448 4,840 20,288
Time deposit accounts.................... 84,249 12,754 97,003
Escrow accounts.......................... 378 (364) 14
FHLB of NY long term borrowings.......... 2,008 (1,210) 798
--------- -------- ---------
Total interest expense............... 111,278 14,992 126,270
--------- -------- ---------
Net change in net interest income.......... $ 13,910 $(16,038) $ (2,128)
========= ======== =========
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31,
1998 vs. 1997
---------------------------------
Increase (Decrease) Total
Due to Increase
---------------------
Volume Rate (Decrease)
--------- -------- ---------
<S> <C> <C> <C>
Interest and dividend income:
Federal funds sold....................... $ (20,984) $ 5,266 $ (15,718)
Term deposits with FHLB of NY............ 75,182 1,033 (74,149)
Securities available for sale............ 633,340 72,124 705,465
Investment securities held to maturity... (394,648) (6,079) (400,727)
FHLB of NY stock, at cost................ --- 2,116 2,116
Net loans receivable..................... 160,021 (83,910) 76,111
--------- -------- ---------
Total interest and dividend
income.............................. 302,547 (9,450) 293,097
--------- -------- ---------
Interest expense:
Savings accounts......................... 2,993 --- 2,993
NOW accounts............................. 13,978 (1,565) 12,413
Money market accounts.................... 39,105 11,386 50,491
Time deposit accounts.................... 160,838 25,472 186,310
Escrow accounts.......................... 413 (311) 102
FHLB of NY long term borrowings.......... 785 (1,459) (674)
--------- -------- ---------
Total interest expense............... 218,112 33,523 251,635
--------- -------- ---------
Net change in net interest income.......... $ 84,435 $(42,973) $ 41,462
========= ======== =========
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
1997 vs. 1996
-----------------------------------
Increase (Decrease) Total
Due to Increase
---------------------
Volume Rate (Decrease)
---------- -------- ------------
<S> <C> <C> <C>
Interest and dividend income:
Federal funds sold....................... $ 56,699 $ 14,782 $ 71,481
Term deposits with FHLB of NY............ 12,503 (1,713) 10,790
Securities available for sale............ 571,824 101,043 672,867
Investment securities held to maturity... 294,772 156,514 451,286
FHLB of NY stock, at cost................ (203) (99) (302)
Net loans receivable..................... 383,508 13,646 397,154
---------- -------- ----------
Total interest and dividend
income............................... 1,319,103 284,173 1,603,276
---------- -------- ----------
Interest expense:
Savings accounts......................... 13,623 --- 13,623
NOW accounts............................. 30,577 4,082 34,659
Money market accounts.................... 93,578 13,291 106,869
Time deposit accounts.................... 173,392 (108,794) 64,598
Escrow accounts.......................... (3,138) 2,170 (968)
FHLB of NY long term borrowings.......... (29,790) 812 (28,978)
---------- -------- ----------
Total interest expense............... 278,242 (88,439) 189,803
---------- -------- ----------
Net change in net interest income.......... $1,040,861 $372,612 $1,413,473
========== ======== ==========
</TABLE>
CONSOLIDATED FINANCIAL CONDITION
March 31, 1998 compared to September 30, 1997. Total assets increased by
$5.5 million, or 3.4%, to $165.9 million at March 31, 1998 from $160.4 million
at September 30, 1997. This increase was primarily attributable to an increase
in federal funds sold of $3.7 million, or 137.4%, and an increase in term
deposits with the Federal Home Loan Bank from $0 to $11.0 million or 100.0%,
offset by a decrease in total securities (securities available for sale and
investment securities held to maturity) of $9.7 million, or 13.4%. These shifts
were primarily the result of the investment of funds from maturities and calls
of securities, in addition to the proceeds from growth in deposits, into federal
fund sold and term deposits with the FHLB of New York. AFSALA's net loans
receivable increased by $1.0 million, or 1.3%, to $76.8 million at March 31,
1998 up from $75.8 million at September 30, 1997 due to increased loan activity
primarily in residential mortgage and home equity loans.
AFSALA's deposits increased by $3.6 million, or 2.6%, to $138.9 million at
March 31, 1998 from $135.3 million at September 30, 1997 due in part to the
opening of a new supermarket branch in December 1997. In addition, FHLB of New
York long term borrowings increased $290 thousand, or 20.5%, to $1.7 million at
March 31, 1998 from $1.4 million at September 30, 1997, due to an additional
borrowing of $500 thousand, offset by repayments of $210 thousand. Accrued
expenses and other liabilities increased $2.1 million, or 74.9%, to $4.9 million
at March 31, 1998 from $2.8 million at September 30, 1997, primarily due to
securities purchases which were due to brokers at March 31, 1998.
Stockholders' equity decreased by $490 thousand, or 2.4%, to $20.1 million
at March 31, 1998 from $20.6 million at September 30, 1997. The decrease was
primarily the result of the purchases of treasury stock, offset by net
87
<PAGE>
income for the six months ended March 31, 1998. In addition, 11,078 shares of
common stock were committed to be released by the AFSALA Bank ESOP as of
December 31, 1997, which increased equity by $171 thousand.
September 30, 1997 compared to September 30, 1996. Total assets increased
by $6.7 million, or 4.4%, to $160.4 million at September 30, 1997 from $153.7
million at September 30, 1996, primarily due to increases in net loans
receivable of $5.1 million, or 7.3%, and securities available for sale of $20.6
million, or 120.1%, which were partially offset by decreases in federal funds
sold and term deposits with the FHLB of New York of $16.5 million, or 86.1%, and
$3.0 million, or 100.0%, respectively. These shifts were primarily the result of
the re-investment of the proceeds from the offering into higher yielding
instruments. The increase in net loans receivable was primarily due to increased
loan activity in residential mortgage and home equity loans.
AFSALA's deposits increased by $8.9 million, or 7.0%, to $135.3 million at
September 30, 1997 from $126.5 million at September 30, 1996 primarily due to
various marketing promotions offered in the supermarket branches along with the
opening of a new branch in May 1997. Offsetting this increase in deposits was a
decrease in accrued expenses and other liabilities of $1.7 million, or 37.2%, to
$2.8 million at September 30, 1997 from $4.4 million at September 30, 1996. This
decrease primarily relates to outstanding cashier checks of $2.6 million which
were issued and outstanding on September 30, 1996 to refund the over-
subscriptions related to AFSALA's initial public offering, offset partially by a
$1.5 million liability for securities purchases which were due to brokers at
September 30, 1997.
Stockholders' equity remained consistent at $20.6 million at both
September 30, 1997 and 1996. An increase in retained earnings of $928 thousand
was offset by purchases of treasury stock and the grant of stock under the RSP
of $238 thousand and $733 thousand (net of amortization), respectively. Equity
during the period was also affected by 2,770 shares of AFSALA Common Stock
committed to be released by the AFSALA Bank ESOP as of December 31, 1996 and the
change in the net unrealized gain (loss) on securities available for sale, net
of tax.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
Net Income. Net income decreased by $27 thousand, or 9.4%, for the three
months ended March 31, 1998 to $256 thousand from $283 thousand for the three
months ended March 31, 1997. Net income for the three months ended March 31,
1998 was reduced primarily as a result of increased non-interest expenses,
offset in part by a decrease in the provision for loan losses. These and other
changes are discussed in more detail below.
Net Interest Income. Net interest income remained constant at $1.3 million
for the three months ended March 31, 1998 and 1997. During the period, total
average interest-earning assets increased $8.3 million, or 5.8%, to $152.0
million. However, the increase in the average balance of total interest-bearing
liabilities of $9.3 million, or 7.7%, to $130.5 million, exceeded the increase
in total average interest-earning assets. The increase in the excess of total
interest-bearing liabilities over total interest-earning assets was due
primarily to AFSALA's repurchase of 76 thousand shares of stock for a total cost
of $1.4 million through March 31, 1998. The increase in the average balance of
total interest-bearing liabilities was accompanied by a 7 basis point increase
in the average rate paid on these funds.
Interest-earning assets primarily consist of loans receivable, federal
funds sold, securities (securities available for sale combined with investment
securities held to maturity), and interest bearing deposits with the FHLB of New
York. Interest bearing liabilities primarily consist of interest bearing
deposits and long term borrowings from the FHLB of New York.
The interest rate spread, which is the difference between the yield on
average interest earning assets and the percentage cost of average interest
bearing liabilities, decreased to 2.83% for the three months ended March 31,
1998 from 2.97% for the three months ended March 31, 1997. The decrease in the
interest rate spread is primarily the result of a decrease in the average yield
of interest earning assets coupled with an increase in the average cost of
interest bearing liabilities during this period.
Interest and Dividend Income. Interest and dividend income increased by
approximately $124 thousand, or 4.7%, to $2.7 million for the three months ended
March 31, 1998 from $2.6 million for the three months ended
88
<PAGE>
March 31, 1997. The increase was largely the result of an increase of $8.3
million, or 5.8%, in the average balance of interest earning assets to $152.0
million for the three months ended March 31, 1998 as compared to $143.7 million
for the three months ended March 31, 1997. The increase in the average balance
of interest earning assets consisted primarily of increases in the average
balance of federal funds sold of $2.5 million, or 36.2%, term deposits with the
FHLB of New York of $2.4 million, or 94.3%, and an increase in the average
balance of net loans receivable of $3.5 million or 4.8%. These increases were
partially offset by a decrease in the average balance of total securities
(securities available for sale and investment securities held to maturity) of
$188 thousand. Also, offsetting the effects of the increase in the average
balance of interest-earning assets was a 7 basis point decrease in the average
yield on all interest earning assets.
The yield on the average balance of interest earning assets was 7.33% and
7.40% for the three months ended March 31, 1998 and 1997, respectively.
Interest income on securities available for sale increased $303 thousand,
or 112.5%, to $572 thousand for the three months ended March 31, 1998 from $269
thousand for the same period of the previous year. This increase is primarily
the result of an increase in the average balance of securities available for
sale of $17.4 million combined with a 53 basis point increase in the average
yield on these securities. Interest income on investment securities held to
maturity decreased $283 thousand, or 40.2%, to $421 thousand for the three
months ended March 31, 1998 from $704 thousand for three months ended March 31,
1997. This decrease is primarily the result of a decrease in the average balance
of investment securities held to maturity of $17.6 million offset in part by a 8
basis point increase in the average yield on these securities.
Interest and fees on loans increased $30 thousand, or 2.0%, to $1.5 million
for the three months ended March 31, 1998. This increase was primarily the
result of an increase in the average balance of net loans receivable of $3.5
million offset by a 24 basis point decrease in the average yield on net loans
receivable.
Interest Expense. Interest on deposits and escrow accounts increased by
$125 thousand for the three months ended March 31, 1998 compared to the three
months ended March 31, 1997. This increase in interest on deposits and escrow
accounts was substantially due to the increase in interest expense related to
NOW, money market, and time deposit accounts. Interest expense on NOW accounts
was $67 thousand for the three months ended March 31, 1998, compared to $61
thousand for the three months March 31, 1997. Likewise, interest expense on
money market and time deposit accounts was $109 thousand and $976 thousand,
respectively, for the three months ended March 31, 1998, compared to $88
thousand and $879 thousand, respectively, for the three months March 31, 1997.
These increases were due primarily to increases in the average balances of the
respective deposit types.
Interest on FHLB of New York long term borrowings, which is a less
significant portion of interest expense, was $29 thousand for the three months
ended March 31, 1998, and 1997. The average amount of borrowing outstanding
increased by $94 thousand, or 5.7% from the comparable period, offset by an
decrease in the average rate paid by AFSALA of 38 basis points. AFSALA uses FHLB
of New York advances as a funding source and generally uses long term borrowings
to supplement deposits, which are AFSALA's primary source of funds.
Provision for Loan Losses. AFSALA's management monitors and adjusts its
allowance for loan losses based upon its analysis of the loan portfolio. The
allowance is increased by a charge to the provision for loan losses, the amount
of which depends upon an analysis of the changing risks inherent in AFSALA
Bank's loan portfolio. 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 credit risk, historical loss experience, current
economic conditions, estimated fair value of underlying collateral,
delinquencies, and other factors. AFSALA Bank has historically experienced a
limited amount of loan charge-offs. However, there can be no assurance that
additions to the allowance for loan losses will not be required in future
periods or that actual losses will not exceed estimated amounts. The provision
for loan losses for the three months ended March 31, 1998 decreased $55 thousand
from $70 thousand for the three months ended March 31, 1997.
Non-Interest Income. Non-interest income and its components remained fairly
constant for the three months ended March 31, 1998 and 1997.
89
<PAGE>
Non-Interest Expenses. Non-interest expenses increased $70 thousand or
7.8%, to $965 thousand for the three months ended March 31, 1998 from $895
thousand for the three months ended March 31, 1997.
Compensation and benefits expense increased by $118 thousand, or 32.2%, due
primarily to costs related to the AFSALA Bank ESOP, the establishment of the
Restricted Stock Plan in May 1997, the opening of a new branch in December 1997,
as well as general cost of living and merit raises to employees. Management
believes that compensation and benefits expenses will increase in future periods
as a result of the costs related to the AFSALA Bank ESOP as well as the
Restricted Stock Plan.
Professional service fees for the three months ended March 31, 1998 were
$44 thousand, down from $73 thousand for the same period in the previous year.
This decrease was due primarily to additional legal and accounting costs
incurred during the three months ended March 31, 1997 associated with being a
newly-formed company.
Non-interest expenses for the three months ended March 31, 1998 included
non-tax-deductible acquisition-related expenses totaling approximately $29
thousand incurred to date in connection with the Merger Agreement. Management
expects to incur additional acquisition-related expenses in future periods,
which will increase non-interest expenses.
Other non-interest expenses decreased $58 thousand, or 30.4%, to $133
thousand for the quarter ended March 31, 1998 when compared to the same quarter
of 1997. This decrease is primarily attributed to general expenses incurred
during the quarter ended March 31, 1997 associated with being a newly-formed
company.
Income Tax Expense. Income tax expense increased by $5 thousand, or 3.2%,
to $163 thousand for the three months ended March 31, 1998 from $158 thousand
for the three months ended March 31, 1997. However, the effective tax rate
increased from 35.8% for the three months ended March 31, 1997 to 38.8% for the
three months ended March 31, 1998. The increase in the effective tax rate was
due primarily to the non-tax-deductible acquisition-related expenses mentioned
above.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
Net Income. Net income increased by $15 thousand, or 2.6%, for the six
months ended March 31, 1998 to $567 thousand from $552 thousand for the six
months ended March 31, 1997. Net income for the six months ended March 31, 1998
increased primarily as a result of an increase in net interest income and a
decrease in the provision for loan losses, offset in part by increases in non-
interest expenses and income tax expense and a decrease in non-interest income.
These and other changes are discussed in more detail below.
Net Interest Income. Net interest income increased $41 thousand for the
six months ended March 31, 1998 as compared to the same period in 1997. During
the period, total average interest-earning assets increased $8.0 million, or
5.6%, to $151.7 million. However, the increase in the average balance of total
interest-bearing liabilities of $9.1 million, or 7.5%, to $129.7 million,
exceeded the increase in total average interest-earning assets. The increase in
the excess of total interest-bearing liabilities over total interest-earning
assets was due primarily to AFSALA's repurchase of 76 thousand shares of AFSALA
Common Stock for a total cost of $1.4 million through March 31, 1998. The
increase in the average balance of total interest-bearing liabilities was
accompanied by a 8 basis point increase in the average rate paid on these funds.
Interest and Dividend Income. Interest and dividend income increased by
$293 thousand, or 5.6%, to $5.5 million for the six months ended March 31, 1998
from $5.2 million for the six months ended March 31, 1997. The increase in
interest and dividend income was largely the result of an increase of $8.0
million, or 5.6%, in the average balance of interest earning assets to $151.7
million for the six months ended March 31, 1998 as compared to $143.7 million
for the six months ended March 31, 1997. The increase in the average balance of
interest earning assets consisted primarily of an increase in the average
balance of total securities (securities available for sale and investment
securities held to maturity) of $7.7 million, or 13.2%, and an increase in the
average balance of net loans receivable of $3.9 million, or 5.4%. These
increases were partially offset by decreases in the average balance of federal
funds sold of $800 thousand, or 10.5%, and term deposits with the FHLB of New
York of $2.7 million, or 52.5%.
90
<PAGE>
Interest income on securities available for sale increased $705 thousand,
or 140.0%, to $1.2 million for the six months ended March 31, 1998 from $504
thousand for the same period of the previous year. This increase is primarily
the result of an increase in the average balance of securities available for
sale of $19.8 million combined with a 74 basis point increase in the average
yield on these securities. Interest income on investment securities held to
maturity decreased $401 thousand, or 29.9%, to $939 thousand for the six months
ended March 31, 1998 from $1.3 million for six months ended March 31, 1997. This
decrease is primarily the result of a decrease in the average balance of
investment securities held to maturity of $12.1 million combined with a 3 basis
point decrease in the average yield on these securities.
Interest and fees on loans increased $76 thousand, or 2.5%, to $3.1 million
for the six months ended March 31, 1998 from $3.0 million for the six months
ended March 31, 1997. This increase was primarily the result of an increase in
the average balance of net loans receivable of $3.9 million, offset by a 23
basis point decrease in the average yield on net loans receivable.
Interest Expense. Interest on deposits and escrow accounts increased by
$252 thousand for the six months ended March 31, 1998 compared to the six months
ended March 31, 1997. This increase in interest on deposits and escrow accounts
was primarily due to the increase in interest expense related to NOW, money
market, and time deposit accounts. Interest expense on NOW accounts was $136
thousand for the six months ended March 31, 1998, compared to $124 thousand for
the six months March 31, 1997. Likewise, interest expense on money market and
time deposit accounts was $219 thousand and $2.0 million, respectively, for the
six months ended March 31, 1998, compared to $168 thousand and $1.8 million,
respectively, for the six months ended March 31, 1997. These increases were due
primarily to increases in the average balances of the respective deposit types.
Interest on FHLB of New York long term borrowings, which is a less
significant portion of interest expense, decreased approximately $1 thousand, or
1.1%, to $59 thousand for the six months ended March 31, 1998. This decrease was
primarily due to a decrease of 19 basis points in the average cost of borrowings
offset by a $20 thousand or 1.2% increase in the average amount of borrowings
outstanding during the comparable periods.
Provision for Loan Losses. The provision for loan losses decreased $100
thousand to $50 thousand for the six months ended March 31, 1998 from $150
thousand for the six months ended March 31, 1997. AFSALA's provision for loan
losses is 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 credit risk, historical loss experience, current economic
conditions, estimated fair value of underlying collateral, delinquencies, and
other factors.
Non-Interest Income. Non-interest income decreased during the six months
ended March 31, 1998 to $193 thousand compared with $228 thousand for the six
months ended March 31, 1997. Decreases in service charges on deposit accounts of
$22 thousand and other non-interest income of $13 thousand comprised the
decrease from the previous period.
Non-Interest Expenses. Non-interest expenses increased $66 thousand, or
3.6%, to $1.9 million for the six months ended March 31, 1998 from $1.8 million
for the six months ended March 31, 1997.
Compensation and benefits expense increased by $208 thousand or 28.3% from
the previous period due primarily to costs related to the AFSALA Bank ESOP, the
establishment of the Restricted Stock Plan in May 1997, the opening of a new
branch in December 1997, as well as general cost of living and merit raises to
employees. Management believes that compensation and benefits expenses will
increase in future periods as a result of the costs related to the AFSALA Bank
ESOP as well as the Restricted Stock Plan.
FDIC deposit insurance premiums decreased by $33 thousand, or 43.4%, due
primarily to reduced deposit insurance premium rates for the six months ended
March 31, 1998, as compared to the same period in the previous year.
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Professional service fees for the six months ended March 31, 1998 decreased
by $67 thousand, or 51.3%, from $132 thousand for the six months ended March 31,
1997, primarily as a result of additional legal and accounting costs incurred
during the six months ended March 31, 1997 associated with being a newly-formed
company.
Non-interest expenses for the six months ended March 31, 1998 included non-
tax-deductible acquisition-related expenses totaling approximately $29 thousand
incurred to date in connection with the Merger Agreement. Management expects to
incur additional acquisition-related expenses in future periods, which will
increase non-interest expenses.
Other non-interest expenses decreased $78 thousand, or 21.2%, to $292
thousand for the six months ended March 31, 1998 when compared to the same
period in the previous year. The decrease is primarily attributed to general
expenses associated with being a newly-formed company, in addition to the write
off of certain items deemed uncollectible by management during the previous
period.
Income Tax Expense. Income tax expense increased to $331 thousand for the
six months ended March 31, 1998 from $305 thousand for the six months ended
March 31, 1997. The increase was the result of an increase in income before
income tax expense, as well as the impact of the non-tax-deductible acquisition-
related expenses mentioned above.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997
AND 1996
Net Income. Net income increased by $978 thousand for the fiscal year ended
September 30, 1997 to $1.2 million from $211 thousand for the fiscal year ended
September 30, 1996. Net income for the fiscal year ended September 30, 1997
increased primarily as a result of increased net interest income and non-
interest income along with a decrease in non-interest expenses, offset in part
by an increase in the provision for loan losses and increased income tax
expense. Net interest income increased by $1.4 million, or 36.8%, to $5.3
million for the fiscal year ended September 30, 1997 as compared to $3.8 million
for the fiscal year ended September 30, 1996. Non-interest income increased $18
thousand, or 4.5%, to $406 thousand for the fiscal year ended September 30, 1997
as compared to $388 thousand for the fiscal year ended September 30, 1996. Non-
interest expense decreased by $127 thousand, or 3.4%, to $3.6 million for the
fiscal year ended September 30, 1997 from $3.7 million for the fiscal year ended
September 30, 1996. This decrease was primarily the result of the special one-
time assessment levied by the FDIC on all institutions with SAIF insured
deposits to contribute to the recapitalization of the SAIF. On September 30,
1996, AFSALA Bank accrued approximately $702 thousand for the special
assessment. The provision for loan losses increased $20 thousand to $250
thousand for the fiscal year ended September 30, 1997, primarily due to the loan
growth noted above, and local economic trends. Income tax expense increased $560
thousand to $624 thousand due to an increase in income before income tax
expense.
Net Interest Income. Net interest income increased by approximately $1.4
million, or 36.8%, to $5.3 million for the fiscal year ended September 30, 1997
from $3.8 million for the fiscal year ended September 30, 1996. The increase in
net interest income was primarily the result of the increase in the amount of
average interest earning assets exceeding the increase in average interest
bearing liabilities. Likewise, the interest rate spread increased to 2.89% for
the fiscal year ended September 30, 1997 from 2.69% for the previous year. This
increase in the interest rate spread was due to a 11 basis point increase in the
average yield on interest earning assets combined with a 9 basis point decrease
in the average cost of interest bearing liabilities.
Interest earning assets primarily consist of loans receivable, federal
funds sold, securities (securities available for sale combined with investment
securities held to maturity), and interest bearing deposits in the FHLB of New
York. Interest bearing liabilities primarily consist of interest bearing
deposits and long term borrowings from the FHLB of New York.
Interest and Dividend Income. Interest and dividend income increased by
approximately $1.6 million, or 17.5%, to $10.8 million for the fiscal year ended
September 30, 1997 from $9.2 million for the fiscal year ended September 30,
1996. The increase in interest and dividend income was largely the result of an
increase of $20.0 million, or 15.7%, in the average balance of interest earning
assets to $147 million for the fiscal year ended
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September 30, 1997 as compared to $127 million for the fiscal year ended
September 30, 1996. This increase was primarily due to AFSALA's initial public
offering on September 30, 1996, which generated approximately $13.6 million in
net proceeds which have been redeployed by management into various earning asset
categories. Also adding to the increase in interest and dividend income was an
11 basis point increase in the average yield on all interest earning assets. The
increase in the average balance of interest earning assets consisted primarily
of an increase in the average balance of total securities (both securities
available for sale and investment securities held to maturity) of $14.1 million,
or 28.6%, an increase in the average balance of net loans receivable of
approximately $4.5 million, or 6.7%, an increase in the average balance of term
deposits with the FHLB of New York of $234 thousand, or 9.9%, and an increase in
the average balance of federal funds sold of $1.1 million, or 16.5%. Interest
income on securities available for sale increased $673 thousand, or 90.7%, to
$1.4 million for the fiscal year ended September 30, 1997 from $742 thousand for
the previous year. The increase in interest income on securities available for
sale is primarily due to an increase of $9.5 million in the average balance, as
well as a 67 basis point increase in the average yield on these securities.
Interest income on investment securities held to maturity increased $451
thousand, or 20.7%, to $2.6 million for the fiscal year ended September 30, 1997
from $2.2 million for the fiscal year ended September 30, 1996. This increase is
primarily the result of an increase in the average balance of $4.6 million
combined with a 42 basis point increase in the average yield on these
securities.
Interest and fees on loans increased $397 thousand, or 6.9%, to $6.1
million for the fiscal year ended September 30, 1997 from $5.7 million for the
fiscal year ended September 30, 1996. This increase was primarily the result of
an increase in the average balance of net loans receivable of $4.5 million
combined with a 2 basis point increase in the average yield on net loans
receivable. The yield on the average balance of interest earning assets was
7.33% and 7.22% for the fiscal years ended September 30, 1997 and 1996,
respectively.
Interest Expense. Interest on deposits and escrow accounts increased by
approximately $219 thousand, or 4.2%, to $5.4 million for the fiscal year ended
September 30, 1997 from $5.2 million for the fiscal year ended September 30,
1996. The increase in interest on deposits and escrow accounts was substantially
due to the increase in interest expense related to money market accounts.
Interest expense on money market accounts was $364 thousand for the fiscal year
ended September 30, 1997, compared to $257 thousand for the fiscal year ended
September 30, 1996. This increase was primarily due to an increase of $2.3
million, or 34.7%, in the average balance of money market accounts along with a
19 basis point increase in the average rate paid on these deposits in fiscal
year 1997 as compared to fiscal 1996. Likewise, interest expense on time deposit
and NOW accounts was $3.7 million and $258 thousand, respectively, for the
fiscal year ended September 30, 1997, compared to $3.6 million and $224
thousand, respectively, for the fiscal year ended September 30, 1996. These
increases were primarily due to increases in the average balances of the
respective deposit types offset somewhat by a 17 basis point decrease in the
average rate paid on time deposit accounts.
Interest on FHLB of New York long term borrowings, which is a less
significant portion of interest expense, decreased by $29 thousand or 20.2% to
$115 thousand for the fiscal year ended September 30, 1997 when compared to the
fiscal year ended September 30, 1996, as the average amount of borrowings
outstanding decreased by $420 thousand or 20.5%, partially offset by an increase
in the average rate paid by AFSALA of 4 basis points. AFSALA uses FHLB of New
York advances as a secondary funding source and generally uses long term
borrowings to supplement deposits which are AFSALA's primary source of funds.
Provision for Loan Losses. AFSALA's management monitors and adjusts its
allowance for loan losses based upon its analysis of the loan portfolio. The
allowance is increased by a charge to the provision for loan losses, the amount
of which depends upon an analysis of the changing risks inherent in AFSALA
Bank's loan portfolio. AFSALA Bank has historically experienced a limited amount
of loan charge-offs. However, there can be no assurance that additions to the
allowance for loan losses will not be required in future periods or that actual
losses will not exceed estimated amounts. AFSALA's ratio of non-performing loans
to total loans was 0.61% and 1.09% at September 30, 1997 and September 30, 1996,
respectively. The provision for loan losses for the fiscal year ended September
30, 1997 increased $20 thousand to $250 thousand from $230 thousand for the
fiscal year ended September 30, 1996. The increase was primarily due to the
growth in the loan portfolio discussed above, as well as local economic trends,
including the general decline in real estate values in AFSALA Bank's market
areas.
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Non-Interest Income. Non-interest income increased during the fiscal year
ended September 30, 1997 to $406 thousand compared with $388 thousand for the
fiscal year ended September 30, 1996. Increases in service charges on deposit
accounts of $6 thousand and other non-interest income of $12 thousand comprised
the increase from the previous year.
Non-Interest Expenses. Non-interest expenses decreased $127 thousand or
3.4% to $3.6 million for the fiscal year ended September 30, 1997 from $3.7
million for the fiscal year ended September 30, 1996. The decrease in non-
interest expenses was primarily due to the one-time special assessment levied by
the FDIC as discussed above.
The increase in compensation and benefits expense of $332 thousand or 26.6%
was primarily the result of costs related to the AFSALA Bank ESOP totaling $151
thousand for fiscal 1997, the establishment of the Restricted Stock Plan, which
resulted in $52 thousand in expense for fiscal 1997, the opening of a new branch
in May 1997, as well as general cost of living and merit raises to employees.
Occupancy and equipment expenses increased by $45 thousand or 9.2% due
primarily to the new operations center opened in July 1996 and the new branch
opened in May 1997.
FDIC deposit insurance premiums decreased by $851 thousand or 87.9% due
primarily to the one-time special assessment of $702 thousand noted above, as
well as reduced deposit insurance premium rates during the year. The reduced
rates are the result of the recapitalization of the SAIF through a one-time
special assessment during September 1996.
Professional service fees for the fiscal year ended September 30, 1997,
increased $190 thousand, or 170.8%, as a result of additional legal, accounting
and other fees related to being a publicly traded company.
Other non-interest expenses increased $91 thousand, or 17.3%, from fiscal
1996 to fiscal 1997 primarily as a result of general expense increases related
to the new branch opened in May 1997 and expenses related to being a public
company for items such as Delaware franchise taxes, stock registrar and transfer
agent fees, annual report preparation, and annual meeting expenses.
Management believes that compensation and benefits expenses will increase
in future periods as a result of the costs related to the AFSALA Bank ESOP as
well as the Restricted Stock Plan, which was adopted in May 1997. Furthermore,
AFSALA expects that certain operating expenses will increase as a result of the
costs associated with being a public company, as noted above.
Income Tax Expense. Income tax expense increased to $624 thousand for the
fiscal year ended September 30, 1997 from $63 thousand for the fiscal year ended
September 30, 1996. The increase was primarily the result of the increase in
income before income tax expense.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a financial-components approach that focuses on control. AFSALA
adopted SFAS No. 125 as of January 1, 1997. The adoption of SFAS No. 125 did not
have a material impact on AFSALA's consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share ("EPS").
This Statement supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share," and related interpretations. SFAS No. 128 replaces the presentation
of primary EPS with the presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the
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numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. This Statement requires restatement of all prior period EPS data
presented. As required, AFSALA adopted SFAS No. 128 in the first quarter of
fiscal 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in financial statements. SFAS No. 130 states that
comprehensive income includes reported net income of a company, adjusted for
items that are currently accounted for as direct entries to equity, such as the
net unrealized gain or loss on securities available for sale. This Statement is
effective for fiscal years beginning after December 15, 1997. As required,
AFSALA will adopt SFAS No. 130 in the first quarter of fiscal 1999, and will
report and display comprehensive income in accordance with the new statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting by public companies about operating segments of their business. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement is effective
for periods beginning after December 15, 1997. Management does not anticipate
that the adoption of this Statement will have a material effect on the Company's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is currently evaluating the impact of this Statement on the Company's
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
AFSALA Bank is required by OTS regulations to maintain, for each calendar
month, a daily average balance of cash and eligible liquid investments of not
less than 5% of the average daily balance of its net withdrawable savings and
borrowings (due in one year or less) during the preceding calendar month. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10%. AFSALA Bank's average liquidity ratio was 47.15%
and 45.18% at March 31, 1998 and September 30, 1997, respectively.
AFSALA's sources of liquidity include cash flows from operations, principal
and interest payments on loans, maturities of securities, deposit inflows, and
borrowings from the FHLB of New York. During the six months ended March 31, 1998
and 1997, the primary source of funds was cash flows from deposit growth.
While maturities and scheduled amortization of loans and securities are, in
general, a predictable source of funds, deposit flows and prepayments on loans
and securities are greatly influenced by general interest rates, economic
conditions and competition. In addition, AFSALA Bank invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
In addition to deposit growth, from time to time AFSALA borrows funds from
the FHLB of New York to supplement its cash flows. At March 31, 1998 and
September 30, 1997, AFSALA had outstanding borrowings from the FHLB of New York
of $1.7 million and $1.4 million, respectively.
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As of March 31, 1998 and September 30, 1997, AFSALA had $41.1 million and
$37.7 million of securities, respectively, classified as available for sale and
$22.2 million and $35.3 million of investment securities, respectively,
classified as held to maturity. The liquidity of the securities available for
sale portfolio provides AFSALA Bank with additional potential cash flows to meet
loan growth and deposit flows.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
saving and loan industry, and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on AFSALA's
commitments to make loans and management's assessment of AFSALA's ability to
generate funds.
AFSALA Bank is subject to federal regulations that impose certain minimum
capital requirements. At March 31, 1998, AFSALA Bank's capital exceeded each of
the regulatory capital requirements of the OTS. AFSALA Bank is "well
capitalized" at March 31, 1998 according to regulatory definition. At March 31,
1998, AFSALA's consolidated tangible and core capital levels were both $20.1
million (12.14% of total adjusted assets) and its total risk-based capital level
was $20.7 million (30.66% of total risk-weighted assets). The minimum regulatory
capital ratio requirements of AFSALA Bank are 1.5% for tangible capital, 3.0%
for core capital, and 8.0% for total risk-based capital.
During fiscal 1997, the stockholders approved the Restricted Stock Plan,
which allows for a stock repurchase of 4% of the outstanding shares of AFSALA
Common Stock. Under this plan, 58,190 shares were repurchased by AFSALA in
open-market transactions at a total cost of $939 thousand or $16.14 per share.
In addition, AFSALA as been approved by the OTS to repurchase up to 10% of the
outstanding shares of AFSALA Common Stock to be used for general corporate
purposes. As of March 31, 1998, 76,310 shares had been repurchased by AFSALA in
open-market transactions at a total cost of $1.4 million, or $18.08 per share.
IMPACT OF THE YEAR 2000
AFSALA is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The concern is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
AFSALA is utilizing both internal and external resources to identify,
correct or reprogram, and test its systems for Year 2000 compliance. It is
anticipated that all reprogramming efforts will be complete by December 31,
1998, allowing adequate time for testing. To date, confirmations have been
received from AFSALA's primary processing vendors that plans are being developed
to address processing of transactions in the Year 2000. Testing has begun with
its outside data processing service bureau. Furthermore, AFSALA expects any
corrective measures required to be prepared for the Year 2000 to be implemented
on a timely basis. AFSALA's Year 2000 Committee reports on a quarterly basis to
the AFSALA Board on AFSALA's progress in resolving any Year 2000 problems.
Currently management does not expect a material impact on AFSALA's earnings as a
result of the Year 2000 problem.
EFFECT OF INFLATION AND CHANGING PRICES
AFSALA's consolidated financial statements and related data 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 changes in the
relative purchasing power of money over time due to inflation. Unlike industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or with the same magnitude as the prices of goods and services.
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DESCRIPTION OF AMBANC HOLDING CO., INC. CAPITAL STOCK
GENERAL
Ambanc's Certificate of Incorporation (the "Ambanc Certificate") authorizes
the issuance by Ambanc of up to 20,000,000 shares of its capital stock,
consisting of 15,000,000 shares of Ambanc Common Stock and 5,000,000 shares of
preferred stock, par value $.01 per share ("Ambanc Preferred Stock"). As of
July 27, 1998, 4,105,164 shares of Ambanc Common Stock and no shares of Ambanc
Preferred Stock were issued and outstanding. The Ambanc Common Stock is quoted
on the National Market tier of the Nasdaq Stock Market under the symbol "AHCI."
See "Comparative Stock Prices and Dividend Information."
COMMON STOCK
Each share of Ambanc Common Stock has the same relative rights and is
identical in all respects with each other share of Ambanc Common Stock. The
Ambanc Common Stock represents non-withdrawable capital, is not of an insurable
type and is not insured by the FDIC or any other government agency.
Subject to any prior rights of the holders of any Ambanc Preferred Stock
then outstanding, holders of the Ambanc Common Stock are entitled to receive
such dividends as are declared by the Ambanc Board out of funds legally
available therefor. Full voting rights are vested in the holders of Ambanc
Common Stock, each share being entitled to one vote, subject to the rights of
the holders of any Ambanc Preferred Stock then outstanding. The Ambanc
Certificate generally permits the Ambanc Board to issue authorized shares of
Ambanc Common Stock without stockholder approval. Subject to any prior rights of
the holders of any Ambanc Preferred Stock then outstanding, in the event of
liquidation, dissolution or winding up of Ambanc, holders of shares of Ambanc
Common Stock are entitled to receive pro rata, any assets distributable to
stockholders in respect of shares held by them. Holders of shares of Ambanc
Common Stock do not have any preemptive rights to subscribe for any additional
securities which may be issued by Ambanc or cumulative voting rights. The
outstanding shares of Ambanc Common Stock are fully paid and non-assessable.
The foregoing discussion of the Ambanc Common Stock is qualified in its
entirety be reference to the description of the Ambanc Common Stock contained in
Ambanc's Registration Statement on Form 8-A with respect thereto, which is
incorporated by reference into this Joint Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
PREFERRED STOCK
The Ambanc Preferred Stock may be issued in one or more series at such time
or times and for such consideration as the Ambanc Board may determine. The
Ambanc Board is expressly authorized at any time, and from time to time, to
provide for the issuance of Ambanc Preferred Stock with such voting and other
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be set
forth in the certificate of designation for the series of Ambanc Preferred Stock
issued. The Ambanc Board is authorized to designate the series and the number
of shares comprising such series, the dividend rate on the shares of such
series, the redemption rights, if any, any purchase, retirement or sinking fund
provisions, any conversion rights and any special voting rights. The ability
of the Ambanc Board to issue Ambanc Preferred Stock without stockholder approval
could make an acquisition by an unwanted suitor of a controlling interest in
Ambanc more difficult, time-consuming or costly, or otherwise discourage an
attempt to acquire control of Ambanc.
Shares of Ambanc Preferred Stock redeemed or acquired by Ambanc may return
to the status of authorized but unissued shares, without designation as to
series, and may be reissued by the Ambanc Board.
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ANTITAKEOVER PROVISIONS
Certain provisions of the Ambanc Certificate may have the effect of
delaying, deferring or preventing a change in control of Ambanc. See
"Comparison of Rights of Stockholders of Ambanc Holding Co., Inc. and AFSALA
Bancorp, Inc."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
AMBANC HOLDING CO., INC. AND AFSALA BANCORP, INC.
INTRODUCTION
Upon consummation of the Merger, stockholders of AFSALA, a Delaware
corporation, whose rights are currently governed by Delaware law and AFSALA's
Certificate of Incorporation (the "AFSALA Certificate") and Bylaws (the "AFSALA
Bylaws"), will become stockholders of Ambanc, a Delaware corporation, and their
rights will be governed by Delaware law and the Ambanc Certificate and Ambanc's
Bylaws (the "Ambanc Bylaws"). The following discussion is not intended to be a
complete statement of all differences affecting the rights of stockholders and
is qualified in its entirety by reference to the AFSALA Certificate and Bylaws
and Ambanc Certificate and Bylaws and Delaware law.
ISSUANCE OF CAPITAL STOCK
The AFSALA Certificate authorizes the issuance of 3,500,000 shares of
capital stock, consisting of 3,000,000 shares of AFSALA Common Stock and 500,000
shares of serial preferred stock, par value $.10 per share ("AFSALA Preferred
Stock"). The Ambanc Certificate authorizes the issuance of 20,000,000 shares of
capital stock, consisting of 15,000,000 shares of Ambanc Common Stock and
5,000,000 shares of Ambanc Preferred Stock. At July 27, 1998, 4,105,164 shares
of Ambanc Common Stock were issued and outstanding and no shares of Ambanc
Preferred Stock were issued and outstanding. At July 27, 1998, 1,319,018 shares
of AFSALA Common Stock were issued and outstanding and no shares of AFSALA
Preferred Stock were issued and outstanding. AFSALA and Ambanc are generally
authorized to issue additional shares of capital stock up to the amount
authorized under their respective Certificates without stockholder approval.
STOCKHOLDER ACTION BY UNANIMOUS CONSENT NOT PERMITTED
Both the Ambanc and AFSALA Certificates provide that any action required or
permitted to be taken by stockholders must be taken at a duly called meeting of
stockholders and may not be effected by any consent in writing in lieu of a
meeting of stockholders.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND STOCKHOLDER
PROPOSALS
The AFSALA Bylaws provide that nominations for the election of directors
and proposals for business at an annual meeting of stockholders may be made by
any stockholder who submits written notice thereof to the Secretary of AFSALA at
least 60 days prior to the anniversary date of AFSALA's immediately preceding
annual meeting of stockholders.
The Ambanc Bylaws provide that an Ambanc stockholder may make nominations
for the election of directors at an annual meeting of stockholders by delivering
written notice of such nominations to the Secretary of Ambanc not less than 30
days prior to the date of the meeting. In the event that less than 40 days
notice of the date of the meeting is given to Ambanc's stockholders, the
stockholder's notice of nominations must be received no later than the tenth day
following the date on which notice of the meeting was mailed.
The Ambanc Bylaws also provide that a stockholder may submit a proposal for
business at an annual meeting of stockholders by providing written notice
thereof to the Secretary of Ambanc at least 60 days prior to the anniversary
date of the preceding year's annual meeting, except that if the date of the
upcoming annual meeting is advanced by more than twenty days, or is delayed by
more than 60 days from the anniversary date, the notice must be delivered
98
<PAGE>
no later than the close of business on the later of the 60th day prior to the
upcoming annual meeting or the tenth day following the day on which notice of
the upcoming meeting was mailed or the date on which the date of the upcoming
meeting was publicly announced.
NUMBER, CLASSIFICATION AND TERM OF DIRECTORS
The AFSALA Board currently consists of seven directors, divided into three
classes with two directors in two classes and three directors in one class.
Each director serves for a term of three years. Under the AFSALA Certificate,
the number of directors may not be less than three nor more than 15. Under the
AFSALA Certificate and Bylaws, the number of directors may be changed at any
time by two-thirds vote of the members of the AFSALA Board.
The Ambanc Board currently consists of ten members, divided into three
classes with three directors in two classes and four directors in one class.
Each director serves for a term of three years. Under the Ambanc Certificate,
the number of directors is to be fixed from time to time exclusively by the
Ambanc Board upon approval by a majority of the total number of directors Ambanc
would have if there were no vacancies on the Ambanc Board (the "Whole Ambanc
Board").
As a result of the classification of the AFSALA and Ambanc Boards, which
provides for the expiration of terms on a staggered basis, it would generally
take two annual meetings to effect a change in membership of a majority of
either Board.
Pursuant to the Merger Agreement, four new directors will be added to the
Ambanc Board following the Merger. See "Management After the Merger" and "The
Merger--Interests of Certain Persons in the Merger."
REMOVAL OF DIRECTORS
Under the AFSALA Certificate, no member of the AFSALA Board may be removed
except for cause, and then only by the affirmative vote of at least 80% of the
outstanding shares of capital stock of AFSALA entitled to vote generally in the
election of directors. The Ambanc Certificate provides that any director or the
entire Ambanc Board may be removed for cause upon the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of Ambanc's capital stock entitled to vote generally in the election of
directors.
CUMULATIVE VOTING NOT PERMITTED
The AFSALA and Ambanc Certificates each provide that stockholders may not
cumulate their votes in the election of directors. By not permitting cumulative
voting, holders of a majority of the outstanding shares of AFSALA and Ambanc
Common Stock may elect the entire AFSALA and Ambanc Boards, thereby precluding
the election of any directors by the holders of less than a majority of the
outstanding shares.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the AFSALA Certificate, special meetings of stockholders may be
called only by a majority of the AFSALA Board or by a committee of the AFSALA
Board authorized to call such meetings. Similarly, under the Ambanc Bylaws,
special meetings of stockholders may be called only by a majority of the Whole
Ambanc Board.
QUORUM AND VOTING REQUIREMENTS
Under the AFSALA Bylaws, a majority of the outstanding shares of AFSALA
stock entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of stockholders. Unless otherwise provided by law or the
AFSALA Certificate or Bylaws, under the AFSALA Bylaws, in matters other than the
election of directors, a majority of the quorum shall be sufficient to pass on a
matter at a meeting of AFSALA stockholders.
99
<PAGE>
Under the Ambanc Bylaws, at a meeting of Ambanc stockholders, the holders
of at least one-third of all of the shares entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum, except as otherwise
required by law. Under the Ambanc Bylaws, except as otherwise required by law
or provided in the Ambanc Certificate, in any matter other than the election of
directors, a majority of the votes cast shall determine the matter.
LIMITATIONS ON VOTING OR ACQUISITIONS OF CAPITAL STOCK
The AFSALA and Ambanc Certificates each contain nearly identical provisions
which provide generally that in no event shall any record owner of any
outstanding shares of AFSALA or Ambanc Common Stock, as the case may be, which
is beneficially owned, directly or indirectly by any person who, as of any
record date for determination of stockholders entitled to vote on any manner,
beneficially owns in excess of 10% of the then-outstanding shares of AFSALA or
Ambanc Common Stock, as the case may be (the "Limit"), be entitled to vote any
shares held in excess of the Limit. The AFSALA Certificate also provides that
for a period of five years after the conversion of AFSALA Bank from mutual to
stock form (which occurred on September 30, 1996), no person shall directly or
indirectly "Offer" to acquire or acquire the beneficial ownership of more than
10% of any class of any equity security of AFSALA. This provision does not
apply to the Merger.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
The Ambanc Certificate provides that certain business combinations (as
defined therein) involving any "Interested Stockholder" (which generally means
any person or entity owning or controlling more than 10% of the outstanding
voting stock of Ambanc), must be approved by the holders of at least 80% of the
voting power of the then-outstanding shares of Ambanc stock entitled to vote in
the election of directors, unless (i) the business combination has been approved
in advance by a majority of the directors who are unaffiliated with the
Interested Stockholder and were directors prior to the time that the Interested
Stockholder became an Interested Stockholder ("Disinterested Directors"), or
(ii) certain fair price conditions are met. In the event the requisite approval
of the Disinterested Directors is given, or the fair price conditions are met,
the normal voting requirements of Delaware law and the Ambanc Certificate would
apply to the transaction.
The AFSALA Certificate contains a substantially similar provision relating
to certain business combinations involving AFSALA and a principal stockholder
thereof.
"ANTI-GREENMAIL" PROVISIONS
The Ambanc Certificate contains an "anti-greenmail" provision which
provides that any direct or indirect purchase or other acquisition by Ambanc of
any equity security of any class from any "Interested Person" shall require
approval by the holders of at least 80% of the voting stock of Ambanc that is
not beneficially owned by the Interested Person. For purposes of the "anti-
greenmail" provision, the term "Interested Person" is defined generally as a
direct or indirect beneficial owner of 5% or more of the voting stock of Ambanc
or any affiliate or associate of such person. Specifically excluded from this
restriction is any purchase or acquisition (i) made as part of a tender or
exchange offer by Ambanc to purchase securities of the same class made on the
same terms to all holders of such securities; (ii) made pursuant to an open
market purchase program approved by a majority of the Ambanc Board, including a
majority of the Disinterested Directors; or (iii) which is approved by a
majority of the Ambanc Board, including a majority of the Disinterested
Directors, at no more than the market price of the shares to be purchased from
the Interested Person.
The AFSALA Certificate does not contain an "anti-greenmail" provision.
AMENDMENT OF CERTIFICATE AND BYLAWS
Under Delaware law, the AFSALA and Ambanc Certificates may generally be
amended upon approval of a majority of the outstanding shares of stock entitled
to vote thereon. The AFSALA Certificate provides that certain provisions
thereof may be amended only upon approval by the affirmative vote of the holders
of at least 80% of the outstanding shares of AFSALA stock entitled to vote
generally in the election of directors, including provisions relating to: (i)
meetings of stockholders, cumulative voting and proxies; (ii) notice for
director nominations and
100
<PAGE>
stockholder proposals; (iii) the number of directors, vacancies on the AFSALA
Board and the classification of the AFSALA Board; (iv) the removal of directors;
(v) limitations on voting rights of greater than 10% beneficial owners of AFSALA
stock; (vi) certain business combinations involving principal stockholders of
AFSALA; (vii) the evaluation of offers to acquire AFSALA; (viii) elimination of
directors' liability; (ix) indemnification of directors, officers and employees;
and (x) amendment of the AFSALA Certificate and Bylaws.
The Ambanc Certificate provides that certain provisions thereof may only be
amended upon approval by the affirmative vote of at least 80% of the voting
power of all of the then-outstanding shares of Ambanc stock entitled to vote
generally in the election of directors, including provisions relating to: (i)
the authorization of the Ambanc Board to issue shares of Ambanc Preferred Stock;
(ii) limitations on voting rights of greater than 10% beneficial owners of
Ambanc stock; (iii) the requirement that all stockholder action be taken at a
duly called meeting of stockholders; (iv) the calling of special meetings of
stockholders; (v) the number of directors and classification of the Ambanc
Board; (vi) vacancies on the Ambanc Board; (vii) notice for director nominations
and stockholder proposals; (viii) the removal of directors; (ix) amendment of
the Ambanc Certificate and Bylaws; (x) certain business combinations involving
"Interested Stockholders"; (xi) the purchase by Ambanc of equity securities from
any "Interested Person"; and (xii) indemnification of directors and officers.
The AFSALA Certificate provides that the AFSALA Bylaws may be amended by a
majority of the AFSALA Board or by the vote of the holders of at least 80% of
the outstanding shares of AFSALA stock entitled to vote generally in the
election of directors. The Ambanc Certificate provides that the Ambanc bylaws
may be amended by a majority of the Whole Ambanc Board or by the vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of Ambanc stock entitled to vote generally in the election of directors.
LEGAL MATTERS
The validity of the shares of Ambanc Common Stock offered hereby has been
passed upon for Ambanc by Silver, Freedman & Taff, L.L.P., Washington, D.C.
Certain other legal matters in connection with the Merger may be passed upon for
Ambanc by Silver, Freedman & Taff, L.L.P., and will be passed upon for AFSALA by
Malizia, Spidi, Sloane & Fisch, P.C.,Washington, D.C.
EXPERTS
The consolidated financial statements of Ambanc as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, included in the Ambanc 1997 10-K and incorporated by reference in this
Joint Proxy Statement/Prospectus, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of AFSALA as of September 30, 1997
and 1996 and for each of the years in the two year period ended September 30,
1997 included in this Joint Proxy Statement/Prospectus, have been so included in
reliance upon the report of the accounting firm of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
AFSALA will hold a 1999 Annual Meeting of Stockholders only if the Merger
is not consummated before the time of such meeting. In order to be eligible for
inclusion in AFSALA's proxy materials for its 1999 Annual Meeting of
Stockholders (if such meeting is to be held), any stockholder proposal to take
action at such meeting must have been received at the main office of AFSALA, 161
Church Street, Amsterdam, New York 12010, by September 11, 1998. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Exchange Act and, as with any stockholder proposal (regardless of whether
included in AFSALA's proxy materials), the AFSALA Certificate and Bylaws and
Delaware law. Under the proxy rules, in the event that AFSALA receives notice of
a stockholder proposal to take action at the 1999 Annual Meeting that is not
submitted for inclusion in AFSALA's proxy materials, or is submitted for
inclusion but is properly excluded from such proxy materials, the persons named
in the form of proxy sent by AFSALA to its stockholders intend to exercise their
discretion to vote on such proposal in accordance with their best judgement if
notice of the proposal is not received at the main office of AFSALA by December
26, 1998. In addition to the provision of the proxy rules regarding
discretionary voting authority described in the preceding sentence, the AFSALA
Bylaws provide that if notice of a stockholder proposal to take action at the
1999 Annual Meeting is not received at the main office of AFSALA by December 26,
1998, such proposal will not be recognized as a matter proper for submission to
the AFSALA stockholders and will not be eligible for presentation at such
meeting.
In order to be eligible for inclusion in Ambanc's proxy materials for its
1999 Annual Meeting of Stockholders, any stockholder proposal to take action at
such meeting must be received at the main office of Ambanc, 11 Division Street,
Amsterdam, New York 12010-4312, no later than January 23, 1999. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Exchange Act and, as with any stockholder proposal (regardless of whether
included in Ambanc's proxy materials), the Ambanc Certificate and Bylaws and
Delaware law. Under the proxy rules, in the event that the Ambanc receives
notice of a stockholder proposal to take action at the 1999 Annual Meeting that
is not submitted for inclusion in Ambanc's proxy materials, or is submitted for
inclusion but is properly excluded from such proxy materials, the persons named
in the form of proxy sent by Ambanc to its stockholders intend to exercise their
discretion to vote on such proposal in accordance with their best judgement if
notice of the proposal is not received at the main office of Ambanc by the
Deadline (as defined below). In addition to the provision of the proxy rules
regarding discretionary voting authority described in the preceding sentence,
the Ambanc Bylaws provide that if notice of a stockholder proposal to take
action at the 1999 Annual Meeting is not received at the main office of Ambanc
by the Deadline, such proposal will not be recognized as a matter proper for
submission to the Ambanc stockholders and will nor be eligible for presentation
at such meeting. The "Deadline" means April 13, 1999; however, in the event the
1999 Annual Meeting is held before May 23, 1999 or after August 11, 1999, the
"Deadline" means the close of business on the later of the 60th day prior to the
date of such meeting or the tenth day following the day on which notice of the
meeting was first mailed or public announcement of the date of such meeting was
first made.
101
<PAGE>
OTHER MATTERS
The AFSALA Board is not aware of any business to come before the AFSALA
Special Meeting other than those matters described above in this Joint Proxy
Statement/Prospectus. If any other matter should properly come before the
AFSALA Special Meeting, it is intended that holders of the proxies will act in
accordance with their best judgment. However, proxies instructed to vote
against adoption of the Merger Agreement will not be voted for a proposal to
approve adjournment of the AFSALA Special Meeting to solicit for the proxies for
the vote on the Merger Agreement, in the event such a proposal comes before the
AFSALA Special Meeting to adopt the Merger Agreement.
The Ambanc Board is not aware of any business to come before the Ambanc
Special Meeting other than those matters described above in this Joint Proxy
Statement/Prospectus. If any other matter should properly come before the
Ambanc Special Meeting, it is intended that holders of the proxies will act in
accordance with their best judgment. However, proxies instructed to vote against
adoption of the Merger Agreement will not be voted for a proposal to approve
adjournment of the Ambanc Special Meeting to solicit for the proxies for the
vote on the Merger Agreement, in the event such a proposal comes before the
Ambanc Special Meeting to adopt the Merger Agreement.
102
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT FOR THE
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<S> <C>
Independent Auditors' Report........................................................................ F-2
Consolidated Balance Sheets as of September 30, 1997 and 1996....................................... F-3
Consolidated Statements of Income for the years ended September 30, 1997 and 1996................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended September 30, 1997 and 1996.................................................................. F-5
Consolidated Statements of Cash Flows for the years ended September 30, 1997 and 1996............... F-6
Notes to Consolidated Financial Statements.......................................................... F-8
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF MARCH 31, 1998
AND FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
Consolidated Balance Sheets as of March 31, 1998 and September 30, 1997............................. M-1
Consolidated Statements of Income for the three months ended March 31, 1998 and 1997................ M-2
Consolidated Statements of Income for the six months ended March 31, 1998 and 1997.................. M-3
Consolidated Statements of Cash Flows for the six months ended March 31, 1998 and 1997.............. M-4
Notes to Unaudited Consolidated Interim Financial Statements........................................ M-5
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
Independent Auditors' Report
The Board of Directors and Shareholders
AFSALA Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of AFSALA
Bancorp, Inc. and subsidiary (the Company) as of September 30, 1997 and 1996,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years then ended. 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 AFSALA
Bancorp, Inc. and subsidiary as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Albany, NY
November 14, 1997
F-2
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 5,127,320 4,816,392
Federal funds sold 2,675,000 19,200,000
Term deposits with the Federal Home Loan Bank - 3,000,000
------------------ ------------------
Total cash and cash equivalents 7,802,320 27,016,392
------------------ ------------------
Securities available for sale, at fair value 37,705,373 17,131,802
Investment securities held to maturity 35,263,826 34,999,930
Federal Home Loan Bank of New York stock, at cost 565,300 565,300
Loans receivable 76,927,350 71,556,754
Less: Allowance for loan losses (1,108,080) (879,463)
------------------ ------------------
Net loans receivable 75,819,270 70,677,291
------------------ ------------------
Accrued interest receivable 1,405,687 1,156,466
Premises and equipment, net 1,659,444 1,703,491
Other assets 186,066 426,015
------------------ ------------------
Total assets $ 160,407,286 153,676,687
================== ==================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 135,316,322 126,460,081
Federal Home Loan Bank of New York long term
borrowings 1,415,625 1,815,625
Escrow accounts 266,656 365,187
Accrued expenses and other liabilities 2,789,562 4,444,922
------------------ ------------------
Total liabilities 139,788,165 133,085,815
------------------ ------------------
Commitments and contingent liabilities (note 13)
Stockholders' Equity:
Preferred stock, $0.10 par value; authorized
500,000 shares; none issued - -
Common stock, $0.10 par value; authorized
3,000,000 shares; 1,454,750 shares issued 145,475 145,475
Additional paid-in capital 13,465,092 13,460,381
Retained earnings, substantially restricted 9,048,824 8,120,864
Common stock acquired by ESOP (108,010 shares
in 1997 and 110,780 shares in 1996) (1,080,105) (1,107,800)
Unearned Restricted Stock Plan (733,194) -
Treasury stock, at cost (15,000 shares in 1997) (238,125) -
Net unrealized gain (loss) on securities
available for sale, net of tax 11,154 (28,048)
------------------ ------------------
Total stockholders' equity 20,619,121 20,590,872
------------------ ------------------
Total liabilities and stockholders' equity $ 160,407,286 153,676,687
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 6,133,225 5,736,071
Interest on federal funds sold 405,441 333,960
Interest on FHLB term deposits 142,037 131,247
Interest on securities available for sale 1,414,978 742,111
Interest on investment securities 2,636,444 2,185,158
Dividends on Federal Home Loan Bank of New York stock 36,670 36,972
---------- ----------
Total interest and dividend income 10,768,795 9,165,519
---------- ----------
Interest expense:
Deposits and escrow accounts 5,400,195 5,181,414
Federal Home Loan Bank of New York long term
borrowings 114,669 143,647
---------- ----------
Total interest expense 5,514,864 5,325,061
---------- ----------
Net interest income 5,253,931 3,840,458
Provision for loan losses 250,000 230,000
---------- ----------
Net interest income after provision for loan losses 5,003,931 3,610,458
---------- ----------
Non-interest income:
Service charges on deposit accounts 371,652 365,658
Other 34,018 22,377
---------- ----------
Total non-interest income 405,670 388,035
---------- ----------
Non-interest expenses:
Compensation and benefits 1,577,427 1,245,908
Occupancy and equipment 533,833 488,971
FDIC deposit insurance premium 116,917 967,467
Data processing fees 279,056 268,295
Professional service fees 301,910 111,500
Advertising 58,311 44,552
Supplies 112,664 71,651
Other 616,903 525,731
---------- ----------
Total non-interest expenses 3,597,021 3,724,075
---------- ----------
Income before income tax expense 1,812,580 274,418
Income tax expense 623,551 63,100
---------- ----------
Net income $ 1,189,029 211,318
========== ==========
Net income per share $ 0.89 N/A
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Common
Additional stock Unearned
Common paid-in Retained acquired Restricted Treasury
stock capital earnings by ESOP Stock Plan Stock
----- ------- -------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ -- -- 7,909,546 -- -- --
Net income -- -- 211,318 -- -- --
Common stock issued 145,475 13,460,381 -- -- -- --
Acquisition of common stock by ESOP
(110,780 shares) -- -- -- (1,107,800) -- --
Change in net unrealized gain (loss) on
securities available for sale, net of tax -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 1996 145,475 13,460,381 8,120,864 (1,107,800) -- --
Net income -- -- 1,189,029 -- -- --
Dividends paid on common stock ($0.08 per share) -- -- (107,738) -- -- --
Allocation of ESOP stock (2,770 shares) -- 4,711 -- 27,695 -- --
Grant of restricted stock under Restricted Stock
Plan (58,190 shares) -- 785,565 -- -- (785,565) --
Treasury stock purchased (73,190 shares) -- -- -- -- -- (1,177,021)
Funding of Restricted Stock Plan (58,190 shares) -- (785,565) (153,331) -- -- 938,896
Amortization of Unearned Restricted Stock -- -- -- -- 52,371 --
Change in net unrealized gain (loss) on
securities available for sale, net of tax -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 1997 $ 145,475 13,465,092 9,048,824 (1,080,105) (733,194) (238,125)
========== ========== ========== ========== ========== ==========
<CAPTION>
Net unrealized
gain (loss) on
securities
available for
sale, net of tax Total
---------------- -----
<S> <C> <C>
Balance at September 30, 1995 4,583 7,914,129
Net income 211,318
Common stock issued -- 13,605,856
Acquisition of common stock by ESOP
(110,780 shares) -- (1,107,800)
Change in net unrealized gain (loss) on
securities available for sale, net of tax (32,631) (32,631)
---------- ----------
Balance at September 30, 1996 (28,048) 20,590,872
Net income -- 1,189,029
Dividends paid on common stock ($0.08 per share) -- (107,738)
Allocation of ESOP stock (2,770 shares) -- 32,406
Grant of restricted stock under Restricted Stock
Plan (58,190 shares) -- --
Treasury stock purchased (73,190 shares) -- (1,177,021)
Funding of Restricted Stock Plan (58,190 shares) -- --
Amortization of Unearned Restricted Stock -- 52,371
Change in net unrealized gain (loss) on
securities available for sale, net of tax 39,202 39,202
---------- ----------
Balance at September 30, 1997 11,154 20,619,121
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(Decrease) increase in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 1,189,029 211,318
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 170,270 166,705
Provision for loan losses 250,000 230,000
Allocation of ESOP stock 32,406 --
RSP compensation expense 52,371 --
Deferred tax benefit (165,416) (24,308)
Increase in accrued interest receivable (249,221) (25,812)
Decrease (increase) in other assets 239,949 (181,505)
(Decrease) increase in accrued expenses and other
liabilities (3,156,538) 3,314,561
--------------- ---------------
Total adjustments (2,826,179) 3,479,641
--------------- ---------------
Net cash (used in) provided by operating
activities (1,637,150) 3,690,959
--------------- ---------------
Cash flows from investing activities:
Proceeds from the maturity and call of securities available
for sale 14,325,277 4,484,510
Purchases of securities available for sale (33,339,448) (2,500,000)
Proceeds from the maturity and call of investment
securities held to maturity 11,221,165 10,501,537
Purchases of investment securities held to maturity (11,485,061) (15,381,273)
Redemption of Federal Home Loan Bank of New York
stock -- 900
Net loans made to customers (5,391,979) (5,485,197)
Proceeds from sale of other real estate owned -- 25,434
Capital expenditures (126,223) (256,528)
--------------- ---------------
Net cash used in investing activities (24,796,269) (8,610,617)
--------------- ---------------
Cash flows from financing activities:
Net increase in deposits 8,856,241 10,387,502
Net decrease in escrow accounts (98,531) (135,336)
Repayments on long term borrowings from the Federal
Home Loan Bank (400,000) (487,500)
Purchases of treasury stock (1,030,625) --
Cash dividends paid on common stock (107,738) --
Net proceeds from common stock issued in stock conversion -- 13,605,856
Acquisition of common stock by ESOP -- (1,107,800)
--------------- ---------------
Net cash provided by financing activities 7,219,347 22,262,722
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (19,214,072) 17,343,064
Cash and cash equivalents at beginning of year 27,016,392 9,673,328
--------------- ---------------
Cash and cash equivalents at the end of year $ 7,802,320 27,016,392
=============== ===============
</TABLE>
(Continued)
F-6
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Additional disclosures relative to cash flows:
Interest paid $ 5,525,197 5,321,830
=============== ===============
Taxes paid $ 374,528 205,460
=============== ===============
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to other real estate owned $ 31,389 25,434
=============== ===============
Investment securities held to maturity transferred to securities available
for sale in accordance with the FASB "Special Report," fair value of
securities transferred $16,604,244 $ - 16,602,489
=============== ===============
Change in net unrealized gain (loss) on securities
available for sale, net of tax $ 39,202 (32,631)
=============== ===============
Increase in amounts due to broker from purchases of
securities available for sale $ 1,500,000 -
=============== ===============
Increase in amounts due to broker from purchases of
treasury stock $ 146,396 -
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(1) Summary of Significant Accounting Policies
AFSALA Bancorp, Inc. (the Holding Company or the Company) was
incorporated under Delaware law in June 1996 as a holding company to
purchase 100% of the common stock of Amsterdam Federal Bank (the Bank).
The Bank converted from a mutual form to a stock form institution and
the Holding Company completed its initial public offering on September
30, 1996, at which time the Holding Company purchased all of the
outstanding stock of the Bank. To date, the principal operations of
AFSALA Bancorp, Inc. have been those of the Bank.
The following is a description of the more significant policies which
the Company follows in preparing and presenting its consolidated
financial statements:
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Holding Company and its wholly owned subsidiary,
the Bank. All significant intercompany accounts and transactions
have been eliminated. 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 Company utilizes the accrual method of accounting
for financial reporting purposes.
(b) Use of Estimates
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 other real
estate owned acquired in connection with foreclosures or
insubstance foreclosures. In connection with the determination of
the allowance for loan losses and the valuation of other real
estate owned, management generally obtains independent appraisals
for properties.
Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize
losses on loans, future additions to the allowance for loan losses
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 Company's
allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance for loan losses based on
their judgments about information available to them at the time of
their examination which may not be currently available to
management.
A substantial portion of the Company's assets are loans secured by
real estate located in Montgomery and neighboring counties in New
York State. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio is dependent
upon market conditions in these market areas. In addition, other
real estate owned, is also generally located in Montgomery and
neighboring counties in New York State.
F-8
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
(c) 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.
(d) Securities Available for Sale, Investment Securities Held to
Maturity, and Federal Home Loan Bank of New York Stock
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 investment securities held to maturity and
are stated at amortized cost. If securities are purchased for the
purpose of selling them in the near term, they are classified as
trading securities and are reported at fair value with unrealized
holding gains and losses reflected in current earnings. All other
debt and equity securities are classified as securities available
for sale and are reported at fair value, with net unrealized gains
or losses reported as a separate component of stockholders'
equity, net of tax. The Company does not maintain a trading
portfolio.
Realized gains and losses on the sale of securities are based on
the net proceeds and the amortized cost of the securities sold,
using the specific identification method. The cost of securities
is adjusted for amortization of premium and accretion of discount,
which is calculated on an effective interest method.
Unrealized losses on securities are charged to earnings when the
decline in fair value of a security is determined to be other than
temporary.
Non-marketable equity securities, such as Federal Home Loan Bank
of New York stock, are stated at cost. The investment in Federal
Home Bank of New York stock is required for membership. This
investment is pledged to secure Federal Home Loan Bank of New York
long term borrowings.
(e) Reclassification of Investment Securities
In November 1995, the staff of 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 provisions of this Special Report, the Company
reclassified securities with an amortized cost of $16,602,489 and
an approximate fair value of $16,604,244 from investment
securities held to maturity to securities available for sale as of
December 31, 1995.
F-9
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
(f) Net Loans Receivable
Loans receivable are stated at the unpaid principal amount, net of
the allowance for loan losses. Loans considered doubtful of
collection by management are placed on a non-accrual status for
the recording of interest. Generally, loans past due 90 days or
more as to principal or interest are considered to be in
non-accrual status except for those loans which, in management's
judgment, are adequately secured and for which collection is
probable. Previously accrued income that has not been collected is
generally reversed from current income. Fees received from and
costs incurred for loan originations are recorded to interest
income on loans as received or incurred. Based upon management's
analysis, recording loan origination fees and costs on the cash
basis does not have a material impact on the Company's
consolidated financial statements.
(g) Allowance for Loan Losses
The allowance for loan losses is increased through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that
collectibility of the principal is unlikely. 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 portfolio, past loan loss exposure, estimated value of
underlying collateral, and current and prospective economic
conditions that may affect borrowers' ability to pay.
(h) Loan Impairment
As of October 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures."
Under these Statements, a loan (generally commercial-type loans)
is considered impaired when it is probable that the borrower will
not make principal and interest payments according to the original
contractual terms of the loan agreement, or when a loan (of any
type) is restructured in a troubled debt restructuring subsequent
to the adoption of these Statements. These Statements prescribe
recognition criteria for loan impairment and measurement methods
for impaired loans. Impaired loans are included in non-performing
loans, generally as non-accrual commercial type loans.
The allowance for loan losses related to impaired loans is based
on the 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. The adoption of
SFAS Nos. 114 and 118 did not have a significant effect on the
Company's consolidated financial statements.
Other real estate owned includes both formally foreclosed and
insubstance foreclosed real properties. 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.
F-10
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
At September 30, 1997, other real estate owned consisted of one
residential one-to-four family property and amounted to
approximately $31 thousand. There was no other real estate owned
at September 30, 1996.
(i) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method
over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the terms of the
related leases or the useful lives of the assets.
(j) Employee Benefit Plans
The Company has a defined contribution 401(k) plan covering all
full time employees meeting age and service requirements. In
addition, the Company has a supplemental employee retirement plan
for certain executive officers.
The Company also has an employee stock ownership plan (ESOP) which
was established to provide substantially all employees of the
Company the opportunity to also become stockholders. The Company
accounts for the ESOP in accordance with the American Institute of
Certified Public Accountants' Statement of Position No. 93-6
"Employers' Accounting for Stock Ownership Plans."
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued t Employees." Accordingly,
compensation expense is recognized only if the exercise price of
the option is less than the fair value of the underlying stock at
the grant date. SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages entities to recognize the fair value of
all stock-based awards on the date of grant as compensation
expense over the vesting period. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma disclosures of net income and net
income per share as if the fair-value-based method defined in SFAS
No. 123 had been applied to stock option grants made in 1995 and
later years. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosures required by SFAS No. 123.
The Company also accounts for its restricted stock plan in
accordance with APB Opinion No. 25. The fair value of the shares
awarded, measured as of the grant date, is recognized as unearned
compensation (a deduction from stockholders' equity) and amortized
to compensation expenses as the shares become vested. Any excess
of the cost to fund purchases of restricted stock plan shares over
the grant date fair value is charged to retained earnings.
F-11
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
(k) Income Taxes
The Company accounts for income taxes in accordance with 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 the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets are recognized subject to management's judgment
that those assets will more likely than not be realized. A
valuation allowance is recognized if, based on an analysis of
available evidence, management believes that all or a portion of
the deferred tax assets will not be realized. Adjustments to
increase or decrease the valuation allowance are charged or
credited, respectively, to income tax expense. 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. 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.
(l) Financial Instruments
In the normal course of business, 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.
(m) Net Income Per Share
Net income per share is computed based on the weighted average
number of shares outstanding, less unallocated ESOP shares, during
the period. The effect of outstanding stock option awards and
shares granted under the restricted stock plan are not material to
the calculation of net income per share. Net income per share is
not presented for periods prior to the initial stock offering as
the Bank was a mutual thrift at the time and no stock was
outstanding. As the conversion of the Bank to stock form was
effective as of September 30, 1996, net income per share is not
applicable for the year ended September 30, 1996. See also note
1(o).
(n) Cashier Checks
The Company's cashier checks (including teller's checks, loan
disbursement checks, expense checks and money orders), are drawn
upon deposit accounts at the Bank and are ultimately paid through
the Bank's Federal Reserve correspondent account. Outstanding
cashier checks are classified as accrued expenses and other
liabilities on the consolidated balance sheets.
F-12
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
(o) Recent Accounting Pronouncements
In June 1996, the FASB issued SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a
financial-components approach that focuses on control. The Company
adopted SFAS No. 125 as of January 1, 1997. The adoption of SFAS
No. 125 did not have a material impact on the Company's
consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share," which establishes standards for computing and presenting
earnings per share (EPS). This Statement supersedes Accounting
Principals Board Opinion No. 15, "Earnings per Share," and related
interpretations. SFAS No. 128 replaces the presentation of primary
EPS with the presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. This Statement is effective
for financial statements issued for periods ending after December
15, 1997, including interim periods. Earlier application is not
permitted. This Statement requires restatement of all prior period
EPS data presented. As required, the Company will adopt SFAS No.
128 in the first quarter of fiscal 1998, and will report and
display EPS in accordance with the new Statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in financial
statements. SFAS No. 130 states that comprehensive income includes
reported net income of a company, adjusted for items that are
currently accounted for as direct entries to equity, such as the
net unrealized gain or loss on securities available for sale. This
Statement is effective for both interim and annual periods
beginning after December 15, 1997. As required, the Company will
adopt the reporting requirements of this Statement in the second
quarter of fiscal 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which
establishes standards for reporting by public companies about
operating segments of their business. SFAS No. 131 also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. This Statement is effective
for periods beginning after December 15, 1997. As required, the
Company will adopt the reporting requirements of this Statement in
the second quarter of fiscal 1998.
F-13
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1), Continued
(p) Reclassifications
Amounts in the prior period's consolidated financial statements are
reclassified whenever necessary to conform to the current period's
presentation.
(2) Conversion to Stock Ownership
On September 30, 1996, the Holding Company sold 1,454,750 shares of
common stock at $10.00 per share to depositors, employees of the Bank,
and employee benefit plans of the Bank. Net proceeds from the sale of
stock of the Holding Company, after deducting conversion expenses of
approximately $942 thousand, were approximately $13.6 million and are
reflected as common stock and additional paid-in capital in the
accompanying consolidated balance sheets. The Company utilized
approximately $6.8 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 the 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, 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.
The Bank's capital exceeds all of the fully phased-in regulatory capital
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 of 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.
Unlike the Bank, the Holding Company is not subject to these regulatory
restrictions on the payment of dividends to its stockholders.
(3) Cash Reserve Requirements
The Bank is required to maintain certain cash reserves and other deposits
with the Federal Reserve Bank. The amount of this reserve requirement,
included in cash and due from banks, was approximately $867 thousand and
$767 thousand at September 30, 1997 and 1996, respectively.
F-14
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate fair value of securities available for
sale 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $29,056,416 107,678 6,280 29,157,814
States and political
subdivisions 3,536,236 6,846 6,338 3,536,744
Collateralized mortgage
obligations 5,095.820 14,055 99,060 5,0l0,815
---------- -------- -------- ----------
Total securities
available for sale $37,688,472 128,579 111,678 37,705,373
========== ======== ======== ==========
<CAPTION>
1996
-------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $ 8,762,717 27,436 11,470 8,778,683
States and political
subdivisions 4,987,667 22,640 17,707 4,992,600
Collateralized mortgage
obligations 3,423,917 30,808 94,206 3,360,519
---------- ------- ------- ----------
Total securities
available for sale $17,174,301 80,884 123,383 17,131,802
========== ======= ======= ==========
</TABLE>
Substantially all of the collateralized mortgage obligations at September
30, 1997 and 1996 consist of Fannie Mae, Freddie Mac, and Government
National Mortgage Association ("GNMA") securities.
The amortized cost and approximate fair value of securities available for
sale at September 30, 1997, by contractual maturity, are shown below
(collateralized mortgage obligations are included by final contractual
maturity). Expected maturities may differ from contractual maturities
because certain issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Approximate
Cost Fair Value
---- ----------
<S> <C> <C>
Due within one year $ 3,445,917 3,451,641
Due one year to five years 15,640,535 15,689,193
Due five years to ten years 13,506,200 13,553,725
Due after ten years 5,095,820 5,010,8l4
---------- ----------
Total securities available for sale $37,688,472 37,705,373
========== ==========
</TABLE>
There were no sales of securities available for sale during the years ended
September 30, 1997 and 1996.
F-15
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost and approximate fair value of investment securities held
to maturity at September 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $24,035,484 86,125 47,805 24,073,804
Mortgage-backed
securities 11,182,369 229,776 62,388 11,349,757
Other 45,973 - - 45,973
---------- ------- ------- ----------
Total investment
securities held to
maturity $35,263,826 315,901 110,193 35,469,534
========== ======= ======= ==========
<CAPTION>
1996
-----------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $22,786,722 25,823 297,575 22,514,970
Mortgage-backed
securities 12,172,235 128,219 93,141 12,207,313
Other 40,973 - - 40,973
---------- ------- ------- ----------
Total investment
securities held to
maturity $34,999,930 154,042 390,716 34,763,256
========== ======= ======= ==========
</TABLE>
Substantially all of the mortgage-backed securities at September 30, 1997
and of Fannie Mae, Freddie Mac, and GNMA securities.
The amortized cost and approximate fair value of investment securities held
to maturity at September 30, 1997, by contractual maturity, are shown below
(mortgage-backed securities are included by final contractual maturity).
Expected maturities may differ from contractual maturities because certain
issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Approximate
Cost Fair Value
---- ----------
<S> <C> <C>
Due within one year $ 6,336,053 6,320,142
Due one year to five years 11,554,527 11,549,920
Due five years to ten years 6,741,945 6,793,561
Due after ten years 10,631,301 10,805,911
---------- ----------
Total $35,263,826 35,469,534
========== ==========
</TABLE>
There were no sales of investment securities held to maturity during the
years ended September 30, 1997 and 1996.
F-16
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) NET LOANS RECEIVABLE
A summary of net loans receivable at September 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loans secured by real estate:
Conventional one-to-four family mortgages $44,081,646 42,912,395
Commercial 3,665,186 3,015,220
Home equity 17,676,832 14,665,911
FHA insured 302,477 386,048
VA guaranteed 523,316 667,225
---------- ----------
66,249,457 61,646,799
---------- ----------
Other loans:
Personal secured 3,874,609 3,942,824
Personal unsecured 475,415 432,707
Commercial 3,513,204 3,103,577
Home improvement 1,789,938 1,560,032
Passbook 938,440 779,494
Education 86,287 91,321
---------- ----------
10,677,893 9,909,955
---------- ----------
76,927,350 71,556,754
Less: Allowance for loan losses (1,108,080) (879,463)
---------- ----------
Net loans receivable $75,819,270 70,677,291
========== ==========
</TABLE>
Certain conventional mortgage loans held in the Company's loan portfolio
are used to secure Federal Home Loan Bank of New York long term borrowings.
A summary of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year $ 879,463 677,681
Provision for loan losses 250,000 230,000
Charge-offs (23,578) (28,218)
Recoveries 2,195 -
--------- -------
Balance at end of year $1,108,080 879,463
========= =======
The following table sets forth information with regard to non-performing loans:
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loans in non-accrual status $ 469,351 716,461
Loans contractually past due 90 days
or more and still accruing interest - 65,953
--------- -------
Total non-performing loans $ 469,351 782,414
========= =======
</TABLE>
There were no troubled debt restructurings at September 30, 1997 or 1996.
F-17
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6), CONTINUED
Accumulated interest on non-accrual loans, as shown above, of approximately
$30 thousand and $33 thousand was not recognized in interest income during
the years ended September 30, 1997 and 1996, respectively. Approximately $9
thousand and $29 thousand of interest on non-accrual loans, as shown above,
was collected and recognized in interest income during the years ended
September 30, 1997 and 1996, respectively.
As of September 30, 1997 and 1996, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 totaled approximately $10
thousand and $40 thousand respectively, for which the related allowance for
loan loss was approximately $3 thousand and $4 thousand, respectively.
During the years ended September 30, 1997 and 1996, the average balance of
impaired loans was approximately $43 thousand and $40 thousand,
respectively. Interest income collected on the impaired loans during the
years ended September 30, 1997 and 1996 was approximately $6 thousand and
$0, respectively.
Certain directors and executive officers of the Company are customers of
and have 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 $361
thousand and $301 thousand at September 30, 1997 and 1996, respectively.
Total advances to the directors and executive officers during the year
ended September 30, 1997 were approximately $179 thousand. Total payments
made on these loans were approximately $119 thousand for the year ended
September 30, 1997.
(7) ACCRUED INTEREST RECEIVABLE
A summary of accrued interest receivable as of September 30, 1997 and 1996
is as follows:
1997 1996
---- ----
Term deposits with the Federal Home
Loan Bank $ - 43,900
Securities available for sale 373,185 186,706
Investment securities held to maturity 507,444 432,787
Loans receivable 525,058 493,073
--------- ---------
Total accrued interest receivable $ 1,405,687 1,156,466
========= =========
(8) PREMISES AND EQUIPMENT, NET
Premises and equipment at September 30, 1997 and 1996 is summarized by
major classification as follows:
1997 1996
---- ----
Land and land improvements $ 388,044 388,044
Office buildings 1,128,801 1,128,801
Leasehold improvements 371,889 370,511
Furniture, fixtures and equipment 1,043,249 929,751
---------- ----------
Total 2,931,983 2,817,107
Less accumulated depreciation (1,272,539) (1,113,616)
---------- ----------
Premises and equipment, net $ 1,659,444 1,703,491
========== ==========
F-18
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) CONTINUED
Depreciation included in occupancy and equipment expense amounted to
approximately $170 thousand and $167 thousand for the years ended September
30, 1997 and 1996, respectively.
(9) DEPOSITS
Deposit account balances at September 30, 1997 and 1996 are summarized as
follows:
Stated
rate 1997 1996
---- ---- ----
Savings accounts 3.00% $ 36,180,998 36,916,478
N.O.W. accounts 2.25 - 2.75 11,617,872 10,779,847
Money market
accounts 2.75 - 4.87 9,933,742 7,728,854
Time deposit accounts:
3.00 - 3.99 678,606 --
4.00 - 4.99 2,093,829 14,505,461
5.00 - 5.99 55,659,435 30,823,393
6.00 - 6.99 8,584,559 15,491,537
7.00 - 7.99 2,695,255 3,012,883
----------- -----------
Total time deposit accounts 69,711,684 63,833,274
----------- -----------
Non-interest bearing
accounts 7,872,026 7,201,628
----------- -----------
Total deposits $135,316,322 126,460,081
=========== ===========
The approximate amount of contractual maturities of time deposit accounts
for the years subsequent to September 30, 1997 are as follows:
Years ended September 30,
-------------------------
1998 $ 51,344,348
1999 9,156,369
2000 5,474,873
2001 2,687,470
2002 1,048,624
-----------
$ 69,711,684
===========
At September 30, 1997 and 1996, the aggregate amount of time deposit
accounts with balances equal to or in excess of $100 thousand was
approximately $8.6 million and $6.8 million, respectively. Deposits in
excess of $100 thousand are not Federally insured.
F-19
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) CONTINUED
Interest expense on deposits and escrow accounts for the years ended
September 30, 1997 and 1996, is summarized as follows:
1997 1996
---- ----
Savings accounts $ 1,081,101 1,067,478
N.O.W. accounts 258,396 223,737
Money market accounts 363,605 256,736
Time deposits 3,688,735 3,624,137
Escrow accounts 8,358 9,326
---------- ---------
Total $ 5,400,195 5,181,414
========== =========
Weighted average
interest rate at end
of period 4.19% 4.11%
==== ====
(10) Income Taxes
The following is a summary of the components of income tax expense for the
years ended September 30, 1997 and 1996:
1997 1996
---- ----
Current tax expense:
Federal $ 662,884 73,774
State 126,083 13,634
Deferred tax benefit (165,416) (24,308)
--------- ---------
Income tax expense $ 623,551 63,100
========= =========
Income tax expense for financial reporting purposes is greater than the
amount computed by applying the statutory federal income tax rate of 34% to
income before income tax expense for the reasons noted in the table below:
1997 1996
---- ----
Expense at statutory federal tax rate $ 616,277 93,302
Tax-exempt income (61,948) (49,137)
State income taxes, net of
federal tax benefit 64,700 16,708
Decrease in the deferred tax
asset valuation allowance (30,000) --
Effect of graduated tax rates -- (2,438)
Other, net 34,522 4,665
--------- ---------
Income tax expense $ 623,551 63,100
========= =========
Effective tax rate 34.4% 23.0%
========= =========
F-20
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at September 30, 1997
and 1996 are as follows:
1997 1996
---- ----
Deferred tax assets:
Differences in reporting the provision
for loan losses and loan charge-offs $ 444,562 352,841
Other 68,819 36,404
--------- ---------
Total gross deferred tax assets 513,381 389,245
Less valuation allowance (120,000) (150,000)
--------- ---------
Net deferred tax assets 393,381 239,245
--------- ---------
Deferred tax liabilities:
Depreciation (77,079) (75,901)
Prepaid expenses (8,597) (28,463)
Other (22,183) (14,775)
--------- ---------
Total deferred tax liabilities (107,859) (119,139)
--------- ---------
Net deferred tax asset at end of year 285,522 120,106
--------- ---------
Net deferred tax asset at beginning
of year 120,106 95,798
--------- ---------
Deferred tax benefit for the year $ (165,416) (24,308)
========= =========
In addition to the deferred tax assets and liabilities noted above, the
Company also had a deferred tax liability of approximately $6 thousand at
September 30, 1997, and a deferred tax asset of approximately $14 thousand at
September 30,1996, related to the net unrealized gain or loss on securities
available for sale.
During the year ended September 30, 1997, the deferred tax asset valuation
allowance was reduced by $30 thousand. In maintaining the valuation
allowance, the Company takes into consideration the nature and timing of the
deferred tax items as well as the amount of available open tax carrybacks.
The Company has fully reserved its New York State deferred tax asset, which
is a significant component of deferred tax assets, due to the lack of
carryback and carryforward provisions available in New York State. Any
changes in the valuation allowance are based upon the Company's continuing
evaluation of the level of such allowance, the amount of New York State
deferred tax assets, and the realizability of the temporary differences
creating the deferred tax asset. Based on recent historical and anticipated
future pre-tax earnings, management believes it is more likely than not that
the Company will realize its net deferred tax assets.
As a thrift institution, the Bank is subject to special provisions in the
federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically
have been determined using methods based on loss experience or a percentage
of taxable income. Tax bad debt reserves are maintained equal to the excess
of allowable deductions over actual bad debt losses and other reserve
reductions. These reserves consist of a defined base-year amount, plus
additional amounts ("excess reserves") accumulated after the base year. SFAS
No. 109 requires recognition of deferred tax liabilities with respect to such
excess reserves, as well as any portion of the base-year amount which is
expected to become taxable (or "recaptured") in the foreseeable future.
F-21
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10), CONTINUED
Certain amendments to the federal and New York State tax laws regarding
bad debt deductions were enacted in July and August 1996. The federal
amendments include elimination of the percentage of taxable income method
for tax years beginning after December 31, 1995 and imposition of a
requirement to recapture into taxable income (over a six-year period) the
bad debt reserves in excess of the base-year amounts. The Bank did not
have any federal bad debt reserves in excess of the base-year amount, thus
there was no recapture requirement. The New York State amendments
redesignate the Bank's state bad debt reserves at December 31, 1995 as the
base-year amount and also provide for future additions to the base-year
reserve using the percentage of taxable income method.
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the December 31, 1996 (the latest date for
which the calculation is available) federal and state base-year reserves
of approximately $2.0 million and $3.4 million, respectively, since the
Company does not expect that these amounts will become taxable in the
foreseeable future. Under the tax laws as amended, events that would
result in taxation of these reserves include (i) redemptions of the Bank's
stock or certain excess distributions to the Company and (ii) failure of
the Bank to maintain a specified qualifying assets ratio or meet other
thrift definition tests for New York State tax purposes. The unrecognized
deferred tax liabilities at December 31, 1996 with respect to the federal
and state base-year reserves were approximately $669 thousand and $137
thousand (net of federal benefit), respectively.
(11) FEDERAL HOME LOAN BANK OF NEW YORK LONG TERM BORROWINGS
The long term borrowings from the Federal Home Loan Bank of New York are
secured by conventional mortgage loans held in the Company's loan
portfolio, as well as the Federal Home Loan Bank of New York stock. The
rates on the various advances ranged from 5.42% to 10.30% and 5.07% to
10.30% at September 30, 1997 and 1996, respectively. The weighted average
rate on the remaining borrowings was 7.01% and 6.83% at September 30, 1997
and 1996, respectively. The following table sets forth the remaining
maturities of the borrowings at September 30, 1997:
Years ended September 30,
------------------------
1998 $ 350,000
1999 337,500
2000 321,875
2001 181,250
2002 112,500
2003-2004 112,500
---------
$ 1,415,625
=========
(12) RELATED PARTY TRANSACTIONS
The law firm of a Director of the Company provides the majority of the
Company's legal services. The Company expensed approximately $62 thousand
in fees to this law firm for legal services for each of the years ended
September 30, 1997 and 1996, respectively.
F-22
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12), CONTINUED
The Company leases certain branch facilities and office space from an
entity controlled by a member of the Board of Directors. The leases expire
in February 2001. The terms of the leases provide for increased payments
each year ranging in total from $20 thousand in the first year to $30
thousand in the last year. Management believes the terms of these leases
to be consistent with normal market terms.
See also note 6.
(13) COMMITMENTS AND CONTINGENT LIABILITIES
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 consist of commitments to
extend credit, unused personal 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 balance sheet.
The contract amounts of these instruments reflect the extent of
involvement by the Company.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the commitment to extend credit is represented by the
contractual notional amount of those 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.
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 and construction loan commitments are secured by a
first or second lien on real estate. Collateral on extensions of credit
for commercial loans varies but may include accounts receivable,
inventory, 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.
F-23
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(13), CONTINUED
Contract amounts of financial instruments that represent credit risk as of
September 30, 1997 and 1996, at fixed and variable interest rates are as
follows:
1997
---------------------------------
Fixed Variable Total
----- -------- -----
Commitments outstanding:
Residential mortgages $ 672,000 194,000 866,000
Commercial real estate loans 150,000 - 150,000
Unadvanced portion of
construction loans 332,245 256,818 589,063
---------- --------- -----------
1,154,245 450,818 1,605,063
---------- --------- -----------
Unused lines and standby letters of credit:
Personal lines of credit 276,944 - 276,944
Standby letters of credit - 40,000 40,000
---------- --------- -----------
276,944 40,000 316,944
---------- --------- -----------
$ 1,431,189 490,818 1,922,007
========== ========= ===========
1996
---------------------------------
Fixed Variable Total
----- -------- -----
Commitments outstanding:
Residential mortgages $ 300,200 629,000 929,200
Commercial real estate loans 86,500 - 86,500
Unadvanced portion of
construction loans 208,584 124,018 332,602
---------- --------- -----------
595,284 753,018 1,348,302
---------- --------- -----------
Unused lines and standby letters of credit:
Personal lines of credit 224,263 - 224,263
Standby letters of credit - 106,000 106,000
---------- --------- -----------
224,263 106,000 330,263
---------- --------- -----------
$ 819,547 859,018 1,678,565
========== ========= ===========
The range of interest rates on fixed rate commitments outstanding was
7.25% to 8.25% at September 30, 1997. The interest rate on the unused
personal lines of credit was 15.00% at September 30, 1997.
Commitments on residential mortgage loans generally expire within 60 days
of the date of issuance. Funds for construction loans are advanced during
the construction phase based upon various stages of completion in
accordance with the results of inspection reports. All funds for
construction loans are generally advanced within 180 days.
The Company does not engage in investments in futures contracts, forwards,
swaps, or option contracts or other derivative investments with similar
characteristics.
The Company grants residential, consumer, and commercial loans in
Montgomery and neighboring counties in New York State. Accordingly, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the economy of this region.
F-24
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(13), CONTINUED
Lease Commitments
-----------------
The Company leases certain branch facilities and office space under
noncancelable operating leases. Total expenses under these leases for the
years ended September 30, 1997 and 1996, were approximately $105 thousand
and $97 thousand, respectively.
A summary of the future minimum commitments required under noncancelable
operating leases as of September 30, 1997 are as follows:
Years ending September 30,
--------------------------
1998 $ 134,337
1999 139,763
2000 81,899
2001 39,776
2002 27,400
---------
$ 423,175
=========
Borrowing Arrangements
----------------------
The Company has two lines of credit available with the Federal Home Loan
Bank of New York which expire in January 1998. The first is an overnight
line of credit for approximately $7.7 million with interest based on
existing market conditions. The second is a one-month overnight repricing
line of credit for approximately $7.7 million with interest based on
existing market conditions. There were no amounts outstanding under these
lines at September 30,1997.
Legal Proceedings
-----------------
The Company is, from time to time, a defendant in legal proceedings
relating to the conduct of its business. In the best judgment of
management, the financial position of the Company will not be affected
materially by the outcome of any pending legal proceedings.
(14) EMPLOYEE BENEFIT PLANS
The Company's defined contribution 401(k) plan covers all full time
employees meeting age and service requirements. The Company matches
participant contributions up to a maximum of 4.5%. Costs associated with
this plan were approximately $39 thousand and $35 thousand for the years
ended September 30, 1997 and 1996, respectively.
The Company also has a supplemental employee retirement plan (SERP) for
certain executive officers. The expense associated with this plan was
approximately $24 thousand for the year ended September 30, 1997, and
approximately $21 thousand for the year ended September 30, 1996. The SERP
is funded annually.
F-25
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14), CONTINUED
Employee Stock Ownership Plan
------------------------------
As part of the conversion discussed in note 2, an employee stock ownership
plan (ES OP) was established to provide substantially all employees of the
Company the opportunity to also become stockholders. The ESOP borrowed
$1,107,800 from the Company and used the funds to purchase 110,780 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 September 30, 1997, the loan had
an outstanding balance of $1,080,105 and an interest rate of 8.5%. Both
the loan obligation and the unearned compensation are reduced by the
amount of loan repayments made by the ESOP. 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.
The unallocated ESOP shares are pledged as collateral to secure the loan
and are reported as common stock acquired by ESOP in stockholders' equity.
The Company reports compensation expense equal to the average market price
of the shares during the applicable service period. The shares become
outstanding for net income per share computations when the shares are
committed to be allocated to employees' accounts. The Company recorded
approximately $151 thousand in compensation expense related to the ESOP
during the year ended September 30, 1997. There was no compensation
expense related to the ESOP for the year ended September 30, 1996.
The ESOP shares as of September 30, 1997 were as follows:
Allocated shares 2,770
Shares committed to be allocated -
Unallocated shares 108,010
----------
110,780
==========
Approximate fair value of unallocated shares
at September 30, 1997 $1,930,679
=========
Stock Option Plan
-----------------
On May 30, 1997, the stockholders approved the AFSALA Bancorp, Inc. 1997
Stock Option Plan ("Option Plan"). Under the Option Plan, options to
purchase a number of shares equal to 10% of the Company's shares issued in
its initial public offering, or 145,475 shares, became available for award
to officers, directors, key employees and other persons from time to time.
Concurrent with the approval of the Option Plan, 145,475 stock options
were granted to officers, directors and key employees of the Company at an
exercise price of $13.875 per share, representing the mean between the
last bid and ask price of the stock on the grant date. The options have a
term of 10 years and vest over a five year period at a rate of 20%
annually, commencing on the one year anniversary of the grant date. No
options were exercised, canceled, or forfeited during the year ended
September 30, 1997. As of September 30, 1997, the weighted-average
remaining contractual life of the options was approximately 9.7 years.
F-26
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14), CONTINUED
As all options were granted at an exercise price equal to the fair value
of the common stock at the grant date, in accordance with the provisions
of APB Opinion No. 25 related to fixed stock options, no compensation
expense was recognized with respect to the options granted. Under the
alternative fair-value-based method defined in SFAS No. 123, the fair
value of all fixed stock options on the grant date would be recognized as
expense over the vesting period. The estimated weighted average fair value
of options granted during the year ended September 30, 1997 was $5.17. The
fair value was estimated using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 1.25%; expected volatility
rate of 25.0%; risk-free interest rate of 6.69%; and an expected option
life of 7.0 years.
The following is a comparison of the Company's net income and net income
per share, as reported, to the pro forma amounts assuming application of
the fair-value-based method of SFAS No. 123 to options granted during the
year ended September 30, 1997:
Net income:
As reported $ 1,189,029
Pro forma 1,143,984
Net income per share:
As reported 0.89
Pro forma 0.85
Restricted Stock Plan
---------------------
On May 30, 1997, the stockholders approved the Amsterdam Federal Bank
Restricted Stock Plan ("RSP") for the benefit of officers, directors, and
key employees of the Company. Under the RSP, 4% of the Company's common
stock, or 58,190 shares, became available for award in recognition of
expected future services to the Company by its directors, officers, and
key employees responsible for implementation of the policies adopted by
the Company's Board of Directors and as a means of providing a further
retention incentive. Concurrent with the approval of the RSP, 58,190
shares were awarded and vest over a five year period at a rate of 20%
annually, commencing on the one year anniversary of the grant date. The
fair market value of the shares awarded on the grant date of approximately
$786 thousand is being amortized to compensation expense as the
participants become vested in those shares. For the year ended September
30, 1997, the Company recognized compensation expense related to the RSP
of approximately $52 thousand. The restricted stock used to fund the RSP
was purchased by the Company in open-market transactions.
(15) Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments"
requires the Company to disclose estimated fair values for its financial
instruments. 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 discount that could
result from offering for sale at one time the Company's entire holdings
particular financial instrument. Because no ready market exists for a
significant portion of 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.
F-27
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15), CONTINUED
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 assets and liabilities and premises and
equipment. In addition, tax ramifications related to the realization of
the unrealized gains and losses, which can have a significant effect on
fair value estimates, 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."
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at September 30, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ----------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,802 7,802 27,016 27,016
Securities available for sale 37,705 37,705 17,132 17,132
Investment securities held to
maturity 35,264 35,470 35,000 34,763
Federal Home Loan Bank of
New York stock 565 565 565 565
Loans receivable 76,927 77,523 71,556 71,631
Less: Allowance for loan losses (1,108) -- (879) --
------ ------ ---------- ------
Net loans receivable 75,819 77,523 70,677 71,631
====== ====== ========== ======
Accrued interest receivable 1,406 1,406 1,156 1,156
Financial liabilities:
Savings, N.O.W, money market and
non-interest bearing
accounts 65,605 65,605 62,627 62,627
Time deposit accounts 69,712 70,024 63,833 64,232
Federal Home Loan Bank of
New York long term
borrowings 1,416 1,447 1,816 1,842
Escrow accounts 267 267 365 365
Accrued interest payable 8 8 19 19
</TABLE>
Financial Instruments with Carrying Amount Equal to Fair Value
--------------------------------------------------------------
The carrying amount of cash and due from banks, federal funds sold, term
deposits with the Federal Home Loan Bank (collectively defined as "cash
and cash equivalents"), accrued interest receivable, escrow accounts, and
accrued interest payable is considered to be equal to fair value as a
result of their short-term nature.
F-28
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15), CONTINUED
Securities Available for Sale. Investment Securities Held to Maturity and
-------------------------------------------------------------------------
Federal Home Loan Bank of New York Stock
----------------------------------------
Securities available for sale and investment securities held to maturity
are financial instruments which are usually traded in broad markets. Fair
values are based upon bid quotations received from either quotation
services or securities dealers. The estimated fair value of stock in the
Federal Home Loan Bank of New York is assumed to be its cost given the
lack of a public market available for this investment.
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as one-to-four family,
commercial real estate, consumer and commercial loans. Each loan category
is further segmented into fixed and adjustable interest rate terms and by
performing and non-performing 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, adjusted for estimated prepayments.
Fair value for 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 savings deposits, N.O.W deposits, money market deposits, and non-
interest bearing deposits are equal to the carrying amounts payable on
demand. The fair value of time deposits 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 estimate of deposit liabilities in the foregoing table does 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.
Federal Home Loan Bank of New York Long Term Borrowings
------------------------- -----------------------------
Fair value is estimated by discounting scheduled cash flows based on
current rates available to the Company for similar types of borrowing
arrangements.
F-29
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15), CONTINUED
Commitments to Extend Credit and Standby Letters of Credit
--------------------------------------------------- ------
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 creditworthiness of
the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current level of interest rates and the
committed rates. The fair value of commitments to extend credit and
standby letters of credit is based on fees currently charged for similar
agreements or on the 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 currently a normal business practice.
(16) REGULATORY CAPITAL REQUIREMENTS
OTS capital regulations require savings institutions to maintain minimum
levels of regulatory capital. Under the regulations in effect at September
30, 1997 and 1996, the Bank was required to maintain a minimum ratio of
tangible capital to 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 its 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 total adjusted quarterly average 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 of September 30, 1997 and 1996, the Bank met
all capital adequacy requirements to which it was 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.
The following is a summary of the Bank's actual capital amounts and ratios
as of September 30, 1997 and 1996, compared to the OTS minimum bank
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.
F-30
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16), CONTINUED
<TABLE>
<CAPTION>
1997 1996 OTS Required Capital Ratios
--------------- --------------- ----------------------------------------
Actual Actual
--------------- --------------- For Minimum For Classification
Amount Ratio Amount Ratio Capital Adequacy as Well Capitalized
------ ----- ------ ----- ---------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital:
Bank only $16,636 10.5% 13,816 9.0% 1.5%
Consolidated 20,608 13.0 20,619 13.4 N/A
Core (Tier 1) capital:
Bank only 16,636 10.5 13,816 9.0 3.0 5.0%
Consolidated 20,608 13.0 20,619 13.4 N/A N/A
Risk-based capital:
Core (Tier 1):
Bank only 16,636 24.0 13,816 21.7 6.0
Consolidated 20,608 29.7 20,619 32.4 N/A
Total:
Bank only 17,456 25.2 14,573 22.9 8.0 10.0
Consolidated 21,429 30.9 21,376 33.5 N/A N/A
</TABLE>
F-31
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) Parent Company Financial Information
The following information presents the financial position of AFSALA
Bancorp, Inc. (Parent Company) as of September 30, 1997 and 1996, and the
results of its operations and cash flows for the year ended September 30,
1997. The results of its operations and cash flows for the year ended
September 30, 1996 are not applicable as there was no activity prior to its
initial public offering on September 30, 1996.
<TABLE>
<CAPTION>
Balance Sheets 1997 1996
-------------- ---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,876,462 --
Loan receivable from subsidiary bank -- 5,695,128
Loan receivable from ESOP 1,080,105 1,107,800
Investment in subsidiary bank 16,647,627 13,787,944
Other assets 9,641 --
----------- -----------
Total assets $21,613,835 20,590,872
=========== ===========
Liabilities and stockholders' equity
Liabilities:
Accrued expenses and other liabilities 994,714 --
----------- -----------
Stockholders' Equity:
Preferred stock, $0.10 par value; authorized 500,000 shares; -- --
none issued
Common stock, $0.10 par value; authorized 145,475 145,475
3,000,000 shares; 1,454,750 shares issued
Additional paid-in capital 13,465,092 13,460,381
Retained earnings, substantially restricted 9,048,824 8,120,864
Common stock acquired by ESOP (108,010
shares in 1997 and 110,780 shares in 1996) (1,080,105) (1,107,800)
Unearned Restricted Stock Plan (733,194) --
Treasury stock, at cost (15,000 shares in 1997) (238,125) --
Net unrealized gain (loss) on securities available
for sale, net of tax 11,154 (28,048)
----------- -----------
Total stockholders' equity 20,619,121 20,590,872
----------- -----------
Total liabilities and stockholders' equity $21,613,835 20,590,872
=========== ===========
<CAPTION>
Statement of Income
Year ended September 30, 1997
<S> <C>
Interest income $ 312,953
Dividends from subsidiary bank 58,190
Interest expense --
-----------
Net interest income 371,143
Non-interest expenses 75,013
-----------
Income before income tax expense and equity in
undistributed earnings of subsidiary bank 296,130
Income tax expense 95,176
-----------
Income before equity in undistributed earnings of
subsidiary bank 200,954
Equity in undistributed earnings of subsidiary bank 988,075
-----------
Net income $ 1,189,029
===========
</TABLE>
F-32
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17), CONTINUED
Statement of Cash Flows
Year ended September 30, 1997
Cash flows from operating activities:
Net income $ 1,189,029
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiary bank (1,014,668)
Increase in other assets (71,641)
------------
Net cash provided by operating activities 102,720
------------
Cash flows from investing activities:
Payments on loan receivable from subsidiary bank 5,695,128
Payments on loan receivable from ESOP 27,695
------------
Net cash provided by investing activities 5,722,823
------------
Cash flows from financing activities:
Purchases of treasury stock (1,030,625)
Cash dividends paid on common stock (107,738)
------------
Net cash used in financing activities (1,138,363)
------------
Net increase in cash and cash equivalents 3,876,462
Cash and cash equivalents at beginning of year --
------------
Cash and cash equivalents at end of year $ 3,876,462
============
These financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
F-33
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------- -------------
Assets
- ------
<S> <C> <C>
Cash and due from banks $ 4,583,591 $ 5,127,320
Federal funds sold 6,350,000 2,675,625
Term deposits with the Federal Home Loan Bank 11,000,000 --
-------------- -------------
Total cash and cash equivalents 21,933,591 7,802,320
------------- -------------
Securities available for sale, at fair value 41,050,515 37,705,373
Investment securities held to maturity 22,176,313 35,263,826
Federal Home Loan Bank of New York stock, at cost 565,300 565,300
Loans receivable 77,964,987 76,927,350
Less: Allowance for loan losses (1,142,231) (1,108,080)
------------- -------------
Net loans receivable 76,822,756 75,819,270
------------- -------------
Accrued interest receivable 1,322,478 1,405,687
Premises and equipment, net 1,786,212 1,659,444
Other assets 268,208 186,066
------------- -------------
Total assets $ 165,925,373 $ 160,407,286
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits 138,892,716 135,316,322
Federal Home Loan Bank of New York long term
borrowings 1,705,611 1,415,625
Escrow accounts 319,603 266,656
Accrued expenses and other liabilities 4,878,484 2,789,562
------------- -------------
Total liabilities 145,796,414 139,788,165
------------- -------------
Commitments and contingent liabilities
Stockholders' Equity:
Preferred stock, $0.10 par value; authorized 500,000 shares; none issued -- --
Common stock, $0.10 par value; authorized 3,000,000 shares;
1,454,750 shares issued 145,475 145,475
Additional paid-in capital 13,525,263 13,465,092
Retained earnings, substantially restricted 9,456,008 9,048,824
Common stock acquired by ESOP (969,325) (1,080,105)
Unearned Restricted Stock Plan (654,638) (733,194)
Treasury stock, at cost (1,379,541) (238,125)
Net unrealized gain on securities available for sale, net of tax 5,717 11,154
------------- -------------
Total stockholders' equity 20,128,959 20,619,121
------------- -------------
Total liabilities and stockholders' equity $ 165,925,373 $ 160,407,286
============= =============
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
M-1
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,548,607 $1,518,471
Interest on federal funds sold 127,815 87,595
Interest on FHLB term deposits 67,888 35,149
Interest on securities available for sale 571,998 269,149
Interest on investment securities 420,887 704,153
Dividends on Federal Home Loan Bank of NY stock 10,315 8,851
---------- ----------
Total interest and dividend income 2,747,510 2,623,368
---------- ----------
Interest expense:
Deposits and escrow accounts 1,419,692 1,294,221
Federal Home Loan Bank of New York long term
borrowings 29,476 28,678
---------- ----------
Total interest expense 1,449,168 1,322,899
---------- ----------
Net interest income 1,298,342 1,300,469
Provision for loan losses 15,000 70,000
---------- ----------
Net interest income after provision for loan losses 1,283,342 1,230,469
---------- ----------
Non-interest income:
Service charges on deposit accounts 87,000 88,698
Other 13,800 16,409
---------- ----------
Total non-interest income 100,800 105,107
---------- ----------
Non-interest expenses:
Compensation and benefits 482,861 365,270
Occupancy and equipment 139,808 139,355
FDIC deposit insurance premium 21,588 20,696
Data processing fees 74,540 72,107
Professional services fees 43,670 72,874
Advertising 10,003 10,101
Supplies 30,583 23,803
Acquisition-related expenses 29,421 --
Other 133,017 191,018
---------- ----------
Total non-interest expenses 965,491 895,224
---------- ----------
Income before income tax expense 418,651 440,352
Income tax expense 162,500 157,500
---------- ----------
Net income $ 256,151 $ 282,852
========== ==========
Earnings per share:
Basic $ 0.21 $ 0.21
========== ==========
Diluted $ 0.20 $ 0.21
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
M-2
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the six months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $3,113,236 $3,037,125
Interest on federal funds sold 181,929 197,647
Interest on FHLB term deposits 67,888 142,037
Interest on securities available for sale 1,209,368 503,904
Interest on investment securities 939,184 1,339,911
Dividends on Federal Home Loan Bank of NY stock 20,360 18,244
---------- ----------
Total interest and dividend income 5,531,965 5,238,868
---------- ----------
Interest expense:
Deposits and escrow accounts 2,849,036 2,596,727
Federal Home Loan Bank of New York long term
borrowings 58,901 59,575
---------- ----------
Total interest expense 2,907,937 2,656,302
---------- ----------
Net interest income 2,624,028 2,582,566
Provision for loan losses 50,000 150,000
---------- ----------
Net interest income after provision for loan losses 2,574,028 2,432,566
---------- ----------
Non-interest income:
Service charges on deposit accounts 176,733 199,036
Other 16,603 29,420
---------- ----------
Total non-interest income 193,336 228,456
---------- ----------
Non-interest expenses:
Compensation and benefits 945,397 737,073
Occupancy and equipment 263,370 272,793
FDIC deposit insurance premium 43,016 76,013
Data processing fees 145,746 142,074
Professional service fees 64,151 131,624
Advertising 27,135 24,490
Supplies 59,580 49,641
Acquisition-related expenses 29,421 --
Other 291,662 370,131
---------- ----------
Total non-interest expenses 1,869,478 1,803,839
---------- ----------
Income before income tax expense 897,886 857,183
Income tax expense 330,825 304,731
---------- ----------
Net income $ 567,061 $ 552,452
========== ==========
Earnings per share:
Basic $ 0.46 $ 0.41
========== ==========
Diluted $ 0.44 $ 0.41
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
M-3
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 567,061 $ 552,452
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 77,560 91,273
Provision for loan losses 50,000 150,000
Allocation of ESOP stock 170,951 32,406
RSP compensation expense 78,556 --
Decrease (increase) in accrued interest receivable 84,834 (207,821)
(Increase) decrease in other assets (82,142) 204,061
Decrease in accrued expenses and other liabilities (263,505) (3,416,891)
------------ ------------
Total adjustments 116,254 (3,146,972)
------------ ------------
Net cash provided by (used in) operating activities 683,315 (2,594,520)
------------ ------------
Cash flows from investing activities:
Proceeds from the maturity and call of securities
available for sale 13,746,619 4,180,531
Purchases of securities available for sale (14,600,000) (10,550,000)
Proceeds from the maturity and call of investment securities 13,626,853 4,089,885
Purchases of investment securities (539,340) (11,001,844)
Net loans made to customers (1,053,486) (1,892,465)
Capital expenditures (204,328) (46,269)
------------ ------------
Net cash provided by (used in) investing activities 10,976,318 (15,220,162)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 3,576,394 1,896,369
Borrowing from the Federal Home Loan Bank 500,000 --
Repayments on long term borrowings from the
Federal Home Loan Bank (210,014) (193,750)
Net increase (decrease) in escrow accounts 52,947 (158,689)
Purchase of treasury stock (1,287,812) --
Cash dividends paid on common stock (159,877) --
------------ ------------
Net cash provided by financing activities 2,471,638 1,543,930
------------ ------------
Net increase (decrease) in cash and cash equivalents 14,131,271 (16,270,752)
Cash and cash equivalents at beginning of period 7,802,320 27,016,392
------------ ------------
Cash and cash equivalents at end of period $ 21,933,591 $ 10,745,640
============ ============
Additional Disclosures Relative to Cash Flows:
Interest paid $ 2,905,770 $ 2,664,664
============ ============
Taxes paid $ 608,268 $ 135,228
============ ============
Supplemental schedule of non-cash investing and financing activities:
Change in net unrealized gain on securities available for sale, net of tax $ 5,437 $ 88,840
============ ============
Net increase in amounts due to broker from purchases of
securities available for sale $ 2,501,625 $ --
============ ============
Decrease in amounts due to broker from purchases of treasury stock $ 146,396 $ --
============ ============
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
M-4
<PAGE>
AFSALA BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements include the
accounts of AFSALA Bancorp, Inc. and its subsidiary (the Company) Amsterdam
Federal Bank. The accompanying unaudited consolidated interim financial
statements have been prepared in accordance with the instructions to Form 10-
QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The accounting and reporting policies of the Company conform in all
material respects to generally accepted accounting principles and to general
practice within the savings bank industry. It is the opinion of management that
the accompanying unaudited consolidated interim financial statements reflect all
adjustments which are considered necessary to report fairly the financial
position as of March 31, 1998, the Consolidated Statements of Income for the
three months and six months ended March 31, 1998 and 1997, and the Consolidated
Statements of Cash Flows for the six months ended March 31, 1998 and 1997. The
results of operations for the six months ended March 31, 1998, are not
necessarily indicative of results that may be expected for the entire year
ending September 30, 1998. The accompanying unaudited consolidated interim
financial statements should be read in conjunction with AFSALA Bancorp, Inc.'s
September 30, 1997 consolidated financial statements, including the notes
thereto.
NOTE 2. Proposed Merger
On April 23, 1998, AFSALA Bancorp, Inc. ("AFSALA") jointly announced that it had
entered into a Reorganization and Merger Agreement (the "Agreement") with Ambanc
Holding Co., Inc., Amsterdam, New York ("Ambanc") for the merger of AFSALA with
and into Ambanc and the merger of AFSALA's wholly-owned subsidiary, Amsterdam
Federal Bank, with and into Ambanc's wholly-owned subsidiary, Amsterdam Savings
Bank, FSB (collectively, the "Merger"). The parties to the Agreement will in the
future jointly rename the resulting bank. In consideration of the merger, each
outstanding share of common stock of AFSALA will be exchanged for 1.07 shares of
Ambanc common stock. Consummation of the Merger is subject to satisfaction of a
number of conditions, including, among other things, stockholder and regulatory
approval and the receipt of a written fairness opinion by AFSALA that the
consideration offered pursuant to the Agreement is fair from a financial point
of view to the stockholders of AFSALA. It is anticipated that the Merger will be
consummated during the fourth quarter of calendar 1998 and will be accounted for
as a purchase transaction.
In connection with the Agreement, AFSALA and Ambanc have entered into a Stock
Option Agreement dated April 24, 1998, pursuant to which Ambanc has the right to
purchase 344,500 shares of AFSALA common stock at a price of $20.75 per share
exercisable under certain circumstances.
M-5
<PAGE>
NOTE 3. Earnings Per Share
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 establishes standards for computing and presenting earnings per share (EPS).
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share" and related interpretations. SFAS No. 128 requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and specifies additional disclosure
requirements.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Unvested restricted stock awards are considered outstanding
common shares and included in the computation of basic EPS as of the date that
they are fully vested. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity (such as the Company's stock options).
All prior period EPS data has been restated to conform to the provisions of this
Statement.
The following tables provide the calculation of basic and diluted EPS:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------------------------------------------------------
1998 1997
------------------------------------------- ------------------------------------
Weighted Per-Share Weighted Per-Share
Income Avg. Shares Amount Income Avg. Shares Amount
------ ----------- ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available to
common stockholders $ 256,151 1,223,374 $ 0.21 $ 282,852 1,346,740 $ 0.21
========== ==========
Effect of Dilutive Securities:
Stock options 33,321 -
Unvested restricted stock awards 16,216 -
----------- -----------
Diluted EPS $ 256,151 1,272,911 $ 0.20 $ 282,852 1,346,740 $ 0.21
============ =========== ========== ========= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended March 31,
------------------------------------------------------------------------------------
1998 1997
--------------------------------------------- ------------------------------------
Weighted Per-Share Weighted Per-Share
Income Avg. Shares Amount Income Avg. Shares Amount
------ ----------- ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available to
common stockholders $ 567,061 1,228,485 $ 0.46 $ 552,452 1,345,355 $ 0.41
========== ==========
Effect of Dilutive Securities:
Stock options 33,789 -
Unvested restricted stock awards 15,271 -
----------- -----------
Diluted EPS $ 567,061 1,277,545 $ 0.44 $ 552,452 1,345,355 $ 0.41
============ =========== ========== ========= =========== ==========
</TABLE>
M-6
<PAGE>
NOTE 4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (`FASB") issued SFAS No.
130, "Reporting Comprehensive Income" (Statement 130), which establishes
standards for reporting and display of comprehensive income and its components
in financial statements. Statement 130 states that comprehensive income includes
reported net income of a company, adjusted for items that are currently
accounted for as direct entries to equity, such as the net unrealized gain or
loss on securities available for sale. This statement is effective for fiscal
years beginning after December 15, 1997. As required, the Company will adopt
Statement 130 in the first quarter of fiscal 1999, and will report and display
comprehensive income in accordance with the new statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131), which establishes standards
for reporting by public companies about operating segments of their business.
Statement 131 also establishes standards for related disclosures about products
and services, geographic areas, and major customers. This Statement is effective
for periods beginning after December 15, 1997. Management does not anticipate
that the adoption of this statement will have a material effect on the Company's
consolidated financial statements.
M-7
<PAGE>
APPENDIX I
-----------------------------
REORGANIZATION AND MERGER AGREEMENT
By and Among
AMBANC HOLDING CO., INC.
AND
AMSTERDAM SAVINGS BANK, FSB
And
AFSALA BANCORP, INC.
AND
AMSTERDAM FEDERAL BANK
Dated as of April 23, 1998
-----------------------------
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
ARTICLE I THE MERGER AND RELATED MATTERS................................... 2
1.1 Merger: Surviving Institution.................................... 2
1.2 Effective Time of the Merger..................................... 2
1.3 Conversion of Shares............................................. 3
1.4 Surviving Corporation in the Acquisition Merger.................. 3
1.5 Authorization for Issuance of Ambanc Common Stock;
Exchange of Certificates........................................ 5
1.6 No Fractional Shares............................................. 6
1.7 Shareholders' Meeting............................................ 7
1.8 Company Stock Options............................................ 7
1.9 Registration Statement; Prospectus/Proxy Statement............... 7
1.10 Cooperation; Regulatory Approvals................................ 8
1.11 Closing.......................................................... 9
1.12 Closing of Transfer Books........................................ 9
1.13 Bank Merger...................................................... 9
1.14 Option Agreement................................................ 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY
AND SAVINGS..................................................... 10
2.1 Organization, Good Standing, Authority, Insurance, Etc.......... 10
2.2 Capitalization.................................................. 11
2.3 Ownership of Subsidiaries....................................... 11
2.4 Financial Statements and Reports................................ 12
2.5 Absence of Changes.............................................. 13
2.6 Prospectus/Proxy Statement...................................... 13
2.7 No Broker's or Finder's Fees.................................... 13
2.8 Litigation and Other Proceedings................................ 14
2.9 Compliance with Law............................................. 14
2.10 Corporate Actions............................................... 14
2.11 Authority....................................................... 15
2.12 Employment Arrangements......................................... 15
2.13 Employee Benefits............................................... 16
2.14 Information Furnished........................................... 17
2.15 Property and Assets............................................. 18
2.16 Agreements and Instruments...................................... 18
2.17 Material Contract Defaults...................................... 18
2.18 Tax Matters..................................................... 19
2.19 Environmental Matters........................................... 19
2.20 Loan Portfolio: Portfolio Management............................ 20
2.21 Real Estate Loans and Investments............................... 20
2.22 Derivatives Contracts........................................... 20
2.23 Insurance....................................................... 21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF AMBANC AND
i
<PAGE>
THE BANK........................................................ 21
3.1 Organization, Good Standing, Authority, Insurance, Etc.......... 21
3.2 Capitalization.................................................. 22
3.3 Ownership of Subsidiaries....................................... 22
3.4 Financial Statements and Reports................................ 22
3.5 Absence of Changes.............................................. 23
3.6 Prospectus/Proxy Statement...................................... 24
3.7 No Broker's or Finder's Fees.................................... 24
3.8 Compliance With Law............................................. 24
3.9 Corporate Actions............................................... 25
3.10 Authority....................................................... 25
3.11 Information Furnished........................................... 25
3.12 Litigation and Other Proceedings................................ 26
3.13 Agreements and Instruments...................................... 26
3.14 Tax Matters..................................................... 26
3.15 Property and Assets............................................. 26
3.16 Derivatives Contracts........................................... 26
3.17 Insurance....................................................... 27
3.18 Employee Benefits............................................... 27
3.19 Material Contract Defaults...................................... 28
3.20 Tax Matters..................................................... 28
3.21 Environmental Matters........................................... 28
3.22 Loan Portfolio: Portfolio Management............................ 28
ARTICLE IV COVENANTS....................................................... 29
4.1 Investigations; Access and Copies............................... 29
4.2 Conduct of Business Prior to Closing............................ 29
4.3 No Solicitation................................................. 31
4.4 Shareholder Approval............................................ 31
4.5 Filing of Holding Company and Merger Applications............... 32
4.6 Consents........................................................ 32
4.7 Resale Letter Agreements........................................ 32
4.8 Publicity....................................................... 32
4.9 Cooperation Generally........................................... 32
4.10 Additional Financial Statements and Reports..................... 32
4.11 Stock Listing................................................... 33
4.12 Allowance for Loan and Real Estate Owned Losses................. 33
4.13 D&O Indemnification and Insurance............................... 33
4.14 Tax Treatment................................................... 34
4.15 Update Disclosure............................................... 34
4.16 Company's Employee Plans and Benefit Arrangements............... 34
4.17 Amendment of Savings' Federal Stock Charter..................... 35
4.18 Environmental Reports........................................... 35
4.19 Advisory Board of Directors..................................... 36
4.20 Appointment of President and CEO................................ 36
4.21 Approvals and Registration...................................... 36
4.22 Notice of Adverse Changes....................................... 37
ii
<PAGE>
4.23 Further Actions................................................. 37
4.24 Further Transactions............................................ 38
ARTICLE V CONDITIONS TO THE MERGER; TERMINATION OF AGREEMENT.............. 38
5.1 General Conditions.............................................. 38
5.2 Conditions to Obligations of Ambanc and Bank.................... 39
5.3 Conditions to Obligations of Company and Savings................ 41
5.4 Termination of Agreement and Abandonment of Merger.............. 43
ARTICLE VI TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES................. 46
6.1 Termination; Lack of Survival of Representations and
Warranties..................................................... 46
6.2 Payment of Expenses............................................. 46
ARTICLE VII CERTAIN POST-MERGER AGREEMENTS.................................. 46
7.1 Reports to the SEC.............................................. 46
7.2 Employees....................................................... 46
ARTICLE VIII GENERAL......................................................... 47
8.1 Amendments...................................................... 47
8.2 Confidentiality................................................. 47
8.3 Governing Law................................................... 47
8.4 Notices......................................................... 48
8.5 No Assignment................................................... 48
8.6 Headings........................................................ 49
8.7 Counterparts.................................................... 49
8.8 Construction and Interpretation................................. 49
8.9 Entire Agreement................................................ 49
8.10 Severability.................................................... 49
8.11 No Third Party Beneficiaries.................................... 49
8.12 Enforcement of Agreement........................................ 49
iii
<PAGE>
REORGANIZATION AND MERGER AGREEMENT
================================================================================
THIS REORGANIZATION AND MERGER AGREEMENT ("Agreement") is dated as of April
23, 1998, by and among AMBANC HOLDING CO., INC., a Delaware corporation
("Ambanc"), and AMSTERDAM SAVINGS BANK, FSB, a Federally chartered savings bank
and wholly-owned subsidiary of Ambanc ("Bank"); and AFSALA BANCORP, INC., a
Delaware corporation ("Company"), and AMSTERDAM FEDERAL BANK, a Federally
chartered savings bank and wholly-owned subsidiary of Company ("Savings").
WHEREAS, Ambanc, a unitary savings and loan holding company, with principal
offices in Amsterdam, New York, owns all of the issued and outstanding capital
stock of Bank, with its principal offices in Amsterdam, New York.
WHEREAS, the Company, a non-diversified, unitary savings and loan holding
company, with its principal offices in Amsterdam, New York, owns all of the
issued and outstanding capital stock of Savings, with its principal offices in
Amsterdam, New York;
WHEREAS, Ambanc and the Company desire to combine their respective holding
companies through a tax-free exchange so that the respective shareholders of
both Ambanc and the Company will have an equity ownership in the combined
holding company;
WHEREAS, following the combination of Ambanc and the Company, it is
intended that Bank and Savings will be merged such that the resulting holding
company will retain the advantage of a unitary savings and loan holding company
status and that the resulting savings institution will achieve certain economies
of scale and efficiencies as a result of such subsequent merger;
WHEREAS, it is intended that to accomplish this result, the Company will be
acquired by means of a merger (the "Acquisition Merger") of the Company with and
into Ambanc, followed by the merger of Savings with and into the Bank (the "Bank
Merger"). The Acquisition Merger and the Bank Merger are collectively referred
to as the "Merger";
WHEREAS, it is intended that for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code") and this Agreement shall
constitute a plan of reorganization pursuant to Section 368 of the Code;
WHEREAS, as an inducement to and condition of Ambanc's willingness to enter
into this Agreement, the Company will grant to Ambanc, on the date after the
date of this Agreement, an option pursuant to the Stock Option Agreement, the
form of which is attached hereto as Exhibit 1.14 (the "Option Agreement"); and
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WHEREAS, the Boards of Directors of Ambanc and the Company have determined
that this Agreement and the transactions contemplated hereby are in the best
interests of Ambanc and the Company, respectively, and their respective Boards
of Directors and have approved this Agreement and the Option Agreement.
Consummation of the Merger is subject to the prior approval of the Office of
Thrift Supervision ("OTS") and the approval of this Agreement by the
stockholders of Ambanc and the Company, among other conditions specified herein.
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 Merger: Surviving Institution. Subject to the terms and conditions of
-----------------------------
this Agreement, and pursuant to the provisions of the Delaware General
Corporation Law ("DGCL"), the Home Owners Loan Act, as amended ("HOLA"), and the
rules and regulations promulgated thereunder (the "Thrift Regulations"), (a) at
the Acquisition Merger Effective Time (as hereinafter defined), the Company
shall be merged with and into Ambanc pursuant to the terms and conditions set
forth herein, (b) the separate corporate existence of the Company shall cease
and Ambanc shall continue as the surviving corporation (sometimes referred to
herein as the "Surviving Corporation"), and (c) thereafter, at the Bank Merger
Effective Time (as hereinafter defined) Savings shall be merged with and into
the Bank pursuant to the terms and conditions set forth herein and in a plan of
merger set forth in Exhibit 1.1(b) (the "Bank Plan of Merger"). The Acquisition
Merger shall have the effects specified in the DGCL and Section 1.4(e) hereof.
Upon consummation of the Bank Merger, the separate existence of Savings shall
cease and the Bank shall continue as the surviving institution of the Bank
Merger. The name of the Bank, as the surviving institution of the Bank Merger,
shall be mutually agreed upon. From and after the Bank Merger Effective Time,
the Bank, as the surviving institution of the Bank Merger, shall possess all of
the properties and rights and be subject to all of the liabilities and
obligations of the Bank and Savings, all as more fully described in the Thrift
Regulations, Section 1.13 hereof and the Bank Plan of Merger. Ambanc may at any
time change the method of effecting the Merger if and to the extent it deems
such change to be necessary, provided, however, that no such change shall (A)
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alter or change the amount or kind of consideration to be issued to holders of
Company common stock as provided for in this Agreement, (B) adversely affect the
tax treatment to Company shareholders as a result of receiving the consideration
described in Section 1.3 herein or (C) materially impede or delay receipt of any
approval referred to in Section 5.1 hereof or the consummation of the
transactions contemplated by this Agreement.
1.2 Effective Time of the Merger. As soon as practicable after each of
----------------------------
the conditions set forth in Article V hereof have been satisfied or waived,
Ambanc and the Company will file, or cause to be filed, a certificate of merger
with appropriate authorities of Delaware for the Acquisition Merger and articles
of combination with the OTS for the Bank Merger, which certificate of merger and
articles of combination shall in each case be in the form required by and
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executed in accordance with applicable provisions of Delaware law and the Thrift
Regulations, respectively. The Acquisition Merger shall become effective at the
time the certificate of merger is filed with the appropriate authorities of
Delaware (the "Acquisition Merger Effective Time"), which shall be immediately
following the Closing (as defined in Section 1.11 herein) and on the same day as
the Closing if practicable. The Bank Merger shall become effective at the time
the articles of combination for such merger are endorsed by the OTS pursuant to
Section 552.13(k) of the Thrift Regulations (the "Bank Merger Effective Time").
The parties shall cause the Acquisition Merger to become effective prior to the
Bank Merger.
1.3 Conversion of Shares.
--------------------
(a)(i) At the Acquisition Merger Effective Time, by virtue of the
Acquisition Merger and without any action on the part of Ambanc or the Company
or the holders of shares of Ambanc or Company common stock, each outstanding
share of Company common stock issued and outstanding immediately prior to the
Acquisition Merger Effective Time shall be converted into and represent solely
the right to receive without any action by the holder, 1.07 shares of common
stock, $.01 par value, of Ambanc (the "Ambanc Common Stock") (the "Exchange
Ratio"), subject to adjustment as provided in clause (a)(iv) of this Section
(the "Merger Consideration").
(ii) Any shares of Company common stock which are owned or
held by the Company or any of its subsidiaries (except shares held in any
qualified plan of the Company or any of its subsidiaries or otherwise held in a
fiduciary capacity or in satisfaction of a debt previously contracted) or by
Ambanc or any of Ambanc's subsidiaries (other than in a fiduciary capacity) at
the Acquisition Merger Effective Time shall cease to exist, and the certificates
for such shares shall as promptly as practicable be canceled and no shares of
capital stock of Ambanc shall be issued or exchanged therefor.
(iii) At the Acquisition Merger Effective Time, the holders
of certificates representing shares of the Company's common stock (the "Company
Common Stock") shall cease to have any rights as stockholders of the Company,
except the right to receive the Merger Consideration as provided herein.
(iv) If the holders of Ambanc Common Stock shall have
received or shall have become entitled to receive, without payment therefor,
during the period commencing within five days prior to the date hereof and
ending with the Acquisition Merger Effective Time, additional shares of common
stock or other securities for their stock by way of a stock split, stock
dividend, reclassification, combination of shares, spinoff or similar corporate
rearrangement or Ambanc shall exchange Ambanc Common Stock for a different
number or kind of shares or securities ("Stock Adjustment"), then the amount of
Ambanc Common Stock to be exchanged at the Acquisition Merger Effective Time for
Company Common Stock shall be proportionately adjusted to take into account such
Stock Adjustment.
1.4 Surviving Corporation in the Acquisition Merger.
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(a) The name of the Surviving Corporation shall be Ambanc Holding
Co., Inc.
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(b) The Certificate of Incorporation of Ambanc as in effect
immediately prior to the Acquisition Merger Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until amended as
provided therein or by law.
(c) The bylaws of Ambanc as in effect immediately prior to the
Acquisition Merger Effective Time shall thereafter be the bylaws of the
Surviving Corporation, until amended as provided therein or by law.
(d) The directors and officers of Ambanc immediately prior to the
Acquisition Merger Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation following the Acquisition Merger,
until their successors shall be duly elected and qualified or otherwise duly
selected. In addition, the Surviving Corporation shall create four new
positions on its Board of Directors, on or prior to the Acquisition Merger
Effective Time, and shall appoint those four persons selected by the Company, in
consultation with Ambanc, to the Board of Directors of the Surviving
Corporation, for terms of office to be agreed upon, it being understood that at
least one of the four persons selected by the Company will include the Company's
current President and Chief Executive Officer. By January 1, 1999, or sooner by
mutual consent, Ambanc's Board of Directors shall appoint John M. Lisicki as
President and Chief Executive Officer of Ambanc. In addition, Benjamin W.
Ziskin and James J. Alescio shall become executive officers of the Surviving
Corporation with the titles, and under the terms and conditions, as set forth in
Section 4.16(d) of this Agreement.
(e) From and after the Acquisition Merger Effective Time:
(i) The Surviving Corporation shall possess all assets and
property of every description, and every interest in the assets and property,
wherever located, and the rights, privileges, immunities, powers, franchises,
and authority, of a public as well as of a private nature, of each of Ambanc and
the Company, and all obligations belonging or due to each of Ambanc and Company,
all of which are vested in the Surviving Corporation without further act or
deed. Title to any real estate or any interest in the real estate vested in
Ambanc or the Company shall not revert or in any way be impaired by reason of
the Acquisition Merger.
(ii) The Surviving Corporation shall be liable for all the
obligations of each of Ambanc and the Company. Any claim existing, or action or
proceeding pending, by or against the Company or Ambanc, may be prosecuted to
judgment, with right of appeal, as if the Acquisition Merger had not taken
place, or the Surviving Corporation may be substituted in its place.
(iii) All the rights of creditors of each of the Company and
Ambanc are preserved unimpaired, and all liens upon the property of the Company
and Ambanc are preserved unimpaired, on only the property affected by such liens
immediately prior to the Acquisition Merger Effective Time.
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1.5 Authorization for Issuance of Ambanc Common Stock; Exchange of
--------------------------------------------------------------
Certificates.
- ------------
(a) Ambanc shall reserve or will at Closing have available for
issuance or reissuance a sufficient number of shares of the Ambanc Common Stock
for the purpose of issuing or reissuing its shares of Ambanc Common Stock to the
Company's shareholders in accordance with this Article I, including Section 1.8.
Immediately prior to the Acquisition Merger Effective Time, Ambanc shall make
available for exchange or conversion, by transferring to an exchange agent
appointed by Ambanc (the "Exchange Agent") for the benefit of the holders of
Company Common Stock: (i) such number of whole shares of Ambanc Common Stock as
shall be issuable or reissuable in connection with the payment of the aggregate
Merger Consideration, and (ii) such funds as may be payable in lieu of
fractional shares of Ambanc Common Stock.
(b) After the Acquisition Merger Effective Time, holders of
certificates theretofore evidencing outstanding shares of Company Common Stock
(other than as provided in Section 1.3(a)(ii)), upon surrender of such
certificates to the Exchange Agent, shall be entitled to receive certificates
representing the number of whole shares of Ambanc Common Stock into which shares
of Company Common Stock theretofore represented by the certificates so
surrendered shall have been converted, as provided in Section 1.3 hereof and
cash payments in lieu of fractional shares as provided in Section 1.6 hereof.
As soon as practicable after the Acquisition Merger Effective Time but not later
than ten (10) business days thereafter, the Exchange Agent will send a notice
and transmittal form to each Company shareholder of record at the Acquisition
Merger Effective Time whose Company Common Stock shall have been converted into
Ambanc Common Stock advising such shareholder of the effectiveness of the
Acquisition Merger and the procedure for surrendering to the Exchange Agent
outstanding certificates formerly evidencing Company Common Stock in exchange
for new certificates for Ambanc Common Stock and for cash in lieu of any
fractional interest. Upon surrender, each certificate evidencing Company common
stock shall be canceled.
(c) Until surrendered as provided in this Section 1.5, each
outstanding certificate which, prior to the Acquisition Merger Effective Time,
represented Company Common Stock (other than shares canceled at the Acquisition
Merger Effective Time pursuant to Section 1.3(a)(ii) hereof) will be deemed for
all purposes to evidence ownership of the number of shares of Ambanc Common
Stock into which the shares of Company common stock formerly represented thereby
were converted and the right to receive cash in lieu of any fractional interest.
However, until such outstanding certificates formerly representing Company
common stock are so surrendered, no dividend or distribution payable to holders
of record of Ambanc Common Stock shall be paid to any holder of such outstanding
certificates, but upon surrender of such outstanding certificates by such holder
there shall be paid to such holder the amount of any dividends or distribution,
without interest, theretofore paid with respect to such whole shares of Ambanc
Common Stock, but not paid to such holder, and which dividends or distribution
had a record date occurring on or subsequent to the Acquisition Merger Effective
Time and the amount of any cash, without interest, payable to such holder in
lieu of fractional shares pursuant to Section 1.6 hereof. After the Acquisition
Merger Effective Time, there shall be no further registration of transfers on
the records of the Company of outstanding certificates formerly representing
shares of Company Common Stock and, if a certificate formerly representing such
shares is presented to Ambanc, it
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shall be forwarded to the Exchange Agent for cancellation and exchanged for
certificates representing shares of Ambanc Common Stock as herein provided.
(d) All shares of Ambanc Common Stock and cash in lieu of any
fractional shares issued and paid upon the surrender for exchange of Company
Common Stock in accordance with the above terms and conditions shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock.
(e) If any new certificate for Ambanc Common Stock is to be issued in
the name other than that in which the certificate surrendered in exchange
thereof is registered, it shall be a condition of the issuance therefor that the
certificate surrendered in exchange shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such transfer pay to the
Exchange Agent any transfer or other taxes, if any, required by reason of the
issuance of a new certificate for shares of Ambanc Common Stock in any name
other than that of the registered holder of the certificate surrendered, or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(f) In the event any certificate for Company Common Stock shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed certificate, upon the making of an affidavit of
that fact by the holder thereof, such shares of Ambanc Common Stock and cash in
lieu of fractional shares, if any, as may be required pursuant hereto; provided,
however, that Ambanc may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Ambanc, the Company, the
Exchange Agent or any other party with respect to the certificate alleged to
have been lost, stolen or destroyed.
1.6 No Fractional Shares. Notwithstanding any term or provision hereof,
--------------------
no fractional shares of Ambanc Common Stock, and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in exchange for
any shares of Company Common Stock; no dividend or distribution with respect to
Ambanc Common Stock shall be payable on or with respect to any fractional share
interests; and no such fractional share interest shall entitle the owner thereof
to vote or to any other rights of a shareholder of Ambanc. In lieu of such
fractional share interest, any holder of Company common stock who would
otherwise be entitled to a fractional share of Ambanc Common Stock will, upon
surrender of his certificate or certificates representing Company Common Stock
outstanding immediately prior to the Acquisition Merger Effective Time, be paid
the applicable cash value of such fractional share interest, which shall be
equal to the product of the fraction multiplied by the average closing price of
the Ambanc Common Stock as reported on the Nasdaq Stock Market for the five
trading days immediately preceding the Acquisition Merger Effective Time. For
the purposes of determining any such fractional share interests, all shares of
Company Common Stock owned by a Company shareholder shall be combined so as to
calculate the maximum number of whole shares of Ambanc Common Stock issuable to
such Company shareholder in the Acquisition Merger.
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1.7 Shareholders' Meeting. The Company and Ambanc shall, at the earliest
---------------------
practicable date after the effectiveness of the Registration Statement (as
hereinafter defined), hold a meeting of their shareholders (the "Company
Shareholders' Meeting" and "Ambanc Shareholders' Meeting," respectively) to
submit for shareholder adoption this Agreement. The affirmative vote of the
holders of at least a majority of the issued and outstanding shares of Company
Common Stock entitled to vote at the Company Shareholders' Meeting and Ambanc
Common Stock entitled to vote at the Ambanc Shareholders' Meeting shall be
required for adoption of the Acquisition Merger and all such related matters.
1.8 Company Stock Options. At the Acquisition Merger Effective Time,
---------------------
each option outstanding under the Company's 1997 Stock Option Plan (the "Company
Option Plan"), whether or not then exercisable, shall continue outstanding as an
option to purchase, in place of the purchase of each share of Company Common
Stock, the number of shares (rounded to the nearest whole share) of Ambanc
Common Stock that would have been received by the optionee in the Merger had the
option been exercised in full (without regard to any limitations contained
therein on exercise) for shares of Company Common Stock immediately prior to the
Acquisition Merger upon the same terms and conditions under the relevant option
as were applicable immediately prior to the Acquisition Merger Effective Time,
except for appropriate pro rata adjustments as to the relevant option price for
shares of Ambanc Common Stock substituted therefor so that the aggregate option
exercise price of shares subject to an option immediately following the
assumption and substitution shall be the same as the aggregate option exercise
price for such shares immediately prior to such assumption and substitution.
Ambanc shall assume at the Acquisition Merger Effective Time each such option
and the Company Option Plan. It is intended that the foregoing assumption shall
be undertaken consistent with and in a manner that will not constitute a
"modification" under Section 424 of the Code as to any stock option which is an
"incentive stock option." Ambanc and Company agree to take such actions as
shall be necessary to give effect to the foregoing.
At all times after the Acquisition Merger Effective Time, Ambanc shall
reserve for issuance such number of shares of Ambanc Common Stock as are
necessary so as to permit the exercise of options granted under the Company
Option Plan in the manner contemplated by this Agreement and the instruments
pursuant to which such options were granted. Ambanc shall make all filings
required under federal and state securities laws so as to permit the exercise of
such options and the sale of the shares received by the option holder upon such
exercise.
1.9 Registration Statement; Prospectus/Proxy Statement.
--------------------------------------------------
(a) For the purposes (i) of registering the Ambanc Common Stock to
be issued to holders of Company Common Stock in connection with the Merger and
the shares issuable under the Company Option Plan pursuant to Section 1.8 hereof
with the Securities and Exchange Commission ("SEC") and with applicable state
securities authorities, and (ii) of holding the Company Shareholders' Meeting
and the Ambanc Shareholders' Meeting, the parties hereto shall cooperate in the
preparation of an appropriate registration statement (such registration
statement, together with all and any amendments and supplements thereto, being
herein referred to as the "Registration Statement"), including the
prospectus/proxy statement satisfying all applicable
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requirements of applicable state laws, and of the Securities Act of 1933, as
amended (the "1933 Act") and the Securities Exchange Act of 1934, as amended
(the "1934 Act") and the rules and regulations thereunder (such prospectus/proxy
statement, together with any and all amendments or supplements thereto, being
herein referred to as the "Prospectus/Proxy Statement").
(b) Ambanc shall furnish such information concerning Ambanc and the
Ambanc Subsidiaries (as defined in Section 3.1 hereof) as is necessary in order
to cause the Prospectus/Proxy Statement, insofar as it relates to such
corporations, to comply with Section 1.9(a) hereof. Ambanc agrees promptly to
advise the Company if at any time prior to the Company Shareholders' Meeting any
information provided by Ambanc in the Prospectus/Proxy Statement becomes
incorrect or incomplete in any material respect and to provide the information
needed to correct such inaccuracy or omission. Ambanc shall promptly file such
supplemental information as may be necessary in order to cause such
Prospectus/Proxy Statement, insofar as it relates to Ambanc and the Ambanc
Subsidiaries, to comply with Section 1.9(a).
(c) The Company shall furnish Ambanc with such information concerning
the Company and the Company Subsidiaries (as defined in Section 2.1 hereof) as
is necessary in order to cause the Prospectus/Proxy Statement, insofar as it
relates to such corporations, to comply with Section 1.9(a) hereof. The Company
agrees promptly to advise Ambanc if at any time prior to the Company
Shareholders' Meeting and the Ambanc Shareholders' Meeting any information
provided by the Company in the Prospectus/Proxy Statement becomes incorrect or
incomplete in any material respect and to provide Ambanc with the information
needed to correct such inaccuracy or omission. The Company shall furnish Ambanc
with such supplemental information as may be necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to the Company and the Company
Subsidiaries, to comply with Section 1.9(a).
(d) Ambanc shall promptly file the Registration Statement with the
SEC and applicable state securities agencies. Ambanc shall use all reasonable
efforts to cause the Registration Statement to become effective under the 1933
Act and applicable state securities laws at the earliest practicable date. The
Company authorizes Ambanc to utilize in the Registration Statement the
information concerning the Company and the Company Subsidiaries provided to
Ambanc for the purpose of inclusion in the Prospectus/Proxy Statement. The
Company shall promptly prepare its proxy statement to be included in the
Registration Statement of Ambanc. Ambanc shall have the right to review and
approve the form of proxy statement included in the Registration Statement prior
to its filing with the SEC and prior to its mailing to Company shareholders.
Ambanc shall advise the Company promptly when the Registration Statement has
become effective and of any supplements or amendments thereto, and Ambanc shall
furnish Company with copies of all such documents. Prior to the Acquisition
Merger Effective Time or the termination of this Agreement, each party shall
consult with the other with respect to any material (including the
Prospectus/Proxy Statement) that might constitute a "prospectus" relating to the
Merger within the meaning of the 1933 Act.
1.10 Cooperation; Regulatory Approvals. The parties shall cooperate and
---------------------------------
use reasonable best efforts to complete the transactions contemplated hereunder
as soon as practicable. Each party shall cause each of their affiliates and
subsidiaries to cooperate in the preparation and
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submission by them, as promptly as reasonably practicable, of such applications,
petitions, and other documents and materials as any of them may reasonably deem
necessary or desirable to the OTS, Federal Trade Commission ("FTC"), Department
of Justice ("DOJ"), SEC, applicable Secretary of State, other regulatory
authorities, holders of the voting shares of Company Common Stock and Ambanc
Common Stock and any other persons for the purpose of obtaining any approvals or
consents necessary to consummate the transactions contemplated by this
Agreement. At the date hereof, none of the parties is aware of any reason that
the regulatory approvals required to be obtained by it would not be obtained.
1.11 Closing. If (i) this Agreement and the Acquisition Merger have
-------
been duly approved by the shareholders of the Company and Ambanc and (ii) all
relevant conditions of this Agreement have been satisfied or waived, a closing
(the "Closing") shall take place as promptly as practicable thereafter at the
principal office of Ambanc, or at such other place as Ambanc and the Company
shall agree, at which the parties hereto will exchange certificates, opinions,
letters and other documents as required hereby and will make the filings
described in Section 1.2 hereof. Such Closing will take place as soon as
practicable as agreed by the parties, provided, however, that the Closing shall
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be no more than 30 days after the satisfaction or waiver of all conditions
and/or obligations contained in Article V of this Agreement.
1.12 Closing of Transfer Books. At the Acquisition Merger Effective
-------------------------
Time, the transfer books for Company Common Stock shall be closed, and no
transfer of shares of Company Common Stock shall thereafter be made on such
books.
1.13 Bank Merger.
-----------
(a) At the Bank Merger Effective Time, each share of common
stock of Savings ("Savings Common Stock") issued and outstanding immediately
prior thereto shall, by virtue of the Bank Merger, be canceled. No new shares of
the capital stock or other securities or obligations of the Bank shall be issued
or be deemed issued with respect to or in exchange for such canceled shares, and
such canceled shares of Savings Common Stock shall not be converted into any
shares or other securities or obligations of the Bank.
(b) The charter and bylaws of the Bank as in effect immediately
prior to the Bank Merger Effective Time shall be the charter and bylaws of the
Bank, as the surviving institution of the Bank Merger, until amended as provided
therein or by law. As soon as practicable thereafter, the name of the Bank shall
be changed to a mutually agreed upon name reflecting the integration of Savings
with Bank.
(c) Except as otherwise provided herein, the directors and
officers of the Bank immediately prior to the Bank Merger Effective Time shall
be the directors and officers of the Bank, as the surviving institution of the
Bank Merger, until their successors shall be duly elected and qualified or
otherwise duly selected. In addition the Bank, as the surviving institution,
shall create four new positions on its Board of Directors and, on or prior to
the Bank Merger Effective Time, shall appoint those four persons selected by
Savings, in consultation with the Bank, to the Board of Directors of the
surviving institution of the Bank Merger, for terms of office to be
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agreed upon, it being understood that at least one of the four persons selected
by Savings will include Savings current President and Chief Executive Officer.
Immediately upon the Bank Merger Effective Time, John M. Lisicki shall become
the President and Chief Executive Officer of the Bank. In addition, Benjamin W.
Ziskin and James J. Alescio shall become executive officers of the Bank, as the
surviving institution of the Bank Merger, with the titles, and under the terms
and conditions, as set forth in Section 4.16(d) of this Agreement.
(d) The liquidation account established by Savings pursuant to
the plan of conversion adopted in connection with its conversion from mutual to
stock form shall continue to be maintained by the Bank after the Bank Merger
Effective Time for the benefit of those persons and entities who were savings
account holders of Savings on the appropriate dates for such conversion and who
continue from time to time to have rights therein.
1.14 Option Agreement. In connection with the execution of this
-----------------
Agreement by the parties, Ambanc and the Company will execute on the date after
the date of this Agreement the Option Agreement attached as Exhibit 1.14.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SAVINGS
The Company and Savings represent and warrant to Ambanc and the Bank that,
except as disclosed in Schedule I attached hereto and except that Savings makes
no representations or warranties regarding the Company:
2.1 Organization, Good Standing, Authority, Insurance, Etc. The
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Company is a corporation duly organized, validly existing and, in the case of
any Company Subsidiary which is a corporation, in good standing under the laws
of the state of their incorporation. Section 2.1 of Schedule I lists each
"subsidiary" of the Company and Savings (individually a "Company Subsidiary" and
collectively the "Company Subsidiaries") (unless otherwise noted herein all
references to a "Company Subsidiary" or to the "Company Subsidiaries" shall
include Savings). The word "Subsidiary" when used with respect to any party
means any bank, savings institution, corporation, partnership, limited liability
company or other organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes. Each of the
Company Subsidiaries is duly organized, validly existing, and in good standing
under the laws of the respective jurisdiction under which it is organized, as
set forth in Section 2.1 of Schedule I. The Company and each Company Subsidiary
has all requisite power and authority and is duly qualified and licensed to own,
lease and operate its properties and conduct its business as it is now being
conducted. The Company has delivered to Ambanc a true, complete and correct copy
of the certificate of incorporation, charter, or other organizing document and
of the bylaws, as in effect on the date of this Agreement, of Company and each
Company Subsidiary. To the Company's knowledge, the Company and each Company
Subsidiary is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which qualification is necessary under
applicable law, except to the extent that any failures to so qualify would not,
in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of the Company and the Company Subsidiaries,
taken as a whole. Savings is a member
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in good standing of the Federal Home Loan Bank of New York and all eligible
accounts issued by Savings are insured by the Savings Association Insurance Fund
("SAIF") to the maximum extent permitted under applicable law. Savings is a
"domestic building and loan association" as defined in Section 7701(a)(19) of
the Code and is a "qualified thrift lender" as defined in Section 10(m) of the
HOLA and the Thrift Regulations. The Company is registered as a savings and loan
holding company under the HOLA.
The minute books of the Company and the Company's Subsidiaries contain
complete and accurate records of all meetings and other corporate actions held
or taken by their respective shareholders and Boards of Directors (including the
committees of such Boards).
2.2 Capitalization. The authorized capital stock of the Company consists
--------------
of (i) 3,000,000 shares of common stock, par value $.10 per share, of which
1,378,440 shares were issued and outstanding as of the date of this Agreement,
and (ii) 500,000 shares of preferred stock, $.10 par value, of which no shares
were outstanding as of the date of this Agreement. All outstanding shares of
Company common stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except for outstanding options to
purchase 145,468 shares of Company common stock under the Company Option Plan
and the option to be granted pursuant to the Option Agreement, as of the date of
this Agreement, there are no options, convertible securities, warrants, or other
rights (preemptive or otherwise) to purchase or acquire any of the Company's
capital stock from the Company and no oral or written agreement, contract,
arrangement, understanding, plan or instrument of any kind (collectively, "Stock
Contract") to which the Company or any of its affiliates is subject with respect
to the issuance, voting or sale of issued or unissued shares of the Company's
capital stock. A true and complete copy of the Company Option Plan, as in
effect on the date of this Agreement, is attached as Section 2.2 of Schedule I.
2.3 Ownership of Subsidiaries. Except as set forth in Section 2.3 of
-------------------------
Schedule I, all the outstanding shares of the capital stock of the Company
Subsidiaries are validly issued, fully paid, nonassessable and owned
beneficially and of record by the Company or a Company Subsidiary free and clear
of any lien, claim, charge, restriction or encumbrance (collectively,
"Encumbrance"). Except as set forth in Section 2.3 of Schedule I, all of the
outstanding capital stock or other ownership interests in all of the Company
Subsidiaries is owned either by the Company or Savings. Except as set forth in
Section 2.3 of Schedule I, there are no options, convertible securities,
warrants, or other rights (preemptive or otherwise) to purchase or acquire any
capital stock of any Company Subsidiary and no contracts to which the Company or
any of its affiliates is subject with respect to the issuance, voting or sale of
issued or unissued shares of the capital stock of any of the Company
Subsidiaries. Neither the Company nor any Company Subsidiary owns any material
investment of the capital stock or other equity securities (including securities
convertible or exchangeable into such securities) of or profit participations in
any entity (other than Company Subsidiaries) other than the Federal Home Loan
Bank of New York or except as set forth in Section 2.3 of Schedule I.
11
<PAGE>
2.4 Financial Statements and Reports.
--------------------------------
(a) No registration statement, proxy statement, schedule or report
filed by the Company or any Company Subsidiary with the SEC or the OTS under the
1933 Act or the 1934 Act ("SEC Reports"), on the date of effectiveness in the
case of such registration statements, or on the date of filing in the case of
such reports or schedules, or on the date of mailing in the case of such proxy
statements, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company and the Company Subsidiaries have timely filed all
reports and documents required to be filed by them with the SEC, the OTS, or the
Federal Deposit Insurance Corporation (the "FDIC") under various securities and
banking laws and regulations for the last five years (or such shorter period as
they may have been subject to such filing requirements), except to the extent
that all failures to so file, in the aggregate, would not have a material
adverse effect on the business, financial condition or results of operations of
the Company and the Company Subsidiaries, taken as a whole. All such documents,
as finally amended, complied in all material respects with applicable
requirements of law and, as of their respective date or the date as amended and,
with respect to the SEC Reports, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and, with respect to reports and documents
filed with banking regulatory agencies, were accurate in all material respects.
Except to the extent stated therein, all financial statements and schedules
included in the documents referred to in the preceding sentences (or to be
included in similar documents to be filed after the date hereof) (i) are or will
be (with respect to financial statements in respect of periods ending after
September 30, 1997) in accordance with the Company's books and records and those
of any of the Company Subsidiaries, and (ii) present (and in the case of
financial statements in respect of periods ending after September 30, 1997, will
present) fairly the consolidated balance sheet and the consolidated statements
of income, changes in stockholders' equity and cash flows of the Company and the
Company Subsidiaries as of the dates and for the periods indicated in accordance
with generally accepted accounting principles (except for the omission of notes
to unaudited statements, year end adjustments to interim results and changes to
generally accepted accounting principles). The audited consolidated financial
statements of the Company at September 30, 1997 and for the two years then ended
and the consolidated financial statements for all periods thereafter up to the
Closing reflect or will reflect, to the extent required by generally accepted
accounting principles, as the case may be, all liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and regardless of when asserted), as of their respective dates, of the Company
and the Company Subsidiaries required to be reflected in such financial
statements according to generally accepted accounting principles and contain or
will contain, in the opinion of management, adequate reserves for losses on
loans and properties acquired in settlement of loans, taxes and all other
material accrued liabilities and for all reasonably anticipated material losses,
if any as of such date. There exists no set of circumstances that could
reasonably be expected to result in any liability or obligation material to the
Company or the Company Subsidiaries, taken as a whole, except as disclosed in
the audited consolidated financial statements at September 30, 1997 or for
transactions effected, actions occurring or omitted to be
12
<PAGE>
taken, or claims made after September 30, 1997 (i) in the ordinary course of
business, or (ii) as permitted by this Agreement.
(b) The Company has delivered to Ambanc each SEC Report filed, used or
circulated by it with respect to periods since September 30, 1997 through the
date of this Agreement and will promptly deliver each such SEC Report filed,
used or circulated after the date hereof, each in the form (including exhibits
and any amendments thereto) filed with the SEC or the OTS (or, if not so filed,
in the form used or circulated), including, without limitation, its Annual
Reports on Form 10-K and its Quarterly Reports on Form 10-Q.
2.5 Absence of Changes.
------------------
(a) Since September 30, 1997 there have been no material adverse
changes in the business, properties, financial condition, operations or assets
of the Company or any Company Subsidiary other than changes attributable to or
resulting from any change in law, regulation or generally accepted accounting
principles or regulatory accounting principles, which impair both the Company
and other comparably sized thrift institutions in a substantially similar manner
and other than changes attributable to or resulting from changes in economic
conditions applicable to depository institutions generally or in general levels
of interest rates affecting both the Company and other comparably sized thrift
institutions to a similar extent and in a similar manner. Since September 30,
1997 to the date hereof, there has been no occurrence, event or development of
any nature existing, or to the knowledge of the Company, threatened, which is
reasonably expected to result in such a change.
(b) Since September 30, 1997, each of the Company and the Company
Subsidiaries has owned and operated their respective assets, properties and
businesses in the ordinary course of business and consistent with past practice.
2.6 Prospectus/Proxy Statement. At the time the Prospectus/ Proxy
--------------------------
Statement is mailed to the shareholders of the Company for the solicitation of
proxies for the approvals referred to in Section 1.7 hereof and at all times
subsequent to such mailing up to and including the time of such approval, such
Prospectus/Proxy Statement (including any supplements thereto), with respect to
all information set forth therein relating to the Company (including the Company
Subsidiaries), its shareholders and representatives, Company common stock and
all other transactions contemplated hereby, will:
(a) Comply in all material respects with applicable provisions of the
1934 Act and the rules and regulations under such Act; and
(b) Not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
it is made, not misleading.
2.7 No Broker's or Finder's Fees. Except as set forth at Section 2.7 of
----------------------------
Schedule I, no agent, broker, investment banker, person or firm acting on behalf
or under authority of the
13
<PAGE>
Company or any of the Company Subsidiaries is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly in connection with the Merger or any other transaction contemplated
hereby, except the Company has engaged FinPro, Inc. to provide financial
advisory services and to deliver an opinion to the effect that the consideration
to be received by the Company shareholders in the Merger is fair to the Company
shareholders from a financial point of view. A copy of the engagement agreement
with FinPro, Inc. is attached to Section 2.7 of Schedule I.
2.8 Litigation and Other Proceedings. Except as set forth in Section 2.8
--------------------------------
of Schedule I and except for matters which would not have a material adverse
effect on the business, financial condition or results of operations of the
Company and the Company Subsidiaries taken as a whole, neither the Company nor
any Company Subsidiary is a defendant in, nor is any of its property subject to,
any pending, or, to the knowledge of the management of the Company, threatened,
claim, action, suit, investigation, or proceeding, or subject to any judicial
order, judgment or decree.
2.9 Compliance with Law.
-------------------
(a) To the knowledge of the Company, the Company and the Company
Subsidiaries are in compliance in all material respects with all material laws
and regulations applicable to their respective business or operations or with
respect to which compliance is a condition of engaging in the business thereof,
and neither the Company nor any Company Subsidiary has received notice from any
federal, state or local government or governmental agency of any material
violation of, and does not know of any material violations of, any of the above.
(b) To the knowledge of the Company, the Company and each of its
Subsidiaries have all material permits, licenses, certificates of authority,
orders and approvals of, and have made all material filings, applications and
registrations with, all federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit them to carry on their
respective business as they are presently conducted.
2.10 Corporate Actions.
-----------------
(a) The Boards of Directors of the Company and Savings have duly
authorized their respective officers to execute and deliver (as applicable) this
Agreement, the Bank Plan of Merger and the Option Agreement and to take all
action necessary to consummate the Merger and the other transactions
contemplated hereby. The Board of Directors of the Company has authorized and
directed the submission for shareholders' adoption of this Agreement, together
with the Option Agreement and any other action requiring such approvals. All
corporate authorization by the Board of Directors of the Company and Savings
required for the consummation of the Merger has been obtained or will be given
when required by applicable law.
(b) The Company's Board of Directors has taken all necessary action to
exempt this Agreement, the Bank Plan of Merger, the Option Agreement and the
transactions contemplated hereby and thereby from, (i) any applicable state
takeover laws, (ii) any Delaware
14
<PAGE>
laws limiting or restricting the voting rights of shareholders, (iii) any
Delaware laws requiring a shareholder approval vote in excess of the vote
normally required in transactions of similar type not involving a "related
person," "interested shareholder" or person or entity of similar type, and (iv)
any provision in its or any of the Company Subsidiaries' articles/certificate of
incorporation, charter or bylaws requiring a shareholder approval vote in excess
of the vote normally required in transactions of similar type not involving a
"related person," interested shareholder" or person or entity of similar type.
2.11 Authority. The execution, delivery and performance by the
---------
Company and Savings of their obligations under this Agreement and by the Company
of its obligations under the Option Agreement does not violate any of the
provisions of, or constitute a default under or give any person the right to
terminate or accelerate payment or performance under (i) subject to the
effectiveness of the amendment to Savings' Federal Stock Charter referred to in
Section 4.17 hereof (the "Charter Amendment"), the articles of incorporation or
bylaws of the Company, the articles of incorporation, charter or bylaws of any
Company Subsidiary, (ii) any regulatory restraint on the acquisition of the
Company or Savings or control thereof, (iii) any law, rule, ordinance, or
regulation or judgment, decree, order, award or governmental or non-governmental
permit or license to which it or any of the Company Subsidiaries is subject or
(iv) except as set forth in Section 2.11 of Schedule I, any other material
agreement, material lease, material contract, note, mortgage, indenture,
arrangement or other obligation or instrument ("Contract") to which the Company
or any of the Company Subsidiaries is a party or is subject or by which any of
their properties or assets is bound. The parties acknowledge that the
consummation of the Merger and the other transactions contemplated hereby is
subject to various regulatory approvals. Subject to the approval and
effectiveness of the Charter Amendment, the Company and Savings, as applicable,
have all requisite corporate power and authority to enter into this Agreement
and the Option Agreement and to perform their respective obligations hereunder
and thereunder, except, with respect to this Agreement, and the Acquisition
Merger, the approval of the Company's shareholders of this Agreement and the
Acquisition Merger required under applicable law and the effectiveness of the
Charter Amendment. Other than the receipt of Governmental Approvals (as defined
in Section 5.1(c)), the adoption by shareholders of this Agreement and the
consents specified in Section 2.11 or 2.15 of Schedule I with respect to the
Contracts, no consents or approvals are required on behalf of Company or Savings
in connection with the consummation of the transactions contemplated by this
Agreement and the Acquisition Merger, the Bank Plan of Merger and the Option
Agreement. This Agreement, the Bank Plan of Merger and the Option Agreement
constitute the valid and binding obligation of the Company and Savings, as
applicable, and each is enforceable in accordance with its terms, except as
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency or creditors rights generally and general principles of equity.
2.12 Employment Arrangements. Except as disclosed in Section 2.12 of
-----------------------
Schedule I, there are no employment, severance or other agreements, plans or
arrangements with any current or former directors, officers or employees of
Company or any Company Subsidiary which may not be terminated without penalty
(including any augmentation or acceleration of benefits) on 30 days or less
notice to such person. Except as disclosed in Section 2.12 of Schedule I, no
payments to directors, officers or employees of the Company or the Company
Subsidiaries resulting from
15
<PAGE>
the transactions contemplated hereby will cause the imposition of excise taxes
under Section 4999 of the Code or the disallowance of a deduction to the Company
or any Company Subsidiary pursuant to Sections 162 or 280G of the Code. No later
than 30 days prior to consummation of the Merger, the Company shall furnish
Ambanc for its review (i) a computation of the amounts expected to be payable
under the employment and severance agreements disclosed in Section 2.12 of
Schedule I as a result of the Merger, and (ii) a schedule reasonably
satisfactory to Ambanc demonstrating that no "disqualified individual" within
the meaning of Section 280G of the Code will be receiving payments in
contravention of the representation in the preceding sentence.
2.13 Employee Benefits.
-----------------
(a) Neither the Company nor any of the Company Subsidiaries
maintains any funded deferred compensation plans (including profit sharing,
pension, savings or stock bonus plans), unfunded deferred compensation
arrangements or employee benefit plans as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other
than any plans ("Employee Plans") set forth in Section 2.13 of Schedule I (true
and correct copies of which have been delivered to Ambanc). None of Company or
any of the Company Subsidiaries has incurred or reasonably expects to incur any
liability to the Pension Benefit Guaranty Corporation except for required
premium payments which, to the extent due and payable, have been paid. The
Employee Plans intended to be qualified under Section 401(a) of the Code are so
qualified, and Company is not aware of any fact which would adversely affect the
qualified status of such plans. Except as set forth in Section 2.13 of Schedule
I, neither the Company nor any of the Company Subsidiaries (a) provides health,
medical, death or survivor benefits to any former employee or beneficiary
thereof, or (b) maintains any form of current (exclusive of base salary and base
wages) or deferred compensation, bonus, stock option, stock appreciation right,
benefit, severance pay, retirement, incentive, group or individual health
insurance, welfare or similar plan or arrangement for the benefit of any single
or class of directors, officers or employees, whether active or retired
(collectively "Benefit Arrangements"). Neither the Company nor any Company
Subsidiary is a sponsor of or contributes to any qualified or non-qualified
defined benefit plan for employees, officers or directors. No payments are more
than 30 days past due on any Employee Plan or Benefit Arrangement. With respect
to each Employee Plan and Benefit Arrangement of the Company or any Company
Subsidiary, the Company will within 30 days of the date of this Agreement
furnish to Ambanc (i) the net fair market value of the assets held in any
Benefit Arrangement, and (ii) the amount of any contribution or other obligation
paid, accrued, or payable, or reasonably expected to be payable between the date
of this Agreement and the Closing, including contributions by Company to its
Employee Stock Ownership Plan to repay its loan and contributions to its 401(k)
Plan in accordance with past practices (pro rated through the Closing), subject
to applicable tax law limitations. Neither the Company nor any Company
Subsidiary will make any contribution, or undertake any obligation to contribute
any amount to any Employee Plan or Benefit Arrangement other than the amounts
which the Company shall set forth in Section 2.13 of Schedule I and other than
immaterial amounts in the ordinary course of business and in accordance with
past practice.
(b) Except as set forth in Section 2.13 of Schedule I, all
Employee Plans and Benefit Arrangements which are in effect were in effect for
substantially all of calendar year 1997
16
<PAGE>
and there has been no material amendment thereof (other than amendments required
to comply with applicable law) or no material increase in the cost thereof or
benefits payable thereunder on or after September 30, 1997.
(c) To the Company's knowledge, each Employee Plan and Benefit
Arrangement (i) has been administered to date, and will be administered until
the Closing, in accordance with their terms and in compliance with the Code,
ERISA, and all other applicable rules and regulations, (ii) has, in a timely,
accurate, and proper manner, both filed all required government reports and made
all required employee communications, and (iii) between the date of this
Agreement and the Closing, will complete and file all such required reports. To
the Company's knowledge, no condition exists that could constitute grounds for
the termination of any Employee Plan under Section 4042 of ERISA; no "prohibited
transaction," as defined in Section 406 of ERISA and Section 4975 of the Code,
has occurred with respect to any Employee Plan, or any other employee benefit
plan maintained by Company or any Company Subsidiary which is covered by Title I
of ERISA, which could subject any person to liability under Title I of ERISA or
to the imposition of any tax under Section 4975 of the Code nor has any Employee
Plan subject to Part III of Subtitle B of Title I of ERISA or Section 412 of the
Code, or both, incurred any "accumulated funding deficiency," as defined in
Section 412 of the Code, whether or not waived; nor has Company or any Company
Subsidiary failed to make any contribution or pay any amount due and owing as
required by the terms of any Employee Plan or Benefit Arrangement. To the
Company's knowledge, neither Company nor any Company Subsidiary has incurred or
expects to incur, directly or indirectly, any liability under Title IV of ERISA
arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
which could constitute a liability of Ambanc or any of its affiliates at or
after the Acquisition Merger Effective Time.
(d) On or before the date of this Agreement, the Company will
provide Ambanc with true and complete copies of the following documents where
applicable to any Employee Plan or Benefit Arrangement: (i) each plan document
or agreement, and any amendments thereto, and related trust agreements,
insurance contracts and policies, annuity contracts, and any other funding
arrangement; (ii) the most recent summary plan description and summary of
material modifications; (iii) for the three most recent plan years, Form 5500
Annual Return/Report and all actuarial and financial reports and appraisals; and
(iv) the most recent determination letter received from the Internal Revenue
Service, plus any open requests and all other rulings received from any
governmental agency. Within 60 days of the date hereof, the Company or Savings
shall provide Ambanc with documentation, reasonably satisfactory to Ambanc,
demonstrating that the requirements of Sections 401(k), 401(m), 404, 410, 412,
415, and 416 of the Code have been satisfied by each Employee Plan that is
intended to qualify under Section 401 of the Code.
2.14 Information Furnished. Any schedule, certificate or other
---------------------
document furnished (whether prior to or subsequent to the date of this
Agreement) or to be furnished in writing by or on behalf of Company to Ambanc
pursuant to this Agreement will be accurate in all material respects and will
not omit any information necessary to make the information provided not
misleading. No information material to the Merger and which is necessary to
make the representations and warranties true, knowingly has been withheld from
Ambanc.
17
<PAGE>
2.15 Property and Assets. To the knowledge of the Company, the
-------------------
Company and the Company Subsidiaries have marketable title to all of their real
property reflected in the financial statements at September 30, 1997, referred
to in Section 2.4 hereof, or acquired subsequent thereto, free and clear of all
encumbrances, except for (a) such items shown in such financial statements or in
the notes thereto, (b) liens for current real estate taxes not yet delinquent,
(c) customary title exceptions that have no material adverse effect upon the
value of such property, (d) property sold or transferred in the ordinary course
of business since the date of such financial statements, and (e) pledges or
liens incurred in the ordinary course of business. Company and the Company
Subsidiaries enjoy peaceful and undisturbed possession under all material leases
for the use of real property under which they are the lessee; all of such leases
are valid and binding and in full force and effect and neither Company nor any
Company Subsidiary is in default in any material respect under any such lease.
No consent of the lessor of any material real property or material personal
property lease is required for consummation of the Merger except as set forth in
Section 2.15 of Schedule I. There has been no material physical loss, damage or
destruction, whether or not covered by insurance, affecting the real properties
of Company and the Company Subsidiaries since September 30, 1997, except such
loss, damage or destruction which does not have a material adverse effect on the
Company and the Company Subsidiaries, taken as a whole. All property and assets
material to their business and currently used by Company and the Company
Subsidiaries are, in all material respects, in good operating condition and
repair, normal wear and tear excepted.
2.16 Agreements and Instruments. Except as set forth in Section 2.16
--------------------------
of Schedule I or as reflected in the audited Company consolidated financial
statements as of September 30, 1997, neither the Company nor any Company
Subsidiary is a party to (a) any material agreement, arrangement or commitment
not made in the ordinary course of business, (b) any agreement, indenture or
other instrument relating to the borrowing of money by the Company or any
Company Subsidiary or the guarantee by the Company or any Company Subsidiary of
any such obligation (other than Federal Home Loan Bank advances with a maturity
of one year or less from the date hereof), (c) any agreements to make loans or
for the provision, purchase or sale of goods, services or property between
Company or any Company Subsidiary and any director or officer of Company or
Savings, or any member of the immediate family or affiliate of any of the
foregoing, (d) any agreements with or concerning any labor or employee
organization to which Company or any Company Subsidiary is a party, (e) any
agreements between Company or any Company Subsidiary and any five percent or
more shareholder of Company, and (f) any agreements, directives, orders, or
similar arrangements between or involving the Company or any Company Subsidiary
and any state or federal savings institution regulatory authority.
2.17 Material Contract Defaults. Neither the Company nor any Company
--------------------------
Subsidiary nor the other party thereto is in default in any respect under any
contract, agreement, commitment, arrangement, lease, insurance policy, or other
instrument to which the Company or a Company Subsidiary is a party or by which
its respective assets, business, or operations may be bound or affected or under
which it or its respective assets, business, or operations receives benefits,
and which default is reasonably expected to have either individually or in the
aggregate a material adverse effect on the Company and any Company Subsidiary,
taken as a whole, and
18
<PAGE>
there has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default.
2.18 Tax Matters.
-----------
(a) The Company and each of the Company Subsidiaries have duly
and properly filed all federal, state, local and other tax returns required to
be filed by them and have made timely payments of all taxes shown thereon to be
due and payable, whether disputed or not; the current status of audits of such
returns by the Internal Revenue Service ("IRS") and other applicable agencies is
as set forth in Section 2.18 of Schedule I; and there is no agreement by the
Company or any Company Subsidiary for the extension of time or for the
assessment or payment of any taxes payable. Neither the IRS nor, except as set
forth in Section 2.18 of Schedule I, any other taxing authority is now asserting
or, to the knowledge of Company, threatening to assert any deficiency or claim
for additional taxes (or interest thereon or penalties in connection therewith),
nor is the Company aware of any basis for any such assertion or claim. The
Company and each of the Company Subsidiaries have complied in all material
respects with applicable IRS backup withholding requirements and have filed all
appropriate information reporting returns for all tax years for which the
statute of limitations has not closed. The Company and each Company Subsidiary
have complied in all material respects with all applicable state law sales and
use tax collection and reporting requirements.
(b) Adequate provision for any federal, state, local, or foreign
taxes due or to become due for the Company or any of the Company Subsidiaries
for any period or periods through and including September 30, 1997, has been
made and is reflected on the September 30, 1997 audited Company consolidated
financial statements and has been or will be made in accordance with generally
accepted accounting principles with respect to periods ending after September
30, 1997.
2.19 Environmental Matters. Except as set forth on Section 2.19 of
---------------------
Schedule I, to the knowledge of the Company, neither the Company nor any Company
Subsidiary owns or leases any properties affected by toxic waste, radon gas or
other hazardous conditions or constructed in part with the use of asbestos.
Neither the Company nor any Company Subsidiary has knowledge of, nor has the
Company or any Company Subsidiary received written notice from any governmental
or regulatory body of, any conditions, activities, practices or incidents which
is reasonably likely to interfere with or prevent compliance or continued
compliance with hazardous substance laws or any regulation, order, decree,
judgment or injunction, issued, entered, promulgated or approved thereunder, or
which may give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant, contaminant or
chemical, or industrial, toxic or hazardous substance or waste. There is no
civil, criminal or administrative claim, action, suit, proceeding, hearing or
investigation pending or, to Company's knowledge, threatened against Company or
any Company Subsidiary relating in any way to such hazardous substance laws or
any regulation, order, decree, judgment or injunction issued, entered,
promulgated or approved thereunder.
19
<PAGE>
2.20 Loan Portfolio: Portfolio Management.
-------------------------------------
(a) All evidences of indebtedness reflected as assets in the
consolidated balance sheet of the Company as of September 30, 1997, or acquired
since such date, are (except with respect to those assets which are no longer
assets of the Company or any Company Subsidiary) binding obligations of the
respective obligors named therein except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding may be brought, and the payment of no material
amount thereof (either individually or in the aggregate with other evidences of
indebtedness) is subject to any defenses which have been asserted or, to the
knowledge of the Company threatened, against the Company or any Company
Subsidiary. All such indebtedness which is secured by an interest in real
property is, to the Company's knowledge, secured by a valid and perfected
mortgage lien having the priority specified in the loan documents. All loans
originated or purchased by Savings were at the time entered into and at all
times since have been in compliance in all material respects with all applicable
laws (including, without limitation, all consumer protection laws) and
regulations. Savings administers its loan and investment portfolios (including,
but not limited to, adjustments to adjustable mortgage loans) in all material
respects in accordance with all applicable laws and regulations and the terms of
applicable instruments. The records of Savings regarding all loans outstanding
on its books are accurate in all material respects and the risk classification
system has been established in accordance with the requirements of the OTS.
(b) Section 2.20 of Schedule I sets forth a list, accurate and
complete in all material respects, of the aggregate amounts of loans, extensions
of credit and other assets of Savings and its subsidiaries that have been
adversely designated, criticized or classified by it as of December 31, 1997,
separated by category of classification or criticism (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been adversely designated, classified or criticized as of the date
hereof by any representative of any government entity as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import are excluded from
the amounts disclosed in the Asset Classification, other than amounts of loans,
extensions of credit or other assets that were charged off by it or any of the
Company Subsidiaries before the date hereof.
2.21 Real Estate Loans and Investments. Except for properties
---------------------------------
acquired in settlement of loans, there are no facts, circumstances or
contingencies known to the Company or any Company Subsidiary which exist which
would require a material reduction under generally accepted accounting
principles in the present carrying value of any of the real estate investments,
joint ventures, construction loans, other investments or other loans of the
Company or any Company Subsidiary (either individually or in the aggregate with
other loans and investments).
2.22 Derivatives Contracts. Neither the Company nor any of its
---------------------
Subsidiaries is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract or any other contract not included on its balance sheet which is a
derivatives contract (including various combinations thereof) (each, a
"Derivatives
20
<PAGE>
Contract") or owns securities that are identified in Thrift Bulletin No. 65 or
otherwise referred to as structured notes (each, a "Structured Note"), except
for those Derivatives Contracts and Structured Notes set forth in Section 2.22
of Schedule I, including a list, as applicable, of any of its or any of its
Subsidiaries' assets pledged as security for a Derivatives Contract.
2.23 Insurance. The Company and the Company Subsidiaries have in effect
---------
insurance coverage which, in respect to amounts, types and risks insured, is
reasonably adequate for the business in which the Company and the Company
Subsidiaries are engaged. A schedule of all insurance policies in effect as to
the Company and the Company Subsidiaries (the "Insurance Policies") is as set
forth on Section 2.23 of Schedule I (other than policies pertaining to mortgage
loans made in the ordinary course of business). All Insurance Policies are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date of this Agreement have been paid, such premiums
covering all periods from the date hereof up to and including the Acquisition
Merger Effective Date shall have been paid on or before the Acquisition Merger
Effective Date, to the extent then due and payable (other than retrospective
premiums which may be payable with respect to worker's compensation insurance
policies, adequate reserves for which are reflected in the Company's financial
statements). The Insurance Policies are valid, outstanding and enforceable in
accordance with their respective terms and will not, except as set forth in
Section 2.11 of Schedule I, in any way be affected by, or terminated or lapsed
solely by reason of, the transactions contemplated by this Agreement. Neither
the Company nor any Company Subsidiary has been refused any insurance with
respect to any material properties, assets or operations, nor has any coverage
been limited or terminated by any insurance carrier to which it has applied for
any such insurance or with which it has carried insurance during the last three
years.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMBANC AND THE BANK
Ambanc and the Bank represent and warrant to Company and Savings that,
except as disclosed in Schedule II attached hereto, and except that Bank makes
no representations or warranties regarding Ambanc:
3.1 Organization, Good Standing, Authority, Insurance, Etc. Ambanc is a
------------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. Each of the subsidiaries of Ambanc (individually
an "Ambanc Subsidiary" and collectively the "Ambanc Subsidiaries") is duly
organized, validly existing, and in good standing under the laws of the
respective jurisdiction under which it is organized. Ambanc and each Ambanc
Subsidiary has all requisite power and authority and is duly qualified and
licensed to own, lease and operate its properties and conduct its business as it
is now being conducted. Ambanc has delivered to the Company a true, complete
and correct copy of the Certificate of Incorporation, charter, or other
organizing document and of the bylaws, as in effect on the date of this
Agreement, of Ambanc and each Ambanc Subsidiary. Ambanc and each Ambanc
Subsidiary is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which qualification is necessary under
applicable law, except to the extent that any failures to so qualify would not,
in the aggregate, have a material adverse effect on the business, financial
condition or results of
21
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operations of Ambanc and the Ambanc Subsidiaries, taken as a whole. The Bank is
a member in good standing of the Federal Home Loan Bank of New York, and all
eligible accounts issued by the Bank are insured by the BIF to the maximum
extent permitted under applicable law. The Bank is a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code, and is a "qualified
thrift lender" as defined in Section 10(m) of the HOLA and the Thrift
Regulations. Ambanc is duly registered as a savings and loan holding company
under the HOLA.
3.2 Capitalization. The authorized capital stock of Ambanc consists of
--------------
15,000,000 shares of Ambanc common stock, par value $.01 per share, of which
4,258,418 shares were issued and outstanding as of the date of this Agreement
and 5,000,000 shares of serial preferred stock, par value of $.01 per share, of
which no shares were outstanding as of the date of this Agreement. All issued
shares of the capital stock of Ambanc and of each of the Ambanc Subsidiaries
have been fully paid, were duly authorized and validly issued, are non-
assessable, have been issued pursuant to an effective registration statement and
current prospectus under the 1933 Act, or an appropriate exemption from
registration under the 1933 Act and were not issued in violation of the
preemptive rights of any shareholder. Ambanc is the holder and beneficial owner
of all of the issued and outstanding capital stock of the Bank. No options
covering capital stock of Ambanc or the Bank, warrants to purchase or contracts
to issue capital stock of Ambanc or the Bank, or any other contracts, rights
(including preemptive rights), commitments or convertible securities entitling
anyone to acquire from Ambanc or any of the Ambanc Subsidiaries or obligating
them to issue any capital stock, or securities convertible into or exchangeable
for shares of capital stock, of Ambanc or the Bank are outstanding, in
existence, or the subject of an agreement, except for Ambanc common stock
issuable upon the exercise of employee stock options granted under the employee
benefit plans of Ambanc. All capital stock of its direct and indirect
subsidiaries beneficially owned by Ambanc or an Ambanc Subsidiary is held free
and clear of any claims, liens, encumbrances or security interests.
3.3 Ownership of Subsidiaries. All the outstanding shares of the capital
-------------------------
stock of the Ambanc Subsidiaries are validly issued, fully paid, nonassessable
and owned beneficially and of record by Ambanc or an Ambanc Subsidiary free and
clear of any Encumbrance. All of the outstanding capital stock or other
ownership interests in all of the Ambanc Subsidiaries is owned either by Ambanc
or the Bank. There are no options, convertible securities, warrants, or other
rights (preemptive or otherwise) to purchase or acquire any capital stock of any
Ambanc Subsidiary and no contracts to which Ambanc or any of its affiliates is
subject with respect to the issuance, voting or sale of issued or unissued
shares of the capital stock of any of the Ambanc Subsidiaries.
3.4 Financial Statements and Reports.
--------------------------------
(a) No registration statement, proxy statement, schedule or report
filed by Ambanc or any Ambanc Subsidiary with the SEC or the OTS under the 1933
Act, or the 1934 Act, on the date of effectiveness in the case of such
registration statements, or on the date of filing in the case of such reports or
schedules, or on the date of mailing in the case of such proxy statements,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under
22
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which they were made, not misleading. For the past five years (or such shorter
period as they may have been subject to such filing requirements), Ambanc and
the Ambanc Subsidiaries have timely filed all documents required to be filed by
them with the SEC, the OTS, or the FDIC under various securities and financial
institution laws and regulations, except to the extent that all failures to so
file, in the aggregate, would not have a material adverse effect on the
business, financial condition or results of operations of Ambanc and the Ambanc
Subsidiaries, taken as a whole; and all such documents, as finally amended,
complied in all material respects with applicable requirements of law and, as of
their respective date or the date as amended, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
stated therein, all financial statements and schedules included in the documents
referred to in the preceding sentences (or to be included in similar documents
to be filed after the date hereof) (i) are or will be (with respect to financial
statements in respect of periods ending after December 31, 1997) in accordance
with Ambanc's books and records and those of any of its Subsidiaries, and (ii)
present (and in the case of financial statements in respect of periods ending
after December 31, 1997 will present) fairly the consolidated statement of
financial condition and the consolidated statements of operations, stockholders'
equity and cash flows of Ambanc and the Ambanc Subsidiaries as of the dates and
for the periods indicated in accordance with generally accepted accounting
principles (except for the omission of notes to unaudited statements, year end
adjustments to interim results and changes in generally accepted accounting
principles). The audited consolidated financial statements of Ambanc as of
December 31, 1997 and for the three years then ended and the consolidated
financial statements for all periods thereafter up to the Closing disclose or
will disclose, to the extent required by generally accepted accounting
principles, as the case may be, all liabilities (whether accrued, absolute,
contingent, direct or indirect, unliquidated or otherwise, whether due or due to
become due and regardless of when asserted), as of their respective dates, of
Ambanc and the Ambanc Subsidiaries required to be reflected in such financial
statements according to generally accepted accounting principles, other than
liabilities which are not, in the aggregate, material to Ambanc and the Ambanc
Subsidiaries, taken as a whole, and contain or will contain in the opinion of
management adequate reserves for losses on loans and properties acquired in
settlement of loans, taxes and all other material accrued liabilities and for
all reasonably anticipated material losses, if any as of such date. There exists
no set of circumstances that could reasonably be expected to result in any
liability or obligation material to Ambanc or the Ambanc Subsidiaries, taken as
a whole, except as disclosed in the audited consolidated financial statements at
December 31, 1997, or for transactions effected, actions occurring or omitted to
be taken, or claims made after December 31, 1997, (i) in the ordinary course of
business, or (ii) as permitted by this Agreement.
(b) Ambanc has delivered to the Company all periodic reports filed
with the SEC under the 1934 Act for periods since December 31, 1997 through the
date hereof and will through Closing promptly deliver copies of 1934 Act reports
for future periods.
3.5 Absence of Changes. Since December 31, 1997, there have been no
------------------
material adverse changes in the business, properties, financial condition,
operations or assets of Ambanc or any Ambanc Subsidiary, other than any changes
attributable to or resulting from any change
23
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in law, regulation or generally accepted accounting principles or regulatory
accounting principles, which impairs both Ambanc and other comparably sized
thrift institutions in a substantially similar manner and other than changes
attributable to or resulting from changes in economic conditions applicable to
depository institutions generally or in general levels of interest rates
affecting Ambanc and comparably sized thrift institutions to a similar extent
and in a similar manner. Since December 31, 1997 to the date hereof, there has
been no occurrence, event or development of any nature existing, or to the
knowledge of Ambanc, threatened, which is reasonably expected to result in such
a change.
Since December 31, 1997 and through the date hereof, each of Ambanc
and the Ambanc Subsidiaries has owned and operated their respective assets,
properties and businesses in the ordinary course of business and consistent with
past practice.
3.6 Prospectus/Proxy Statement. At the time the Registration Statement
--------------------------
becomes effective and at the time the Prospectus/Proxy Statement is mailed to
the shareholders of the Company and Ambanc for the solicitation of proxies for
the approvals referred to in Section 1.7 hereof and at all times subsequent to
such mailings up to and including the times of such approval, such Registration
Statement and Prospectus/Proxy Statement (including any amendments or
supplements thereto), with respect to all information set forth therein relating
to Ambanc (including the Ambanc Subsidiaries), its shareholders and
representatives, Ambanc Common Stock, this Agreement, the Merger and all other
transactions contemplated hereby, will:
(a) comply in all material respects with applicable provisions of
the 1933 Act, the 1934 Act and the rules and regulations under such Acts; and
(b) not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
it is made, not misleading.
3.7 No Broker's or Finder's Fees. No agent, broker, investment banker,
----------------------------
person or firm acting on behalf or under authority of Ambanc or any of the
Ambanc Subsidiaries is or will be entitled to any broker's or finder's fee or
any other commission or similar fee directly or indirectly in connection with
the Merger or any other transaction contemplated hereby, except Ambanc has
engaged Sandler O'Neill & Partners, L.P., an investment banking firm, to provide
financial advisory services to Ambanc.
3.8 Compliance With Law.
-------------------
(a) To the knowledge of Ambanc, Ambanc and the Ambanc Subsidiaries
are in compliance in all material respects with all material laws and
regulations applicable to their respective business or operations or with
respect to which compliance is a condition of engaging in the business thereof,
and neither Ambanc nor any Ambanc Subsidiary has received notice from any
federal, state or local government or governmental agency of any material
violation of, and does not know of any material violations of, any of the above.
24
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(b) To the knowledge of Ambanc, Ambanc and each of it Subsidiaries
have all material permits, licenses, certificates of authority, orders and
approvals of, and have made all material filings, applications and registrations
with, all federal, state, local and foreign governmental or regulatory bodies
that are required in order to permit it to carry on its respective business as
it is presently conducted.
3.9 Corporate Actions. The Boards of Directors of Ambanc and the Bank
-----------------
have duly authorized their respective officers to execute and deliver (as
applicable) this Agreement, the Bank Plan of Merger and the Option Agreement and
to take all action necessary to consummate the Merger and the other transactions
contemplated hereby. The Board of Directors of Ambanc has authorized and
directed the submission for shareholders' adoption of this Agreement, together
with the Option Agreement and any other action requiring such approvals. All
corporate authorizations by the Boards of Directors of Ambanc and the Bank
required for the consummation of the Merger have been obtained, and no other
corporate action is required to be taken.
3.10 Authority. The execution, delivery and performance of this Agreement
---------
and the Option Agreement by Ambanc and the Bank does not violate any of the
provisions of, or constitute a default under or give any person the right to
terminate or accelerate payment or performance under (i) the certificate of
incorporation or bylaws of Ambanc, the charter or bylaws of the Bank, or the
articles of incorporation or bylaws of any other Ambanc Subsidiary, (ii) any
regulatory restraint on the acquisition of the Company or Savings or control
thereof, (iii) any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which
Ambanc or any of the Ambanc Subsidiaries is subject or (iv) any other Contract
to which Ambanc or any of the Ambanc Subsidiaries is a party or is subject to or
by which any of their properties or assets is bound which default, termination
or acceleration would have a material adverse effect on the financial condition,
business or results of operations of Ambanc and the Ambanc Subsidiaries, taken
as a whole. The parties acknowledge that the consummation of the Merger and the
other transactions contemplated hereby is subject to various regulatory
approvals. Ambanc and the Bank have all requisite corporate power and authority
to enter into this Agreement and the Option Agreement and to perform their
obligations hereunder. Other than the receipt of Governmental Approvals and
shareholder approval, no consents or approvals are required on behalf of Ambanc
or any Ambanc Subsidiary in connection with the consummation of the transactions
contemplated by this Agreement, the Option Agreement or the Bank Plan of Merger.
This Agreement, the Option Agreement and the Bank Plan of Merger constitute the
valid and binding obligations of Ambanc and the Bank, and are enforceable in
accordance with their terms, except as enforceability may be limited by
applicable laws relating to bankruptcy, insolvency or creditors' rights
generally and general principles of equity.
3.11 Information Furnished. Any schedule, certificate or other document
---------------------
furnished (whether prior to or subsequent to the date of this Agreement) or to
be furnished in writing by or on behalf of Ambanc to Company pursuant to this
Agreement will be accurate in all material respects and will not omit any
information necessary to make the information provided not misleading. No
information material to the Merger and which is necessary to make the
representations and warranties true, knowingly has been withheld from the
Company.
25
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3.12 Litigation and Other Proceedings. Except for matters which would
--------------------------------
not have a material adverse effect on the business, financial condition or
results of operations of Ambanc and the Ambanc Subsidiaries taken as a whole,
neither Ambanc nor any Ambanc Subsidiary is a defendant in, nor is any of its
property subject to, any pending, or, to the knowledge of the management of
Ambanc, threatened, claim, action, suit, investigation, or proceeding, or
subject to any judicial order, judgment or decree.
3.13 Agreements and Instruments. As of the date of this Agreement, there
--------------------------
are no agreements, directives, orders or similar arrangements between or
involving Ambanc or any Ambanc Subsidiary and any state or federal savings
institution regulatory authority.
3.14 Tax Matters. Ambanc and each of the Ambanc Subsidiaries have duly
-----------
and properly filed all federal, state, local and other tax returns required
to be filed by them and have made timely payments of all taxes shown thereon to
be due and payable, whether disputed or not; there is no agreement by Ambanc or
any Ambanc Subsidiary for the extension of time or for the assessment or payment
of any taxes payable. Neither the IRS nor any other taxing authority is now
asserting or, to the knowledge of Ambanc, threatening to assert any deficiency
or claim for additional taxes (or interest thereon or penalties in connection
therewith), nor is Ambanc aware of any basis for any such assertion or claim.
Ambanc and each of the Ambanc Subsidiaries have complied in all material
respects with applicable IRS backup withholding requirements and have filed all
appropriate information reporting returns for all tax years for which the
statute of limitations has not closed. Ambanc and each Ambanc Subsidiary have
complied in all material respects with all applicable state law sales and use
tax collection and reporting requirements.
3.15 Property and Assets. To the knowledge of Ambanc, Ambanc and the
-------------------
Ambanc Subsidiaries have marketable title to all of their real property
reflected in the financial statements at December 31, 1997, referred to in
Section 3.4 hereof, or acquired subsequent thereto, free and clear of all
encumbrances, except for (a) such items shown in such financial statements or in
the notes thereto, (b) liens for current real estate taxes not yet delinquent,
(c) customary title exceptions that have no material adverse effect upon the
value of such property, (d) property sold or transferred in the ordinary course
of business since the date of such financial statements, and (e) pledges or
liens incurred in the ordinary course of business. Ambanc and the Ambanc
Subsidiaries enjoy peaceful and undisturbed possession under all material leases
for the use of real property under which they are the lessee; all of such leases
are valid and binding and in full force and effect and neither Ambanc nor any
Ambanc Subsidiary is in default in any material respect under any such lease.
There has been no material physical loss, damage or destruction, whether or not
covered by insurance, affecting the real properties of Ambanc and the Ambanc
Subsidiaries since December 31, 1997, except such loss, damage or destruction
which does not have a material adverse effect on Ambanc and Ambanc Subsidiaries,
taken as a whole. All property and assets material to their business and
currently used by Ambanc and Ambanc Subsidiaries are, in all material respects,
in good operating condition and repair, normal wear and tear excepted.
3.16 Derivatives Contracts Neither Ambanc nor any of the Ambanc
---------------------
Subsidiaries is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract or any other contract not included on its Balance
26
<PAGE>
Sheet which is a derivatives contract (including various combinations thereof)
(each, a "Derivatives Contract") or owns securities that are identified in
Thrift Bulletin No. 65 or otherwise referred to as structured notes (each, a
"Structured Note"), except for those Derivatives Contracts and Structured Notes
set forth in Section 3.16 of Schedule II, including a list, as applicable, of
any of its or any of its Subsidiaries' assets pledged as security for a
Derivatives Contract.
3.17 Insurance. Ambanc and Ambanc Subsidiaries have in effect insurance
---------
coverage which, in respect to amounts, types and risks insured, is reasonably
adequate for the business in which Ambanc and Ambanc Subsidiaries are engaged.
All insurance policies in effect as to Ambanc and the Ambanc Subsidiaries are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date of this Agreement have been paid, such premiums
covering all periods from the date hereof up to and including the Acquisition
Merger Effective Date shall have been paid on or before the Acquisition Merger
Effective Date, to the extent then due and payable (other than retrospective
premiums which may be payable with respect to workers' compensation insurance
policies, adequate reserves for which are reflected in Ambanc's financial
statements). The insurance policies are valid, outstanding and enforceable in
accordance with their respective terms and will not in any way be affected by,
or terminated or lapsed solely by reason of, the transactions contemplated by
this Agreement. Neither Ambanc nor any Ambanc Subsidiary has been refused any
insurance with respect to any material properties, assets or operations, nor has
any coverage been limited or terminated by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance during the
last three years.
3.18 Employee Benefits. To Ambanc's knowledge, each Employee Plan and
-----------------
Benefit Arrangement (i) has been administered to date, and will be administered
until the Closing, in accordance with their terms and in compliance with the
Code, ERISA, and all other applicable rules and regulations, (ii) has, in a
timely, accurate, and proper manner, both filed all required government reports
and made all required employee communications, and (iii) between the date of
this Agreement and the Closing, will complete and file all such required
reports. To Ambanc's knowledge, no condition exists that could constitute
grounds for the termination of any Employee Plan under Section 4042 of ERISA; no
"prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of
the Code, has occurred with respect to any Employee Plan, or any other employee
benefit plan maintained by Ambanc or any Ambanc Subsidiary which is covered by
Title I of ERISA, which could subject any person to liability under Title I of
ERISA or to the imposition of any tax under Section 4975 of the Code nor has any
Employee Plan subject to Part III of Subtitle B of Title I of ERISA or Section
412 of the Code, or both, incurred any "accumulated funding deficiency," as
defined in Section 412 of the Code, whether or not waived; nor has Ambanc or any
Ambanc Subsidiary failed to make any contribution or pay any amount due and
owing as required by the terms of any Employee Plan or Benefit Arrangement. To
Ambanc's knowledge, neither Ambanc nor any Ambanc Subsidiary has incurred or
expects to incur, directly or indirectly, any liability under Title IV of ERISA
arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
which could constitute a liability of Ambanc or any of its affiliates at or
after the Acquisition Merger Effective Time.
27
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3.19 Material Contract Defaults. Neither Ambanc nor any Ambanc Subsidiary
--------------------------
nor the other party thereto is in default in any respect under any contract,
agreement, commitment, arrangement, lease, insurance policy, or other instrument
to which Ambanc or an Ambanc Subsidiary is a party or by which its respective
assets, business, or operations may be bound or affected or under which it or
its respective assets, business, or operations receives benefits, and which
default is reasonably expected to have either individually or in the aggregate a
material adverse effect on Ambanc and any Ambanc Subsidiary, taken as a whole,
and there has not occurred any event that, with the lapse of time or the giving
of notice or both, would constitute such a default.
3.20 Tax Matters. Adequate provision for any federal, state, local,
-----------
or foreign taxes due or to become due for Ambanc or any of the Ambanc
Subsidiaries for any period or periods through and including December 31, 1997,
has been made and is reflected on the December 31, 1997 audited Ambanc
consolidated financial statements and has been or will be made in accordance
with generally accepted accounting principles with respect to periods ending
after December 31, 1997.
3.21 Environmental Matters. Except as set forth on Section 3.21 of
---------------------
Schedule II, to the knowledge of Ambanc, neither Ambanc nor any Ambanc
Subsidiary owns or leases any properties affected by toxic waste, radon gas or
other hazardous conditions or constructed in part with the use of asbestos.
Neither Ambanc nor any Ambanc Subsidiary has knowledge of, nor has Ambanc or any
Ambanc Subsidiary received written notice from any governmental or regulatory
body of, any conditions, activities, practices or incidents which is reasonably
likely to interfere with or prevent compliance or continued compliance with
hazardous substance laws or any regulation, order, decree, judgment or
injunction, issued, entered, promulgated or approved thereunder, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant or
chemical, or industrial, toxic or hazardous substance or waste. There is no
civil, criminal or administrative claim, action, suit, proceeding, hearing or
investigation pending or, to Ambanc's knowledge, threatened against Ambanc or
any Ambanc Subsidiary relating in any way to such hazardous substance laws or
any regulation, order, decree, judgment or injunction issued, entered,
promulgated or approved thereunder.
3.22 Loan Portfolio: Portfolio Management. All evidences of indebtedness
-------------------------------------
reflected as assets in the consolidated balance sheet of Ambanc as of December
31, 1997, or acquired since such date, are (except with respect to those assets
which are no longer assets of Ambanc or any Ambanc Subsidiary) binding
obligations of the respective obligors named therein except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding may be brought, and the payment of no
material amount thereof (either individually or in the aggregate with other
evidences of indebtedness) is subject to any defenses which have been asserted
or, to the knowledge of Ambanc threatened, against Ambanc or any Ambanc
28
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Subsidiary. All such indebtedness which is secured by an interest in real
property is, to Ambanc's knowledge, secured by a valid and perfected mortgage
lien having the priority specified in the loan documents. All loans originated
or purchased by Bank were at the time entered into and at all times since have
been in compliance in all material respects with all applicable laws (including,
without limitation, all consumer protection laws) and regulations. Bank
administers its loan and investment portfolios (including, but not limited to,
adjustments to adjustable mortgage loans) in all material respects in accordance
with all applicable laws and regulations and the terms of applicable
instruments. The records of Bank regarding all loans outstanding on its books
are accurate in all material respects and the risk classification system has
been established in accordance with the requirements of the OTS.
ARTICLE IV
COVENANTS
4.1 Investigations; Access and Copies. Between the date of this
---------------------------------
Agreement and the Acquisition Merger Effective Time, each party agrees to give
to the other party and its respective representatives and agents full access (to
the extent lawful) to all of the premises, books, records and employees of it
and its subsidiaries at all reasonable times, upon not less than three days'
prior notice, and to furnish and cause its subsidiaries to furnish to the other
party and its respective agents or representatives access to and true and
complete copies of such financial and operating data, all documents with respect
to matters to which reference is made in Articles II or III of this Agreement or
on any list, schedule or certificate delivered or to be delivered in connection
herewith, and such other documents, records, or information with respect to the
business and properties of it and its subsidiaries as the other party or its
respective agents or representative shall from time to time reasonably request;
provided, however, that any such inspection (a) shall be conducted in such
- -------- -------
manner as not to interfere unreasonably with the operation of the business of
the entity inspected and (b) shall not affect any of the representations and
warranties hereunder. Each party will also give prompt written notice to the
other party of any event or development (x) which, had it existed or been known
on the date of this Agreement, would have been required to be disclosed under
this Agreement, (y) which would cause any of its representations and warranties
contained herein to be inaccurate or otherwise materially misleading, or (z)
which materially relate to the satisfaction of the conditions set forth in
Article V of this Agreement.
4.2 Conduct of Business Prior to Closing. Between the date of this
------------------------------------
Agreement and the Acquisition Merger Effective Time, the parties agree:
(a) That the Company and the Company Subsidiaries shall conduct
their business only in the ordinary course, and maintain their books and records
in accordance with past practices and not to take any action that would (i)
adversely affect the ability to obtain the Governmental Approvals or (ii)
adversely affect the Company's ability to perform its obligations under this
Agreement or the Option Agreement;
(b) That the Company shall not, without the prior written consent of
Ambanc: (i) declare, set aside or pay any dividend or make any other
distribution with respect to Company's capital stock, except for the declaration
and payment of regular quarterly cash
29
<PAGE>
dividends in an amount not to exceed $.07 per share of Company common stock with
respect to any full calender quarter after the date hereof; (ii) reacquire any
of Company's outstanding shares of capital stock; (iii) except as set forth at
Schedule 4.2(c) hereof, issue or sell or buy any shares of capital stock of the
Company or any Company Subsidiary, except shares of Company common stock issued
pursuant to the Company Option Plan and the Option Agreement; (iv) effect any
stock split, stock dividend or other reclassification of Company's common stock;
or (v) grant any options or issue any warrants exercisable for or securities
convertible or exchangeable into capital stock of Company or any Company
Subsidiary or grant any stock appreciation or other rights with respect to
shares of capital stock of Company or of any Company Subsidiary;
(c) That Company and the Company Subsidiaries shall not, without the
prior written consent of Ambanc: (i) except as set forth at Schedule 4.2(c)
hereof, sell or dispose of any significant assets of the Company or of any
Company Subsidiary other than in the ordinary course of business consistent with
past practices; (ii) merge or consolidate the Company or any Company Subsidiary
with or, except as set forth at Schedule 4.2(c) hereof, otherwise acquire any
other entity, or file any applications or make any contract with respect to
branching by Savings (whether de novo, purchase, sale or relocation) or acquire
or construct, or enter into any agreement to acquire or construct, any interest
in real property (other than with respect to security interests in properties
securing loans and properties acquired in settlement of loans in the ordinary
course) or improvements to real property in the aggregate in excess of $50,000;
(iii) change the articles or certificate of incorporation, charter documents or
other governing instruments of the Company or any Company Subsidiary, except as
provided in this Agreement or as required by law; (iv) grant to any executive
officer, director or employee of the Company or any Company Subsidiary any
increase in annual compensation, or any bonus type payment except for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice (including, but not limited to, the
payment of bonuses for which such expense has previously been accrued) and
except as set forth on Schedule 4.2(c); (v) adopt any new or amend or terminate
any existing Employee Plans or Benefit Arrangements of any type except as
contemplated herein or as set forth at Schedule 4.2(c); (vi) except as set forth
on Schedule 4.2(c) or Schedule 4.16(d) hereof, authorize severance pay or other
benefits for any officer, director or employee of Company or any Company
Subsidiary; (vii) incur any material indebtedness or obligation or enter into or
extend any material agreement or lease, except in the ordinary course of
business consistent with past practices; (viii) engage in any lending activities
other than in the ordinary course of business consistent with past practices;
(ix) except as set forth at Schedule 4.2(c) hereof, form any new subsidiary or
cause or permit a material change in the activities presently conducted by any
Company Subsidiary or make additional investments in subsidiaries; (x) purchase
any debt securities or derivative securities, including CMO or REMIC products,
that are defined as "high risk mortgage securities" under OTS Thrift Bulletin
No. 52 dated January 10, 1992 as revised or purchase any Derivatives Contracts
or Structured Notes; (xi) except as set forth at Schedule 4.2(c) hereof,
purchase any equity securities other than Federal Home Loan Bank stock; (xii)
make any investment which would cause Savings to not be a qualified thrift
lender under Section 10(m) of the HOLA, or not to be a "domestic building and
loan association" as defined in Section 7701(a)(19) of the Code; (xiii) make any
loan with a principal balance of $500,000 or more; (xiv) authorize capital
expenditures other than in the ordinary course of business; (xv) adopt or
implement any change in its accounting principles, practices or methods
30
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other than as may be required by generally accepted accounting principles or by
a regulatory authority or adopt or implement any change in its methods of
accounting for Federal income tax purposes; or (xvi) make any loan in which
participation interests therein are to be sold to other persons or entities or
acquire a participation interest in a loan originated by another person or
entity in excess of $250,000. The limitations contained in this Section 4.2(c)
shall also be deemed to constitute limitations as to the making of any
commitment with respect to any of the matters set forth in this Section 4.2(c).
Notwithstanding the foregoing, Savings may engage in any of the foregoing
activities exclusively with the Bank.
4.3 No Solicitation. The Company will not authorize any officer,
---------------
director, employee, investment banker, financial consultant, attorney,
accountant or other representative of Company or any Company Subsidiary,
directly or indirectly, to initiate contact with any person or entity in an
effort to solicit, initiate or encourage any "Takeover Proposal" (as such term
is defined below). Except as the fiduciary duties of the Company Board of
Directors may otherwise require under applicable law (as determined in
consultation with Company legal counsel), the Company will not authorize any
officer, director, employee, investment banker, financial consultant, attorney,
accountant or other representative of the Company or any Company Subsidiary,
directly or indirectly, (A) to cooperate with, or furnish or cause to be
furnished any non-public information concerning its business, properties or
assets to, any person or entity in connection with any Takeover Proposal; (B) to
negotiate any Takeover Proposal with any person or entity; or (C) to enter into
any agreement, letter of intent or agreement in principle as to any Takeover
Proposal. The Company will promptly give written notice to Ambanc upon becoming
aware of any Takeover Proposal, such notice to contain, at a minimum, the
identity of the persons submitting the Takeover Proposal, a copy of any written
inquiry or other communication, the terms of any Takeover Proposal and any
information requested or discussions sought to be initiated. As used in this
Agreement with respect to the Company, "Takeover Proposal" shall mean any bona
fide proposal, other than as contemplated by this Agreement, for a merger or
other business combination involving the Company or Savings or for the
acquisition of a 10% or greater equity interest in Company or Savings, or for
the acquisition of a substantial portion of the assets of Company or Savings
(other than loans or securities sold in the ordinary course).
4.4 Shareholder Approval. Subject to Section 1.7 herein, the Company and
--------------------
Ambanc shall call the meeting of its shareholders to be held for the purpose of
adopting this Agreement, as referred to in Section 1.7 hereof, as soon as
practicable, but in no event later than sixty (60) days after the Registration
Statement becomes effective under the 1933 Act. In connection with such
meeting, the Company Board of Directors and Ambanc Board of Directors shall
favorably recommend adoption of this Agreement, except as the fiduciary duties
of the Company's Board of Directors and Ambanc's Board of Directors under
applicable law may otherwise require or unless the Company is unable to obtain
the opinion set forth in Section 5.3(h) hereof. The Company shall use its best
efforts to solicit from its shareholders proxies in favor of approval and to
take all other action necessary or helpful to secure a vote of the holders of
the shares of Company common stock in favor of the Merger, except as the
fiduciary duties of the Boards of Directors under applicable law may otherwise
require.
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4.5 Filing of Holding Company and Merger Applications. Ambanc shall use
-------------------------------------------------
its best efforts promptly to prepare, submit and file within 75 days of the date
hereof a holding company application to the OTS pursuant to 12 C.F.R. (S)574.3
for acquisition of control of Company and Savings and a merger application to
the OTS pursuant to the Bank Merger Act and 12 C.F.R. 563.22(a) for the Bank
Merger and any other applications required to be filed in connection with the
transactions contemplated hereby.
4.6 Consents. Company and Savings will use their best efforts to obtain
--------
the consent or approval of each person whose consent or approval shall be
required in order to permit Company or Savings, as the case may be, to
consummate the Merger.
4.7 Resale Letter Agreements. After execution of this Agreement, (i)
------------------------
Company shall use its best efforts to cause to be delivered to Ambanc from each
person who may be deemed to be an "affiliate" of Company within the meaning of
Rule 145 under the 1933 Act, a written letter agreement in the form attached at
Schedule 4.7 regarding restrictions on resale of the shares of Ambanc Common
Stock received by such persons in the Merger and upon exercise of options
received under Section 1.8 hereof subsequent to the Acquisition Merger Effective
Time to ensure compliance with applicable resale restrictions imposed under the
federal securities laws and (ii) neither Ambanc nor the Company (including the
Company Subsidiaries) shall take any action which would materially impede or
delay consummation of the Merger, or prevent the transactions contemplated
hereby from qualifying as a reorganization within the meaning of Section 368 of
the Code; provided that nothing hereunder shall limit the ability of Ambanc to
exercise its rights under the Option Agreement.
4.8 Publicity. Between the date of this Agreement and the Acquisition
---------
Merger Effective Time, neither Ambanc, Company or any of their subsidiaries
shall, without the prior approval of the other, issue or make, or authorize any
of its directors, employees, officers or agents to issue or make, any press
release, disclosure or statement to the press or any third party with respect to
the Merger or the transactions contemplated hereby, except as required by law.
The parties shall cooperate when issuing or making any press release, disclosure
or statement with respect to Merger or the transactions contemplated hereby,
except as required by law or by applicable stock exchange rules.
4.9 Cooperation Generally. Except as otherwise contemplated hereby,
---------------------
between the date of this Agreement and the Acquisition Merger Effective Time,
Ambanc, Company and their subsidiaries shall use their best efforts, and take
all actions necessary or appropriate, to consummate the Merger and the other
transactions contemplated by this Agreement at the earliest practicable date.
Ambanc and the Bank, on one hand, and the Company and the Company Subsidiaries,
on the other hand, agree not to knowingly take any action that would (i)
adversely affect their respective ability to obtain the Governmental Approvals
or (ii) adversely affect their respective ability to perform their obligations
under this Agreement.
4.10 Additional Financial Statements and Reports. As soon as
-------------------------------------------
reasonably practicable after they become publicly available, the Company shall
furnish to Ambanc and Ambanc shall furnish to the Company, respectively, its
balance sheet and related statements of operations, cash
32
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flows and stockholders' equity for all periods prior to the Closing. Such
financial statements will be prepared in conformity with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial condition, results of operations and cash flows of the Company or
Ambanc, as the case may be (subject, in the case of unaudited financial
statements, to (a) normal year-end audit adjustments, (b) any other adjustments
described therein and (c) the absence of notes which, if presented, would not
differ materially from those included in its most recent audited consolidated
balance sheet), and all of such financial statements will be prepared in
conformity with the requirements of Form 10-Q or Form 10-K, as the case may be,
under the 1934 Act.
4.11 Stock Listing. Ambanc agrees to use its best efforts to cause to
-------------
be listed on the Nasdaq Stock Market, subject to official notice of issuance,
the shares of Ambanc Common Stock to be issued in the Merger and the shares
issuable in accordance with Section 1.8 hereto.
4.12 Allowance for Loan and Real Estate Owned Losses. At the request
-----------------------------------------------
of Ambanc and in an amount specified by Ambanc, immediately prior to the
Acquisition Merger Effective Time, the Company and Savings shall establish such
additional provisions for loan and real estate owned losses as may be necessary
in the reasonable, good faith determination of Ambanc, after consultation with
the Company and Savings, to conform the Company's and Savings' loan and real
estate owned allowance practices and methods to those of Ambanc and the Bank (as
such practices and methods are to be applied to Company and Savings from and
after the Acquisition Merger Effective Time); provided, however, that Company
and Savings shall not be required to take such action until: (i) Company and
Savings provide to Ambanc a written statement dated the date of Closing
certified by the Chairman of the Board, the President and the Chief Financial
Officer of the Company and Savings, that the conditions in Sections 5.1 and 5.2
to be satisfied by the Company or Savings or both of them have been satisfied by
either or both of them or, alternatively, setting forth in detail the
circumstances that have prevented such conditions from being satisfied (the
"Reliance Certificate"), and Ambanc and Bank provide to Company and Savings a
Reliance Certificate relating to the satisfaction of the conditions in Sections
5.1 and 5.3; and (ii) Ambanc and the Bank, after reviewing the Reliance
Certificate, provide the Company and Savings a written waiver of any right
either entity may have to terminate the Agreement which waiver shall contain an
express condition precedent that Company and Savings have established such
additional provisions for loan and real estate losses as requested by Ambanc
pursuant to this Section 4.12; and provided further that the Company shall not
be required to take any action that is not consistent with generally accepted
accounting principles and applicable SEC and OTS regulations. No additional
provision for loan and real estate owned losses taken by Savings pursuant to
this Section 4.12 shall be deemed in and of itself to be a breach or violation
of any representation, warranty, covenant, condition or other provision of this
Agreement.
4.13 D&O Indemnification and Insurance. For a period of six (6)
---------------------------------
years following the Acquisition Merger Effective Time Ambanc and Bank shall
indemnify, and advance expenses in matters that may be subject to
indemnification to, persons who served as directors and officers of Company or
Savings or any other Company Subsidiaries on or before the Acquisition Merger
Effective Time with respect to liabilities and claims (and related expenses,
including fees and disbursements of counsel) made against them resulting from
their service as such prior to the
33
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Acquisition Merger Effective Time in accordance with and subject to the
requirements and other provisions of the Certificate of Incorporation or Charter
and Bylaws of Company and Savings as in effect on the date of this Agreement and
applicable provisions of law. Ambanc shall cause the persons serving as officers
and directors of the Company immediately prior to the Acquisition Merger
Effective Time to be covered for a period of 18 months from the Acquisition
Merger Effective Time by the directors' and officers' liability insurance policy
maintained by the Company (provided that Ambanc may substitute therefor policies
of at least the same coverage and amounts containing terms and conditions which
are not materially less advantageous than such policy) with respect to acts or
omissions occurring prior to the Acquisition Merger Effective Time which were
committed by such officers and directors in their capacity as such; provided,
however, that in no event shall Ambanc be required to expend more than 150% of
the amount currently expended by the Company on an annual basis to maintain or
procure insurance coverage for such 18 month period pursuant hereto. This
Section 4.13 shall be construed as an agreement as to which the directors and
officers of Company and Savings referred to herein are intended to be third
party beneficiaries and shall be enforceable by such persons and their heirs and
representatives.
4.14 Tax Treatment. Ambanc and Company shall use their best efforts
-------------
to cause the Merger to qualify as a reorganization under Section 368(a)(1) of
the Code. The Company agrees to consent to the form of representation letter
provided by Silver, Freedman & Taff, L.L.P. or other tax advisor for purposes of
issuing its federal tax opinion pursuant to Section 5.1(e) of this Agreement no
later than thirty (30) days prior to the Closing.
4.15 Update Disclosure. From and after the date hereof until the
-----------------
Acquisition Merger Effective Time, the parties hereto shall promptly update
Schedules I and II hereto by notice to the other party to reflect any matters
which have occurred from and after the date hereof which, if existing on the
date hereof, would have been required to be described therein and which, in the
case of all such updates other than the last such update prior to the
Acquisition Merger Effective Time, reflect a material change from the
information provided in Schedule I or Schedule II, as applicable, as of the date
hereof; provided, however, that no such update shall affect the conditions to
the obligation of either party to consummate the transactions contemplated
hereby, and any and all changes reflected in any such update shall be considered
in determining whether such conditions have been satisfied.
4.16 Company's Employee Plans and Benefit Arrangements.
-------------------------------------------------
(a) Except as otherwise provided in this Section, if Ambanc so
requests, the Company and any Company Subsidiary shall develop a plan and
timetable for terminating each Employee Plan and Benefit Arrangement as of the
date of Closing. The Company shall be solely responsible for all costs,
expenses, and other obligations whatsoever arising out of or resulting from
termination of any Employee Plan or Benefit Arrangement. Neither the Company
nor any Company Subsidiary will establish any new benefit plan or arrangement
for directors, officers, or employees, or amend any Employee Plan or Benefit
Arrangement without Ambanc's prior written approval, except as otherwise
provided in this Agreement. In its discretion, Ambanc may merge any of the
Employee Plans or Benefit Arrangements of the Company or any Company
34
<PAGE>
Subsidiary with similar plans of Ambanc or the Bank, subject to Ambanc or the
Bank complying with the obligations set forth in subparagraphs (c), (d) and (e)
below.
(b) With respect to any Employee Plan or Benefit Arrangement that
provides for vesting of benefits, there shall be no discretionary acceleration
of vesting, except as set forth at Section 4.2(c) of Schedule I or Schedule
4.16(b), except in connection with the termination of any Employee Plan or
Benefit Arrangement.
(c) Ambanc shall assume the obligations of and honor the terms of,
and provide substantially identical benefits as set forth in, Savings Restricted
Stock Plan and, subject to the provisions of Section 1.8, the Company Option
Plan, and all provisions for vested benefits or other vested amounts earned or
accrued through the Acquisition Merger Effective Time under the Employee Plans
and Benefit Arrangements.
(d) Ambanc shall assume the obligations of and honor in accordance
with their terms, and provide substantially identical benefits as set forth in,
the employment, severance and supplemental retirement plan agreements and
policies set forth at Schedule 4.16(d). Alternatively and at the sole election
of Messrs. Lisicki, Ziskin and Alescio, respectively, such persons may elect to
waive their respective rights to a termination payment as a result of a change
in control under their existing employment contracts and become a party to an
employment contract with Ambanc and/or the Bank in the form set forth at
Schedule 4.16(d) and with the titles and benefits set forth therein, which
compensation and benefits shall not be less than that payable under such
persons' current employment agreements. The supplemental retirement plan for
Messrs. Lisicki and Ziskin may be amended to permit vesting of benefits on an
annual basis.
(e) The Company's Employee Stock Ownership Plan (the "Company ESOP")
shall be terminated in accordance with its terms as of the Acquisition Merger
Effective Time.
(f) This Section 4.16(e) shall be construed as an agreement as to
which the officers and employees of Company and Savings referred to herein are
intended to be third party beneficiaries and shall be enforceable by such
persons and their heirs and representatives.
4.17 Amendment of Savings' Federal Stock Charter. Company and Savings
-------------------------------------------
will take all actions necessary to effectuate an amendment to Section 8 of
Savings' Federal Stock Charter to make inapplicable to Ambanc and Bank the
restrictions therein, provided that Company and Savings may make such amendment
contingent upon consummation of the Merger.
4.18 Environmental Reports. Ambanc, at its expense, shall undertake
---------------------
within 15 days of the date hereof to order, and shall within 40 days (subject to
extension with the consent of the Company) after ordering, receive, a Phase I
Environmental Risk Report (as contemplated in OTS Thrift Bulletin #16)
("Report") on (i) all commercial real estate owned by, (ii) all offices and
premises used as facilities by, and (iii) all properties which serve as security
for any commercial real estate loan having an original principal balance of
$500,000 or more of the Company and Savings. Failure to order such Report on any
particular properties within such 15 day period shall constitute a waiver of
such condition with respect to such property. In the event that Ambanc
35
<PAGE>
believes in good faith that such Report indicates a reasonable likelihood that
the costs to cleanup, remove, remediate, or take any other action necessary to
bring any such property or properties into material compliance with Company's or
any Company Subsidiary's obligations under any environmental laws exceed
$250,000 in the aggregate, Ambanc shall, within 15 days of its receipt of such
Report, provide Company with written notice to that effect. Ambanc shall
thereafter undertake to order within 15 days of receipt of such Report and shall
within 30 days of ordering receive a Phase II Environmental Report (as
contemplated in OTS Thrift Bulleting #16) to confirm such belief. Failure to
order such Phase II report ("Phase II Report") on any particular properties
within such 15 day period shall constitute a waiver of such condition with
respect to such property. Ambanc shall within seven days of receipt of such
Phase II Report either deliver written notice to Company of its termination of
this Agreement in that the aggregate costs to cleanup, remove, remediate or take
such other action necessary to bring such properties into material compliance
with the Company's or any Company Subsidiary's obligations under any
environmental laws will exceed $250,000 determined in good faith and that Ambanc
shall elect to terminate this Agreement, or Ambanc shall deliver in writing
notice of its waiver of the condition contained at Section 5.2(i) hereof.
Failure to deliver such written notice of its termination of the Agreement shall
constitute waiver of this condition as provided at Section 5.2(i). Ambanc shall
deliver complete copies of all Phase I and Phase II reports to Company within
five days of receipt of any such reports. The contents of such reports shall
remain confidential whether or not the Merger is consummated.
4.19 Advisory Board of Directors. Promptly after the Acquisition
---------------------------
Merger Effective Time, the board of directors of Ambanc shall create a special
committee of the board for the purpose of providing an orderly transition to a
smaller board of directors. In addition, on or immediately following the
Acquisition Merger Effective Time, Ambanc shall create an advisory board of
directors and shall appoint three persons selected by the Company, in
consultation with Ambanc, to the advisory board of directors. Advisory
directors shall be paid an advisory director board fee in an amount to be
determined.
4.20 Appointment of President and CEO. By January 1, 1999, or sooner
--------------------------------
by mutual consent, Ambanc's Board of Directors shall appoint John M. Lisicki as
President and Chief Executive Officer of Ambanc, at no less than the total value
of the salary, board fees and other benefits he is receiving from the Company
and Savings as of the date of the Closing. Additionally, immediately upon the
Bank Merger Effective Time, Ambanc and the Bank's Board of Directors shall
appoint John M. Lisicki as President and Chief Executive officer of the Bank, as
the surviving institution, at no less than the total value of the salary, board
fees and other benefits he is receiving from the Company and Savings as of the
date of the Closing. Payment by Ambanc shall offset payment obligations by the
Bank and vice versa, such that the total payment due Mr. Lisicki shall not be
less than his total salary, board fees and other benefits from the Company and
Savings as of the Closing. This Section 4.20 shall be construed as an agreement
as to which Mr. Lisicki is intended to be a third party beneficiary and shall be
enforceable by such person and his heirs and representatives.
4.21 Approvals and Registration. Ambanc will use its best efforts to
--------------------------
prepare and file (a) with the SEC, the Registration Statement, (b) with the OTS,
an application of Ambanc as a
36
<PAGE>
savings and loan holding company to acquire Savings, and (c) with the Nasdaq
Stock Market, an application for the listing of the shares of Ambanc Common
Stock issuable upon the Acquisition Merger, subject to official notice of
issuance. Ambanc covenants and agrees that all information furnished by Ambanc
for inclusion in the Registration Statement, the Prospectus/Proxy Statement, and
all applications and submissions for the required consents and approvals will
comply in all material respects with the provisions of applicable law, including
the 1933 Act and 1934 Act and the rules and regulations of the SEC and OTS, and
will not contain any untrue statement of a material fact and will not omit to
state any material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. Ambanc will furnish to the investment bankers
advising the Company such information as they may reasonably request for
purposes of the fairness opinion referred to in Section 5.3(h).
4.22 Notice of Adverse Changes. Ambanc will promptly advise the
-------------------------
Company in writing of (a) any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Ambanc contained
in this Agreement or the Ambanc Schedules, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect, (b) any
material adverse change in the financial condition or results of operations of
Ambanc or any Ambanc subsidiary, (c) any inability or perceived inability of
Ambanc to perform or comply with the terms or conditions of this Agreement, (d)
the institution or threat of institution of material litigation or
administrative proceeding involving Ambanc or its assets which, if determined
adversely to Ambanc, would have a material adverse effect on Ambanc and Ambanc
subsidiaries taken as a whole or the Merger, (e) any governmental complaint,
investigation, or hearing or communication indicating that such litigation or
administrative proceeding is contemplated, (f) any written notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by Ambanc subsequent to the date
hereof and prior to the Acquisition Merger Effective Time, under any agreement,
indenture or instrument to which Ambanc is a party or is subject and which is
material to the business, operation or condition (financial or otherwise) of
Ambanc and the Ambanc Subsidiaries taken as a whole, and (g) any written notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement including the Merger. Ambanc agrees that the
delivery of such notice shall not constitute a waiver by the Company of any of
the provisions of this Agreement.
4.23 Further Actions. Ambanc will: (a) execute and deliver such
---------------
instruments and take such other actions as the Company may reasonably require to
carry out the intent of this Agreement; (b) use all reasonable efforts to obtain
consents of all third parties and governmental bodies necessary or reasonably
desirable for the consummation of the transactions contemplated by this
Agreement; (c) diligently support this Agreement in any proceeding before any
regulatory authority whose approval of any of the transactions contemplated
hereby is required or reasonably desirable or before any court in which
litigation in respect thereof is pending; and (d) use its best efforts so that
the other conditions precedent to the obligations of the Company and Savings set
forth in Section 5.3 hereof are satisfied.
37
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4.24 Further Transactions.
--------------------
(a) Ambanc continually evaluates possible acquisitions and may, prior
to the Acquisition Merger Effective Time, enter into one or more agreements
providing for, and may consummate the acquisition by it of another bank,
association, bank holding company, savings and loan holding company or other
company (or the assets thereof) for consideration that may include Ambanc Common
Stock. In addition, prior to the Acquisition Merger Effective Time, Ambanc may,
depending on market conditions and other factors, otherwise determine to issue
equity-linked or other securities for financing purposes. Notwithstanding the
foregoing, Ambanc will not take any action that would (i) prevent the
transactions contemplated hereby from qualifying as a reorganization within the
meaning of Section 368 of the Code or (ii) materially impede or delay receipt of
any required consent or approval or the consummation of the transactions
contemplated by this Agreement.
(b) If Ambanc or any of its successors or assigns (i) shall
consolidate with or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then in each such case,
Ambanc or such successor or assign shall take such actions as shall be necessary
for the successors or assigns of Ambanc to assume the obligations of Ambanc set
forth in this Article IV.
ARTICLE V
CONDITIONS TO THE MERGER; TERMINATION OF AGREEMENT
5.1 General Conditions. The obligations of Ambanc, the Bank, the Company
------------------
and Savings to effect the Acquisition Merger and the Bank Merger shall be
subject to the following conditions:
(a) Stockholder Approval and Effectiveness of Charter Amendment. The
-----------------------------------------------------------
holders of the outstanding shares of Company Common Stock and Ambanc Common
Stock shall have approved this Agreement and the Acquisition Merger as specified
in Section 1.7 hereof or as otherwise required by applicable law and the Charter
Amendment shall be effective under applicable law.
(b) No Proceedings. No order, decree or injunction shall have been
--------------
entered and remain in force restraining or prohibiting the Merger in any legal,
administrative, arbitration, investigatory or other proceedings (collectively,
"Proceedings").
(c) Government Approvals. To the extent required by applicable law or
--------------------
regulation, all approvals of or filings with any governmental authority
(collectively, "Governmental Approvals"), including without limitation those of
the OTS, the FDIC, the Federal Trade Commission, DOJ, the SEC, and any state
securities or Blue Sky authorities, shall have been obtained or made and any
waiting periods shall have expired in connection with the consummation of the
Merger. All other statutory or regulatory requirements for the valid
consummation of the Merger and related transactions shall have been satisfied.
38
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(d) Registration Statement. The Registration Statement shall have
----------------------
been declared effective and shall not be subject to a stop order of the SEC and,
if the offer and sale of Ambanc Common Stock in the Merger pursuant to this
Agreement is subject to the Blue Sky laws of any state, shall not be subject to
a stop order of any state securities commissioner.
(e) Federal Tax Opinion. Receipt of an opinion of Silver, Freedman &
-------------------
Taff, L.L.P., in form and content reasonably satisfactory to Ambanc and the
Company, to the effect that (i) the Acquisition Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, (ii) the
exchange in the Acquisition Merger of Company Common Stock for Ambanc Common
Stock will not give rise to gain or loss to shareholders of the Company with
respect to such exchange (except to the extent of any cash received), (iii)
neither the Company nor Ambanc will recognize gain or loss as a consequence of
the Acquisition Merger or the Bank Merger, (iv) the basis of the Ambanc Common
Stock (including any fractional share for which cash is received) will equal the
basis of the Company Common Stock for which it is exchanged, and (v) the holding
period of such Ambanc Common Stock (including any fractional share for which
cash is received) will include the holding period of the Company Common Stock
for which it is exchanged, assuming that such Company Common Stock is a capital
asset in the hands of the holder thereof at the Acquisition Merger Effective
Time. In addition, no condition or set of facts or circumstances shall exist at
the Acquisition Merger Effective Time which will either preclude any of the
parties to this Agreement from satisfying the terms or conditions of, or
assumptions made in, the tax opinion referred to in this Section 5.1(e), as the
case may be, or result in any of the factual assumptions contained in such tax
opinion being untrue.
5.2 Conditions to Obligations of Ambanc and Bank. The obligations of
--------------------------------------------
Ambanc and Bank to effect the Merger and the transactions contemplated herein
shall be subject to the following additional conditions to the extent not
waived:
(a) Opinion of Counsel for Company. Ambanc shall have received from
------------------------------
Malizia, Spidi, Sloane & Fisch, P.C. an opinion dated as of the Closing covering
the matters to be set forth in Exhibit 5.2(a).
(b) Required Consents. In addition to Governmental Approvals, Company
-----------------
and Savings shall have obtained all necessary third party consents or approvals
required by or in connection with the Merger, the absence of which would
materially and adversely affect Company and the Company Subsidiaries, taken as a
whole. In this connection, the Company and Savings shall use their reasonable
best efforts to obtain consents from all lessors to their respective real estate
leases that may be required for consummation of the Merger.
(c) Company Accountants' Letter. Ambanc at its expense shall have
---------------------------
received from KPMG Peat Marwick LLP letters dated the date of mailing the
Prospectus/Proxy Statement and the date of the Closing to the effect that: (i)
with respect to the Company they are independent accountants within the meaning
of the 1933 Act and 1934 Act and the applicable rules and regulations
thereunder, (ii) it is their opinion that the audited consolidated financial
statements of the Company included in or incorporated by reference into the
Prospectus/Proxy Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933
39
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Act and 1934 Act and the applicable published accounting rules and regulations
thereunder, (iii) on the basis of such procedures as are set forth therein but
without performing an examination in accordance with generally accepted auditing
standards nothing has come to their attention which would cause them to believe
that (A) any unaudited interim consolidated financial statements appearing in
the Prospectus/Proxy Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and 1934 Act and the
published rules and regulations thereunder; (B) said unaudited interim
consolidated financial statements are not stated on a basis substantially
consistent with that of the audited financial statements; (C) (1) at the date of
the latest available consolidated financial statements of the Company and at a
specific date not more than five (5) business days prior to the date of each
such letter there has been, except as specified in such letter, any increase in
the outstanding capital stock, or indebtedness for borrowed money of the Company
(other than deposits and Federal Home Loan Bank advances with a maturity of one
year or less) or any decrease in the stockholders' equity thereof as compared
with amounts shown in the latest statement of consolidated financial condition
included in the Prospectus/Proxy Statement, or (2) for the period from the date
of the latest audited consolidated financial statements of the Company included
in or incorporated by reference into the Prospectus/Proxy Statement to a
specific date not more than five (5) business days prior to the date of each
such letter, there were, except as specified in such letter, any decreases, as
compared with the corresponding period in the preceding year, in consolidated
net income for Company excluding expenses associated with the Merger, or any
increase, as compared with the corresponding period in the preceding year, in
the provision for loan losses for Company, (iv) they have performed certain
specific procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature included in the
Prospectus/Proxy Statement and requested by Ambanc and agreed upon by such
accountants, which is expressed in dollars (or percentages obtained from such
dollar amounts) and obtained from accounting records of the Company's accounting
system or which has been derived directly from such accounting records by
analysis or computation is in agreement with such records or computations made
therefrom (excluding any questions of legal interpretation), and (v) on the
basis of such procedures as are set forth in such letter, nothing came to their
attention with respect to the Company which would cause them to believe that the
pro forma financial statements had not been properly compiled on the pro forma
basis described therein.
(d) No Material Adverse Change. Between the date of this Agreement
--------------------------
and the date of Closing, there shall not have occurred any material adverse
change in the financial condition, business, results of operations or assets of
Company and the Company Subsidiaries, taken as a whole, other than any such
change attributable to or resulting from any change in law, regulation or
generally accepted accounting principles which impairs both Savings and other
comparably sized thrift institutions in a substantially similar manner, and
other than any such change attributable to or resulting from changes in economic
conditions applicable to depository institutions generally or in general levels
of interest rates affecting both Savings and other comparably sized thrift
institutions to a similar extent and in a similar manner. No payments made or
expenses incurred in accordance with Section 4.16 hereof or otherwise
contemplated by this Agreement shall be deemed to constitute a material adverse
change under this Section 5.2(d).
40
<PAGE>
(e) Representations and Warranties to be True; Fulfillment of
---------------------------------------------------------
Covenants and Conditions. The representations and warranties of the Company and
- ------------------------
Savings shall be true in all material respects at the Acquisition Merger
Effective Time with the same effect as though made at the Acquisition Merger
Effective Time (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date) except for events or
occurrences arising after the date of this Agreement, which individually or
collectively, are not reasonably likely to result in a material adverse effect
on the business, financial condition or results of operations of the Company and
the Company Subsidiaries, taken as a whole; Company and Savings shall have
performed all obligations and complied with each covenant, in all material
respects, and all conditions under this Agreement on their parts to be performed
or complied with at or prior to the Acquisition Merger Effective Time; and
Company shall have delivered to Ambanc a certificate, dated the Acquisition
Merger Effective Time and signed by its chief executive officer and chief
financial officer, to such effect.
(f) No Litigation. Neither the Company nor any Company Subsidiary
-------------
shall be a party to any pending litigation, reasonably probable of being
determined adversely to the Company or any Company Subsidiary, which would have
a material adverse effect on the business, financial condition or results of
operations of the Company and the Company Subsidiaries, taken as a whole.
(g) Regulatory Approval. All Governmental Approvals required
-------------------
hereunder to consummate the transactions contemplated hereby shall have been
obtained without the imposition of any conditions which Ambanc reasonably and in
good faith determine to be unduly burdensome upon the conduct of the business of
Ambanc or the Bank.
(h) Affiliates Letters. Ambanc shall have received the letter
------------------
agreements from all affiliates of the Company as contemplated in Section 4.7(i)
herein.
(i) Environmental Reports. Ambanc shall not have exercised its right
---------------------
to terminate this Agreement pursuant to Section 4.19.
(j) Execution of Option Agreement. Company shall have granted to
-----------------------------
Ambanc the option referred to in the Option Agreement not later than April 22,
1998.
5.3 Conditions to Obligations of Company and Savings. The obligations of
------------------------------------------------
Company and Savings to effect the Acquisition Merger and the transactions
contemplated herein shall be subject to the following additional conditions:
(a) Opinion of Counsel for Ambanc. The Company shall have received
-----------------------------
from Silver, Freedman & Taff, L.L.P., special counsel to Ambanc, an opinion
dated as of the Closing covering the matters to be set forth in Exhibit 5.3(a).
(b) Representations and Warranties to be True; Fulfillment of
---------------------------------------------------------
Covenants and Conditions. The representations and warranties of Ambanc and the
- ------------------------
Bank shall be true in all material respects at the Acquisition Merger Effective
Time with the same effect as though made
41
<PAGE>
at the Acquisition Merger Effective Time (or on the date when made in the case
of any representation or warranty which specifically relates to an earlier
date); Ambanc and the Bank shall have performed all obligations and complied
with each covenant, in all material respects, and all conditions under this
Agreement on their parts to be performed or complied with at or prior to the
Acquisition Merger Effective Time; and Ambanc shall have delivered to Company a
certificate, dated the Acquisition Merger Effective Time and signed by its chief
executive officer and chief financial officer, to such effect.
(c) Ambanc Common Stock. A certificate or certificates for the
-------------------
required number of whole shares of Ambanc Common Stock, as determined pursuant
to Section 1.3 hereof, and cash for fractional share interests, as so
determined, shall have been delivered to the Exchange Agent.
(d) Required Consents. In addition to Governmental Approvals, Ambanc
-----------------
and the Bank shall have obtained all necessary third party consents or approvals
in connection with the Merger, the absence of which would materially and
adversely affect Ambanc and the Ambanc Subsidiaries, taken as a whole.
(e) Nasdaq Stock Market Listing. The shares of Ambanc Common Stock
---------------------------
issuable pursuant to this Agreement shall have been approved for listing on the
Nasdaq Stock Market, subject to official notice of issuance.
(f) No Material Adverse Change. Between the date of this Agreement
--------------------------
and the date of Closing, there shall not have occurred any material adverse
change in the financial condition, business, results of operations or assets of
Ambanc and the Ambanc Subsidiaries, taken as a whole, other than any such change
attributable to or resulting from any change in law, regulation or generally
accepted accounting principles which impairs both the Bank and other comparably
sized thrift institutions in a substantially similar manner, other than any such
change attributable to or resulting from changes in economic conditions
applicable to depository institutions generally or in general levels of interest
rates affecting both the Bank and other comparably sized thrift institutions to
similar extent and in a similar manner.
(g) No Litigation. Neither Ambanc nor any Ambanc subsidiary shall be
-------------
a party to any pending litigation, reasonably probable of being determined
adversely to Ambanc or any Ambanc Subsidiary, which would have a material
adverse effect on the business, financial condition or results of operations of
Ambanc and the Ambanc Subsidiaries, taken as a whole.
(h) Fairness Opinion. The Company shall have received, as of the date
----------------
of Prospectus/Proxy Statement or as of a date not more than five business days
prior thereto, the favorable written opinion of its investment banking firm
regarding the fairness from a financial point of view of the consideration to be
received by the shareholders of the Company in the Acquisition Merger.
(i) Absence of Regulatory Agreements. Neither Ambanc nor any of the
--------------------------------
Ambanc Subsidiaries, including the Bank, shall be a party to any agreement or
memorandum of
42
<PAGE>
understanding with, or commitment letter to, or board of directors resolution
submitted to or similar undertaking made to, or be subject to any order or
directive by, or be a recipient of any supervisory letter from, any governmental
authority which restricts materially the conduct of Ambanc's business or has a
material adverse effect upon the Acquisition Merger or upon the financial
condition of Ambanc and the Ambanc Subsidiaries taken as a whole, and neither
Ambanc nor the Ambanc Subsidiaries shall have been advised by any governmental
or regulatory authority that such authority is contemplating issuing or
requesting, or considering the appropriateness of issuing or requesting, any of
the foregoing.
5.4 Termination of Agreement and Abandonment of Merger. This Agreement
--------------------------------------------------
may be terminated at any time before the Acquisition Merger Effective Time,
whether before or after approval thereof by shareholders of Company and Ambanc,
as provided below:
(a) Mutual Consent. By mutual consent of the parties, evidenced by
--------------
their written agreement.
(b) Closing Delay. At the election of either party, evidenced by
-------------
written notice, if the Closing shall not have occurred on or before January 31,
1999, or such later date as shall have been agreed to in writing by the parties;
provided, however, that the right to terminate under this Section 5.4(b) shall
- -------- -------
not be available to any party whose failure to perform an obligation hereunder
has been the cause of, or has resulted in, the failure of the Closing to occur
on or before such date.
(c) Conditions to Ambanc Performance Not Met. By Ambanc upon delivery
----------------------------------------
of written notice of termination to Company if any event occurs which renders
impossible the satisfaction in any material respect one or more of the
conditions to the obligations of Ambanc and the Bank to effect the Merger set
forth in Sections 5.1 and 5.2 and noncompliance is not waived by Ambanc,
provided, however, that the right to terminate under this Section 5.4(c) shall
- -------- -------
not be available to Ambanc where Ambanc's or Bank's failure to perform an
obligation hereunder has been the cause of, or has resulted in, the failure of
the Closing to occur on or before such date.
(d) Conditions to Company Performance Not Met. By the Company upon
-----------------------------------------
delivery of written notice of termination to Ambanc if any event occurs which
renders impossible of satisfaction in any material respect one or more of the
conditions to the obligations of Company and Savings to effect the Merger set
forth in Sections 5.1 and 5.3 and noncompliance is not waived by Company,
provided, however, that the right to terminate under this Section 5.4(d) shall
- -------- -------
not be available to the Company where the Company's or Savings' failure to
perform an obligation hereunder has been the cause of, or has resulted in, the
failure of the Closing to occur on or before such date.
(e) Decline in Stock Price. By the Company if it determines by a
----------------------
vote of the majority of the members of its Board of Directors, and notifies
Ambanc, at any time during the five (5) day period commencing two (2) business
days after the Determination Date and if both of the following conditions are
satisfied:
43
<PAGE>
(i) the Average Closing Price of Ambanc Common Stock is less than
$15.70 (adjusted as set forth in the last sentence of this
Section 5.4(e)); and
(ii) (x) the number obtained by dividing the Average Closing
Price on the Determination Date by the Starting Price
(such number being referred to herein as the "Ambanc
Ratio") shall be less than (y) the number obtained by
dividing the Index Price on the Determination Date by
the Index Price on the Starting Date and subtracting
0.20 from the quotient in this clause (ii)(y) (such
number being referred to herein as the "Index Ratio");
If the Company elects to terminate this Agreement pursuant to this Section
5.4(e), it shall give notice to Ambanc within the aforementioned five (5) day
period, provided such notice may be withdrawn at any time. During the five (5)
day period commencing with its receipt of such notice, Ambanc shall have the
option of adjusting the Exchange Ratio to equal the lesser of (i) a number equal
to a quotient (rounded to the nearest one-thousandth), the numerator of which is
the product of $15.70 multiplied by the Exchange Ratio (as then in effect) and
the denominator of which is the Average Closing Price, and (ii) a number equal
to a quotient (rounded to the nearest one-thousandth), the numerator of which is
the Index Ratio multiplied by the Exchange Ratio (as then in effect) and the
denominator of which is the Ambanc Ratio. If Ambanc makes an election
contemplated by the preceding sentence, within such five-day period, it shall
give prompt written notice to the Company of such election and the revised
Exchange Ratio, whereupon no termination shall have occurred pursuant to this
Section 5.4(e) and this Agreement shall remain in effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified), and any
references in this Agreement to "Exchange Ratio" shall thereafter be deemed to
refer to the Exchange Ratio as adjusted pursuant to this Section 5.4(e).
For purposes of this Section 5.4(e), the following terms shall have the
meaning indicated:
"Average Closing Price" shall mean the average of the per share closing
prices of the Ambanc Common Stock as reported on the NASDAQ National Market
for the 20 consecutive trading days ending on the Determination Date as
reported by The Wall Street Journal, expressed in decimal figures carried
-----------------------
to five figures.
"Determination Date" means the tenth (10th) trading day prior to the
Closing Date.
"Index Group" means the 19 financial institution companies listed below,
the common stock of all of which shall be publicly traded and as to which
there shall not have been a publicly announced proposal since the Starting
Date and before the Determination Date for any such company to be acquired
or for such company to acquire another company or companies in transactions
with a value exceeding 25% of the acquiror's market capitalization. In the
event that any such company is removed from the Index Group, the weights
(which shall be determined based upon the number of outstanding shares of
common stock) shall be redistributed proportionately for purposes of
determining the Index
44
<PAGE>
Price. The 19 financial institution companies and the weights attributed to
them are as follows:
Financial Institution Holding Shares Outstanding Weighting %
Company as of 12/31/97
Ameriana Bancorp 3,233,207 3.89%
Catskill Financial Corp. 4,775,732 5.75
First Defiance Financial 8,527,683 10.27
First Federal Bancshares of AR 4,896,063 5.89
FSF Financial Corp. 3,045,575 3.67
FFLC Bancorp Inc. 3,747,173 4.51
Fidelity Financial of Ohio 5,592,665 6.73
First Mutual Bancorp Inc. 3,507,070 4.22
Bayonne Bancshares Inc. 9,088,581 10.94
FirstSpartan Financial Corp. 4,430,000 5.33
Home Bancorp of Elgin Inc. 6,855,799 8.25
Home Bancorp 2,385,325 2.87
Monterey Bay Bancorp Inc. 3,229,679 3.89
Peekskill Financial Corp. 3,126,915 3.76
SFS Bancorp Inc. 1,208,472 1.45
Teche Holding Co. 3,437,530 4.14
Western Ohio Financial Corp. 2,352,236 2.83
Warwick Community Bancorp 6,606,548 7.95
Yonkers Financial Corp. 3,020,763 3.64
------
100.00%
"Index Price," on a given date, means the weighted average (weighted in
accordance with the Weighing Factors above, which were calculated with
reference to the outstanding shares listed above) of the closing prices on
such date of the common stock of the companies comprising the Index Group.
"Starting Date" means April 22, 1998.
"Starting Price" means $19.625 per share.
If Ambanc or any company belonging to the Index Group declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the Starting Date and the
Determination Date, the prices for the common stock of such company shall be
appropriately adjusted for the purposes of applying this Section 5.4(e).
45
<PAGE>
ARTICLE VI
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
6.1 Termination; Lack of Survival of Representations and Warranties. In
---------------------------------------------------------------
the event of the termination and abandonment of this Agreement pursuant to
Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, this Agreement shall become
void and have no effect, except that (i) the provisions of Sections 2.7 and 3.7
(Brokers and Finders), 4.8 (Publicity), this Section 6.1, 6.2 (Expenses) and 8.2
(Confidentiality) of this Agreement shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 5.4(c) or 5.4(d) of
this Agreement shall not relieve the breaching party from liability for an
uncured intentional and willful breach of a representation, warranty, covenant,
or agreement giving rise to such termination.
The representations, warranties, covenants and agreements of the parties
set forth in this Agreement shall not survive the Acquisition Merger Effective
Time, and shall be terminated and extinguished at the Acquisition Merger
Effective Time, and from and after the Acquisition Merger Effective Time none of
the parties hereto shall have any liability to the other on account of any
breach or failure of any of those representations, warranties and agreements;
provided, however, that the foregoing clause shall not (i) apply to agreements
- -------- -------
and covenants of the parties which by their terms are intended to be performed
after the Acquisition Merger Effective Time, and (ii) shall not relieve any
person of liability for fraud, deception or intentional misrepresentation.
6.2 Payment of Expenses. Each of the parties hereto shall bear and pay
-------------------
all costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder.
ARTICLE VII
CERTAIN POST-MERGER AGREEMENTS
7.1 Reports to the SEC. Ambanc shall continue to file all reports and
------------------
data with the SEC necessary to permit the shareholders of Company who may be
deemed "underwriters" (within the meaning of Rule 145 under the 1933 Act) of
Company Common Stock to sell the Ambanc Common Stock received by them in
connection with the Merger pursuant to Rules 144 and 145(d) under such Act if
they would otherwise be so entitled.
7.2 Employees. Employees of the Company and the Company Subsidiaries who
---------
become employees of Ambanc or an Ambanc Subsidiary after the Acquisition Merger
Effective Time shall be eligible to participate in all benefit plans sponsored
by Ambanc or any Ambanc Subsidiary to the same extent as other similarly
situated Ambanc or any Ambanc Subsidiary employees, (i) with full credit for
prior service with the Company or Company Subsidiaries for purposes of vesting,
eligibility for participation and other purposes other than determining the
amount of benefit accruals under any defined benefit plan, (ii) without any
waiting periods, evidence of insurability, or application of any pre-existing
condition limitations, and (iii) with full credit for claims arising prior to
the Acquisition Merger Effective Time for purposes of deductibles, out-of-pocket
maximums, benefit maximums and all other similar limitations for the applicable
plan year during which the Merger is consummated. Ambanc shall honor all
accrued
46
<PAGE>
vacation leave for the employees of Company and the Company Subsidiaries
following the Acquisition Merger Effective Time. Except as otherwise provided
herein, the Company's health and dental insurance plans shall not be terminated
by reason of the Merger but shall continue thereafter as plans of the Surviving
Corporation until such time as the employees of the Company and the Company
Subsidiaries are integrated into Ambanc's or other applicable Ambanc
Subsidiary's health and dental insurance plans. Ambanc and the Ambanc
Subsidiaries shall take such steps as are necessary or required to integrate the
employees of the Company and the Company Subsidiaries in such plans as soon as
practicable after the Acquisition Merger Effective Time.
ARTICLE VIII
GENERAL
8.1 Amendments. Subject to applicable law, this Agreement may be amended,
----------
whether before or after any relevant approval of shareholders, by an agreement
in writing executed in the same manner as this Agreement and authorized or
ratified by the Boards of Directors of the parties hereto, provided that, after
-------------
the adoption of the Agreement by the shareholders of the Company, no such
amendment without further shareholder approval may reduce the amount or change
the form of the consideration to be received by the Company shareholders in the
Merger.
8.2 Confidentiality. All information disclosed hereafter by any party to
---------------
this Agreement to any other party to this Agreement, including, without
limitation, any information obtained pursuant to Section 4.1 hereof, shall be
kept confidential by such other party and shall not be used by such other party
otherwise than as herein contemplated except to the extent that (i) it was known
by such other party when received, (ii) it is or hereafter becomes lawfully
obtainable from other sources, (iii) it is necessary or appropriate to disclose
to the OTS, the FDIC or any other regulatory authority having jurisdiction over
the parties or their subsidiaries or as may otherwise be required by law, or
(iv) to the extent such duty as to confidentiality is waived by the other party.
In the event of the termination of this Agreement, each party shall use all
reasonable efforts to return upon request to the other parties all documents
(and reproductions thereof) received from such other parties (and, in the case
of reproductions, all such reproductions made by the receiving party) that
include information not within the exceptions contained in the first sentence of
this Section 8.2.
8.3 Governing Law. This Agreement and the legal relations between the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of Delaware without taking into account a provision regarding choice of
law, except to the extent certain matters may be governed by federal law by
reason of preemption.
47
<PAGE>
8.4 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid, addressed, if to Ambanc or Bank, to
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
Attention: Robert J. Brittain
President and Chief Executive Officer
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Suite 700 E
Washington, DC 20005
Attention: James S. Fleischer, P.C.
and if to Company or Savings, to
AFSALA Bancorp, Inc.
161 Church Street
Amsterdam, New York 12010
Attention: John M. Lisicki
President and Chief Executive Officer
with a copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Attention: John J. Spidi
or such other address as shall be furnished in writing by any such party, and
any such notice or communication shall be deemed to have been given two business
days after the date of such mailing (except that the notice of change of address
shall not be deemed to have been given until received by the addressee).
Notices may also be sent by telegram, telex, facsimile transmission or hand
delivery and in such event shall be deemed to have been given as of the date
received.
8.5 No Assignment. This Agreement may not be assigned by any of the
-------------
parties hereto, by operation of law or otherwise, without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
48
<PAGE>
8.6 Headings. The description heading of the several Articles and
--------
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
8.7 Counterparts. This Agreement may be extended in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
8.8 Construction and Interpretation. Except as the context otherwise
-------------------------------
requires, (a) all references herein to any state or federal regulatory agency
shall also be deemed to refer to any predecessor or successor agency, and (b)
all references to state and federal statutes or regulations shall also be deemed
to refer to any successor statute or regulation.
8.9 Entire Agreement. This Agreement, together with the schedules, lists,
----------------
exhibits and certificates required to be delivered hereunder, and any amendment
hereafter executed and delivered in accordance with Section 8.1, constitutes the
entire agreement of the parties, and supersedes any prior written or oral
agreement or understanding among any of the parties hereto pertaining to the
Merger, except for the Confidentiality and Non-Disclosure Agreement between the
Company and Ambanc dated February 12, 1998, which shall remain in full force and
effect. This Agreement is not intended to confer upon any other persons any
rights or remedies hereunder except as expressly set forth herein.
8.10 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of the Agreement.
8.11 No Third Party Beneficiaries. Nothing in this Agreement shall
----------------------------
entitle any person (other than the Company, Savings, Ambanc or the Bank and
their respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind, except as otherwise expressly provided
herein.
8.12 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
49
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunder duly authorized, all as of the
date set forth above.
AMBANC HOLDING CO., INC. AFSALA BANCORP, INC.
By: /s/ Robert J. Brittain By: /s/ John M. Lisicki
---------------------------- -------------------------------
Name: Robert J. Brittain Name: John M. Lisicki
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
AMSTERDAM SAVINGS BANK, FSB AMSTERDAM FEDERAL BANK
By: /s/ Robert J. Brittain By: /s/ John M. Lisicki
------------------------------ -------------------------------
Name: Robert J. Brittain Name: John M. Lisicki
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
50
<PAGE>
AMENDMENT NO. ONE
to
REORGANIZATION AND MERGER AGREEMENT
by and among
AMBANC HOLDING CO., INC. and AMSTERDAM SAVINGS BANK, FSB
and
AFSALA BANCORP, INC. and AMSTERDAM FEDERAL BANK
This Amendment No. One to the Reorganization and Merger Agreement
("Agreement") by and among Ambanc Holding Co., Inc. and Amsterdam Savings Bank,
FSB; and AFSALA Bancorp, Inc. and Amsterdam Federal Bank, dated April 23, 1998
(the "Merger Agreement") is made this 26th day of June, 1998.
WHEREAS, the parties concur that in light of the proposed purchase
accounting for the Merger (as defined in the Merger Agreement), it is desirable
that, if the Merger occurs, Ambanc shall incur the offering related expenses
payable to third parties that would otherwise be payable by each party to the
Merger.
NOW THEREFORE, the parties agree that the Merger Agreement shall be amended
as set forth below.
Section 6.2 of the Merger Agreement shall be amended by deleting the period
at the end thereof and adding the following:
; provided that Ambanc shall pay all costs and expenses incurred by or
on behalf of the Company and the Company Subsidiaries for services
rendered by third parties and relating to the offering associated with
the Merger. If the Closing does not occur, the Company and the Company
Subsidiaries shall reimburse Ambanc immediately for such costs and
expenses paid by it.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment No. One
to be executed on its behalf by its duly authorized officers , all as of the
date set forth above.
AMBANC HOLDING CO., INC. AFSALA BANCORP, INC.
By: /s/ Robert J. Brittain By: /s/ John M. Lisicki
--------------------------- -------------------------
Name: Robert J. Brittain Name: John M. Lisicki
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
AMSTERDAM SAVINGS BANK, FSB AMSTERDAM FEDERAL BANK
By: /s/ Robert J. Brittain By: /s/ John M. Lisicki
--------------------------- --------------------------
Name: Robert J. Brittain Name: John M. Lisicki
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
Page 2 of 2
<PAGE>
APPENDIX II
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of April 24, 1998, between Ambanc Holding
Co., Inc., a Delaware corporation ("Grantee"), and AFSALA Bancorp, Inc., a
Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into a Reorganization and Merger
Agreement (the "Merger Agreement");
WHEREAS, as an inducement to the willingness of Grantee to continue to
pursue the transactions contemplated by the Merger Agreement, Issuer has agreed
to grant Grantee the Option (as hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to an
aggregate of 344,500 fully paid and nonassessable shares of the common stock,
par value $.10 per share, of Issuer ("Common Stock") at a price per share equal
to the last reported sale price per share of Common Stock as reported on the
Nasdaq Stock Market on April 22, 1998; provided, however, that in the event
Issuer issues or agrees to issue any shares of Common Stock (other than shares
of Common Stock issued pursuant to stock options granted prior to the date
hereof) at a price less than such price per share (as adjusted pursuant to
subsection (b) of Section 5), such price shall be equal to such lesser price
(such price, as adjusted if applicable, the "Option Price"); provided, further,
that in no event shall the number of shares for which this Option is exercisable
exceed 19.9% of the issued and outstanding shares of Common Stock. The number
of shares of Common Stock that may be received upon the exercise of the Option
and the Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section l(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer to issue shares in breach of any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event
<PAGE>
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
six (6) months following such Subsequent Triggering Event (or such later period
as provided in Section 10). Each of the following shall be an Exercise
Termination Event: (i) the Effective Time of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 5.4(c) due to a breach of the
Company's covenants at Sections 4.2, 4.3, 4.4, 4.6 or 4.9 or the condition at
Section 5.2(e) of the Merger Agreement (but only if the breach giving rise to
the termination was willful) (each, a "Listed Termination"); or (iii) the
passage of eighteen (18) months (or such longer period as provided in Section
10) after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a Listed Termination. The term
"Holder" shall mean the holder or holders of the Option. Notwithstanding
anything to the contrary contained herein, (i) the Option may not be exercised
at any time when Grantee shall be in material breach of any of its covenants or
agreements contained in the Merger Agreement such that Issuer shall be entitled
to terminate the Merger Agreement as a result of a material breach.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any Significant Subsidiary (as defined in Rule 1-
02 of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC")) (an "Issuer Subsidiary"), without having received Grantee's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations thereunder) other
than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary") or
the Board of Directors of Issuer (the "Issuer Board") shall have
recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction other than as contemplated by the Merger Agreement.
For purposes of this Agreement, (a) "Acquisition Transaction" shall mean
(x) a merger or consolidation, or any similar transaction, involving Issuer
or any Issuer Subsidiary (other than mergers, consolidations or similar
transactions involving solely Issuer and/or one or more wholly-owned
(except for directors' qualifying shares and a de minimis number of other
shares) Subsidiaries of the Issuer, provided, any such transaction is not
entered into in violation of the terms of the Merger Agreement), (y) a
purchase, lease or other acquisition of all or any substantial part of the
assets or deposits of Issuer or any Issuer Subsidiary, or (z) a purchase or
other acquisition (including by way of merger, consolidation, share
exchange or other wise) of securities representing 10% or more of the
voting power of Issuer or any Issuer Subsidiary and (b) "Subsidiary" shall
have the meaning set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the
term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules
and regulations thereunder);
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(iii) The shareholders of Issuer shall have voted and failed to
adopt the Merger Agreement at a meeting which has been held for that
purpose or any adjournment or postponement thereof, or such meeting shall
not have been held in violation of the Merger Agreement or shall have been
cancelled prior to termination of the Merger Agreement if, prior to such
meeting (or if such meeting shall not have been held or shall have been
cancelled, prior to such termination), it shall have been publicly
announced that any person (other than Grantee or any of its Subsidiaries)
shall have made, or publicly disclosed an intention to make, a proposal to
engage in an Acquisition Transaction;
(iv) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee its recommendation that the shareholders
of Issuer approve the transactions contemplated by the Merger Agreement, or
Issuer or any Issuer Subsidiary shall have authorized, recom mended,
proposed (or publicly announced its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary
shall have filed with the SEC a registration statement or tender offer
materials with respect to a potential exchange or tender offer that would
constitute an Acquisition Transaction (or filed a preliminary proxy
statement with the SEC with respect to a potential vote by its shareholders
to approve the issuance of shares to be offered in such an exchange offer);
(vi) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement in anticipation of engaging in
an Acquisition Transaction, and following such breach Grantee would be
entitled to terminate the Merger Agreement (whether immediately or after
the giving of notice or passage of time or both); or
(vii) Any person other than Grantee or any Grantee Subsidiary
shall have filed an application or notice with the Office of Thrift
Supervision (the "OTS") or other federal or state bank regulatory or
antitrust authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described
in clause (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (z) of the second sentence thereof shall
be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the
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<PAGE>
giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the OTS or any other
regulatory or antitrust agency is required in connection with such purchase, the
Holder shall promptly file the required notice or application for approval,
shall promptly notify Issuer of such filing, and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer and (ii)
present and surrender this Agreement to Issuer at its principal executive
offices, provided that the failure or refusal of the Issuer to designate such a
bank account or accept surrender of this Agreement shall not preclude the Holder
from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement, dated as of April 23, 1998,
between the registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of such
agreement is on file at the principal office of Issuer and will be provided
to the holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such
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<PAGE>
reference in the opinion of counsel to the Holder; and (iii) the legend shall be
removed in its entirety if the conditions in the preceding clauses (i) and (ii)
are both satisfied. In addition, such certificates shall bear any other legend
as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed subject to the receipt of any necessary regulatory
approvals to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of Issuer shall
then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by amendment of its certificate of incorporation or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action as may from time to time
be required (including (x) complying with all applicable premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Savings and
Loan Holding Company Act ("SLHCA"), or the Change in Bank Control Act of 1978,
as amended, or any state or other federal banking law, prior approval of or
notice to the OTS or to any state or other federal regulatory authority is
necessary before the Option may be exercised, cooperating fully with the Holder
in preparing such applications or notices and providing such information to the
OTS or such state or other federal regulatory authority as they may require) in
order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) promptly
to take all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5
<PAGE>
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within twelve (12) months (or such later period as provided in Section
10) of such Subsequent Triggering Event (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep current
a registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations.
The Issuer shall bear the costs of such registrations (including, but not
limited to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offer and sale
of the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder
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<PAGE>
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall thereafter be
entitled to one additional registration and the twelve (12) month period
referred to in the first sentence of this section shall be increased to twenty-
four (24) months. Each such Holder shall provide all information reasonably
requested by Issuer for inclusion in any registration statement to be filed
hereunder. If requested by any such Holder in connection with such registration,
Issuer shall become a party to any underwriting agreement relating to the sale
of such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall the
number of registrations that Issuer is obligated to effect be increased by
reason of the fact that there shall be more than one Holder as a result of any
assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or any substantial part of Issuer's assets or deposits, the sum of the
net price paid in such sale for such assets or deposits and the current market
value of the remaining net assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as the
case may be, and reasonably acceptable to Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the
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<PAGE>
case may be, elects to require Issuer to repurchase this Option and/or the
Option Shares in accordance with the provisions of this Section 7. As promptly
as practicable, and in any event within five business days after the surrender
of the Option and/or certificates representing Option Shares and the receipt of
such notice or notices relating thereto, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof that Issuer is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 50% or more of the then
outstanding Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 50%.
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8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, or engage in a plan of exchange with
any person, other than Grantee or a Grantee Subsidiary and Issuer shall not be
the continuing or surviving corporation of such consolidation or merger or the
acquirer in such plan of exchange, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer or be acquired by Issuer in a plan
of exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the then
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger or plan of
exchange represent less than 50% of the outstanding shares and share equivalents
of the merged or acquiring company, or (iii) to sell or otherwise transfer all
or a substantial part of its or the Issuer Subsidiary's assets or deposits to
any person, other than Grantee or a Grantee Subsidiary, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer (if other than
Issuer), (ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) the Issuer in a merger or plan of exchange in which Issuer
is the continuing or surviving or acquiring person, and (iv) the transferee
of all or a substantial part of Issuer's assets or deposits (or the assets
or deposits of the Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the market/offer price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option
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<PAGE>
in substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9), which agreement shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by
a nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares
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accompanied by a written notice or notices stating that the Substitute Option
Holder or the Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable and in any event within five business days after the
surrender of the Substitute Option and/or certificates representing Substitute
Shares and the receipt of such notice or notices relating thereto, the
Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five (5) business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its reasonable best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, and/or (B) to the Substitute Share Owner, a certificate for
the Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the expiration
of a period ending on the thirtieth day after such date, the Substitute Option
Holder shall nevertheless have the right to exercise the Substitute Option until
the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7, 9, 12 and 14 shall be
extended: (i) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights (for so long as the Holder, Owner, Substitute
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Option Holder or Substitute Share Owner, as the case may be, is using
commercially reasonable efforts to obtain such regulatory approvals), and for
the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Issuer Board prior to the date hereof and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant thereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder; provided, however,
that until the date 15 days following the date on which the OTS has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf or (iv) any other manner approved by the OTS.
13. Each of Grantee and Issuer will use its reasonable best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
OTS under the SLHCA for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to applicable banking authorities for
approval to acquire the shares of Common Stock issuable hereunder until such
time, if ever, as it deems appropriate to do so.
14. (a) Grantee may, at any time following a Repurchase Event and prior
to the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the Option (together with any Option Shares
issued to and then owned by Grantee) to Issuer in exchange for a cash fee equal
to the Surrender Price; provided, however, that Grantee may not exercise its
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rights pursuant to this Section 14 if Issuer has repurchased the Option (or any
portion thereof) or any Option Shares pursuant to Section 7. The "Surrender
Price" shall be equal to $1.4 million (i) plus, if applicable, Grantee's
purchase price with respect to any Option Shares and (ii) minus, if applicable,
the excess of (B) the net cash amounts, if any, received by Grantee pursuant to
the arms' length sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over (B)
Grantee's purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 14 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 14 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 14 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (c) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Date shall be extended to a date six months from the date
on which the Exercise Termination Date would have occurred if not for the
provisions of this Section 14(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
14).
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief. In connection therewith both
parties waive the posting of any bond or similar requirement.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section l(b) or Section
5 hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require
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Issuer to repurchase such lesser number of shares as may be permissible, without
any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the conflict of law
principles thereof (except to the extent that mandatory provisions of Federal
law are applicable).
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
AMBANC HOLDING CO., INC. AFSALA BANCORP, INC.
By: /s/ Lauren T. Barnett By: /s/ John M. Lisicki
----------------------------- -----------------------------
Name: Lauren T. Barnett Name: John M. Lisicki
Title: President and CEO Title: President and CEO
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APPENDIX III
July 28, 1998
Board of Directors
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, NY 12010
Gentlemen:
Ambanc Holding Co., Inc. ("Ambanc") and its wholly-owned subsidiary,
Amsterdam Savings Bank, FSB, and AFSALA Bancorp, Inc. ("AFSALA") and its wholly-
owned subsidiary, Amsterdam Federal Bank, have entered into a Reorganization and
Merger Agreement, dated as of April 23, 1998 (the "Agreement"), pursuant to
which AFSALA will be merged with and into Ambanc (the "Merger"). Upon
consummation of the Merger, each share of AFSALA common stock, par value $.10
per share, issued and outstanding immediately prior to the Merger, other than
certain shares specified in the Agreement, will be converted into the right to
receive 1.07 shares (the "Exchange Ratio") of Ambanc common stock, par value
$.01 per share. The terms and conditions of the Merger are more fully set forth
in the Agreement. You have requested our opinion as to the fairness of the
Exchange Ratio to Ambanc from a financial point of view.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated April 24, 1998, between Ambanc and AFSALA; (iii) certain publicly
available financial statements of Ambanc and other historical financial
information provided by Ambanc that we deemed relevant; (iv) certain publicly
available financial statements of AFSALA and other historical financial
information provided by AFSALA that we deemed relevant; (v) certain financial
analyses and forecasts of Ambanc prepared by and reviewed with management of
Ambanc and the views of senior management of Ambanc regarding Ambanc's past and
current business operations, results thereof, financial condition and future
prospects; (vi) certain financial analyses and forecasts of AFSALA prepared by
and reviewed with management of AFSALA and the views of senior management of
AFSALA regarding AFSALA's past and current business operations, results thereof,
financial condition and future prospects; (vii) the pro forma impact of the
Merger on Ambanc; (viii) the publicly reported historical price and trading
activity for Ambanc's and AFSALA's common stock, including a comparison of
certain financial and stock market information for Ambanc and AFSALA
<PAGE>
Board of Directors
Ambanc Holding Co., Inc.
July 28, 1998
Page 2
with similar publicly available information for certain other companies the
securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We
did not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Ambanc or AFSALA or any of their subsidiaries, or the collectibility of any such
assets, nor have we been furnished with any such evaluations or appraisals.
With respect to the financial projections reviewed with management, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of the
respective future financial performances of Ambanc and AFSALA and that such
performances will be achieved, and we express no opinion as to such financial
projections or the assumptions on which they are based. We have also assumed
that there has been no material change in Ambanc's or AFSALA's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements made available to us. We have assumed in all respects
material to our analysis that Ambanc and AFSALA will remain as going concerns
for all periods relevant to our analyses, that all of the representations and
warranties contained in the Agreement and all related agreements are true and
correct, that each party to such agreements will perform all of the covenants
required to be performed by such party under such agreements and that the
conditions precedent in the Agreement are not waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Ambanc common stock will be
when issued to AFSALA's shareholders pursuant to the Agreement or the prices at
which Ambanc's or AFSALA's common stock will trade at any time.
We have acted as Ambanc's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Ambanc and have received compensation for such
services.
<PAGE>
Board of Directors
Ambanc Holding Co., Inc.
July 28, 1998
Page 3
In the ordinary course of our business, we may actively trade the equity
securities of Ambanc and AFSALA for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion is directed to the Board of Directors of Ambanc in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder as to how such stockholder should vote at any meeting of
stockholders called to consider and vote upon the Merger. Our opinion is not to
be quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinon as an
appendix to Ambanc's and AFSALA's Joint Proxy Statement/Prospectus dated the
date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair to Ambanc from a financial point of
view.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
<PAGE>
APPENDIX IV
July 28, 1998
Board of Directors
AFSALA Bancorp, Inc.
161 Church Street
Amsterdam, NY 12010
Members of the Board:
You have requested our opinion, as an independent financial analyst to the
common shareholders of AFSALA Bancorp, Inc. ("AFSALA") and its wholly owned
subsidiary Amsterdam Federal Bank, Amsterdam, New York (the "Bank"), as to the
fairness, from a financial point of view to the common shareholders of the Bank,
of the terms of the proposed Merger Agreement pursuant to which AFSALA will be
acquired by Ambanc Holding Co., Inc. ("Ambanc") and Ambanc's wholly owned
subsidiary Amsterdam Savings Bank, FSB ("ASB") using a merger of equals concept.
Pursuant to the Reorganization and Merger Agreement dated April 23, 1998, and
discussions with management, each share of AFSALA common stock issued and
outstanding immediately prior to the Effective Time shall be converted at the
Effective Time into the right to receive 1.07 shares of common stock, $.01 par
value, of Ambanc. It is understood that AFSALA's outstanding options, to
purchase 145,468 common shares, will be converted into options of Ambanc common
stock at the exchange ratio of 1.07 shares. Based upon a negotiated exchange
ratio of 1.07 shares of Ambanc common stock for each share of AFSALA's common
stock, Ambanc will issue 1,567,008 common shares to AFSALA shareholders in
exchange for the outstanding 1,464,493 current AFSALA common shares. The total
transaction value will, therefore, be dependent on the trading value of Ambanc's
common stock at the time the transaction closes. This transaction will be
accounted for under the purchase method of accounting.
As part of its banking analysis business, FinPro, Inc. is continually engaged in
the valuation of bank, bank holding company and thrift securities in connection
with mergers and acquisitions nationwide. Prior to being retained for this
assignment, FinPro, Inc. had provided professional services and products to
AFSALA. The revenues derived from such services and products are insignificant
when compared to the firm's total gross revenues.
In connection with this assignment, FinPro reviewed: (i) the Reorganization and
Merger Agreement dated April 23, 1998; (ii) the most recent external auditor's
reports to the Boards of Directors of each organization; (iii) the March 31,
1998 Report of Condition and Income for each organization; (iv) the Rate
Sensitivity Analysis reports for each organization; (v) each organization's
listing of marketable securities showing rate, maturity, and market value as
compared to book value; (vi) each organization's internal loan classification
list; (vii) a listing of other real estate owned for each organization; (viii)
the budget and long range operating plan of each organization; (ix) the Minutes
of the Board of Directors meetings for each organization; (x) the most recent
Board report for AFSALA; (xi) the listing and description of significant real
properties for each organization; and (xii) the directors and officers liability
and blanket bond insurance policies for each organization. FinPro conducted due
diligence on Ambanc as part of team that included representatives of AFSALA and
KPMG, AFSALA's accounting firm. FinPro conducted an on-site review of each
organization's historical performance and current financial condition and
performed a market area analysis.
We have also had discussions with the management of AFSALA and Ambanc regarding
their respective financial results and have analyzed the most current financial
data available on AFSALA and Ambanc.
<PAGE>
We also considered such other information, financial studies, analyses and
investigations, and economic and market criteria which we deemed relevant. We
have met with the management of AFSALA and Ambanc to discuss the foregoing
information with them.
We have considered certain financial data of AFSALA and Ambanc, and have
compared that data with similar data for other savings institutions and their
holding companies which have recently merged or been acquired. Furthermore, we
have considered the financial terms of these business combinations involving
said savings institutions and their holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its completeness and accuracy in all material respects. In
addition, we have not made an independent evaluation of the assets of AFSALA and
Ambanc.
In reaching our opinion, we took into consideration the financial benefits of
the proposed transaction to all AFSALA shareholders. Based on all factors that
we deem relevant and assuming the accuracy and completeness of the information
and data provided to us by AFSALA and Ambanc, it is our opinion as of July 28,
1998, that the proposed transaction is fair and equitable to all AFSALA
shareholders from a financial point of view.
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Respectfully submitted,
FinPro, Inc.
Liberty Corner, New Jersey
By: /s/ Donald J. Musso
-----------------------
Donald J. Musso
President
