UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934. For the quarterly period ended June 30, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the transition period from to .
----------- -----------
Commission File Number: 0-27036
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Ambanc Holding Co., Inc.
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(Exact name of registrant as specified in its charter)
Delaware 14-1783770
- ------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Division Street, Amsterdam, New York 12010-4303
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)842-7200
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at August 13, 1999
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 5,155,060
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
June 30, 1999
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Interim Statements of Financial Condition at
June 30, 1999 and December 31, 1998........................... 3
Consolidated Interim Statements of Income for the three months
and six months ended June 30, 1999 and 1998................... 4
Consolidated Interim Statements of Cash Flows for the six
months ended June 30, 1999 and 1998........................... 5
Notes to Unaudited Interim Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....26
Part II. OTHER INFORMATION..................................................26
Item 6. Exhibits and Reports on Form 8-K...................................26
SIGNATURES....................................................................27
EXHIBITS INDEX................................................................28
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Financial Condition (unaudited)
(dollars in thousands, except per share amounts) June 30, Dec. 31,
1999 1998
--------- ---------
Assets
Cash and due from banks ............................... $ 12,825 $ 9,225
Interest-bearing deposits ............................. 1,114 3,390
Federal funds sold .................................... 4,900 30,200
--------- ---------
Cash and cash equivalents ........................ 18,839 42,815
--------- ---------
Securities available for sale, at fair value .......... 235,610 244,241
Federal Home Loan Bank of New York stock, at cost ..... 7,215 7,215
Loans receivable, net of unamortized fees and costs.... 434,750 425,824
Allowance for loan losses ........................ (5,352) (4,891)
--------- ---------
Loans receivable, net ............................ 429,398 420,933
--------- ---------
Accrued interest receivable ........................... 4,316 4,115
Premises and equipment, net ........................... 4,879 4,537
Real estate owned and repossessed assets .............. 210 399
Goodwill .............................................. 7,657 7,923
Other assets .......................................... 5,605 3,294
--------- ---------
Total assets ..................................... $ 713,729 $735,472
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ........................................... $ 460,166 $461,413
Federal Home Loan Bank term advances ............... 21,188 21,410
Securities sold under agreements to repurchase ..... 138,000 152,400
Advances from borrowers for taxes and insurance .... 3,522 2,436
Accrued interest payable ........................... 1,292 1,426
Accrued expenses and other liabilities ............. 5,886 4,494
Due to brokers ..................................... 1,000 6,000
--------- ---------
Total liabilities ................................ 631,054 649,579
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at June 30, 1999 and
December 31, 1998 ................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,371 shares issued at June 30,
1999 and December 31, 1998 ........................ 54 54
Additional paid in capital ......................... 63,239 63,019
Retained earnings,substantially restricted ......... 27,666 26,356
Treasury Stock, at cost (105,811 shares at June 30,
1999 and 23,908 shares at December 31, 1998) .... (1,672) (329)
Unallocated common stock held by ESOP .............. (2,583) (2,818)
Unearned RRP shares issued ......................... (664) (759)
Accumulated other comprehensive (loss) income ...... (3,365) 370
--------- ---------
Total shareholders' equity ....................... 82,675 85,893
--------- ---------
Total liabilities and shareholders' equity ....... $ 713,729 $735,472
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
3
<PAGE>
<TABLE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
<CAPTION>
Six Months Three months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------ ------ ------ ------
Interest and dividend income:
<S> <C> <C> <C> <C>
Loans ................................................ 15,620 $ 11,152 $ 7,839 $ 5,646
Securities available for sale ........................ 7,658 6,733 3,866 3,328
Federal Funds sold and interest-bearing deposits...... 402 90 130 55
Federal Home Loan Bank stock ......................... 241 129 122 66
-------- -------- -------- --------
Total interest and dividend income.................. 23,921 18,104 11,957 9,095
-------- -------- -------- --------
Interest Expense:
Deposits ............................................. 8,402 6,804 4,190 3,338
Borrowings ........................................... 4,620 3,590 2,261 1,909
-------- -------- -------- --------
Total interest expense ............................. 13,022 10,394 6,451 5,247
-------- -------- -------- --------
Net interest income ................................ 10,899 7,710 5,506 3,848
Provision for loan losses ............................... 495 450 240 225
-------- -------- -------- --------
Net interest income after provision
for loan losses .................................. 10,404 7,260 5,266 3,623
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 683 464 350 252
Net losses on securities transactions ................ -- (105) -- (112)
Other ................................................ 179 174 88 68
-------- -------- -------- --------
Total non-interest income .......................... 862 533 438 208
-------- -------- -------- --------
Non-interest expense:
Salaries, wages and benefits ......................... 3,728 3,155 1,904 1,570
Non-recurring termination benefits ................... -- 399 -- 399
Occupancy and equipment .............................. 1,184 811 555 398
Data processing ...................................... 626 613 391 304
Correspondent bank processing fees ................... 109 67 55 37
Real estate owned and repossessed assets expenses, net 20 21 (6) 13
Professional fees .................................... 176 360 88 222
Amortization of goodwill ............................. 266 -- 133 --
Other ................................................ 1,473 1,390 716 719
-------- -------- -------- --------
Total non-interest expenses ........................ 7,582 6,816 3,836 3,662
-------- -------- -------- --------
Income before taxes .................................... 3,684 977 1,868 169
Income tax expense ...................................... 1,557 434 776 72
-------- -------- -------- --------
Net income ......................................... 2,127 $ 543 $ 1,092 $ 97
-------- -------- -------- --------
Basic earnings per share $ 0.43 $ 0.14 $ 0.22 $ 0.03
Diluted earnings per share $ 0.42 $ 0.14 $ 0.22 $ 0.03
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited)
(dollars in thousands) Six months
ended June 30,
1999 1998
-------- --------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $2,127 $543
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 711 353
Provision for loan losses 495 450
Provision for losses and writedowns on
real estate owned and repossessed assets 3 4
Net (gain) loss on sale of real estate
owned and repossessed assets (6) 4
ESOP compensation expense 375 446
RRP expense 210 226
Net loss on sale securities transactions ---- 105
Net amortization of premium on securities 551 568
Increase in accrued interest receivable
and other assets (3) (760)
Increase in accrued interest payable, accrued
expenses and other liabilities 1,258 558
------------ ----------
Net cash provided by
operating activities 5,721 2,497
------------ ----------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale 10,500 94,126
Purchases of securities available for sale (53,140) (138,635)
Proceeds from principal paydowns and
maturities of securities available for sale 39,494 26,687
Purchase of FHLB stock ---- (1,149)
Net increase in loans made to customers (9,023) (40,656)
Purchases of premises and equipment (782) (92)
Proceeds from sale of real estate owned
and repossessed assets 254 207
------------ ----------
Net cash used in investing activities (12,697) (59,512)
------------ ----------
(Continued)
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued (unaudited)
(dollars in thousands) Six months
ended June 30,
1999 1998
-------- --------
Cash flows from financing activities:
Net decrease in deposits (1,247) (11,601)
Net proceeds in FHLB overnight advances ---- 26,500
Repayment of FHLB term advances1 (222) ----
Proceeds from repurchase agreements ---- 44,320
Repayments of repurchase agreements (14,400) (2,600)
Increase in advances from borrowers
for taxes and insurance 1,086 598
Purchase of Treasury Stock (1,557) (3,976)
Excercise of stock options 139 56
Dividends paid (799) (502)
------------ ----------
Net cash (used in) provided by
financing activities (17,000) 52,795
------------ ----------
Net decrease in cash and cash equivalents (23,976) (4,220)
Cash and cash equivalents at beginning of period 42,815 10,259
------------ ----------
Cash and cash equivalents at end of period $18,839 $6,039
============ ==========
Supplemental disclosures of cash flow information -
cash paid during the year for:
Interest $13,157 $10,432
============ ==========
Income Taxes $1,167 $838
============ ==========
Noncash investing and financing activities:
Net transfer of loans to real estate owned and
repossessed assets $62 $135
============ ==========
Increase in amounts due to brokers from
purchases of securities available for sale $1,000 ----
============ ==========
Adjustment of securities available for sale to
fair value, net of tax ($3,735) $299
============ ==========
Tax benefit related to vested RRP shares $21 $76
============ ==========
See accompanying notes to unaudited interim consolidated financial statements.
6
<PAGE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) In management's opinion, the financial information, which is unaudited,
reflects all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial information as of and for the
three month and six month periods ended June 30, 1999 and 1998 in conformity
with generally accepted accounting principles. These consolidated financial
statements should be read in conjunction with Ambanc Holding Co., Inc.'s ("the
Company" herein) 1998 Annual Report on Form 10-K. The results of operations for
the interim periods are not necessarily indicative of the results of operations
to be expected for the full fiscal year ended December 31, 1999.
(2) Amounts in the prior periods' consolidated interim financial statements are
reclassified whenever necessary to conform to current period presentations.
(3) Earnings per Share
Basic earnings per share excludes dilution and is calculated by dividing
net income available to common shareholders by the weighted average number of
shares outstanding during the period. Unallocated ESOP shares are not considered
outstanding for purposes of computing earnings per share. Shares of restricted
stock are considered outstanding common shares and included in the computation
of basic EPS when they become fully vested. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
(such as the Company's stock options and unvested RRP shares) were exercised
into common stock or resulted in the issuance of common stock.
The calculation of basic earnings per share (basic EPS) and diluted
earnings per share (diluted EPS) is as follows:
Weighted
Net Average Per Share
Income Shares Amount
------------ ---------- ---------
For the six months ended June 30, 1999
Basic EPS
Net Income available to common shareholders $2,127 5,001,220 $0.43
====== =====
Effect of Dilutive Securities:
Stock Options 39,978
Unvested RRP shares 18,203
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $2,127 5,059,401 $0.42
====== ========= =====
For the six months ended June 30, 1998
Basic EPS
Net Income available to common shareholders $543 3,793,648 $0.14
====== =====
Effect of Dilutive Securities:
Stock Options 66,709
Unvested RRP shares 34,351
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $543 3,894,708 $0.14
====== ========= =====
7
<PAGE>
For the quarter ended June 30, 1999
Basic EPS
Net Income available to common shareholders $1,092 4,993,494 $0.22
====== =====
Effect of Dilutive Securities:
Stock Options 48,352
Unvested RRP shares 16,204
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $1,092 5,058,050 $0.22
====== ========= =====
For the quarter ended June 30, 1998
Basic EPS
Net Income available to common shareholders $ 97 3,759,045 $0.03
====== =====
Effect of Dilutive Securities:
Stock Options 70,918
Unvested RRP shares 31,933
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $ 97 3,861,896 $0.03
====== ========= =====
(4) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in financial statements. Comprehensive income
represents the sum of net income and items of "other comprehensive income,"
which are reported directly in shareholders' equity, net of tax, such as the
change in the net unrealized gain or loss on securities available for sale.
While SFAS No. 130 does not require a specific reporting format, it does require
that an enterprise display an amount representing total comprehensive income for
each period for which an income statement is presented. Accumulated other
comprehensive income, which is included in shareholders' equity, net of tax,
represents the net unrealized gain or loss on securities available for sale.
Comprehensive income (loss) for the six-month periods ended June 30, 1999
and 1998 was ($1.6) million and $842 thousand, respectively. Comprehensive
income (loss) for the three-month periods June 30, 1999 and 1998 was ($2.1)
million and $491 thousand, respectively.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Ambanc Holding Co., Inc. ("Ambanc" or the "Company") is a savings and loan
holding company. Ambanc was formed as a Delaware corporation to act as the
holding company for the former Amsterdam Savings Bank, FSB (now known as Mohawk
Community Bank) upon the completion of Amsterdam Savings Bank's conversion from
the mutual to stock form on December 26, 1995 (the "Conversion").
On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. ("AFSALA")
and its wholly owned subsidiary, Amsterdam Federal Bank. Pursuant to the merger
agreement, AFSALA was merged with and into Ambanc Holding Co., Inc., and
Amsterdam Federal Bank was merged with and into the former Amsterdam Savings
Bank, FSB. The combined bank now operates as one institution under the name
"Mohawk Community Bank" (the "Bank"). See "Acquisition of AFSALA Bancorp, Inc."
The 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 securities, 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 the
provision for loan losses.
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services. Management's
strategy has been to try to achieve a high loan to asset ratio with emphasis on
originating traditional one- to four-family residential mortgage and home equity
loans in its primary market area. At June 30, 1999, the loan receivable, net, to
assets ratio was 60.2%, up from 57.2% at December 31, 1998. In addition, the
portfolio of loans secured by one- to four-family residential mortgage and home
equity loans as a percentage of the total loan portfolio was 86.6% at June 30,
1999, up from 84.3% at December 31, 1998.
Forward-Looking Statements
When used in this Form 10-Q, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results and
those presently anticipated or projected, including, but not limited to, changes
in economic conditions in the Company's market area, changes in policies by
9
<PAGE>
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, the possibility that expected cost
savings from the merger with AFSALA cannot be fully realized or realized within
the expected time frame, the possibility that costs or difficulties related to
the intergration of the businesses of the Company and AFSALA may be greater than
expected and the possibility that revenues following the merger with AFSALA may
be greater than expected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Company wishes to advice readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake - and specifically disclaim any obligation -
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Acquisition Of AFSALA Bancorp, Inc.
On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. and its
wholly owned subsidiary, Amsterdam Federal Bank. At the date of the merger,
AFSALA had approximately $167.1 million in assets, $144.1 million in deposits,
and $19.2 million in shareholders' equity. Pursuant to the merger agreement,
AFSALA was merged with and into Ambanc Holding Co., Inc., and Amsterdam Federal
Bank was merged with and into the former Amsterdam Savings Bank, FSB. The
combined bank now operates as one institution under the name "Mohawk Community
Bank" .
Upon consummation of the merger, each share of AFSALA common stock was
converted into the right to receive 1.07 shares of Ambanc common stock. Based on
the 1,249,727 shares of AFSALA common stock issued and outstanding immediately
prior to the merger, the Company issued 1,337,207 shares of common stock in the
merger. Of the 1,337,207 shares issued in the merger, 1,327,086 were issued from
the Company's treasury stock and 10,121 were newly-issued shares. In addition,
under the merger agreement, the Company assumed unexercised, fully-vested
options to purchase 144,118 shares of AFSALA common stock which converted into
fully-vested options to purchase 154,206 shares of Ambanc common stock.
The acquisition was accounted for using purchase accounting in accordance
with APB Opinion No. 16, "Business Combinations" (APB No. 16). Under purchase
accounting, the purchase price is allocated to the respective assets acquired
and liabilities assumed based on their estimated fair values. The acquisition of
AFSALA resulted in approximately $8.0 million in excess of cost over net assets
acquired ("goodwill"). Goodwill is being amortized to expense over a period of
fifteen years using the straight-line method. The results of operations of
AFSALA have been included in the Company's consolidated statement of income from
the date of acquisition.
Financial Condition
Comparison of Financial Condition at June 30, 1999 and December 31, 1998. Total
assets decreased by $21.7 million or 3.0% to $713.7 million at June 30, 1999
from $735.5 million at December 31, 1998, primarily due to decreases in cash and
cash equivalents and securities available for sale of $24.0 million and $8.6
million, respectively, offset by increases in loans receivable, net and other
assets of $8.5 million and $2.3 million, respectively.
10
<PAGE>
Cash and cash equivalents decreased $24.0 million, or 56.0% to $18.8
million at June 30, 1999 from $42.8 million at December 31, 1998. Likewise,
securities available for sale decreased $8.6 million, or 3.5%, to $235.6 million
at June 30, 1999 from $244.2 million at December 31, 1998 resulting primarily
from the maturities and calls of securities. Loans receivable, net increased
$8.5 million from $420.9 million at December 31, 1998, to $429.4 million at June
30, 1999, an increase of 2.0% due to increased loan activity primarily in
residential mortgage and home equity loans. In addition, other assets increased
$2.3 million, or 70.2%, to $5.6 million at June 30, 1999, due primarily to the
deferred tax consequences related to the adjustment of securities available for
sale to fair value.
Deposits decreased by $1.2 million, or 0.3%, to $460.2 million at June 30,
1999 from $461.4 million at December 31, 1998. Likewise, borrowed funds
decreased $14.6 million, or 8.4%, to $159.2 million at June 30, 1999 from $173.8
million at December 31, 1998, due to the maturity of repurchase agreements.
Also, due to brokers decreased $5.0 million to $1.0 million at June 30, 1999,
resulting from the payment of amounts due to brokers from purchases of
securities outstanding on December 31, 1998. However, accrued expenses and other
liabilities increased $1.4 million, or 31.0%, to $5.9 million at June 30, 1999.
This increase was the result of a change in processing whereby teller drafts and
money orders are now drawn upon the Bank and ultimately paid through the Bank's
Federal Reserve Bank correspondent account and are included in accrued expenses
and other liabilities. Previously, these items were drawn against a
correspondent bank account.
Shareholders' equity decreased $3.2 million, or 3.7%, from $85.9 million at
December 31, 1998 to $82.7 million at June 30, 1999, due primarily to the
decrease in net unrealized gain or loss on securities available for sale, net of
tax, of $3.7 million, in addition to, the purchases of treasury stock and the
payment of cash dividends of $1.6 million and $800 thousand, respectively. These
decreases were offset by net income of $2.1 million for the six months ended
June 30, 1999. Other significant items impacting shareholders' equity during the
first six months of 1999 were the release of 23,419 ESOP shares, and the
continued amortization of the unearned RRP shares.
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998.
Net Income. Net income for the three months ended June 30, 1999 was $1.1
million compared to $97 thousand for the three months ended June 30, 1998. Net
income for the three months ended June 30, 1999 increased primarily as a result
of increased net interest income and non-interest income, offset in part by an
increase in non-interest expenses and provision for loan losses. As previously
noted, on November 16, 1998, the Company acquired AFSALA Bancorp, Inc. and its
wholly owned subsidiary, Amsterdam Federal Bank. Many of the fluctuations noted
below, including increases in average balances and certain income and expenses,
are the result of AFSALA's operations being included in the 1999 period but not
in the 1998 period. These and other changes are discussed in more detail below.
11
<PAGE>
Net Interest Income. Net interest income increased $1.7 million, or 43.1%,
to $5.5 million for the three months ended June 30, 1999 from $3.8 million for
the three months ended June 30, 1998. The increase in net interest income was
primarily due to an increase of $188.8 million, or 37.2%, in the average balance
of earning assets (primarily due to the acquisition of AFSALA), in addition to
an increase in interest rate spread from 2.28% for the three months ended June
30, 1998 to 2.51% for the three months ended June 30, 1999, offset by an
increase in the average balance of interest-bearing liabilities of $163.4
million (primarily due to the acquisition of AFSALA), or 38.2%.
Earning assets primarily consist of loans receivable, securities available
for sale, federal funds sold, FHLB of New York stock, and interest-bearing
deposits. Interest-bearing liabilities primarily consist of interest-bearing
deposits, FHLB advances and securities repurchase agreements.
The interest rate spread, which is the difference between the yield on
average earning assets and the cost of average interest-bearing liabilities,
increased to 2.51% for the three months ended June 30, 1999 from 2.28% for the
three months ended June 30, 1998. The increase in the interest rate spread is
primarily the result of the decrease in the average cost of interest-bearing
liabilities being greater than the decrease in the average yield on earning
assets.
Interest and Dividend Income. Interest and dividend income increased by
approximately $2.9 million, or 31.5%, to $12.0 million for the three months
ended June 30, 1999 from $9.1 million for the three months ended June 30, 1998.
The increase was largely the result of an increase of $188.8 million, or 37.2%,
in the average balance of earning assets to $695.9 million for the three months
ended June 30, 1999, as compared to $507.1 million for the three months ended
June 30, 1998. The increase in the average balance of earning assets consisted
primarily of increases in the average balance of loans receivable of $135.6
million, or 46.2%, securities available for sale of $43.9 million, or 21.4%,
FHLB of New York stock of $3.7 million, or 103.4 %, and federal funds sold and
interest-bearing deposits of $5.6 million. Offsetting the effects of the
increase in the average balance of earning assets was a 30 basis point decrease
in the average yield on total earning assets. The yield on the average balance
of earning assets was 6.89% and 7.19% for the three months ended June 30, 1999
and 1998, respectively.
Interest and fees on loans increased $2.2 million, or 38.8%, to $7.8
million for the three months ended June 30, 1999. This increase was primarily
the result of an increase in the average balance of loans receivable of $135.6
million offset by a 39 basis point decrease in the average yield.
Interest and dividend income on securities available for sale increased
$538 thousand, or 16.2%, to $3.9 million for the three months ended June 30,
1999 from $3.3 million 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 $43.9 million offset by a 28 basis point decrease in the
average yield on these securities.
Interest Expense. Total interest expense increased by $1.2 million, or
22.9%, to $6.5 million for the three months ended June 30, 1999 from $5.2
million for the three months ended June 30, 1998. Total average interest-bearing
liabilities increased by $163.4 million, or 38.2%, to $591.3 million for the
second quarter of 1999 compared to $427.9 million for the same period of the
previous year. During the same periods, the average rate paid on
interest-bearing liabilities decreased by 54 basis points to 4.38% from 4.92%.
12
<PAGE>
Total interest expense for the three months ended June 30, 1999 increased
primarily due to an increase in the average balance of total borrowed funds to
$166.0 million from $131.1 million, partially offset by a decrease of 38 basis
points, to 5.46%, in the average rate paid for these funds during the period. In
addition, interest expense relative to savings accounts, certificates of
deposits, and money market accounts increased primarily as a result of increases
in the average balances on these deposit accounts as a result of the acquisition
of AFSALA.
Consolidated Average Balances, Interest Rates & Yields
The following table presents for the periods indicated the total dollar
amount of interest and dividend income earned on average earning assets and the
resultant yields, as well as the total dollar amount of interest expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are daily average
balances. Non-accruing loans have been included in the table as loans with
interest earned on a cash basis only. Securities available for sale are included
at amortized cost.
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30,
1999 1998
------------------------------------ -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
<S> <C> <C> <C> <C> <C> <C>
Earning Assets (Dollars in thousands)
Loans receivable $429,013 $ 7,839 7.33% $293,388 $ 5,646 7.72%
Securities available for sale 249,045 3,866 6.21% 205,109 3,328 6.49%
Federal Home Loan Bank Stock 7,215 122 6.78% 3,548 66 7.46%
Federal Funds Sold &
interest-bearing deposits 10,648 130 4.83% 5,056 55 4.30%
-------------- --------- -------- ------------ ---------- ----------
Total earning assets 695,921 11,957 6.89% 507,101 9,095 7.19%
-------------- --------- -------- ------------ ---------- ----------
Allowance for Loan Losses (5,245) (4,000)
Due from Brokers 1,912 16,726
Unrealized Gain/(Loss)-AFS Securities (311) (389)
Other Assets 33,371 16,826
--------------- ------------
Total Assets $725,648 $536,264
=============== ============
Interest-Bearing Liabilities
Savings deposits 140,076 1,015 2.91% 98,439 744 3.03%
NOW deposits 36,967 155 1.68% 22,710 138 2.44%
Certificates of deposit 225,599 2,808 4.99% 168,997 2,407 5.71%
Money Market Accounts 22,637 212 3.76% 6,666 49 2.95%
Borrowed Funds 165,982 2,261 5.46% 131,073 1,909 5.84%
-------------- --------- -------- ------------ ---------- ----------
Total interest-bearing liabilities 591,261 6,451 4.38% 427,885 5,247 4.92%
-------------- --------- -------- ------------ ----------- ----------
Demand Deposits 34,963 25,062
Other Liabilities 14,701 23,448
--------------- ------------
Total Liabilities 640,925 476,395
--------------- ------------
Shareholders' Equity 84,723 59,869
--------------- ------------
Total Liabilities & Equity $725,648 $536,264
=============== ============
Net interest income $ 5,506 $3,848
Interest rate spread 2.51% 2.28%
Net earning assets $104,660 $79,216
Net interest margin 3.17% 3.04%
Average Earning Assets/Average
Interest-Bearing Liabilities 117.70% 118.51%
</TABLE>
14
<PAGE>
Provision for Loan Losses. The Company's provision for loan losses is based
upon its analysis of the adequacy of the allowance for loan losses. 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 the 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. The ratio of non-performing loans to total loans increased to
0.73% at June 30, 1999 from 0.68% at December 31, 1998. Non-performing loans at
June 30, 1999 were $3.2 million, or 9.7% greater than non-performing loans at
December 31, 1998 of $2.9 million. The provision for loan losses for the three
months ended June 30, 1999 increased $15 thousand to $240 thousand from $225
thousand for the three months ended June 30, 1998.
Non-Interest Income. Total non-interest income increased by $230 thousand,
or 110.6%, to $438 thousand for the three months ended June 30, 1999 from $208
thousand for the three months ended June 30, 1998 primarily due to the increase
in service charges on deposit accounts attributable to the restructuring of
service charges on certain deposit products, in addition to an increase in the
number of deposit accounts due to the acquisition of AFSALA, coupled with net
losses on securities transactions of $112 thousand during the quarter ended June
30, 1998.
Non-Interest Expenses. Non-interest expenses increased $174 thousand, or
4.8%, to $3.8 million for the three months ended June 30, 1999 from $3.7 million
for the three months ended June 30, 1998. Non-interest expenses were impacted by
increased salaries, wages and benefits primarily due to the additional AFSALA
branches acquired, in addition to the acceleration of depreciation and
amortization of equipment and leasehold improvements, and the amortization of
goodwill as a result of the acquisition of AFSALA. These and other changes are
discussed in more detail below.
Salaries, wages and benefits increased by $334 thousand, or 21.3%, due
primarily to increased costs as a result of the acquisition of AFSALA, the
opening of a new branch in February 1999, increased costs associated with the
Company's ESOP, as well as general cost of living and merit raises to employees.
Management believes that salaries, wages and benefits may fluctuate in future
periods as a result of the costs related to the Company's ESOP, as the expense
related to the ESOP is dependent on the Company's average stock price.
Also impacting expenses during the quarter ended June 30, 1998 were costs
incurred in connection with the termination and consulting agreements entered
into with the former President and CEO totaling $399 thousand.
Occupancy and equipment increased $157 thousand, or 39.4%, to $555 thousand
for the three months ended June 30, 1999, from $398 thousand in 1998 primarily
due to the acceleration of depreciation and amortization of equipment and
leasehold improvements on a branch being closed as a result of the acquisition.
In addition, rent and maintenance expense increased as a result of the opening
of a new branch in February 1999 and the four additional AFSALA branches
acquired.
Data processing increased $87 thousand, or 28.6%, from $304 thousand in
1998 to $391 thousand for the three months ended June 30, 1999 primarily due to
an increase in the number of deposit and loan accounts due to the acquisition of
AFSALA.
15
<PAGE>
Non-interest expenses for the three months ended June 30, 1999 included the
amortization of goodwill totaling approximately $133 thousand, which is being
amortized to expense over fifteen years using the straight-line method.
Professional fees decreased $134 thousand, or 60.4%, from the quarter ended
June 30, 1998 to the quarter ended June 30, 1999 due primarily to legal expenses
incurred by the Company during the quarter ended June 30, 1998 to defend against
litigation initiated by a shareholder totaling $159 thousand.
Income Tax Expense. Income tax expense increased by $704 thousand to $776
thousand for the three months ended June 30, 1999 from $72 thousand for the
three months ended June 30, 1998. The increase was primarily the result of the
increase in income before taxes.
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998.
Net Income. Net income increased by $1.6 million for the six months ended
June 30, 1999 to $2.1 million from $543 thousand for the six months ended June
30, 1998. Net income for the six months ended June 30, 1999 increased primarily
as a result of increased net interest income and non-interest income, offset in
part by an increase in non-interest expenses and provision for loan losses. As
previously noted, on November 16, 1998, the Company acquired AFSALA Bancorp,
Inc. and its wholly owned subsidiary, Amsterdam Federal Bank. Many of the
fluctuations noted below, including increases in average balances and certain
income and expenses, are the result of AFSALA's operations being included in the
1999 period but not in the 1998 period. These and other changes are discussed in
more detail below.
Net Interest Income. Net interest income increased $3.2 million, or 41.4%,
to $10.9 million for the six months ended June 30, 1999 from $7.7 million for
the six months ended June 30, 1998. The increase in net interest income was
primarily due to an increase of $198.4 million, or 39.7%, in the average balance
of earning assets (primarily due to the acquisition of AFSALA), in addition to
an increase in interest rate spread from 2.34% for the six months ended June 30,
1998 to 2.50% for the six months ended June 30, 1999, offset by an increase in
the average balance of interest-bearing liabilities of $173.4 million (primarily
due to the acquisition of AFSALA), or 41.0%.
Interest and Dividend Income. Interest and dividend income increased by
approximately $5.8 million, or 32.1%, to $23.9 million for the six months ended
June 30, 1999 from $18.1 million for the six months ended June 30, 1998. The
increase was largely the result of an increase of $198.4 million, or 39.7%, in
the average balance of earning assets to $698.5 million for the six months ended
June 30, 1999, as compared to $500.1 million for the six months ended June 30,
1998. The increase in the average balance of earning assets consisted primarily
of increases in the average balance of loans receivable of $137.6 million, or
47.5%, securities available for sale of $44.0 million, or 21.7%, FHLB of New
York stock of $3.7 million, or 106.6 %, and federal funds sold and
interest-bearing deposits of $13.2 million. Offsetting the effects of the
increase in the average balance of earning assets was a 39 basis point decrease
in the average yield on total earning assets. The yield on the average balance
of earning assets was 6.91% and 7.30% for the six months ended June 30, 1999 and
1998, respectively.
16
<PAGE>
Interest and fees on loans increased $4.5 million, or 40.1%, to $15.6
million for the six months ended June 30, 1999. This increase was primarily the
result of an increase in the average balance of net loans receivable of $137.6
million offset by a 39 basis point decrease in the average yield.
Interest income on securities available for sale increased $925 thousand,
or 13.7%, to $7.7 million for the six months ended June 30, 1999 from $6.7
million 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
$44.0 million offset by a 44 basis point decrease in the average yield on these
securities.
Interest Expense. Total interest expense increased by $2.6 million, or
25.3%, to $13.0 million for the six months ended June 30, 1999 from $10.4
million for the six months ended June 30, 1998. Total average interest-bearing
liabilities increased by $173.4 million, or 41.0%, to $595.9 million for the
first six months of 1999 compared to $422.5 million for the same period of the
previous year. During the same periods, the average rate paid on
interest-bearing liabilities decreased by 55 basis points to 4.41% from 4.96%.
Total interest expense for the six months ended June 30, 1999 increased
primarily due to an increase in the average balance of total borrowed funds to
$169.8 million from $121.7 million, partially offset by a decrease of 46 basis
points, to 5.49%, in the average rate paid for these funds during the period. In
addition, interest expense relative to savings, certificates of deposits, and
money market accounts increased primarily as a result of increases in the
average balances on these deposit accounts as a result of the acquisition of
AFSALA.
Consolidated Average Balances, Interest Rates & Yields
The following table presents for the periods indicated the total dollar
amount of interest and dividend income earned on average earning assets and the
resultant yields, as well as the total dollar amount of interest expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are daily average
balances. Non-accruing loans have been included in the table as loans with
interest earned on a cash basis only. Securities available for sale are included
at amortized cost.
17
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
------------------------------------ -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
<S> <C> <C> <C> <C> <C> <C>
Earning Assets (Dollars in thousands)
Loans receivable $427,099 $15,620 7.38% $289,526 $11,152 7.77%
Securities available for sale 246,897 7,658 6.20% 202,932 6,733 6.64%
Federal Home Loan Bank Stock 7,215 241 6.74% 3,493 129 7.45%
Federal Funds Sold &
interest-bearing deposits 17,279 402 4.63% 4,124 90 4.34%
-------------- --------- -------- ------------ ---------- ----------
Total earning assets 698,490 23,921 6.91% 500,075 18,104 7.30%
-------------- --------- -------- ------------ ---------- ----------
Allowance for Loan Losses (5,115) (3,938)
Due from Brokers 1.216 9,281
Unrealized Gain/(Loss)-AFS Securities 20 (272)
Other Assets 31,708 15,865
--------------- ------------
Total Assets $726,319 $521,011
=============== ============
Interest-Bearing Liabilities
Savings deposits 139,457 2,007 2.90% 97,554 1,467 3.03%
NOW deposits 37,369 299 1.61% 21,127 273 2.49%
Certificates of deposit 226,665 5,670 5.04% 174,393 4,966 5.74%
Money Market Accounts 22,520 426 3.81% 6,732 98 2.94%
Borrowed Funds 169,843 4,620 5.49% 121,691 3,590 5.95%
-------------- --------- -------- ------------ ---------- ----------
Total interest-bearing liabilities 595,854 13,022 4.41% 422,497 10,394 4.96%
-------------- --------- -------- ------------ ----------- ----------
Demand Deposits 33,096 23,595
Other Liabilities 12,216 14,683
--------------- ------------
Total Liabilities 641,166 460,775
--------------- ------------
Shareholders' Equity 85,153 60,238
--------------- ------------
Total Liabilities & Equity $726,319 $521,011
=============== ============
Net interest income $10,899 $7,710
Interest rate spread 2.50% 2.34%
Net earning assets $102,636 $77,578
Net interest margin 3.15% 3.11%
Average Earning Assets/Average
Interest-Bearing Liabilities 117.23% 118.36%
</TABLE>
18
<PAGE>
Provision for Loan Losses. The Company's provision for loan losses is based
upon its analysis of the adequacy of the allowance for loan losses. 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 the 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. The ratio of non-performing loans to total loans increased to
0.73% at June 30, 1999 from 0.68% at December 31, 1998. Non-performing loans at
June 30, 1999 were $3.2 million, or 9.7% greater than non-performing loans at
December 31, 1998 of $2.9 million. The provision for loan losses for the six
months ended June 30, 1999 increased $45 thousand to $495 thousand from $450
thousand for the six months ended June 30, 1998.
Non-Interest Income. Total non-interest income increased during the six
months ended June 30, 1999 to $862 thousand compared with $533 thousand for the
six months ended June 30, 1998. An increase in service charges on deposit
accounts of $219 thousand attributable to the restructuring of service charges
on certain deposit products, in addition to an increase in the number of deposit
accounts due to the acquisition of AFSALA along with net losses on securities
transactions recorded during the first six months of 1998 of $105 thousand
comprise the increase from the previous period.
Non-Interest Expenses. Non-interest expenses increased $766 thousand, or
11.2%, to $7.6 million for the six months ended June 30, 1999 from $6.8 million
for the six months ended June 30, 1998. Non-interest expenses were impacted by
increased salaries, wages and benefits primarily due to the additional AFSALA
branches acquired, in addition to the acceleration of depreciation and
amortization of equipment and leasehold improvements, and the amortization of
goodwill as a result of the acquisition of AFSALA. These and other changes are
discussed in more detail below.
Salaries, wages and benefits increased by $573 thousand, or 18.2%, from the
previous period due primarily to increased costs as a result of the acquisition
of AFSALA, the opening of a new branch in February 1999, increased costs
associated with the Company's ESOP, as well as general cost of living and merit
raises to employees. Management believes that salaries, wages and benefits may
fluctuate in future periods as a result of the costs related to the Company's
ESOP, as the expense related to the ESOP is dependent on the Company's average
stock price.
Also impacting expenses during the six months ended June 30, 1998 were
costs incurred in connection with the termination and consulting agreements
entered into with the former President and CEO totaling $399 thousand.
Occupancy and equipment increased $373 thousand, or 46.0%, to $1.2 million
for the six months ended June 30, 1999, from $811 thousand in 1998 primarily due
to the acceleration of depreciation and amortization of equipment and leasehold
improvements on a branch being closed as a result of the acquisition. In
addition, rent and maintenance expense increased as a result of the opening of a
new branch in February 1999 and the four additional AFSALA branches acquired.
Non-interest expenses for the six months ended June 30, 1999 included the
amortization of goodwill totaling approximately $266 thousand, which is being
amortized to expense over fifteen years using the straight-line method.
19
<PAGE>
Professional fees decreased $184 thousand, or 51.1%, from the six months
ended June 30, 1998 to the six months ended June 30, 1999 due primarily to legal
expenses incurred by the Company during the six months ended June 30, 1998 to
defend against litigation initiated by a shareholder totaling $159 thousand.
Other non-interest expenses increased approximately $83 thousand, or 6.0%
to $1.5 million for the six months ended June 30, 1999 when compared to the
previous period. This increase was primarily due to the replacement of supplies
related to the new bank, additional courier services for check processing and
telephone expense due to the added AFSALA branches.
Income Tax Expense. Income tax expense increased by $1.1 million to $1.6
million for the six months ended June 30, 1999 from $434 thousand for the six
months ended June 30, 1998. The increase was primarily the result of the
increase in income before taxes.
20
<PAGE>
ASSET QUALITY
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated.
June 30, Dec.31,
1999 1998
------ ------
(Dollars in thousands)
Non-accruing loans:
One-to four-family (1) .................. $1,431 $1,018
Multi-family ............................ -- --
Commercial real estate .................. 64 20
Consumer ................................ 422 342
Commercial Business ..................... 315 230
------ ------
Total ................................. 2,232 1,610
------ ------
Accruing loans delinquent more than 90 days:
One-to four-family (1) .................. 170 358
Multi-family ............................ -- --
Commercial real estate .................. 110 215
Consumer ................................ 22 7
Commercial Business ..................... -- --
------ ------
Total ................................. 302 580
------ ------
Troubled debt restructured loans:
One-to four-family (1) .................. 85 85
Multi-family ............................ -- --
Commercial real estate .................. 483 537
Consumer ................................ -- --
Commercial Business ..................... 84 92
------ ------
Total ................................. 652 714
------ ------
Total non-performing loans ................. 3,186 2,904
------ ------
Real estate owned and repossessed assets:
One-to four-family (1) .................. 139 313
Multi-family ............................ -- --
Commercial real estate .................. 30 30
Consumer ................................ 41 56
Commercial Business ..................... -- --
------ ------
Total ................................. 210 399
------ ------
Total non-performing assets ................ $3,396 $3,303
====== ======
Non-performing loans as a percentage
of total loans .......................... 0.73% 0.68%
Non-performing assets as a percentage
of total assets ......................... 0.48% 0.45%
(1) Includes home equity loans.
21
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risks inherent in the loan
portfolio and changes in the nature and volume of its loan activity, including
those loans that are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectibility may
not be reasonably assured, considers, among other matters, the estimated fair
value of the underlying collateral for collateral dependent loans, the net
present value of estimated future cash flows if the loan is not collateral
dependent, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. The following table sets forth a summary of activity in the Company's
allowance for loan losses.
For the six months
ended June 30,
1999 1998
------- -------
(In thousands)
Balance at beginning of period ........ $ 4,891 $ 3,807
Charge-offs:
One- to four-family .............. (55) (6)
Multi-family ..................... -- --
Commercial real estate ........... -- --
Consumer ......................... (51) (176)
Commercial business .............. (49) (25)
------ ------
Total charge-offs ............. (155) (207)
Recoveries:
One- to four-family .............. -- 1
Multi-family ..................... -- --
Commercial real estate ........... 35 --
Consumer ......................... 71 28
Commercial business .............. 15 11
------ ------
Total recoveries .............. 121 40
Net charge-offs ....................... (34) (167)
Provisions charged to operations ...... 495 450
------ ------
Balance at end of period .............. 5,352 4,090
====== ======
Ratio of allowance for loan
losses to total loans (period end) .... 1.23% 1.26%
Ratio of allowance for loan losses
to non-performing loans (at period end) 167.98% 122.68%
Ratio of net charge-offs during the
period to average loans outstanding
during period (annualized) ............ 0.02% 0.12%
22
<PAGE>
Liquidity and Capital Resources
The 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%. The Bank's average liquidity ratio was 31.24% and
31.97% at June 30, 1999 and December 31, 1998, respectively.
The Company's sources of liquidity include cash flows from operations,
principal and interest payments on loans, mortgage-backed securities and
collateralized mortgage obligations, maturities of securities, deposit inflows,
borrowings from the FHLB of New York and proceeds from the sale of securities
sold under agreements to repurchase.
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, the Bank invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
In addition to deposit growth, the Company borrows funds from the FHLB of
New York or may utilize other types of borrowed funds to supplement its cash
flows. At June 30, 1999 and December 31, 1998, the Company had $21.2 and $21.4
million, respectively, in outstanding term borrowings from the FHLB and $138.0
million and $152.4 million, respectively, in securities repurchase agreements.
As of June 30, 1999 and December 31, 1998, the Company had $235.6 million
and $244.2 million, respectively, of securities classified as available for
sale. The liquidity of the securities available for sale portfolio provides the
Company 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 the
Company's commitments to make loans and management's assessment of the Company's
ability to generate funds.
The Bank is subject to federal regulations that impose certain minimum
capital requirements. At June 30, 1999, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
June 30, 1999 according to regulatory definition. At June 30, 1999, the Bank's
consolidated tangible and core capital levels were both $66.3 million (9.41% of
total adjusted assets) and its total risk-based capital level was $70.3 million
(21.89% of total risk-weighted assets). The minimum regulatory capital ratio
requirements of the Bank are 1.5% for tangible capital, 4.0% for core capital,
and 8.0% for total risk-based capital.
During the first six months of 1999, the Company repurchased 95,500 shares
of stock in open-market transactions at a total cost of $1.6 million.
23
<PAGE>
Impact of the Year 2000
The Year 2000 issue confronting the Company, its vendors, and its
customers, centers on the inability of some computer systems to recognize the
year 2000. Many existing computer programs and systems originally were
programmed with six digit dates that provided only two digits to identify the
calendar year in the date field. With the impending new millennium, these
programs and computers will recognize "00" as the year 1900 rather than the year
2000.
Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the responsibilities
of senior management and directors. The Federal Financial Institution
Examination Council has issued several interagency statements on Y2K project
management awareness. These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors with
respect to data exchange and the potential impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each federally
regulated financial institution to survey its exposure, measure its risk and
plan to address the Y2K issue. In addition, the federal banking regulators have
issued safety and soundness guidelines to be followed by insured depository
institutions to assure resolution of any Y2K problems. The federal banking
agencies have assured that Y2K testing and certification is a key safety and
soundness issue in conjunction with regulatory exams and thus, that an
institution's failure to address appropriately the Y2K issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, the denial of application for approval of mergers or acquisitions or
the imposition of civil money penalties.
The Company has formulated a plan addressing the Y2K issue and established
a seven member steering committee. The Company's steering committee meets
monthly and reports on a quarterly basis to the Board of Directors as to the
Company's progress in resolving any Y2K problems. The committee created an
action plan that includes milestones, budget, estimates, strategies, and
methodologies to track and report the status of the project. Members of the
committee attended conferences to gain more insight into the Y2K issue and
potential strategies for addressing it. These strategies were further developed
with respect to how the objectives of the Y2K plan would be achieved, and a Y2K
business risk assessment was made to quantify the extent of the Company's Y2K
exposure. A Company inventory was developed to identify and monitor Y2K
readiness for information systems, including hardware, software, and vendors, as
well as environmental systems, including security systems and facilities. The
Company inventory revealed that Y2K upgrades were available for all vendor
supplied mission critical systems, and these Y2K-ready versions have been
delivered, installed and have entered the validation process. The validation
phase is designed to test the ability of hardware and software to accurately
process date sensitive data. During the validation testing process to date, no
significant Y2K problems have been identified relating to any modified or
upgraded mission critical systems.
During the assessment phase, the Company began to develop back-up or
contingency plans for each of its mission critical systems. The majority of the
Company's mission critical systems are dependent upon third party service
providers or vendors, therefore, contingency plans include using or reverting to
manual systems until system problems can be corrected or selecting a new vendor.
In the event a current vendor's system fails during the validation phase, and it
is determined that the vendor is unable or unwilling to correct the failure, the
Company will convert to a new system from a list of prospective vendors.
24
<PAGE>
The Company has identified a worst case scenario that envisions the
possibility of the lack of power or communication services for a period of time
in excess of a day. Contingency planning is an integral part of the Company's
Y2K readiness plan. Key operating personnel are actively analyzing services that
will be supported during extended outages and preparing written plans and
procedures to train Bank personnel.
There can be no assurance that Year 2000-related problems will not occur.
Despite the Company's efforts to identify and address Year 2000 issues, such
issues presents risks to the Company, including business disruptions and
financial losses.
Since the inception of the Year 2000 project, the costs incurred by the
Company to address Year 2000 compliance were approximately $142 thousand, of
which $99 thousand were hardware and software upgrades which were capitalized
and will be amortized over their estimated useful lives of three to five years.
The Company estimates it will incur up to approximately $200 thousand in direct
costs, primarily as capital expenditures, during fiscal 1999 to support its
compliance initiatives. Although the Company expects its systems to be Year 2000
compliant on or before December 31, 1999, it cannot predict the outcome or the
success of its Year 2000 program, or that third party systems are or will be
Year 2000 complaint, or that the costs required to address the Year 2000 issue,
or that the impact of a failure to achieve substantial Year 2000 compliance,
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
Effect of Inflation and Changing Prices
The Company'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.
Recent Accounting Pronouncements
In June 1999, 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. As recently amended,
this Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Management is currently evaluating the impact of this
Statement on the Company's consolidated financial statements.
25
<PAGE>
Item 3.
Quantitative And Qualitative Disclosures About Market Risk
There have been no material changes in the Company's interest rate risk
position since December 31, 1998. Other types of market risk, such as foreign
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Ambanc Holding Co., Inc.'s Annual Meeting of Shareholders was convened on
May 28, 1999.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to management's nominees as listed in the proxy statement, and all
such nominees were elected.
With respect to management's nominees, voting was as follows: James J.
Bettini, Sr, For - 4,890,209, Withheld - 34,906; Seymour Holtzman, For -
4,884,409, Withheld - 40,706; Allan R. Lyons, For - 4,889,690, Withheld -
35,425; Charles R. Wright, For - 4,890,355, Withheld - 34,760; William L.
Petrosino, For - 4,890,143, Withheld - 34,972.
Proxies were also solicited at the annual meeting for the ratification of
the appointment of KPMG LLP as independent auditors of the Company. The proposal
was adopted, with 4,898,016 shares voting For, 13,422 shares voting Against, and
13,677 shares Abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
Financial data schedule, Exhibit #27
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed during the quarter
ended June 30, 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
/s/ John M. Lisicki
John M. Lisicki
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1999
/s/ James J. Alescio
James J. Alescio
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: August 13, 1999
27
<PAGE>
EXHIBITS INDEX
Exhibit 27 Financial Data Schedule
28
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 OF AMBANC HOLDING CO.,
INC. AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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0
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