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 March 31, 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 .
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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
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(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 May 14, 1999
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 5,315,337
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
March 31, 1999
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Interim Statements of Financial Condition at
March 31, 1999 and December 31, 1998........................... 3
Consolidated Interim Statements of Income for the three months
ended March 31, 1999 and 1998.................................. 4
Consolidated Interim Statements of Cash Flows for the three
months ended March 31, 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.......................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....21
Part II. OTHER INFORMATION..................................................21
Item 6. Exhibits and Reports on Form 8-K...................................21
SIGNATURES....................................................................22
EXHIBITS INDEX................................................................23
<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) March 31, Dec. 31,
1999 1998
--------- ---------
Assets
Cash and due from banks ................................ $ 11,065 $ 9,225
Interest-bearing deposits .............................. 1,748 3,390
Federal funds sold ..................................... 18,300 30,200
--------- ---------
Cash and cash equivalents ......................... 31,113 42,815
Securities available for sale, at fair value ........... 254,461 244,241
Federal Home Loan Bank of New York stock, at cost ...... 7,215 7,215
Loans receivable, net of unamortized fees and costs .... 425,105 425,824
Allowance for loan losses ......................... (5,150) (4,891)
--------- ---------
Loans receivable, net ............................. 419,955 420,933
Accrued interest receivable ............................ 4,601 4,115
Premises and equipment, net ............................ 4,581 4,537
Real estate owned and repossessed assets ............... 321 399
Goodwill ............................................... 7,790 7,923
Other assets ........................................... 3,253 3,294
--------- ---------
Total assets ...................................... $ 733,290 $ 735,472
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ............................................ $ 458,628 $ 461,413
Federal Home Loan Bank term advances ................ 21,299 21,410
Securities sold under agreements to repurchase ...... 152,400 152,400
Advances from borrowers for taxes and insurance ..... 1,932 2,436
Accrued interest payable ............................ 1,376 1,426
Accrued expenses and other liabilities .............. 6,878 4,494
Due to brokers ...................................... 6,000 6,000
--------- ---------
Total liabilities ................................. 648,513 649,579
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at March 31, 1999 and
December 31, 1998 .................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,371 shares issued at March 31,
1999 and December 31, 1998 ......................... 54 54
Additional paid in capital .......................... 63,084 63,019
Retained earnings,substantially restricted .......... 27,017 26,356
Treasury stock, at cost (116,908 shares at March 31,
1999 and 23,908 shares at December 31, 1998) ..... (1,847) (329)
Unallocated common stock held by ESOP ............... (2,700) (2,818)
Unearned RRP shares ................................. (680) (759)
Accumulated other comprehensive (loss) income ....... (151) 370
--------- ---------
Total shareholders' equity ........................ 84,777 85,893
--------- ---------
Total liabilities and shareholders' equity ........ $ 733,290 $ 735,472
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
3
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
Three Months
Ended March 31,
1999 1998
------ ------
Interest and dividend income:
Loans receivable ..................................... $ 7,781 $5,506
Securities available for sale ........................ 3,792 3,405
Federal funds sold and interest-bearing deposits ..... 272 35
Federal Home Loan Bank stock ......................... 119 63
------ ------
Total interest and dividend income ................. 11,964 9,009
------ ------
Interest expense:
Deposits ............................................. 4,212 3,466
Borrowings ........................................... 2,359 1,681
------ ------
Total interest expense ............................. 6,571 5,147
------ ------
Net interest income ................................ 5,393 3,862
Provision for loan losses ............................... 255 225
------ ------
Net interest income after provision
for loan losses .................................. 5,138 3,637
------ ------
Non-interest income:
Service charges on deposit accounts .................. 333 212
Net gains on securities transactions ................. -- 7
Other ................................................ 91 106
------ ------
Total non-interest income .......................... 424 325
------ ------
Non-interest expenses:
Salaries, wages and benefits ......................... 1,824 1,585
Occupancy and equipment .............................. 629 413
Data processing ...................................... 235 309
Correspondent bank processing fees ................... 54 30
Real estate owned and repossessed assets expenses, net 26 8
Professional fees .................................... 88 138
Amortization of goodwill ............................. 133 --
Other ................................................ 757 671
------ ------
Total non-interest expenses ........................ 3,746 3,154
------ ------
Income before taxes .................................... 1,816 808
Income tax expense ...................................... 781 362
------ ------
Net income ......................................... $1,035 $ 446
====== ======
Basic earnings per share $ 0.21 $ 0.12
Diluted earnings per share $ 0.20 $ 0.11
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) Three months
ended March 31,
1999 1998
-------- --------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income ............................................ $ 1,035 $ 446
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....................... 371 177
Provision for loan losses ........................... 255 225
Provision for losses and writedowns on
real estate owned and repossessed assets ....... 1 3
Net loss on sale of real estate owned and
repossessed assets ............................. 1 --
ESOP compensation expense ........................... 188 219
RRP expense ......................................... 79 113
Net gains on securities transactions ................ -- (7)
Net amortization on securities ...................... 301 242
(Increase) decrease in accrued interest receivable
and other assets ............................... (98) 771
Increase in accrued interest payable, accrued
expenses and other liabilities ................. 2,334 104
-------- --------
Net cash provided by
operating activities ............... 4,467 2,293
-------- --------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale .................. 7,000 41,041
Purchases of securities available for sale .......... (43,140) (41,749)
Proceeds from principal paydowns and
maturities of securities available for sale ... 24,751 12,546
Purchase of FHLB stock .............................. -- (207)
Net decrease (increase) in loans made to customers .. 673 (2,895)
Purchases of premises and equipment ................. (281) (68)
Proceeds from sale of real estate owned and
repossessed assets ............................. 125 77
-------- --------
Net cash (used in) provided by
investing activities ............... (10,872) 8,745
-------- --------
(Continued)
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows, Continued (unaudited)
(dollars in thousands) Three months
ended March 31,
1999 1998
-------- --------
Cash flows from financing activities:
(Decrease) in deposits ........................ (2,785) (8,817)
Net (decrease) in FHLB overnight advances ..... (111) (12,300)
Proceeds from repurchase agreements ........... -- 20,000
Repayments of repurchase agreements ........... -- (2,600)
Decrease in advances from borrowers for taxes
and insurance .............................. (504) (583)
Purchase of Treasury Stock .................... (1,557) (876)
Excercise of options .......................... 34 --
Dividends paid ................................ (374) (256)
-------- --------
Net cash provided by financing activities (5,297) (5,432)
-------- --------
Net (decrease) increase in cash and cash equivalents (11,702) 5,606
Cash and cash equivalents at beginning of period ... 42,815 10,225
-------- --------
Cash and cash equivalents at end of period ......... $ 31,113 $ 15,831
======== ========
Supplemental disclosures of cash flow information-
cash paid during the period for:
Interest ........................................... $ 6,621 $ 5,061
======== ========
Income taxes ....................................... -- $ 267
======== ========
Noncash investing and financing activities:
Net transfer of loans to real estate owned and
repossessed assets ............................ $ 50 $ 77
======== ========
Adjustment of securities available for sale to
fair value, net of tax ........................ ($ 521) ($ 95)
======== ========
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 periods ended March 31, 1999 and March 31, 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. 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 quarter ended March 31, 1999
Basic EPS
Net Income available to common shareholders $1,035 5,009,031 $0.21
====== =====
Effect of Dilutive Securities:
Stock Options 31,603
Unvested RRP shares 20,201
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $1,035 5,060,835 $0.20
====== ========= =====
For the quarter ended March 31, 1998
Basic EPS
Net Income available to common shareholders $446 3,828,636 $0.12
====== =====
Effect of Dilutive Securities:
Stock Options 62,499
Unvested RRP shares 36,769
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $446 3,927,904 $0.11
====== ========= =====
7
<PAGE>
(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 for the three-month periods ended March 31, 1999 and
1998 was $514,000 and $351,000, respectively.
(5) Segments of an Enterprise
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments. For the Company, the statement became effective for its annual
financial statements for the year ended December 31, 1998. The Company engages
in the traditional operations of a community banking enterprise, principally the
delivery of loan and deposit products and other financial services. Management
makes operating decisions and assesses performance based on an ongoing review of
the Company's community banking operations, which constitute the Company's only
operating segment for financial reporting purposes. The Company operates
primarily in upstate New York in Montgomery, Fulton, Schenectady, Saratoga,
Albany, Otsego, Chenango and Schoharie counties and surrounding areas.
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."
8
<PAGE>
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 Bank's
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. The ratio of the Bank's net loans to assets
ratio was 57.3% at March 31, 1999. In addition, the Bank's portfolio of loans
secured by one- to four-family residential mortgage and home equity loans as a
percentage of the Bank's total loan portfolio was 84.9% at March 31, 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
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 advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake - and specifically disclaims any obligation
- - to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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".
9
<PAGE>
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 statements of income for
periods subsequent to the date of acquisition.
Financial Condition
Comparison of Financial Condition at March 31, 1999 and December 31, 1998.
Total assets decreased by $2.2 million or 0.3% to $733.3 million at March 31,
1999 from $735.5 million at December 31, 1998, primarily due to decreases in
cash and cash equivalents and loans receivable, net, of $11.7 million and $978
thousand, respectively, offset by an increase in securities available for sale
of $10.2 million.
Cash and cash equivalents decreased $11.7 million, or 27.3% to $31.1
million at March 31, 1999 from $42.8 million at December 31, 1998. Conversely,
securities available for sale increased by $10.2 million, or 4.2%, to $254.5
million at March 31, 1999 from $244.2 million at December 31, 1998. These shifts
were primarily the result of the re-investment of funds from federal funds sold
into securities available for sale.
Loans receivable, net decreased $978 thousand from $420.9 million at
December 31, 1998, to $420.0 million at March 31, 1999, a decrease of 0.2%.
Likewise, deposits decreased $2.8 million, or 0.6%, to $458.6 million at March
31, 1999. However, accrued expenses and other liabilities increased $2.4
million, or 53.0%, to $6.9 million at March 31, 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 $1.1 million, or 1.3%, from $85.9 million at
December 31, 1998 to $84.8 million at March 31, 1999, due primarily to the
repurchases of stock and the payment of cash dividends of $1.6 million and $374
thousand, respectively. These decreases were offset by net income of $1.0
million for the quarter. Other significant items impacting shareholders' equity
during the first quarter of 1999 were the release of 11,754 ESOP shares, the
continued amortization of the unearned RRP shares, and the change in net
unrealized gain or loss on securities available for sale, net of tax.
10
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998.
Net Income. Net income increased by $589 thousand, or 132.1%, for the three
months ended March 31, 1999 to $1.0 million from $446 thousand for the three
months ended March 31, 1998. Net income for the three months ended March 31,
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
the 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 changes 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 $1.5 million, or 39.6%,
to $5.4 million for the three months ended March 31, 1999 from $3.9 million for
the three months ended March 31, 1998. The increase in net interest income was
primarily due to an increase of $208.1 million, or 42.2%, in the average balance
of earning assets (primarily due to the acquisition of AFSALA), in addition to
an increase in interest rate spread from 2.40% for the three months ended March
31, 1998 to 2.45% for the three months ended March 31, 1999, offset by an
increase in the average balance of interest-bearing liabilities of $178.7
million (primarily due to the acquisition of AFSALA), or 42.8%.
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 2.45% for the three months ended March 31, 1999 from 2.40% for the
three months ended March 31, 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 $3.0 million, or 32.8%, to $12.0 million for the three months
ended March 31, 1999 from $9.0 million for the three months ended March 31,
1998. The increase was largely the result of an increase of $208.1 million, or
42.2%, in the average balance of earning assets to $701.1 million for the three
months ended March 31, 1999, as compared to $493.0 million for the three months
ended March 31, 1998. The increase in the average balance of earning assets
consisted primarily of increases in the average balance of loans receivable of
$139.5 million, or 48.9%, securities available for sale of $44.0 million, or
21.9%, FHLB of New York stock of $3.8 million, or 109.9 %, and federal funds
sold and interest-bearing deposits of $20.8 million. Offsetting the effects of
the increase in the average balance of earning assets was a 49 basis point
decrease in the average yield on total earning assets. The yield on the average
balance of earning assets was 6.92% and 7.41% for the three months ended March
31, 1999 and 1998, respectively.
11
<PAGE>
Interest and fees on loans increased $2.3 million, or 41.3%, to $7.8
million for the three months ended March 31, 1999. This increase was primarily
the result of an increase in the average balance of net loans receivable of
$139.5 million offset by a 40 basis point decrease in the average yield.
Interest income on securities available for sale increased $386 thousand,
or 11.3%, to $3.8 million for the three months ended March 31, 1999 from $3.4
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 59 basis point decrease in the average yield on these
securities.
Interest Expense. Total interest expense increased by $1.4 million, or
27.6%, to $6.6 million for the three months ended March 31, 1999 from $5.1
million for the three months ended March 31. 1998. Total average
interest-bearing liabilities increased by $178.7 million, or 42.8%, to $595.7
million for the first quarter of 1999 compared to $417.1 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 4.47% from 5.01%.
Total interest expense for the three months ended March 31, 1999 increased
primarily due to an increase in the average balance of total borrowed funds to
$173.7 million from $112.2 million, partially offset by a decrease of 57 basis
points, to 5.51%, 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 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.
12
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
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 $425,163 $7,781 7.42% $285,621 $5,506 7.82%
Securities-available for sale 244,726 3,792 6.20% 200,729 3,405 6.79%
Federal Home Loan Bank Stock 7,215 119 6.69% 3,437 63 7.43%
Federal Funds Sold &
interest-bearing deposits 23,983 272 4.54% 3,182 35 4.40%
-------------- --------- -------- ------------ ---------- ----------
Total earning assets 701,087 11,964 6.92% 492,969 9,009 7.41%
-------------- --------- -------- ------------ ---------- ----------
Allowance for Loan Losses (4,983) (3,875)
Due from Brokers 511 1,753
Unrealized Gain/(Loss)-AFS Securities 355 (154)
Other Assets 30,027 14,896
--------------- ------------
Total Assets $726,997 $505,589
=============== ============
Interest-Bearing Liabilities
Savings deposits 138,831 992 2.90% 96,660 723 3.03%
NOW deposits 33,010 144 1.77% 21,538 135 2.54%
Certificates of deposit 227,743 2,861 5.09% 179,848 2,559 5.77%
Money Market Accounts 22,402 215 3.89% 6,800 49 2.92%
Borrowed Funds 173,746 2,359 5.51% 112,204 1,681 6.08%
-------------- --------- -------- ------------ ---------- ----------
Total interest-bearing liabilities 595,732 6,571 4.47% 417,050 5,147 5.01%
-------------- --------- -------- ------------ ----------- ----------
Demand Deposits 36,903 22,113
Other Liabilities 8,775 5,818
--------------- ------------
Total Liabilities 641,410 444,981
--------------- ------------
Stockholders' Equity 85,587 60,608
--------------- ------------
Total Liabilities & Equity $726,997 $505,589
=============== ============
Net interest income $5,393 $3,862
Interest rate spread 2.45% 2.40%
Net earning assets $105,355 $75,919
Net interest margin 3.12% 3.18%
Average Earning Assets/Average
Interest-Bearing Liabilities 117.68% 118.20%
</TABLE>
13
<PAGE>
Consolidated Rate/Volume Analysis of Net Interest Income
The following table presents the dollar amount of changes in interest and
dividend income and interest expense for major components of earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and the changes due to changes in interest rates. For each
category of earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by old rate) and (ii) changes in rate (i.e. changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
Three months ended March 31,
1999 vs. 1998
--------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- ----------
Earning Assets (Dollars in thousands)
Loans receivable .......................... $ 2,538 ($ 263) $ 2,275
Securities available for sale ............. 640 (253) 387
Federal Home Loan Bank Stock .............. 62 (6) 56
Federal Funds sold and interest-bearing
deposits ............................... 236 1 237
--------- -------- ----------
Total earning assets .................. 3,476 (521) 2,955
Interest-Bearing Liabilities
Savings deposits .......................... 300 (31) 269
NOW deposits ............................. 21 (12) 9
Certificates of deposit ................... 539 (237) 302
Money Market Accounts ..................... 145 21 166
Borrowed Funds ............................ 819 (141) 678
--------- -------- ----------
Total interest-bearing liabilities .... $ 1,824 ($ 400) $ 1,424
Net interest income ..................... $ 1,531
==========
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 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. The Bank's ratio of non-performing loans to
total loans was 0.71% and 0.68% at March 31, 1999 and December 31, 1998,
respectively. The provision for loan losses for the three months ended March 31,
1999 increased $30 thousand to $255 thousand from $225 thousand for the three
months ended March 31, 1998.
Non-Interest Income. Total non-interest income increased by $99 thousand,
or 30.5%, to $424 thousand for the three months ended March 31, 1999 from $325
thousand for the three months ended March 31, 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.
14
<PAGE>
Non-Interest Expenses. Non-interest expenses increased $592 thousand, or
18.8%, to $3.7 million for the three months ended March 31, 1999 from $3.2
million for the three months ended March 31, 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 $239 thousand, or 15.1%, due
primarily to increased costs as a result of the acquisition of AFSALA, the
opening of a new branch in February 1999, 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.
Occupancy and equipment increased $216 thousand, or 52.3%, to $629 thousand
for the three months ended March 31, 1999, from $413 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 in the merger.
Data processing decreased $74 thousand, or 23.9%, from $309 thousand in
1998 to $235 thousand for the three months ended March 31, 1999 primarily due to
cost efficiencies associated with the newly converted core application (loans
and deposits) data system.
Non-interest expenses for the three months ended March 31, 1999 included
the amortization of goodwill totaling approximately $133 thousand, which is
being amortized to expense over fifteen years using the straight-line method.
Other non-interest expenses increased approximately $86 thousand, or 12.8%,
to $757 thousand for the three months ended March 31, 1999 when compared to the
previous period. This increase was primarily due to the replacement of supplies
related to the change of the Bank's name, additional courier services for check
processing and telephone expense due to the added AFSALA branches.
Income Tax Expense. Income tax expense increased by $419 thousand, or
115.7%, to $781 thousand for the three months ended March 31, 1999 from $362
thousand for the three months ended March 31, 1998. The increase was primarily
the result of the increase in income before taxes.
15
<PAGE>
ASSET QUALITY
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated.
March 31, Dec.31,
1999 1998
------ ------
(Dollars in thousands)
Non-accruing loans:
One-to four-family (1) .................. $1,221 $1,018
Multi-family ............................ -- --
Commercial real estate .................. 46 20
Consumer ................................ 412 342
Commercial business ..................... 243 230
------ ------
Total ................................. 1,922 1,610
------ ------
Accruing loans delinquent more than 90 days:
One-to four-family (1) .................. 191 358
Multi-family ............................ -- --
Commercial real estate .................. 199 215
Consumer ................................ 1 7
Commercial business ..................... -- --
------ ------
Total ................................. 391 580
------ ------
Troubled debt restructured loans:
One-to four-family (1) .................. 85 85
Multi-family ............................ -- --
Commercial real estate .................. 534 537
Consumer ................................ -- --
Commercial business ..................... 88 92
------ ------
Total ................................. 707 714
------ ------
Total non-performing loans ................. 3,020 2,904
------ ------
Real estate owned and repossessed assets:
One-to four-family (1) .................. 252 313
Multi-family ............................ -- --
Commercial real estate .................. 30 30
Consumer ................................ 39 56
Commercial business ..................... -- --
------ ------
Total ................................. 321 399
------ ------
Total non-performing assets ................ $3,341 $3,303
====== ======
Total as a percentage of total assets ...... 0.46% 0.45%
(1) Includes home equity loans.
16
<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 Bank's 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 an analysis of the Company's allowance
for loan losses.
For the three months
ended March 31,
1999 1998
------- -------
(In thousands)
Balance at beginning of period ........ $ 4,891 $ 3,807
Charge-offs:
One- to four-family .............. (10) (6)
Multi-family ..................... -- --
Commercial real estate ........... -- --
Consumer ......................... (34) (92)
Commercial business .............. -- --
------- -------
Total charge-offs ............. (44) (98)
------- -------
Recoveries:
One- to four-family .............. -- 1
Multi-family ..................... -- --
Commercial real estate ........... 25 --
Consumer ......................... 11 13
Commercial business .............. 12 4
------- -------
Total recoveries .............. 48 18
------- -------
Net recoveries (charge-offs) .......... 4 (80)
Provisions charged to operations ...... 255 225
------- -------
Balance at end of period .............. 5,150 3,952
======= =======
Ratio of allowance for loan
losses to total loans (period end) .... 1.21% 1.37%
Ratio of allowance for loan losses
to non-performing loans (at period end) 170.53% 127.81%
Ratio of net recoveries (charge-offs)
during the period to average
loans outstanding during period ....... 0.00% (0.03%)
17
<PAGE>
Liquidity and Capital Resources
The Bank is required by OTS regulations to maintain, for each calendar
quarter, a daily average balance of cash and eligible liquid investments of not
less than 4% of (i) the amount of its net withdrawable accounts and borrowings
(due in one year or less) at the end of the preceding calendar quarter; or (ii)
the average daily balance of its net withdrawable accounts and borrowings (due
in one year or less) during the preceding calendar quarter. 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 31.35% and 31.97% at
March 31, 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 March 31, 1999 and December 31, 1998, the Company had $21.3 million
and $21.4 million, respectively, in outstanding borrowings from the FHLB of New
York and $152.4 million in securities repurchase agreements.
As of March 31, 1999 and December 31, 1998, the Company had $254.5 million
and $244.2 million of securities, respectively, 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
savings 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 March 31, 1999, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
March 31, 1999 according to regulatory definition. At March 31, 1999, the Bank's
tangible and core capital levels were both $64.9 million (8.98% of total
adjusted assets) and its total risk-based capital level was $68.8 million
(21.79% of total risk-weighted assets). The minimum regulatory capital ratio
requirements of the Bank are 1.5% for tangible capital, 3.0% for core capital,
and 8.0% for total risk-based capital.
During the first three months of 1999, the Company repurchased 95,500
shares of its common stock in open-market transactions at a total cost of $1.6
million.
18
<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 ensure resolution of any Y2K problems. The federal banking
agencies have indicated 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.
19
<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 $41 thousand. The
Company estimates it will incur up to approximately $100 thousand in direct
costs 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. The
Company also cannot predict whether third party systems will be Year 2000
complaint, or whether the costs required to address the Year 2000 issue, and 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 and
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. 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.
20
<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 1. 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
A Current Report on Form 8-K/A was filed by the Company on
January 29, 1999 amending the Company's Current Report on Form
8-K for the event of November 16, 1998. The Form 8-K/A contained
pro forma financial information required by Item 7(b) of Form
8-K.
21
<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: May 17, 1999
/s/ James J. Alescio
James J. Alescio
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: May 17, 1999
22
<PAGE>
EXHIBITS INDEX
Exhibit 27 Financial Data Schedule
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 OF AMBANC HOLDING CO.,
INC. AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11065
<INT-BEARING-DEPOSITS> 1748
<FED-FUNDS-SOLD> 18300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 254461
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 425105
<ALLOWANCE> 5150
<TOTAL-ASSETS> 733290
<DEPOSITS> 458628
<SHORT-TERM> 22400
<LIABILITIES-OTHER> 16186
<LONG-TERM> 151299
0
0
<COMMON> 54
<OTHER-SE> 84723
<TOTAL-LIABILITIES-AND-EQUITY> 733290
<INTEREST-LOAN> 7781
<INTEREST-INVEST> 3792
<INTEREST-OTHER> 391
<INTEREST-TOTAL> 11964
<INTEREST-DEPOSIT> 4212
<INTEREST-EXPENSE> 6571
<INTEREST-INCOME-NET> 5393
<LOAN-LOSSES> 255
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3746
<INCOME-PRETAX> 1816
<INCOME-PRE-EXTRAORDINARY> 1816
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1035
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 3.12
<LOANS-NON> 1922
<LOANS-PAST> 391
<LOANS-TROUBLED> 707
<LOANS-PROBLEM> 3686
<ALLOWANCE-OPEN> 4891
<CHARGE-OFFS> 44
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 5150
<ALLOWANCE-DOMESTIC> 5150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
