UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934. For the quarterly period ended September 30, 1999
-------------------
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
-------
Ambanc Holding Co., Inc.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 14-1783770
- ------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Division Street, Amsterdam, New York 12010-4303
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)842-7200
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at November 15, 1999
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,965,890
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1999
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Interim Statements of Financial Condition at
September 30, 1999 and December 31, 1998....................... 3
Consolidated Interim Statements of Income for the three months
and nine months ended September 30, 1999 and 1998.............. 4
Consolidated Interim Statements of Cash Flows for the nine
months ended September 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) Sept. 30, Dec. 31,
1999 1998
Assets --------- ---------
Cash and due from banks ............................... $ 13,365 $ 9,225
Interest-bearing deposits ............................. 1,154 3,390
Federal funds sold .................................... -- 30,200
--------- ---------
Cash and cash equivalents ........................ 14,519 42,815
--------- ---------
Securities available for sale, at fair value .......... 224,013 244,241
Federal Home Loan Bank of New York stock, at cost ..... 7,539 7,215
Loans receivable, net of unamortized fees and costs ... 461,272 425,824
Allowance for loan losses ........................ (5,580) (4,891)
--------- ---------
Loans receivable, net ............................ 455,692 420,933
--------- ---------
Accrued interest receivable ........................... 4,700 4,115
Premises and equipment, net ........................... 5,270 4,537
Real estate owned and repossessed assets .............. 335 399
Goodwill .............................................. 7,524 7,923
Other assets .......................................... 5,523 3,294
--------- ---------
Total assets ..................................... $ 725,115 $ 735,472
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ........................................... $ 452,947 $ 461,413
Federal Home Loan Bank advances-short term ......... 28,500 --
Federal Home Loan Bank advances-long term .......... 21,077 21,410
Securities sold under agreements to repurchase ..... 132,810 152,400
Advances from borrowers for taxes and insurance .... 4,623 2,436
Accrued interest payable ........................... 1,213 1,426
Accrued expenses and other liabilities ............. 6,883 4,494
Due to brokers ..................................... -- 6,000
--------- ---------
Total liabilities ................................ 648,053 649,579
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at September 30, 1999 and
December 31, 1998 ................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,245 shares issued at September 30,
1999 and December 31, 1998 ........................ 54 54
Additional paid in capital ......................... 63,279 63,019
Retained earnings,substantially restricted ......... 28,458 26,356
Treasury stock, at cost (467,355 shares at September
30, 1999 and 23,908 shares at December 31, 1998) (7,521) (329)
Unallocated common stock held by ESOP .............. (2,468) (2,818)
Unearned RRP shares issued ......................... (553) (759)
Accumulated other comprehensive (loss) income ...... (4,187) 370
--------- ---------
Total shareholders' equity ....................... 77,062 85,893
--------- ---------
Total liabilities and shareholders' equity ....... $ 725,115 $ 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>
Nine months Three Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans ................................................ $ 23,970 $ 17,473 $ 8,350 $ 6,321
Securities available for sale ........................ 11,488 10,082 3,830 3,349
Federal funds sold and interest-bearing deposits ..... 429 262 27 172
Federal Home Loan Bank stock ......................... 368 242 127 113
-------- -------- -------- --------
Total interest and dividend income ................. 36,255 28,059 12,334 9,955
-------- -------- -------- --------
Interest expense:
Deposits ............................................. 12,587 10,072 4,185 3,268
Borrowings ........................................... 6,877 6,192 2,257 2,602
-------- -------- -------- --------
Total interest expense ............................. 19,464 16,264 6,442 5,870
-------- -------- -------- --------
Net interest income ................................ 16,791 11,795 5,892 4,085
Provision for loan losses ............................... 670 675 175 225
-------- -------- -------- --------
Net interest income after provision
for loan losses .................................. 16,121 11,120 5,717 3,860
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 1,030 714 347 250
Net losses on securities transactions ................ -- (165) -- (60)
Other ................................................ 349 223 170 49
-------- -------- -------- --------
Total non-interest income .......................... 1,379 772 517 239
-------- -------- -------- --------
Non-interest expense:
Salaries, wages and benefits ......................... 5,835 4,728 2,075 1,564
Non-recurring termination benefits ................... -- 399 -- --
Occupancy and equipment .............................. 1,733 1,197 549 386
Data processing ...................................... 985 941 359 328
Real estate owned and repossessed assets expenses, net 46 19 26 (2)
Professional fees .................................... 289 507 113 147
Amortization of goodwill ............................. 399 -- 133 --
Other ................................................ 2,329 2,345 779 897
-------- -------- -------- --------
Total non-interest expenses ........................ 11,616 10,136 4,034 3,320
-------- -------- -------- --------
Income before taxes .................................... 5,884 1,756 2,200 779
Income tax expense ...................................... 2,500 735 943 301
-------- -------- -------- --------
Net income ......................................... $ 3,384 $ 1,021 $ 1,257 $ 478
======== ======== ======== ========
Basic earnings per share $ 0.68 $ 0.27 $ 0.26 $ 0.13
Diluted earnings per share $ 0.68 $ 0.27 $ 0.26 $ 0.13
</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) Nine months
ended September 30,
1999 1998
-------- --------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $3,384 $1,021
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,076 504
Provision for loan losses 670 675
Provision for losses and writedowns on
real estate owned and repossessed assets 6 7
Net loss (gain) on sale of real estate
owned and repossessed assets 7 (7)
ESOP compensation expense 561 635
RRP expense 321 338
Net losses on securities transactions ---- 165
Net amortization of premium on securities 688 827
Decrease (increase) in accrued interest
receivable and other assets 281 (556)
Increase in accrued interest payable, accrued
expenses and other liabilities 2,176 1,050
------------ ----------
Net cash provided by
operating activities 9,170 4,659
------------ ----------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale 12,000 119,301
Purchases of securities available for sale (60,140) (142,641)
Proceeds from principal paydowns and
maturities of securities available for sale 54,085 36,655
Purchase of FHLB stock (324) (3,359)
Net increase in loans made to customers (35,700) (18,256)
Loans purchased ---- (31,888)
Purchases of premises and equipment (1,446) (105)
Proceeds from sale of real estate owned
and repossessed assets 322 262
------------ ----------
Net cash used in investing activities (31,203) (40,031)
------------ ----------
(Continued)
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued (unaudited)
(dollars in thousands) Nine months
ended September 30,
1999 1998
-------- --------
Cash flows from financing activities:
Net decrease in deposits (8,466) (19,032)
Net increase (decrease)in FHLB
short term advances 28,500 (12,300)
Proceeds from FHLB long-term advances ---- 20,000
Repayment of FHLB long-term advances (333) ----
Proceeds from repurchase agreements 2,810 161,845
Repayments of repurchase agreements (22,400) (105,645)
Increase (decrease) in advances from
borrowers for taxes and insurance 2,187 (1,002)
Purchase of treasury stock (7,438) (3,976)
Excercise of stock options 139 56
Dividends paid (1,262) (748)
------------ ----------
Net cash (used in) provided by
financing activities (6,263) 39,198
------------ ----------
Net (decrease)increase in cash and cash equivalents (28,296) 3,826
Cash and cash equivalents at beginning of period 42,815 10,259
------------ ----------
Cash and cash equivalents at end of period $14,519 $14,085
============ ==========
Supplemental disclosures of cash flow information -
cash paid during the period for:
Interest $19,678 $15,563
============ ==========
Income taxes $1,952 $838
============ ==========
Noncash investing and financing activities:
Net transfer of loans to real estate owned and
repossessed assets $271 $218
============ ==========
Adjustment of securities available for sale to
fair value, net of tax ($4,557) $1,494
============ ==========
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 included herein, 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 nine month periods ended September 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 1999 interim periods are not necessarily
indicative of the results of operations to be expected for the full fiscal year
ending 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 (RRP shares) 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:
Net Weighted
Income Average Per Share
(in thousands) Shares Amount
------------ ---------- ---------
For the nine months ended September 30, 1999
Basic EPS
Net Income available to common shareholders $3,384 4,946,378 $0.68
====== =====
Effect of Dilutive Securities:
Stock Options 42,431
Unvested RRP shares 14,961
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $3,384 5,003,770 $0.68
====== ========= =====
For the nine months ended September 30, 1998
Basic EPS
Net Income available to common shareholders $1,021 3,762,432 $0.27
====== =====
Effect of Dilutive Securities:
Stock Options 54,833
Unvested RRP shares 27,455
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $1,021 3,844,720 $0.27
====== ========= =====
7
<PAGE>
Net Weighted
Income Average Per Share
(in thousands) Shares Amount
------------ ---------- ---------
For the quarter ended September 30, 1999
Basic EPS
Net Income available to common shareholders $1,257 4,838,482 $0.26
====== =====
Effect of Dilutive Securities:
Stock Options 47,339
Unvested RRP shares 8,476
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $1,257 4,894,297 $0.26
====== ========= =====
For the quarter ended September 30, 1998
Basic EPS
Net Income available to common shareholders $478 3,701,018 $0.13
====== =====
Effect of Dilutive Securities:
Stock Options 31,083
Unvested RRP shares 13,663
---------
Diluted EPS
Net Income available to common shareholders
plus assumed conversions $478 3,745,764 $0.13
====== ========= =====
(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 gains or losses 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 nine-month periods ended September 30, 1999
and 1998 was ($1.2) million and $2.5 million, respectively. Comprehensive income
(loss) for the three-month periods September 30, 1999 and 1998 was $435 thousand
and $1.7 million, respectively. The decreases from the 1998 to 1999 periods were
due to the increases in the net unrealized losses on the Company's securities
available for sale portfolio as a result of a general increase in interest
rates.
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 September 30, 1999, the loans receivable, net, to
assets ratio was 62.8%, 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 86.2% at September
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
regulatory agencies, fluctuations in interest rates, demand for loans in the
9
<PAGE>
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 less 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" .
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 1,337,081 shares of common stock in the
merger. Of the 1,337,081 shares issued in the merger, 1,327,086 were issued from
the Company's treasury stock and 9,995 were newly-issued shares. Cash was paid
in lieu of 126 fractional 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
from the date of acquisition.
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.
Financial Condition
Comparison of Financial Condition at September 30, 1999 and December 31, 1998.
Total assets decreased by $10.4 million or 1.4% to $725.1 million at September
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 $28.3 million and
$20.2 million, respectively, offset by increases in loans receivable, net and
other assets of $34.8 million and $2.2 million, respectively.
10
<PAGE>
Cash and cash equivalents decreased $28.3 million, or 66.1%, to $14.5 million at
September 30, 1999 from $42.8 million at December 31, 1998. Likewise, securities
available for sale decreased $20.2 million, or 8.3%, to $224.0 million at
September 30, 1999 from $244.2 million at December 31, 1998 resulting primarily
from the maturities and calls of securities. Loans receivable, net increased
$34.8 million from $420.9 million at December 31, 1998, to $455.7 million at
September 30, 1999, an increase of 8.3% due to increased loan activity primarily
in residential mortgage and home equity loans. The shift in assets from
lower-yielding federal funds sold and securities available for sale to
higher-yielding loans is consistent with the Company's strategy to attempt to
increase its interest rate spread and net interest margin, while limiting its
interest rate risk.
In addition, other assets increased $2.2 million, or 67.7%, to $5.5 million at
September 30, 1999 due primarily to the deferred tax consequences related to the
adjustment of securities available for sale to fair value.
Deposits decreased by $8.5 million, or 1.8%, to $452.9 million at September 30,
1999 from $461.4 million at December 31, 1998. Likewise, securities repurchase
agreements decreased $19.6 million, or 12.9%, to $132.8 million at September 30,
1999 from $152.4 million at December 31, 1998, due primarily to the maturity of
repurchase agreements. In addition, due to brokers decreased $6.0 million to $0
at September 30, 1999, resulting from the payment of amounts due to brokers from
purchases of securities outstanding on December 31, 1998. Partially offsetting
these decreases was an increase in short-term advances from the Federal Home
Loan Bank of $28.5 million. Accrued expenses and other liabilities increased
$2.4 million, or 53.2%, to $6.9 million at September 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 $8.8 million, or 10.3%, from $85.9 million at
December 31, 1998 to $77.1 million at September 30, 1999, due primarily to the
purchases of treasury stock totaling $7.4 million, and the decrease in net
unrealized gains or losses on securities available for sale, net of tax, of $4.6
million. In addition the Company paid cash dividends of 1.3 million. These
decreases were offset by net income of $3.4 million for the nine months ended
September 30, 1999. Other significant items impacting shareholders' equity
during the first nine months of 1999 were the release of 34,992 ESOP shares, and
the continued amortization of the unearned RRP shares.
11
<PAGE>
Comparison of Operating Results for the Three Months Ended September 30, 1999
and 1998.
Net Income. Net income for the three months ended September 30, 1999 was $1.3
million compared to $478 thousand for the three months ended September 30, 1998.
Net income for the three months ended September 30, 1999 increased primarily as
a result of increased net interest income and non-interest income, coupled with
a decrease in the provision for loan losses, offset in part by an increase in
non-interest expenses and income tax expense. These and other changes are
discussed in more detail below.
Net Interest Income. Net interest income increased $1.8 million, or 44.2%, to
$5.9 million for the three months ended September 30, 1999 from $4.1 million for
the three months ended September 30, 1998. The increase in net interest income
was primarily due to an increase of $139.2 million, or 25.0%, in the average
balance of earning assets (primarily due to the acquisition of AFSALA), in
addition to an increase in the interest rate spread from 2.20% for the three
months ended September 30, 1998 to 2.70% for the three months ended September
30, 1999, offset by an increase in the average balance of interest-bearing
liabilities of $112.5 million (primarily due to the acquisition of AFSALA), or
23.6%.
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 2.70% for the three months ended September 30, 1999 from 2.20% for the three
months ended September 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. As noted previously, during the three months ended September 30, 1999,
the Company has redeployed assets from lower-yielding federal funds sold and
securities available for sale to the higher-yielding loan portfolio. This has
resulted in an increase in both the interest rate spread and net interest
margin.
Interest and Dividend Income. Interest and dividend income increased by
approximately $2.4 million, or 23.9%, to $12.3 million for the three months
ended September 30, 1999 from $10.0 million for the three months ended September
30, 1998. The increase was largely the result of an increase of $139.2 million,
or 25.0%, in the average balance of earning assets to $695.5 million for the
three months ended September 30, 1999, as compared to $556.3 million for the
three months ended September 30, 1998. The increase in the average balance of
earning assets consisted primarily of increases in the average balance of loans
receivable of $119.3 million, or 36.1%, securities available for sale of $30.6
million, or 14.9%, and FHLB of New York stock of $1.0 million, or 16.2 %, offset
in part by a decrease in the average balance of federal funds sold and
interest-bearing deposits of $11.7 million, or 85.0%. In addition, offsetting
the effects of the increase in the average balance of earning assets was a 6
basis point decrease in the average yield on total earning assets. The yield on
the average balance of earning assets was 7.04% and 7.10% for the three months
ended September 30, 1999 and 1998, respectively.
12
<PAGE>
Interest and fees on loans increased $2.0 million, or 32.1%, to $8.4 million for
the three months ended September 30, 1999. This increase was primarily the
result of an increase in the average balance of loans receivable of $119.3
million offset by a 23 basis point decrease in the average yield.
Interest and dividend income on securities available for sale increased $481
thousand, or 14.4%, to $3.8 million for the three months ended September 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 $30.6 million offset by a 3 basis point decrease in the
average yield on these securities.
Interest Expense. Total interest expense increased by $572 thousand, or 9.7%, to
$6.4 million for the three months ended September 30, 1999 from $5.9 million for
the three months ended September 30, 1998. Total average interest-bearing
liabilities increased by $112.5 million, or 23.6%, to $588.2 million for the
third quarter of 1999 compared to $475.7 million for the same period of the
previous year. During the same periods, the average rate paid on
interest-bearing liabilities decreased by 56 basis points to 4.34% from 4.90%.
Total interest expense for the three months ended September 30, 1999 increased
primarily due to increased interest expense relative to savings accounts,
certificates of deposits, and money market accounts primarily as a result of
increases in the average balances on these deposit accounts as a result of the
acquisition of AFSALA. Offsetting the effects of the increase in these average
balances was a decrease in the average balance of total borrowed funds from
$183.3 million to $165.6 million, in addition to a decrease of 22 basis points,
to 5.41%, in the average rate paid for these funds during the period.
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 September 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 $449,850 $ 8,350 7.36% $330,541 $ 6,321 7.59%
Securities available for sale 236,345 3,830 6.48% 205,753 3,349 6.51%
Federal Home Loan Bank Stock 7,232 127 7.02% 6,224 113 7.20%
Federal Funds Sold &
interest-bearing deposits 2,062 27 5.12% 13,742 172 4.90%
-------------- --------- -------- ------------ ---------- ----------
Total earning assets 695,489 12,334 7.04% 556,260 9,955 7.10%
-------------- --------- -------- ------------ ---------- ----------
Allowance for Loan Losses (5,437) (4,242)
Unrealized Gain/(Loss)-AFS Securities (5,623) 380
Other Assets 33,052 13,568
--------------- ------------
Total Assets $717,481 $565,966
=============== ============
Interest-Bearing Liabilities
Savings deposits 138,366 1,023 2.93% 100,181 764 3.03%
NOW deposits 36,182 142 1.56% 23,187 135 2.31%
Certificates of deposit 222,597 2,773 4.94% 162,516 2,323 5.67%
Money Market Accounts 25,405 247 3.86% 6,507 46 2.80%
Borrowed Funds 165,604 2,257 5.41% 183,312 2,602 5.63%
-------------- --------- -------- ------------ ---------- ----------
Total interest-bearing liabilities 588,154 6,442 4.34% 475,703 5,870 4.90%
-------------- --------- -------- ------------ ----------- ----------
Demand Deposits 37,382 25,761
Other Liabilities 11,990 5,602
--------------- ------------
Total Liabilities 637,526 507,066
--------------- ------------
Shareholders' Equity 79,955 58,900
--------------- ------------
Total Liabilities & Equity $717,481 $565,966
=============== ============
Net interest income $ 5,892 $4,085
Interest rate spread 2.70% 2.20%
Net earning assets $107,335 $80,557
Net interest margin 3.36% 2.91%
Average Earning Assets/Average
Interest-Bearing Liabilities 118.25% 116.93%
</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 provision for loan losses for the three months ended
September 30, 1999 decreased $50 thousand to $175 thousand from $225 thousand
for the three months ended September 30, 1998. The decrease was due primarily to
a decrease in net charge-offs, partially offset by the impact of an increase in
non-performing loans.
Non-Interest Income. Total non-interest income increased by $278 thousand, or
116.3%, to $517 thousand for the three months ended September 30, 1999 from $239
thousand for the three months ended September 30, 1998. This increase was
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
$60 thousand during the quarter ended September 30, 1998. Also, included in
other non-interest income for the third quarter of 1999 was approximately $70
thousand representing interest received from IRS tax refunds, as well as a $20
thousand gain on the sale of assets which were fully depreciated.
Non-Interest Expenses. Non-interest expenses increased $714 thousand, or 21.5%,
to $4.0 million for the three months ended September 30, 1999 from $3.3 million
for the three months ended September 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 amortization of goodwill
as a result of the acquisition of AFSALA. Also impacting non-interest expenses
during the current quarter, were costs associated with the relocation of a
branch. These and other changes are discussed in more detail below.
Salaries, wages and benefits increased by $511 thousand, or 32.7%, 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. The fluctuation in the expense related to the ESOP for the quarters
ended September 30, 1999 and September 30, 1998 was not significant.
Occupancy and equipment increased $163 thousand, or 42.2%, to $549 thousand for
the three months ended September 30, 1999, from $386 thousand in 1998 primarily
due to the increased rent and maintenance expense as a result of the opening of
a new branch in February 1999 and the four additional AFSALA branches acquired,
in addition to costs associated with the relocation of a branch during the
quarter.
Data processing increased $31 thousand, or 9.5%, from $328 thousand in 1998 to
$359 thousand for the three months ended September 30, 1999 primarily due to an
increase in the number of deposit and loan accounts due to the acquisition of
AFSALA.
Non-interest expenses for the three months ended September 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.
15
<PAGE>
Professional fees decreased $34 thousand, or 23.1%, from the quarter ended
September 30, 1998 to the quarter ended September 30, 1999 due primarily to $57
thousand in legal expenses incurred by the Company during the quarter ended
September 30, 1998 to defend against litigation initiated by a shareholder.
Other non-interest expense decreased $118 thousand, or 13.2%, to $779 thousand
for the three months ended September 30, 1999 from $897 thousand for the three
months ended September 30, 1998. this decrease was due primarily from expenses
related to the settlement of a shareholder action and a charge related to a
repurchase modification of $75 thousand and $67 thousand, respectively, during
the three months ended September 30, 1998.
Income Tax Expense. Income tax expense increased by $642 thousand to $943
thousand for the three months ended September 30, 1999 from $301 thousand for
the three months ended September 30, 1998. The increase was primarily the result
of the increase in income before taxes.
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998.
Net Income. Net income increased by $2.4 million for the nine months ended
September 30, 1999 to $3.4 million from $1.0 million for the nine months ended
September 30, 1998. Net income for the nine months ended September 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
income tax expense. These and other changes are discussed in more detail below.
Net Interest Income. Net interest income increased $5.0 million, or 42.4%, to
$16.8 million for the nine months ended September 30, 1999 from $11.8 million
for the nine months ended September 30, 1998. The increase in net interest
income was primarily due to an increase of $178.5 million, or 34.4%, in the
average balance of earning assets (primarily due to the acquisition of AFSALA),
in addition to an increase in the interest rate spread from 2.29% for the nine
months ended September 30, 1998 to 2.56% for the nine months ended September 30,
1999, offset by an increase in the average balance of interest-bearing
liabilities of $152.8 million (primarily due to the acquisition of AFSALA), or
34.7%. As noted previously, during the nine months ended September 30, 1999, the
Company has redeployed assets from lower-yielding federal funds sold and
securities available for sale to the higher-yielding loan portfolio. This has
resulted in an increase in both the interest rate spread and net interest
margin.
Interest and Dividend Income. Interest and dividend income increased by
approximately $8.2 million, or 29.2%, to $36.3 million for the nine months ended
September 30, 1999 from $28.1 million for the nine months ended September 30,
1998. The increase was largely the result of an increase of $178.5 million, or
34.4%, in the average balance of earning assets to $697.5 million for the nine
months ended September 30, 1999, as compared to $519.0 million for the nine
months ended September 30, 1998. The increase in the average balance of earning
assets consisted primarily of increases in the average balance of loans
receivable of $131.4 million, or 43.3%, securities available for sale of $39.5
million, or 19.4%, FHLB of New York stock of $2.8 million, or 63.6 %, and
federal funds sold and interest-bearing deposits of $4.8 million. Offsetting the
effects of the increase in the average balance of earning assets was a 28 basis
point decrease in the average yield on total earning assets. The yield on the
average balance of earning assets was 6.95% and 7.23% for the nine months ended
September 30, 1999 and 1998, respectively.
16
<PAGE>
Interest and fees on loans increased $6.5 million, or 37.2%, to $24.0 million
for the nine months ended September 30, 1999. This increase was primarily the
result of an increase in the average balance of net loans receivable of $131.4
million offset by a 33 basis point decrease in the average yield.
Interest and dividend income on securities available for sale increased $1.4
million, or 13.9%, to $11.5 million for the nine months ended September 30, 1999
from $10.1 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 $39.5 million offset by a 30 basis point decrease in the
average yield on these securities.
Interest Expense. Total interest expense increased by $3.2 million, or 19.7%, to
$19.5 million for the nine months ended September 30, 1999 from $16.3 million
for the nine months ended September 30, 1998. Total average interest-bearing
liabilities increased by $152.8 million, or 34.7%, to $593.3 million for the
first nine months of 1999 compared to $440.4 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 4.39% from 4.94%.
Total interest expense for the nine months ended September 30, 1999 increased
primarily due to an increase in the average balance of total borrowed funds to
$168.4 million from $142.5 million, partially offset by a decrease of 35 basis
points, to 5.46%, 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>
Nine months ended September 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 $434,766 $23,970 7.37% $303,348 $17,473 7.70%
Securities available for sale 243,340 11,488 6.29% 203,883 10,082 6.59%
Federal Home Loan Bank Stock 7,221 368 6.81% 4,413 242 7.33%
Federal Funds Sold &
interest-bearing deposits 12,151 429 4.66% 7,365 262 4.69%
-------------- --------- -------- ------------ ---------- ----------
Total earning assets 697,478 36,255 6.95% 519,009 28,059 7.23%
-------------- --------- -------- ------------ ---------- ----------
Allowance for Loan Losses (5,223) (4,040)
Due from Brokers 805 6,153
Unrealized Gain/(Loss)-AFS Securities (1,881) (53)
Other Assets 32,161 15,091
--------------- ------------
Total Assets $723,340 $536,160
=============== ============
Interest-Bearing Liabilities
Savings deposits 139,089 3,034 2.91% 98,439 2,231 3.03%
NOW deposits 36,969 441 1.59% 22,485 407 2.42%
Certificates of deposit 225,294 8,439 5.01% 170,390 7,289 5.72%
Money Market Accounts 23,492 673 3.83% 6,656 145 2.91%
Borrowed Funds 168,414 6,877 5.46% 142,457 6,192 5.81%
-------------- --------- -------- ------------ ---------- ----------
Total interest-bearing liabilities 593,258 19,464 4.39% 440,427 16,264 4.94%
-------------- --------- -------- ------------ ----------- ----------
Demand Deposits 34,541 24,325
Other Liabilities 12,140 11,622
--------------- ------------
Total Liabilities 639,939 476,374
--------------- ------------
Shareholders' Equity 83,401 59,786
--------------- ------------
Total Liabilities & Equity $723,340 $536,160
=============== ============
Net interest income $16,791 $11,795
Interest rate spread 2.56% 2.29%
Net earning assets $104,220 $78,582
Net interest margin 3.22% 3.04%
Average Earning Assets/Average
Interest-Bearing Liabilities 117.57% 117.84%
</TABLE>
18
<PAGE>
Provision for Loan Losses. The provision for loan losses decreased $5 thousand
to $670 thousand for the nine months ended September 30, 1999 from $675 thousand
for the nine months ended September 30, 1998. The decrease was primarily due to
a decrease in net charge-offs, partially offset by the impact of an increase in
non-performing loans.
Non-Interest Income. Total non-interest income increased during the nine months
ended September 30, 1999 to $1.4 million compared with $772 thousand for the
nine months ended September 30, 1998. An increase in service charges on deposit
accounts of $316 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 nine months of 1998 of $165 thousand, are
the primary reasons for the increase from the previous period. Also, included in
other non-interest income for the third quarter of 1999 was approximately $70
thousand representing interest received from IRS tax refunds as well as a $20
thousand gain on the sale of assets which were fully depreciated.
Non-Interest Expenses. Non-interest expenses increased $1.5 million, or 14.6%,
to $11.6 million for the nine months ended September 30, 1999 from $10.1 million
for the nine months ended September 30, 1998. Non-interest expenses were
impacted by increased salaries, wages and benefits primarily due to the
additional AFSALA branches acquired, and the amortization of goodwill as a
result of the acquisition of AFSALA. Also impacting non-interest expenses were
the acceleration of depreciation and amortization of equipment and leasehold
improvements, and costs associated with the relocation of a branch. These and
other changes are discussed in more detail below.
Salaries, wages and benefits increased by $1.1 million, or 23.4%, 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, as well as general cost
of living and merit raises to employees. The fluctuation in the expense related
to the ESOP for the nine months ended September 30, 1999 and September 30, 1998
was not significant.
Also, impacting non-interest expenses during the nine months ended September 30,
1998 were $399 thousand of expenses incurred in connection with the termination
and consulting agreements entered into with the former President and CEO.
Occupancy and equipment increased $536 thousand, or 44.8%, to $1.7 million for
the nine months ended September 30, 1999, from $1.2 million in 1998 primarily
due to increased rent and maintenance expense resulting from the opening of a
new branch in February 1999 and the four additional AFSALA branches acquired.
Also contributing to this increase was the acceleration of depreciation and
amortization of equipment and leasehold improvements on a branch being closed as
a result of the acquisition, as well as costs associated with the relocation of
a branch during the third quarter of 1999.
19
<PAGE>
Professional fees decreased $218 thousand, or 43.0%, from the nine months ended
September 30, 1998 to the nine months ended September 30, 1999 due primarily to
$216 thousand in legal expenses incurred by the Company during the nine months
ended September 30, 1998 to defend against litigation initiated by a
shareholder.
Non-interest expenses for the nine months ended September 30, 1999 included the
amortization of goodwill totaling approximately $399 thousand. The goodwill is
being amortized to expense over fifteen years using the straight-line method.
As previously mentioned, included in other non-interest expense for the nine
months ended September 30, 1998 were expenses incurred in relation to a
settlement of a shareholder action and a modification charge on repurchase
agreements totaling $142 thousand.
Income Tax Expense. Income tax expense increased by $1.8 million to $2.5 million
for the nine months ended September 30, 1999 from $735 thousand for the nine
months ended September 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.
Sept. 30, Dec.31,
1999 1998
------ ------
(Dollars in thousands)
Non-accruing loans:
One-to four-family (1)................... $1,481 $1,018
Multi-family ............................ -- --
Commercial real estate .................. 235 20
Consumer ................................ 508 342
Commercial Business ..................... 236 230
------ ------
Total ................................. 2,460 1,610
------ ------
Accruing loans delinquent more than 90 days:
One-to four-family (1)................... 169 358
Multi-family ............................ -- --
Commercial real estate .................. 757 215
Consumer ................................ 2 7
Commercial Business ..................... -- --
------ ------
Total ................................. 928 580
------ ------
Troubled debt restructured loans:
One-to four-family (1)................... 84 85
Multi-family ............................ -- --
Commercial real estate .................. 479 537
Consumer ................................ -- --
Commercial Business ..................... 72 92
------ ------
Total ................................. 635 714
------ ------
Total non-performing loans ................. 4,023 2,904
------ ------
Foreclosed and reposessed assets:
One-to four-family (1) .................. 158 313
Multi-family ............................ -- --
Commercial real estate .................. 142 30
Consumer ................................ 35 56
Commercial Business ..................... -- --
------ ------
Total ................................. 335 399
------ ------
Total non-performing assets ................ $4,358 $3,303
====== ======
Non-performing loans as a percentage
of total loans .......................... 0.87% 0.68%
Non-performing assets as a percentage
of total assets ......................... 0.60% 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 nine months
ended September 30,
1999 1998
------- -------
(Dollars in thousands)
Balance at beginning of period ........ $ 4,891 $ 3,807
Charge-offs:
One- to four-family .............. (87) (13)
Multi-family ..................... -- (4)
Commercial real estate ........... -- (161)
Consumer ......................... (104) (194)
Commercial business .............. (49) (188)
------- -------
Total charge-offs ............. (240) (560)
------- -------
Recoveries:
One- to four-family .............. 4 1
Multi-family ..................... -- --
Commercial real estate ........... 147 59
Consumer ......................... 84 43
Commercial business .............. 24 174
------- -------
Total recoveries .............. 259 277
------- -------
Net recoveries (charge-offs) .......... 19 (283)
Provisions charged to operations ...... 670 675
------- -------
Balance at end of period .............. 5,580 4,199
======= =======
Ratio of allowance for loan
losses to total loans (period end) .... 1.21% 1.26%
Ratio of allowance for loan losses
to non-performing loans (at period end) 138.70% 127.55%
Ratio of net (recoveries) charge-offs
during the period to average loans out-
standing during the period (annualized) (0.01%) 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
4% 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 26.92% and 31.97% at
September 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 September 30, 1999 and December 31, 1998, the Company had $49.6 million and
$21.4 million, respectively, in outstanding borrowings from the FHLB and $132.8
million and $152.4 million, respectively, in securities repurchase agreements.
As of September 30, 1999 and December 31, 1998, the Company had $224.0 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
outflows.
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 September 30, 1999, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank was "well capitalized" at
September 30, 1999 according to regulatory definition. At September 30, 1999,
the Bank's consolidated tangible and core capital levels were both $66.4 million
(9.24% of total adjusted assets) and its total risk-based capital level was
$70.6 million (20.93% 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.
The Board of Directors previously authorized the repurchase of approximately
543,000 shares, or 10%, of its common stock. During the first nine months of
1999, the Company repurchased 459,000 shares of its common stock in open-market
transactions at a total cost of $7.4 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 ensure resolution of any Y2K problems. The federal banking
agencies have stated 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. Because the majority of the
Company's mission critical systems are dependent upon third party service
providers or vendors, contingency plans include using or reverting to manual
systems until system problems can be corrected, or a new vendor can be selected.
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 Year 2000 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 $181 thousand, of which $135
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 $40 thousand in additional 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 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 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 September 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: November 15, 1999
/s/ James J. Alescio
James J. Alescio
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: November 15, 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 SEPTEMBER 30, 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> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 13365
<INT-BEARING-DEPOSITS> 1154
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 224013
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 461272
<ALLOWANCE> 5580
<TOTAL-ASSETS> 725115
<DEPOSITS> 452947
<SHORT-TERM> 28500
<LIABILITIES-OTHER> 12719
<LONG-TERM> 153887
0
0
<COMMON> 54
<OTHER-SE> 77008
<TOTAL-LIABILITIES-AND-EQUITY> 725115
<INTEREST-LOAN> 23970
<INTEREST-INVEST> 11488
<INTEREST-OTHER> 797
<INTEREST-TOTAL> 36255
<INTEREST-DEPOSIT> 12587
<INTEREST-EXPENSE> 19464
<INTEREST-INCOME-NET> 16791
<LOAN-LOSSES> 670
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11616
<INCOME-PRETAX> 5884
<INCOME-PRE-EXTRAORDINARY> 5884
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3384
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 3.22
<LOANS-NON> 2460
<LOANS-PAST> 928
<LOANS-TROUBLED> 635
<LOANS-PROBLEM> 3006
<ALLOWANCE-OPEN> 4891
<CHARGE-OFFS> 240
<RECOVERIES> 259
<ALLOWANCE-CLOSE> 5580
<ALLOWANCE-DOMESTIC> 5580
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
