UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from_______ to __________.
Commission file number: 0-27036
AMBANC HOLDING CO., INC.
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(Exact name of registrant as specified in its charter)
Delaware 14-1783770
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(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
---------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES [X]. NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock on the
Nasdaq National Market as of March 29, 1999, was $87,372,923. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)
As of March 29, 1999, there were issued and outstanding 5,315,463 shares of
the Registrant's Common Stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to
Shareholders for the year ended December 31, 1998.
Part III of Form 10-K - Portions of the Proxy Statement for the Annual
Meeting of Shareholders for the year ended December 31, 1998.
PART I
Item 1. Description of Business
General
Ambanc Holding Co., Inc. (the "Company") was formed as a Delaware
corporation in June 1995 to act as the holding company for Mohawk Community Bank
(formerly known as Amsterdam Savings Bank, FSB) (the "Bank") upon the completion
of the Bank's conversion from mutual to stock form (the "Conversion"). The
Company received approval from the Office of Thrift Supervision (the "OTS") to
acquire all of the common stock of the Bank to be outstanding upon completion of
the Conversion. The Conversion was completed on December 26, 1995. The Company's
Common Stock trades on The Nasdaq National Market under the symbol "AHCI". All
references to the Company, unless otherwise indicated, at or before December 26,
1995 refer to the Bank.
On November 16, 1998, the Company acquired AFSALA Bancorp. Inc. ("AFSALA")
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 the Company, and Amsterdam Federal
Bank was merged with and into the former Amsterdam Savings Bank, FSB. The
combined bank now operates as one institution under the name "Mohawk Community
Bank". Upon consummation of the merger, each share of AFSALA common stock was
converted into the right to receive 1.07 shares of Ambanc common stock. Based on
the 1,249,727 shares of AFSALA common stock issued and outstanding immediately
prior to the merger, the Company issued 1,337,207 shares of common stock in the
merger. Of the 1,337,207 shares issued in the merger, 1,327,086 were issued from
the Company's treasury stock and 10,121 were newly-issued shares.
At December 31, 1998, the Company had $735.5 million of assets and
shareholders' equity of $85.9 million or 11.7% of total assets.
The Bank, organized in 1886, is a federally chartered savings bank
headquartered in Amsterdam, New York. The principal business of the Bank
consists of attracting retail deposits from the general public and using those
funds, together with borrowings and other funds, to originate primarily one- to
four-family residential mortgage loans, home equity loans and consumer loans,
and to a lesser extent, commercial and multi-family real estate, and commercial
business loans in the Bank's primary market area. See "Market Area." The Bank
also invests in mortgage-backed securities, U.S. Government and agency
obligations and other permissible investments. Revenues are derived primarily
from interest on loans, mortgage-backed and related securities and investments.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank is a member of the Bank Insurance Fund (the
"BIF"), which is administered by the Federal Deposit Insurance Corporation (the
"FDIC"). Its deposits are insured up to applicable limits by the FDIC, which
insurance is backed by the full faith and credit of the United States
Government. The Bank primarily solicits deposits in its primary market area and
currently does not have brokered deposits. The Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
The Company's and the Bank's executive office is located at 11 Division
Street, Amsterdam, New York, 12010-4303, and its telephone number is (518)
842-7200.
Forward-looking Statements
When used in this Annual Report on Form 10-K, in future filings by the
Company with the Securities and Exchange Commision, 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 possiblity that costs or
difficulties related to the integration 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 lower 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.
Market Area
The Company's primary market area is comprised of Albany, Schenectady,
Saratoga, Montgomery, Fulton, Chenango, Schoharie and Otsego Counties in New
York, which are serviced through the Bank's main office, seventeen other banking
offices and its operations center.
The Company's primary market area consists principally of suburban and
rural communities but also includes the capital of New York State, Albany. The
economy of the Company's primary market area is highly dependent on
manufacturing, state government services (including the State University of New
York at Albany), and private higher education services. These three sectors
provide the basis for the region's economy and the principal support for its
remaining sectors, such as retail trade, finance, and medical services.
Significant reductions in two of the region's main sectors, manufacturing and
state government, from completed, announced, and anticipated layoffs and
relocations are expected to continue to have a negative effect on the economy in
the Company's primary market area.
<PAGE>
Lending Activities
General
The Company primarily originates fixed- and adjustable rate, one- to
four-family mortgage loans. The Company's general policy is to originate
mortgages with terms between 15 and 30 years for retention in its portfolio. The
Company also originates fixed and adjustable rate consumer loans. Adjustable
rate mortgage ("ARM"), home equity and consumer loans are originated in order to
maintain loans with more frequent terms to repricing or shorter maturities than
fixed-rate, one- to four-family mortgage loans. See "- Loan Portfolio
Composition" and "- One- to Four-Family Residential Real Estate Lending." In
addition, the Company originates commercial and multi-family real estate,
construction and commercial business loans in its primary market area. Loan
originations are generated by the Company's marketing efforts, which include
print and radio advertising, lobby displays and direct contact with local civic
and religious organizations, as well as by the Company's present customers,
walk-in customers and referrals from real estate agents, brokers and builders.
At December 31, 1998, the Company's net loan portfolio totaled $420.9 million.
Loan applications are initially considered and approved at various levels
of authority, depending on the type, amount and loan-to-value ratio of the loan.
Bank employees with lending authority are designated, and their lending limit
authority defined, by the Board of Directors of the Bank. The approval of the
Bank's Board of Directors is required for all loan relationships whose aggregate
borrowings are in excess of $2,000,000. The Bank also has an Officer/Director
Loan Committee which has authority to approve loans between $1,250,000 and
$2,000,000 and meets as needed to approve loans between Board meetings.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At
December 31, 1998, the maximum amount which the Bank could have loaned to any
one borrower and the borrower's related entities was approximately $9.6 million.
At such date, the Bank did not have any loans or series of loans to related
borrowers with an outstanding balance in excess of this amount.
At December 31, 1998, the Company's largest lending relationships consisted
of a $1.4 million loan secured by a strip shopping center, and a $1.2 million
loan secured by a motel. At December 31, 1998, there were no other loans or
lending relationships equal to or in excess of $1.0 million. All of the
foregoing loans were current at December 31, 1998.
<PAGE>
Loan Portfolio Composition.
The following table presents information concerning the composition of the
Company's loan portfolio in dollar amounts and in percentages (before deferred
costs net of deferred fees and discounts and the allowance for loan losses) as
of the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $273,523 64.53% $189,666 66.88% 158,182 63.15% $133,468 53.20% $140,418 53.63%
Home Equity 83,949 19.80 30,246 10.67 22,817 9.11 17,519 6.98 16,715 6.39
Multi-family 4,165 0.98 4,152 1.46 4,724 1.88 8,176 3.26 8,718 3.33
Commercial 23,506 5.55 26,585 9.38 29,947 11.96 41,929 16.71 46,736 17.85
Construction 3,600 0.85 2,081 0.73 2,234 0.89 1,073 0.43 4,809 1.84
-------- ----- -------- ------ -------- ------ -------- ------ -------- -------
Total Real Estate 388,743 91.71 252,730 89.12 217,904 86.99 202,165 80.58 217,396 83.04
-------- ----- -------- ------ -------- ------ -------- ------ -------- -------
Other Loans:
Consumer Loans
Auto Loans 14,146 3.34 16,237 5.73 12,417 4.96 9,337 3.72 4,765 1.82
Recreational Vehicles 4,990 1.18 6,775 2.39 9,416 3.76 12,881 5.13 12,352 4.72
Manufactured Homes 385 0.09 494 0.17 620 0.25 13,484 5.37 15,161 5.79
Other Secured 6,289 1.48 1,781 0.63 1,866 0.74 2,020 0.81 2,065 0.79
Unsecured 3,712 0.88 1,847 0.65 1,445 0.58 1,299 0.52 1,398 0.53
-------- ----- ------- ------ -------- ------ -------- ------ ------- -------
Total Consumer Loans 29,522 6.96 27,134 9.57 25,764 10.29 39,021 15.55 35,741 13.65
-------- ----- ------- ------ -------- ------ -------- ------ ------- -------
Commercial Business Loans:
Secured 5,101 1.20 3,233 1.14 6,199 2.47 9,346 3.73 8,332 3.18
Unsecured 508 0.12 471 0.17 620 0.25 350 0.14 339 0.13
-------- ----- ------- ------ -------- ------ -------- ------ ------- -------
Total Commercial
Business Loans 5,609 1.32 3,704 1.31 6,819 2.72 9,696 3.87 8,671 3.31
-------- ----- ------- ------ -------- ------ -------- ------ ------- -------
Total Loan Portfolio, Gross 423,874 100.00% 283,568 100.00% 250,487 100.00% 250,882 100.00% 261,808 100.00%
====== ====== ====== ====== ======
Deferred costs, net of deferred
fees and discounts
Allowance for Loan Losses 1,950 1,362 1,045 1,756 2,008
(4,891) (3,807) (3,438) (2,647) (2,235)
Total Loans Receivable, Net -------- -------- -------- -------- --------
$420,933 $281,123 $248,094 $249,991 $261,581
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table shows the composition of the Company's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Loans:
Real Estate:
One- to four-family $204,184 48.17% $124,457 43.89% $111,841 44.65% $ 91,528 36.48% $ 91,299 34.87%
Home Equity 77,553 18.30 23,099 8.14% 15,234 6.08% 8,405 3.35% 6,689 2.56%
Commercial and Multi-family 6,201 1.46 2,723 0.96% 2,590 1.03% 2,633 1.05% 13,144 5.02%
Construction 2,867 0.68 2,081 0.73% 1,840 0.73% 633 0.25% 4,809 1.84%
-------- ------ -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate 290,805 68.61 152,360 53.72% 131,505 52.49% 103,199 41.13% 115,941 44.29%
Consumer 28,771 6.79 26,260 9.26% 25,110 10.03% 33,343 13.29% 28,027 10.70%
Commercial Business 3,501 0.83 1,415 0.50% 3,124 1.24% 4,476 1.79% 3,480 1.33%
-------- ------ -------- ------- -------- ------- -------- ------- -------- -------
Total fixed-rate loans 323,077 76.22 180,035 63.48% 159,739 63.76% 141,018 56.21% 147,448 56.32%
-------- ------ -------- ------- -------- ------- -------- ------- -------- -------
Adjustable Rate Loans:
Real Estate:
One- to four-family 69,339 16.36 65,209 23.00% 46,341 18.50% 41,940 16.72% 49,119 18.76%
Home Equity 6,396 1.51 7,147 2.52% 7,583 3.03% 9,114 3.63% 10,026 3.83%
Commercial and Multi-family 21,470 5.07 28,014 9.88% 32,081 12.81% 47,472 18.92% 42,310 16.16%
Construction 733 0.17 --- ----% 394 0.16% 440 0.18% --- ----%
-------- ------ -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate 97,938 23.10 100,370 35.40% 86,399 34.50% 98,966 39.45% 101,455 38.75%
Consumer 751 0.18 874 0.31% 654 0.26% 5,678 2.26% 7,714 2.95%
Commercial Business 2,108 0.17 2,289 0.81% 3,695 1.48% 5,220 2.08% 5,191 1.98%
-------- ------ -------- ------- -------- ------- -------- ------- -------- -------
Total adjustable-rate loans 100,797 23.78 103,533 36.52% 90,748 36.24% 109,864 43.79% 114,360 43.68%
-------- ------ -------- ------- -------- ------- -------- ------- -------- -------
Total Loan Portfolio, Gross 423,874 100.00% 283,568 100.00% 250,487 100.00% 250,882 100.00% 261,808 100.00%
====== ====== ====== ====== ======
Deferred costs, net of deferred
fees and discounts 1,950 1,362 1,045 1,756 2,008
Allowance for Loan Losses (4,891) (3,807) (3,438) (2,647) (2,235)
-------- -------- -------- -------- --------
Total Loans Receivable, Net $420,933 $281,123 $248,094 $249,991 $261,581
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table illustrates the maturity of the Company's loan
portfolio at December 31, 1998. Mortgages which have adjustable or renegotiable
interest rates are shown as maturing in the period during which the interest
rate changes. The schedule does not reflect the effects of possible prepayments
or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------------
One- to Multi-
Four-Family Family and Commercial
and Home Equity Commercial Construction Consumer Business Total
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Due During Periods
Ending December 31,
1999 (1) $35,375 $11,749 $2,179 $3,620 $3,284 $56,207
2000 to 2003 57,268 12,905 1,421 16,786 918 89,298
2004 and beyond 264,829 3,017 --- 9,116 1,407 278,369
<FN>
- - ---------------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</FN>
</TABLE>
As of December 31, 1998, the total amount of loans due after December 31,
1999 which have fixed interest rates was $284.8 million, while the total amount
of loans due after such date which have floating or adjustable interest rates
was $82.9 million.
One- to Four-Family Residential Real Estate Lending
The Company's residential first mortgage loans consist primarily of one- to
four-family, owner-occupied mortgage loans. At December 31, 1998, $273.5
million, or 64.5%,of the Company's gross loans consisted of one- to four-family
residential first mortgage loans. Approximately 74.6% of the Company's one- to
four-family residential first mortgage loans provide for fixed rates of interest
and for repayment of principal over a fixed period not to exceed 30 years. The
Company's fixed-rate one- to four-family residential mortgage loans are priced
competitively with the market. Accordingly, the Company attempts to distinguish
itself from its competitors based on quality of service.
The Company generally underwrites its fixed-rate, one- to four-family,
residential, first mortgage loans using Federal National Mortgage Association
("FNMA") secondary market standards. The Company generally holds for investment
all one- to four-family residential first mortgage loans it originates. In
underwriting one- to four-family residential first mortgage loans, the Company
evaluates both the borrower's ability to make monthly payments and the value of
the property securing the loan. Properties securing real estate loans made by
the Company are appraised by independent fee appraisers approved by the Board of
Directors. The Company requires borrowers to obtain title insurance, and fire
and property insurance (including flood insurance, if necessary) in an amount
not less than the amount of the loan.
The Company currently offers one, three, five and seven year residential
ARM loans with an interest rate that adjusts annually in the case of a one-year
ARM loan, and every three, five or seven years in the case of a three, five or
seven year ARM loan, respectively, based on the change in the relevant Treasury
constant maturity index. These loans provide for up to a 2.0% periodic cap and a
lifetime cap of 6.0% over the initial rate. As a consequence of using caps, the
interest rates on these loans may not be as rate sensitive as is the Company's
cost of funds. Borrowers of one-year residential ARM loans are generally
qualified at a rate 2.0% above the initial interest rate. The Company's
residential ARM loans may be modified into fixed-rate loans. ARM loans generally
pose greater credit risks than fixed-rate loans, primarily because as interest
rates rise, the required periodic payment by the borrower rises, increasing the
potential for default.
The Company's one- to four-family mortgage loans do not contain prepayment
penalties and do not permit negative amortization of principal. Real estate
loans originated by the Company generally contain a "due on sale" clause
allowing the Company to declare the unpaid principal balance due and payable
upon the sale of the security property. The Company has waived the due on sale
clause on loans held in its portfolio from time to time to permit assumptions of
the loans by qualified borrowers.
The Company does not currently originate residential mortgage loans if the
ratio of the loan amount to the value of the property securing the loan (i.e.,
the "loan-to-value" ratio) exceeds 95%, with the exception of FHA loans, which
are fully insured by the Federal Government. If the loan-to-value ratio exceeds
90%, the Company requires that borrowers obtain private mortgage insurance in
amounts intended to reduce the Company's exposure to 80% or less of the lower of
the appraised value or the purchase price of the real estate security.
The Company makes construction loans to individuals for the construction of
their residences. The Company has occasionally made loans to builders for the
construction of residential homes, provided the builder has a sales contract to
sell the home upon completion. No construction loan is approved unless there is
evidence of a commitment for permanent financing upon completion of the
residence, whether through the Company or another financial institution.
Construction loans generally will require construction stage inspections before
funds may be released to the borrower. Such inspections are generally performed
by outside fee appraisers.
At December 31, 1998, the Company's construction loan portfolio totaled
$3.6 million, or 0.9% of its gross loan portfolio. Substantially all of these
construction loans were to individuals intending to occupy such residences and
were secured by property located within the Company's primary market area.
Although no construction loans were classified as non-performing as of December
31, 1998, these loans do involve a higher level of risk than conventional one-
to four-family residential mortgage loans. For example, if a project is not
completed and the borrower defaults, the Company may have to hire another
contractor to complete the project at a higher cost.
Home Equity Lending
The Company's home equity loans and lines of credit are secured by a lien
on the borrower's residence and generally do not exceed $300,000. The Company
uses the same underwriting standards for home equity loans as it uses for one-
to four-family residential mortgage loans. Home equity loans are generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 90% of the appraised value of the property securing the loan. The
interest rates for home equity loans and lines of credit adjust at a stated
margin over the prime rate or, in the case of loans (but not lines of credit),
have fixed interest rates. Home equity lines of credit generally require
interest only payments on the outstanding balance for the first five years of
the loan, after which the outstanding balance is converted into a fully
amortizing, adjustable-rate loan with a term not in excess of 15 years. As of
December 31, 1998, the Company had $83.9 million in home equity loans and lines
of credit outstanding, with an additional $3.3 million of unused home equity
lines of credit.
Commercial and Multi-Family Real Estate Lending
The Company has engaged in commercial and multi-family real estate lending
secured primarily by apartment buildings, small office buildings, motels,
warehouses, nursing homes, strip shopping centers and churches located in the
Company's primary market area. At December 31, 1998, the Company had $23.5
million and $4.2 million of commercial real estate and multi-family real estate
loans, respectively, which represented 5.6% and 1.0%, respectively, of the
Company's gross loan portfolio at that date.
The Bank's commercial and multi-family real estate loans generally have
adjustable rates and terms to maturity that do not exceed 20 years. The
Company's current lending guidelines generally require that the multi-family or
commercial income-producing property securing a loan generate net cash flows of
at least 125% of debt service after the payment of all operating expenses,
excluding depreciation, and a loan-to-value ratio not exceeding 65%. Prior to
September 1990, the Company originated commercial and multi-family loans with
loan-to-value ratios of up to 75%. Due to declines in the value of some
properties as a result of the economic conditions in the Company's primary
market area, however, the current loan-to-value ratio of some commercial and
multi-family real estate loans in the Company's portfolio may exceed the initial
loan-to-value ratio. Adjustable rate commercial and multi-family real estate
loans provide for interest at a margin over a designated index, with periodic
adjustments at frequencies of up to five-years. The Company generally analyzes
the financial condition of the borrower, the borrower's credit history, the
reliability and predictability of the cash flows generated by the property
securing the loan and the value of the property itself. The Company generally
requires personal guarantees of the borrowers in addition to the security
property as collateral for such loans. Appraisals on properties securing
commercial and multi-family real estate loans originated by the Company are
performed by independent fee appraisers approved by the Board of Directors.
At December 31, 1998, the Company's largest multi-family or commercial real
estate lending relationships consisted of a $1.4 million loan secured by a strip
shopping center, and a $1.2 million loan secured by a motel. At December 31,
1998, $772,000, or 2.8% of the Company's multi-family and commercial real estate
loan portfolio was non-performing.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed, or a
bankruptcy court modifies a lease term, or a major tenant is unable to fulfill
its lease obligations), the borrower's ability to repay the loan may be impaired
and the value of the property may be reduced. The balances of these types of
loans have declined over the past five years with a significant decrease from
$50.1 million at December 31, 1995 to $27.7 million at December 31, 1998, due
primarily to the bulk sale of certain performing and non-performing loans in
1996.
Consumer Lending
The Company offers a variety of secured consumer loans, including loans
secured by automobiles and recreational vehicles ("RV's"). In addition, the
Company offers other secured and unsecured consumer loans. For the reasons
discussed below, the Company no longer originates manufactured home loans. The
Company currently originates substantially all of its consumer loans in its
primary market area. The Company originates consumer loans on a direct basis
only, where the Company extends credit directly to the borrower. At December 31,
1998 the Company's consumer loan portfolio totaled $29.5 million, or 7.0% of the
gross loan portfolio. At December 31, 1998, 97.5% of the Company's consumer
loans were fixed-rate loans and 2.5% were adjustable-rate loans.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. Terms to maturity range
up to 15 years for manufactured homes and certain RV's and up to 60 months for
other secured and unsecured consumer loans. The Company offers both open- and
closed-end credit. Open-end credit is extended through lines of credit that are
generally tied to a checking account. These credit lines currently bear interest
up to 18% and are generally limited to $10,000.
The underwriting standards employed by the Company for consumer loans
include, a determination of the applicant's payment history on other debts and
an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
At December 31, 1998, automobile loans and RV loans (such as motor homes,
boats, motorcycles, snowmobiles and other types of recreational vehicles)
totaled $14.1 million and $5.0 million or 47.9% and 16.9% of the Company's total
consumer loan portfolio, and 3.3% and 1.2% of its gross loan portfolio,
respectively.
Originations are generated primarily through advertising and lobby
displays. The Company has also maintained relationships with local automobile
dealerships in order to further enhance automobile originations through their
referrals. The Company's maximum loan-to-value ratio on new automobiles is 100%
of the borrower's cost including sales tax, and on used automobiles up to 5
years old, 100% of the vehicle's average retail value, based on NADA (National
Auto Dealers Association) valuation. Non-performing automobile loans as of
December 31, 1998 totaled $23,000 or 0.1% of the Company's consumer loan
portfolio.
Of the RV loan balance, approximately $3.6 million and $1.4 million were
secured by new and used RVs, respectively. Approximately 75% of the RV portfolio
consists of loans that were originated through the Company's relationship with
Alpin Haus, Inc., a retail RV dealer formerly owned by one of the Company's
directors. The Company's maximum loan-to-value ratio on new and used RV loans is
the lesser of (i) 85% of the borrower's cost, which includes such items as sales
tax and dealer options or (ii) 115% of either the factory invoice for a new RV
or the wholesale value, plus sales tax, for a used RV. In the case of used RV's,
the wholesale value is determined using published guide books. At December 31,
1998, RV loans totaling $182,000 or 3.6% of the total RV portfolio were
non-performing.
Consumer loans may entail greater credit risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, e.g. RVs and automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of high
initial loan-to-value ratios, repossession, rehabilitation and carrying costs,
and the greater likelihood of damage, loss or depreciation of the underlying
collateral. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on these loans. In the case of RV loans,
which tend to have loan balances in excess of the resale value of the
collateral, borrowers may abandon the collateral property making repossession by
the Company and subsequent losses more likely.
During 1996, the Company sold certain performing and non-performing loans
as part of a bulk sale, including a majority of its manufactured home loan
portfolio, as well as certain RV loans, thereby significantly reducing its
credit risk exposure on these types of loans. However, management expects that
delinquencies in its consumer loan portfolio may increase as RV loans continue
to season. At December 31, 1998, $349,000, or 1.2%, of the Company's consumer
loan portfolio was non-performing. There can be no assurances that additional
delinquencies will not occur in the future.
Commercial Business Lending
The Company also originates commercial business loans. Although the
origination of these types of loans had been de-emphasized by the Bank prior to
the merger, management intends to proactively originate commercial loans with
the particular emphasis on small business lending. At December 31, 1998,
commercial business loans comprised $5.6 million, or 1.3% of the Company's gross
loan portfolio. Most of the Company's commercial business loans have been
extended to finance local businesses and include primarily short term loans to
finance machinery and equipment purchases and, to a lesser extent, inventory and
accounts receivable. Loans made to finance inventory and accounts receivable
will only be made if the borrower secures such loans with the inventory and/or
receivables plus additional collateral acceptable to the Company, generally real
estate. Commercial loans also involve the extension of revolving credit for a
combination of equipment acquisitions and working capital in expanding
companies.
The terms of loans extended on machinery and equipment are based on the
projected useful life of such machinery and equipment, generally not to exceed
seven years. Secured, non-mortgage lines of credit are available to borrowers
provided that the outstanding balance is paid in full (i.e., the credit line has
a zero balance) for at least 30 consecutive days every year. In the event the
borrower does not meet this 30 day requirement, the line of credit is generally
terminated and the outstanding balance is converted into an amortizing loan.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property, the value of which tends to be
more easily ascertainable, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the
business itself (which, in turn, is often dependent upon the general economic
environment). The Company's commercial business loans are usually, but not
always, secured by business assets. However, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business. As part of its commercial business
lending policy, the Company generally requires all borrowers with commercial
business loans to submit annual financial statements to the Company.
The Company's commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Consideration of the borrower's
cash flows is also an important aspect of the Company's current credit analysis.
The Company generally obtains personal guarantees on its commercial business
loans. Nonetheless, such loans are believed to carry higher credit risk than
more traditional thrift institution investments.
Loan Originations and Sales
Loan originations are developed from continuing business with depositors
and borrowers, soliciting realtors, dealerships and mortgage brokers, as well as
walk-in customers. Loans are originated by the Company's staff of salaried loan
officers.
While the Company originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon demand for loans in its market.
Demand is affected by the local economy and interest rate environment. The
Company currently retains fixed-rate and adjustable-rate real estate loans it
originates in its portfolio. As a regular part of its business, the Company does
not sell loans and, with the exception of the purchase of $31.9 million of
residential real estate loans in 1998, has not purchased a significant amount of
loans since 1989. During 1996, the Company completed the bulk sale of certain
performing and nonperforming loans in order to improve the credit quality of its
loan portfolio.
For the year ended December 31, 1998, the Company originated $120.9 million
of loans compared to $91.5 million and $81.4 million in 1997 and 1996,
respectively. The Company also purchased $31.9 million in residential mortgage
loans during 1998. These loans were located in Ohio and New Jersey. The Company
currently has no plans or intentions to purchase additional loans. During 1998,
1997 and 1996, the Company increased its originations of one- to four-family
mortgages through the referrals of several local brokers.
In periods of economic uncertainty, the Company's ability to originate
large dollar volumes of real estate loans with acceptable underwriting
characteristics may be substantially reduced or restricted with a resultant
decrease in operating earnings.
Asset Quality
Generally, when a borrower fails to make a required payment on a loan
secured by residential real estate or consumer products, the Company initiates
collection procedures by mailing a delinquency notice after the account is 15
days delinquent. At 30 days delinquent, a personal letter is generally sent to
the customer requesting him or her to make arrangements to bring the loan
current. If the delinquency is not cured by the 45th day, the customer is
generally contacted by telephone and another personal letter is sent, with the
same procedure being repeated if the loan becomes 60 days delinquent. At 90 days
past due, a demand letter is generally sent. If there is no response, a final
demand letter for payment in full is sent, and unless satisfactory repayment
arrangements are made subsequent to the final demand letter, immediate
repossession or foreclosure procedures are commenced.
Similar collection procedures are employed for loans secured by commercial
real estate and commercial business collateral, except when such loans are 60
days delinquent, a letter is generally sent requesting rectification of the
delinquency within seven days, otherwise foreclosure or repossession procedures,
as applicable, are commenced.
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated. Loans are generally placed on non-accrual status
when the loan is more than 90 days delinquent (except for FHA insured and VA
guaranteed loans) or when the collection of principal and/or interest in full
becomes doubtful. When loans are designated as non-accrual, all accrued but
unpaid interest is reversed against current period income and, as long as the
loan remains on non-accrual status interest is recognized using the cash basis
method of income recogntion. Accruing loans delinquent 90 days or more include
FHA insured loans, VA guaranteed loans, and loans that are in the process of
negotiating a restructuring with the Bank, excluding troubled debt
restructurings (TDRs), or where the Bank has been notified by the borrower that
the outstanding loan balance plus accrued interest and late fees will be
paid-in-full within a relatively short period of time from the date of such
notification. Foreclosed assets includes assets acquired in settlement of loans.
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family (1) $1,018 $843 $ 259 $1,525 $1,130
Multi-family --- 28 --- 77 563
Commercial real estate 20 265 339 1,549 4,096
Consumer 342 293 256 605 111
Commercial Business 230 447 2,269 743 404
------- ------- ------- ------- -------
Total 1,610 1,876 3,123 4,499 6,304
------- ------- ------- ------- -------
Accruing loans delinquent
more than 90 days:
One- to four-family (1) 358 280 151 261 480
Multi-family --- --- --- --- ---
Commercial real estate 215 13 568 --- ---
Consumer 7 2 6 --- ---
Commercial Business --- 156 --- --- ---
------- ------- ------- ------- -------
Total 580 451 725 261 480
------- ------- ------- ------- -------
Troubled debt restructured loans:
One- to four-family (1) 85 86 88 89 90
Multi-family --- 34 38 1,626 1,645
Commercial real estate 537 761 781 2,185 1,758
Consumer --- -- 56 84 62
Commercial Business 92 50 68 51 95
------- ------- ------- ------- -------
Total 714 931 1,031 4,035 3,650
------- ------- ------- ------- -------
Total non-performing loans 2,904 3,258 4,879 8,795 10,434
------- ------- ------- ------- -------
Foreclosed assets:
One- to four-family (1) 313 69 194 459 102
Multi-family --- --- 282 926 1,792
Commercial real estate 30 --- --- 1,503 1,799
Consumer 56 74 239 281 111
Commercial Business --- --- --- --- ---
------- ------- ------- ------- -------
Total 399 143 715 3,169 3,804
------- ------- ------- ------- -------
Total non-performing assets $3,303 $3,401 $5,594 $11,964 $14,238
======= ======= ======= ======= =======
Total as a percentage of total assets 0.45% 0.67% 1.18% 2.72% 4.15%
<FN>
- - --------------------------------------
(1) Includes home equity loans
</FN>
</TABLE>
<PAGE>
For the year ended December 31, 1998, gross interest income which would
have been recorded had the year end non-accruing loans been current in
accordance with their original terms amounted to $255,000. The amount that was
included in interest income on such loans was $161,000, which represented actual
receipts.
Similarly, for the year ended December 31, 1998, gross interest income
which would have been recorded had the year end restructured loans paid in
accordance with their original terms amounted to $101,000. The amount that was
included in interest income for the year ended December 31, 1998 was $77,000.
Non-Accruing Loans
At December 31, 1998, the Company had $1.6 million in non-accruing loans,
which constituted 0.4% of the Company's gross loan portfolio. There were no
non-accruing loans or aggregate non-accruing loans-to-one-borrower in excess of
$500,000.
Accruing Loans Delinquent More than 90 Days
As of December 31, 1998, the Company had $580,000 of accruing loans
delinquent more than 90 days. Of these loans, $241,000 were FHA insured or VA
guaranteed one-to four-family residential loans. The remaining $339,000
represented five (5) one-to four-family real estate loans, four (4) commercial
real estate loans, and three (3) consumer loans for which management believes
that all contractual payments are collectible. These loans are pending
refinancing with the Bank.
Restructured Loans
As of December 31, 1998, the Company had restructured loans of $714,000
with one loan or aggregate lending relationship over $500,000, as discussed
below. The balance of the Company's restructured loans at that date consisted of
one (1) one- to four-family residential mortgage loan, two (2) commercial real
estate loans, and three (3) commercial business loans.
The Company's largest restructured loan or lending relationship at December
31, 1998, was a 58% loan participation interest, secured by a mixed use
office/apartment complex located in Syracuse, New York, on which the Company is
the lead lender. The loan participation was originated for $1.1 million in
February 1986 with a loan-to-value ratio of 67.0%. The loan had been
experiencing delinquencies since June 1993 due to cash flow problems caused by
high vacancy rates. In December 1993, the Company, based on an October 1993
appraisal, wrote-down the loan participation balance to $609,000 and in July
1994 restructured the loan to reduce the principal balance outstanding and
interest rate charged. At December 31, 1998, the outstanding balance on the
Company's participation interest was $569,000. This loan has continued to
perform according to the terms of the restructure; however, tenancy remains a
problem and the property is in need of a significant upgrade that will require a
new infusion of capital.
Foreclosed and Reposessed Assets
As of December 31, 1998, the Company had $399,000 in carrying value of
foreclosed and repossessed assets. One-to four-family real estate represented
78.4% of the Company's foreclosed and repossessed property, consisting of nine
(9) properties. Commercial real estate represented 7.6% of the Company's
foreclosed and repossessed assets and consisted of one (1) property. Repossessed
consumer assets represented 14.0% of the Company's foreclosed and repossessed
properties, consisting of six (6) recreational vehicles (including automobiles).
Other Loans of Concern
As of December 31, 1998, there were $4.0 million of other loans not
included in the table or discussed above where known information about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms. Set forth
below is a description of other loans of concern in excess of $500,000.
The largest other loan of concern at December 31, 1998 consisted of a
commercial real estate loan secured by a one story educational facility located
in the Bank's market area. This loan was originated in December 1995 as a
$1,000,000 line of credit with a loan to value ratio of 25%. The loan matured on
December 31, 1998 with a principal balance of $892,000. After the borrower made
a principal payment of approximately $192,000 the remaining balance of the loan
was rewritten in February 1999 as a fully amortizing commercial mortgage in the
amount of $700,000 with a 15 year term. The value of the collateral was
reaffirmed by an independent appraisal. Continued concern regarding the source
of the loans repayment has resulted in its continued status as a loan of
concern.
The second largest other loan of concern at December 31, 1998 consisted of
a multi-family real estate loan secured by a 32 unit apartment building located
outside of the Bank's primary market area. This loan was originated in December
1989 with a loan to value ratio of 72.2%. Although the property was 91% occupied
based on the latest rent roll, the cashflow generated was not sufficient to
service the debt but the borrower has been able to keep the loan current by
utilizaing other sources of funds. Current financial information has been
requested from the guarantors for this loan to confirm the amount of resources
available to keep this loan current. At December 31, 1998, the loan was current
and had a principal balance of $627,000.
There were no other loans with a balance in excess of $500,000 being
specially monitored by the Company as of December 31, 1998. Other loans of
concern with balances less than $500,000 at December 31, 1998 consisted of 17
commercial and multi-family real estate loans totaling $1.8 million, 10
commercial business loans totaling $492,000 and 7 one-to four-family mortgage
loans totaling $187,000. These loans have been considered by management in
conjunction with the analysis of the adequacy of the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is increased through a provision for loan
losses based on management's evaluation of the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activity, including
those loans which are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectability may
not be reasonably assured, considers among other matters, the estimated fair
value, less estimated disposal costs, of the underlying collateral, economic
conditions, historical loan loss experience, and other factors that warrant
recognition in providing for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at fair
value, less estimated disposal costs. If fair value at the date of foreclosure
is lower than the carrying value of the related loan, the difference will be
charged to the allowance for loan losses at the time of transfer. Valuations of
the property are periodically updated by management and if the value declines, a
specific provision for losses on such property is recorded by a charge to
operations and the asset's recorded value is written down accordingly.
Although management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net earnings could be significantly affected if
circumstances differ substantially from the assumptions used in determining the
level of the allowance. Future additions to the Company's allowance for loan
losses will be the result of periodic loan, property and collateral reviews and
thus cannot be predicted in advance. In addition, federal regulatory agencies,
as an integral part of the examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based upon their judgment of the
information available to them at the time of their examination. At December 31,
1998, the Company had a total allowance for loan losses of $4.9 million,
representing 168.4% of non-performing loans.
The following table sets forth an analysis of the activity in the Company's
allowance for loan losses.
<TABLE>
<CAPTION>
For the year
ended December 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $3,807 $3,438 $2,647 $2,235 $3,248
Charge-offs:
One- to four-family (1) (69) (15) (530) (31) (28)
Multi-family (129) (51) (1,174) (171) (668)
Commercial real estate (437) (372) (2,564) (568) (1,336)
Consumer (275) (316) (1,834) (400) (196)
Commercial business (316) (460) (2,616) (46) (232)
----------- ----------- ----------- ----------- -----------
Total Charge offs (1,226) (1,214) (8,718) (1,216) (2,460)
----------- ----------- ----------- ----------- -----------
Recoveries:
One- to four-family (1) 6 1 10 --- 27
Multi-family -- -- -- 64 ---
Commercial real estate 59 26 -- 1 193
Consumer 56 76 49 41 110
Commercial business 174 392 -- --- 10
----------- ----------- ----------- ----------- -----------
Total Recoveries 295 495 59 106 340
----------- -----------------------------------------------
Net Charge-offs (931) (719) (8,659) (1,110) (2,120)
Allowance acquired from
AFSALA Bancorp. Inc. 1,115 -- -- -- --
Provisions charged to operations 900 1,088 9,450 1,522 1,107
----------- ----------- ----------- ----------- -----------
Balance at end of period $4,891 $3,807 $3,438 $2,647 $2,235
=========== =========== =========== =========== ===========
Ratio of allowance for loan
losses to total loans
(at period end) 1.15% 1.34% 1.37% 1.05% 0.85%
====== ====== ====== ====== ======
Ratio of allowance for loan
losses to non-performing loans
(at period end) 168.42% 117.07% 70.47% 30.10% 21.42%
====== ====== ====== ====== ======
Ratio of net charge-offs during
the period to average loans
outstanding during period 0.29% 0.25% 3.30% 0.42% 0.88%
====== ====== ====== ====== ======
<FN>
- - -------------------------------------
(1) Includes home equity loans.
</FN>
</TABLE>
No portion of the allowance is restricted to any loan or group of loans,
and the entire allowance is available to absorb realized losses. The amount and
timing of realized losses and future allowance allocations may vary from current
estimates. The following table summarizes the distribution of the Company's
allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------- -------------------- -------------------- -------------------- -------------------
Percent Percent Percent Percent Percent
Amount of loans Amount of loans Amount of loans Amount of loans Amount of loans
of in each of in each of in each of in each of in each
Loan category Loan category Loan category Loan category Loan category
Loss to total Loss to total Loss to total Loss to total Loss to total
Allowance loans Allowance loans Allowance loans Allowance loans Allowance loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family (1) $1,661 84.33% $897 77.55% $ 157 72.26% $268 60.18% $207 60.02%
Multi-family and
Commercial real estate 1,383 6.53 1,818 10.84% 1,599 13.84% 1,097 19.97% 1,260 21.18%
Construction --- 0.85 --- 0.73% --- 0.89% --- 0.43% --- 1.84%
Consumer 397 6.96 449 9.57% 355 10.29% 718 15.55% 454 13.65%
Commercial Business 666 1.32 483 1.31% 1,327 2.72% 268 3.87% 114 3.31%
Unallocated 784 ---- 160 ---- --- ---- 296 ---- 200 ----
------ ------ ------ ------- ------ ------- ------ ------- ------ ------
Total $4,891 100.00% $3,807 100.00% $3,438 100.00% $2,647 100.00% $2,235 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<FN>
- - -------------------------------
(1) Includes home equity loans.
</FN>
</TABLE>
Investment Activities
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and above
levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At December 31, 1998, the Bank's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 32.0%.
In December 1995 the Company reclassified its entire portfolio of
investment and mortgage-backed securities to the available for sale category.
This reclassification was made in response to a one time transfer allowed by the
Financial Accounting Standards Board and the various federal banking regulators.
All securities purchased after this transfer have been classified as available
for sale (including those acquired in the AFSALA acquisition).
Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based upon the Company's need
for liquidity, to achieve the proper balance between its desire to minimize risk
and maximize yield, to provide collateral for borrowings and to fulfill the
Company's asset/liability management policies. The Company's investment strategy
has been directed primarily toward high-quality mortgage-backed securities, as
well as U.S. Government and agency securities and collateralized mortage
obligations.
Substantially all of the mortgage-backed securities owned by the Company
are issued, insured or guaranteed either directly or indirectly by a federal
agency. At December 31, 1998, all of the Company's securities were classified as
available for sale. The fair value and amortized cost of the Company's
securities (excluding FHLB stock) at December 31, 1998 were $244.2 million and
$243.6 million, respectively. For additional information on the Company's
securities, see Note 5 of the Notes to Consolidated Financial Statements in the
Annual Report.
At December 31, 1998, the fair value and amortized cost of the Company's
collaterized mortgage obligations ("CMOs") were $62.1 million and $62.0 million,
respectively. CMOs owned by the Company consisted of either AAA rated securities
or securities issued, insured or guaranteed either directly or indirectly by a
federal agency. For additional information on the Company's securities, see Note
5 of the Notes to Consolidated Financial Statements in the Annual Report.
Mortgage-backed securities and CMOs generally increase the quality of the
Company's assets by virtue of the insurance or guarantees that back them. Such
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Company. At December 31,
1998, $135.8 million or 85.7% of the Company's mortgage-backed securities and
CMOs were pledged to secure various obligations of the Company.
While mortgage-backed securities and CMOs carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities. The prepayment risk associated with
mortgage-backed securities is monitored periodically, and prepayment rate
assumptions adjusted as appropriate to update the Company's mortgage-backed
securities accounting and asset/liability reports. Classification of the
Company's mortgage-backed securities and CMOs portfolio as available for sale is
designed to minimize that risk.
At December 31, 1998, the contractual maturity of 95.8% of all of the
Company's mortgage-backed securities and CMOs were in excess of ten years. The
actual maturity of a mortgage-backed security or CMO is typically less than its
stated maturity due to prepayments of the underlying mortgages. Prepayments that
are different than anticipated will affect the yield to maturity. The yield is
based upon the interest income and the amortization of any premium or discount
related to the mortgage-backed security or CMO. In accordance with generally
accepted accounting principles, premiums and discounts are amortized/accreted
over the estimated lives of the securities, which decrease and increase interest
income, respectively. The prepayment assumptions used to determine the
amortization/accretion period for premiums and discounts can significantly
affect the yield of a mortgage-backed security, and these assumptions are
reviewed periodically to reflect actual prepayments. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
falling mortgage interest rates, if the coupon rate of the underlying mortgages
exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Company may be
subject to reinvestment risk because to the extent that the Company's
mortgage-backed securities amortize or prepay faster than anticipated, the
Company may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.
The following table sets forth the composition of the Company's securities
portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------------------
Carrying Carrying Carrying
Value (1) %of Total Value (1) %of Total Value (1) %of Total
----------- -------- ------------ -------- ----------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities:
U.S. Government and agency $ 84,000 33.41% $ 63,145 30.19% $43,773 21.65%
State and political subdivisions 1,837 0.73% 766 0.37% 505 0.25%
Mortgage-backed securities 96,256 38.28% 131,986 63.11% 156,261 77.10%
Collateralized mortgage
obligations 62,148 24.71% 9,911 4.74% --- ---
--------- ------- ---------- ------- ---------- -------
Total debt securities 244,241 97.13% 205,808 98.41% 200,539 99.00%
FHLB stock 7,215 2.87% 3,291 1.57% 2,029 1.00%
--------- ------- ---------- ------- ---------- -------
Total securities and FHLB stock $ 251,456 100.00% $ 209,133 100.00% $202,568 100.00%
========= ======= ========== ======= ========== =======
<FN>
-------------------------------------
(1)Debt securities are classified as available for sale and are carried at fair
value. The FHLB stock is non-marketable and accordingly is carried at cost.
</FN>
</TABLE>
<PAGE>
The composition and contractual maturities of the securities portfolio (all
of which are categorized as available for sale), excluding FHLB stock, are
indicated in the following table. The Company's securities portfolio at December
31, 1998, contained no securities of any issuer with an aggregate book value in
excess of 10% of the Company's equity, excluding those issued by the United
States Government or its agencies. Securities are stated at their contractual
maturity date (mortgage backed securities and collateralized mortgage
obligations are included by final contractual maturity). Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------------
Over One Over Five
One Year Year through Years through Over
or less Five Years Ten Years 10 Years Total Securities
-------------- -------------- -------------- -------------- ---------------------------
Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost Fair Value
-------------- -------------- -------------- -------------- -------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agency $ 5,781 $ 7,272 $ 47,540 $ 23,072 $ 83,665 $ 84,000
State and political subdivisions 906 913 --- --- 1,819 1,837
Mortgage-backed securities 185 3,891 1,134 90,929 96,140 96,256
Collateralized mortgage
obligations --- --- 1,432 60,568 62,000 62,148
------- ------- ------- ------- ------- -------
Total investment securities $ 6,872 $ 12,077 $ 50,106 $174,569 $243,624 $244,241
======= ======= ======= ======= ======= =======
Weighted average yield .... 5.83% 6.48% 6.51% 7.57% 6.95%
======= ======= ======= ======= =======
</TABLE>
Sources of Funds
General
The Company's primary sources of funds are deposits, borrowings,
amortization and prepayment of loan and mortgage-backed security principal,
maturities of securities, short-term investments, and funds provided from
operations.
Deposits
The Company offers a variety of deposit products having a range of interest
rates and terms. The Company's deposits consist of savings accounts, money
market accounts, transaction accounts, and certificate accounts currently
ranging in terms from 91 days to 60 months. The Company primarily solicits
deposits from its primary market area and at December 31, 1998, did not have
brokered deposits. The Company relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits. The
Company has utilized premiums and promotional gifts for new accounts in
connection with the opening of new branches or with club accounts. At times the
Company also uses small advertising give-aways in the aisles of the supermarkets
where it maintains branches. For information regarding average balances and rate
information on deposit accounts, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report and for
information on the dollar amount of deposits in the various deposit types
offered by the Company, see Note 9 of the Notes to Consolidated Financial
Statements in the Annual Report.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The variety of deposit products offered by the Company has allowed
it to be competitive in obtaining funds and to respond with flexibility to
changes in consumer demand. The Company has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Company manages the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability objectives. Based on
its experience, the Company believes that its savings accounts and transaction
accounts are relatively stable sources of deposits. However, the ability of the
Company to attract and maintain money market accounts and certificates of
deposit and the rates paid on these deposits have been and will continue to be
significantly affected by market conditions.
At December 31, 1998, the Company's certificates of deposit totaled $228.0
million. These certificates of deposits were issued at interest rates ranging
from 3.70% to 7.36%. (For additional information regarding certificate of
deposit interest rates, see Note 9 of the Notes to Consolidated Financial
Statements in the Annual Report.)
The following table indicates the amount of the Company's certificates of
deposit by time remaining until maturity as of December 31, 1998.
Maturity
-------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
--------- -------- -------- -------- --------
(In thousands)
Certificates of deposit
less than $100,000 $40,376 $39,790 $53,936 $67,971 $202,073
Certificates of deposit
of $100,000 or more 4,206 4,320 7,889 9,517 25,932
--------- -------- -------- -------- --------
Total certificates of deposit $44,582 $44,110 $61,825 $77,488 $228,005
========= ======== ======== ======== ========
Borrowings
Although deposits are the Company's primary source of funds, the Company's
policy generally has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when the
Company needs additional funds to satisfy loan demand.
The Company's borrowings prior to 1996 primarily consisted of advances from
the FHLB of New York. Such advances can be made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. At December 31, 1998, the Company had $21.4 million in FHLB
advances. During 1996, the Company significantly increased its other borrowings.
These borrowings were used to purchase various investments including Federal
agency obligations and mortgage-backed securities which were simultaneously
pledged as securities sold under agreements to repurchase. At December 31, 1998,
securities repurchase agreements totaled $152.4 million. The positive interest
rate spread between the volume of pledged securities and the related borrowings
has produced an increase in net interest income but at an interest rate spread
that is less than the Company has earned historically. The increased level of
borrowings coupled with a reduction in the interest rate spread related to the
borrowings has resulted in a narrowing in the Company's overall net interest
margin from 3.66% in 1996, to 3.36% in 1997 to 3.04% in 1998. For further
information regarding the Company's borrowings, see Note 10 of the Notes to
Consolidated Financial Statements contained in the Annual Report.
Subsidiary and Other Activities
As a federally chartered savings association, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or $14.4 million at December 31,
1998, in the stock of, or in loans to, service corporation subsidiaries. As of
such date, the Bank had no investments in service corporation subsidiaries. The
Bank may invest an additional 1% of its assets in service corporations where
such additional funds are used for inner-city or community development purposes
and up to 50% of its total capital in conforming loans to service corporations
in which it owns more than 10% of the capital stock. Federal associations also
are permitted to invest an unlimited amount in operating subsidiaries engaged
solely in activities which a federal association may engage in directly.
The Bank organized a single service corporation in 1984, which is known as
ASB Insurance Agency, Inc. ("ASB Insurance"). In November 1996, the Company
purchased the service corporation from the Bank for $1,000. ASB Insurance offers
mutual funds, annuity and brokerage services through a registered broker-dealer
to the Company's customers and members of the general public. ASB Insurance
recognized gross revenues of $63,800 for the year ended December 31, 1998.
Regulation
General
The Bank is a federally chartered savings bank, the deposits of which are
federally insured by the FDIC and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad federal
regulation and oversight by the OTS extending to all its operations. The Bank is
a member of the FHLB of New York and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As a savings and loan holding company, the Company also is subject to federal
regulation and oversight. The Bank is a member of the Bank Insurance Fund
("BIF"), which is administered by the FDIC. Its deposits are insured up to
applicable limits by the FDIC. As a result, the FDIC also has certain regulatory
and examination authority over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Association.
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS, its
primary federal banking regulator, and the FDIC. The last regular OTS
examination of the Bank was as of December 31, 1997. When these examinations are
conducted by the OTS and the FDIC, the examiners, if they deem appropriate, may
require the Bank to provide for higher general or specific loan loss reserves.
All savings associations are subject to a semi-annual assessment, based upon the
savings association's total assets, to fund the operations of the OTS. The
Bank's OTS assessment for the fiscal year ended December 31, 1998, was $124,000.
The OTS also has extensive enforcement authority over savings associations
and their holding companies, including the Bank and the Company. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal law. For instance, no savings institution may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Bank is in compliance with the noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1998, the Bank's lending limit was $9.6 million. The Bank is in
compliance with the loans-to-one-borrower limitation.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines, by regulation or order, to pose a serious risk to the insurance
fund. The FDIC also has the authority to initiate enforcement actions against
savings associations, after giving the OTS an opportunity to take such action,
and may terminate deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) or considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC semi-annually.
The FDIC is authorized to adjust the insurance premium rates for banks that
are insured by the BIF, such as the Bank, in order to maintain the reserve ratio
of the BIF at 1.25% of BIF insured deposits. The ranges of BIF premium rates in
effect during fiscal 1998 was 0% to 0.27%. In addition, BIF insured institutions
are required to contribute to the cost of financial bonds that were issued to
finance the cost of resolving the thrift failures in the 1980s (the "FICO
Premium"). The rate currently set for the FICO Premium for BIF insured banks,
such as the Bank, is 1.3 basis points.
Regulatory Capital Requirements
All federally insured savings institutions are required to maintain a
minimum level of regulatory capital. The OTS has established capital standards,
including a tangible capital requirement, a leverage ratio (or core capital)
requirement and a risk-based capital requirement applicable to such savings
associations. The OTS is also authorized to impose capital requirements in
excess of these standards on a case-by-case basis. At December 31, 1998, the
Bank was in compliance with its regulatory capital requirements. See Note 16 of
the Notes to Consolidated Financial Statements contained in the Annual Report.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the Bank
or the Company may have a substantial adverse effect on the Company's operations
and profitability. Company shareholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution of a
shareholder's percentage ownership of the Company.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the retained earnings of the association would
be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Qualified Thrift Lender Test
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings association may maintain 60% of its assets in those
assets specified under Section 7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential housing related loans
and investments. At December 31, 1998, the Bank met the test and has always met
the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If such an association has not yet requalified or converted to a national
bank, its new investments and activities are limited to those permissible for
both a savings association and a national bank, and it is limited to national
bank branching rights in its home state. In addition, the association is
immediately ineligible to receive any new FHLB borrowings and is subject to
national bank limits for payment of dividends. If such association has not
requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA requires the OTS, in
connection with the examination of the Bank, to assess the institution's record
of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a merger or the
establishment of a branch, by the Bank. An unsatisfactory rating may be used as
the basis for the denial of an application by the OTS.
The Bank was last examined for CRA compliance in June 1996 and received a
rating of "satisfactory".
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. The Company is required to register and file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over the Company and its non-savings
association subsidiaries, which authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any savings association) would generally
become subject to additional restrictions.
If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company.
Federal Taxation
Savings associations such as the Bank that meet certain definitional tests
relating to the composition of assets and other conditions prescribed by the
Internal Revenue Code of 1986, as amended (the "Code"), are permitted to
establish reserves for bad debts and to make annual additions thereto which may,
within specified formula limits, be taken as a deduction in computing taxable
income for federal income tax purposes. The amount of the bad debt reserve
deduction is computed under the experience method. Under the experience method,
the bad debt reserve deduction is an amount determined under a formula based
generally upon the bad debts actually sustained by the savings association over
a period of years.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.
To the extent prior years earnings appropriated to a savings association's
bad debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed under
the experience method and to the extent of the association's supplemental
reserves for losses on loans ("Excess"), such Excess may not, without adverse
tax consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses).
The Company and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting.
The Bank and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns through December 31,
1996. With respect to years examined by the IRS, either all deficiencies have
been satisfied or sufficient reserves have been established to satisfy asserted
deficiencies.
<PAGE>
New York Taxation
The Bank and its subsidiaries are subject to New York state taxation. The
Bank is subject to the New York State Franchise Tax on Banking Corporations in
an annual amount equal to the greater of (i) 9% of the Bank's "entire net
income" allocable to New York State during the taxable year, or (ii) the
applicable alternative minimum tax. The alternative minimum tax is generally the
greater of (a) 0.01% of the value of the Bank's assets allocable to New York
State with certain modifications, (b) 3% of the Bank's "alternative entire net
income" allocable to New York State, or (c) $250. Entire net income is similar
to federal taxable income, subject to certain modifications (including the fact
that net operating losses cannot be carried back or carried forward) and
alternative entire net income is equal to entire net income without certain
modifications. The Bank and its consolidated subsidiaries have been audited by
the New York State Department of Taxation and Finance through December 31, 1994.
Delaware Taxation
As a Delaware holding company, the Company is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
Competition
The Company faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions, commercial banks, credit
unions and mortgage brokers making loans secured by real estate located in the
Company's primary market area. Other savings institutions, commercial banks,
credit unions and finance companies also provide vigorous competition in
consumer lending.
The Company attracts substantially all of its deposits through its branch
offices, primarily from the communities in which those branch offices are
located; therefore, competition for those deposits is principally from mutual
funds and other savings institutions, commercial banks and credit unions doing
business in the same communities. The Company competes for these deposits by
offering a variety of deposit products at competitive rates, convenient business
hours, and convenient branch locations with interbranch deposit and withdrawal
privileges. Automated teller machine facilities are also available.
Employees
At December 31, 1998, the Company had a total of 182 employees, including
25 part-time employees. The Company's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
<PAGE>
Executive Officers of the Company and the Bank Who Are Not Directors
The following information as to the business experience during the past
five years is supplied with respect to the executive officers of the Company and
the Bank who do not serve on the Company's or the Bank's Board of Directors.
There are no arrangements or understandings between such persons named and any
persons pursuant to which such officers were selected.
Benjamin Ziskin, age 40, is the Senior Vice President of the Company and
the Bank since November 1998. Mr. Ziskin served as Treasurer of Amsterdam
Federal Bank from 1985 to 1993 and was appointed Vice President of Amsterdam
Federal Bank in 1989 and of AFSALA upon its formation in 1996.
James J. Alescio, age 37, is Senior Vice President, Chief Financial Officer
and the Treasurer of the Company and the Bank, positions he has held with the
Company since November 1998. Mr. Alescio served as Assistant Treasurer of
Amsterdam Federal Bank from 1984 to 1987 and was appointed Treasurer and Chief
Financial Officer of Amsterdam Federal Bank in 1993 and of AFSALA upon it
formation.
Thomas Nachod, age 57, is Senior Vice President of the Company and the
Bank. Mr. Nachod joined the Company in December 1998. Prior to joining the
Company, he held the position of Senior Vice President at ALBANK. In addition,
Mr. Nachod previously worked in a variety of rolls at KeyBank, as well as having
served as Chief Executive Officer of two banks, Connecticut Community Bank in
Greenwich, CT and Fidelity Bank of Scottsdale, AZ.
Robert Kelly, age 51, is Vice President, Secretary and General Counsel to
the Company, positions he has held with the Company since its incorporation in
June 1995. Mr. Kelly has been Vice President and General Counsel to the Bank
since July 1994. In January 1995 he was appointed Secretary of the Bank. Prior
to joining the Bank in 1994, Mr. Kelly was self-employed in the general practice
of law in the State of New York.
Item 2. Description of Property
The Company conducts its business at its main office, seventeen other
banking offices and an operations office in its primary market area. The Company
owns its Main Office, its operations center and four branch offices and leases
the remaining thirteen branch offices. The Company also owns a parking lot
located at 18-22 Division Street, Amsterdam, New York, which is used to service
the main office. The net book value of the Company's premises and equipment
(including land, buildings and leasehold improvements and furniture, fixtures
and equipment) at December 31, 1998 was $4.5 million. See Note 8 of Notes to
Consolidated Financial Statements in the Annual Report. The Company believes
that its current facilities are adequate to meet the present and foreseeable
needs of the Bank and the Company, subject to possible future expansion.
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Company's financial position or results of operations. For more
information on certain legal proceedings, see Note 14(a) of the Notes to
Consolidated Financial Statements contained in the Annual Report.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1998.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The information required is herein incorporated by reference to
the Annual Report
Item 6. Selected Financial Data
The information required is herein incorporated by reference to
the Annual Report
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required is herein incorporated by reference to
the Annual Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required is herein incorporated by reference to
the Annual Report
Item 8. Financial Statements and Supplementary Data
The information required is herein incorporated by reference to
the Annual Report
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent consolidated financial statements reporting a
change of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
- - ---------
Information concerning Directors of the Registrant is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 28, 1999, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Executive Officers
- - ------------------
Information concerning executive officers of the Company is set forth under
the caption "Executive Officers of the Company and the Bank who are not
Directors" contained in Part 1 of this Form 10-K.
Compliance with Section 16(a)
- - -----------------------------
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more that 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based soley on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders scheduled to be held on May 28, 1999, except for information
contained under the heading "Compensation Committee Report on Executive
Compensation" and "Shareholder Return Performance Presentation", a copy of which
will be filed not later than 120 days after the close of the fiscal year.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 28, 1999, except for information contained under the heading "Compensation
Committee Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders scheduled to be held on May 28, 1999,
except for information contained under the heading "Compensation Committee
Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.
<PAGE>
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is
not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
See Index to Exhibits
(b) Reports on Form 8-K:
Current reports on form 8-K were filed as follows:
October 23, 1998 announcement of third quarter earnings for the Company.
October 29, 1998 announcement of OTS approval for merger between the
Company and AFSALA.
November 13, 1998 announcement of merged Company and Bank's executive
management team.
December 1, 1998 declaration of increased cash dividend to shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
Date: March 31, 1999 By: /s/
------------------------------ ----------------------
John M. Lisicki, President
and Chief Executive Officer
(Duly Authorized Representative)
41
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on March 31, 1999:
/s/ /s/
- - ----------------------------------- -------------------------------------
John M. Lisicki, President James J. Alescio, Senior Vice
and Chief Executive Officer President, Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting
` officer)
/s/ /s/
- - ----------------------------------- -------------------------------------
Paul W. Baker, Director Lauren T. Barnett, Director
/s/ /s/
- - ----------------------------------- -------------------------------------
James J. Bettini, Director John J. Daly, Director
/s/ /s/
- - ----------------------------------- -------------------------------------
Robert J. Dunning, Director Lionel H. Fallows, Director
/s/ /s/
- - ----------------------------------- -------------------------------------
Dr. Daniel J. Greco, Director Marvin R. LeRoy, Jr., Director
/s/ /s/
- - ----------------------------------- -------------------------------------
Charles S. Pedersen, Director Carl A. Schmidt, Jr., Director
/s/ /s/
- - ----------------------------------- -------------------------------------
Dr. Ronald S. Tecler, Director John A. Tesiero, Jr., Director
/s/ /s/
- - ----------------------------------- -------------------------------------
William A. Wilde, Jr., Director Charles E. Wright, Director
<PAGE>
Index to Exhibits
Exhibit
Number Document
- - ------ ------------------------------------------------------------
3(i) Registrants's Certificate of Incorporation as currently in
effect, filed as an exhibit to Registrants's Registration
Statement of Form S-1 (File No. 33-96654), is incorporated
herein by reference.
3(ii) Registrants's Bylaws as currently in effect, filed as an
exhibit to Registrant's Registration Statement on Form S-1
(File No. 33-96654), is incorporated herein by reference.
4 Registrant's Specimen Stock Certificate, filed as an exhibit
to Registrant's Registration Statement on Form S-1 (File No.
33-96654), is incorporated herein by reference.
10.1 Employment Agreement between the Registrant and Robert
Kelly, filed as an exhibit to Registrant's Registration
Statement on Form S-1 (File No. 33-96654), is incorporated
herein by reference.
10.2 Forms of Employment Agreements between the Registrant and
John M. Lisicki, James J. Alescio, and Benjamin W. Ziskin,
filed as exhibits to the Registrant's Registration Statement
on Form S-4 (File No. 333-59721).
10.3 Supplemental Retirement Benefit agreement with John M.
Lisicki and Benjamin W. Ziskin.
10.4 Registrant's Employee Stock Ownership Plan, filed as an
exhibit to Registrant's Registration Statement on Form S-1
(File No. 33-96654), is incorporated herein by reference.
10.5 Registrant's 1997 Stock Option and Incentive Plan, Filed as
Exhibit A to Registrant's Proxy Statement filed with the
Commission on March 26, 1997, pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (File No.
0-27036), is incorporated herein by reference.
10.6 Registrant's Recognition and Retention Plan, filed as
Exhibit B to Registrant's Proxy Statement filed with the
Commission on March 26, 1997, pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (File No.
0-27036), is incorporated herein by reference.
10.7 AFSALA Bancorp, Inc. 1997 Stock Option Plan, filed as
Exhibit 10.4 to the 1997 Annual Report on Form 10-KSB of
AFSALA Bancorp, Inc. (file number 0-2113), and the amendment
to the Plan, filed as an appendix to the definitive proxy
statement filed with the Commision by AFSALA Bancorp, Inc.
on January 8, 1998, are incorporated herein by reference.
11 Statement re: computation of per share earnings (see Notes
1(n) and 13 of the Notes to Consolidated Financial
Statements contained in the Annual Report to Shareholders
filed as Exhibit 13 herein).
13 Portions of Annual Report to Security Holders
21 Subsidiaries of the Registrant
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
Exhibit 10.3
AMSTERDAM FEDERAL BANK
TARGET BENEFIT
SUPPLEMENTAL RETIREMENT BENEFIT
AGREEMENT
AS AMENDED
THIS SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT, AS AMENDED
(hereinafter called the "Agreement") made and entered into as of this 17th day
of March, 1998 (hereinafter called the "Effective Date"), by and between
AMSTERDAM FEDERAL BANK, a federal savings bank having its principal office at
161 Church Street, P.O. Box 271, Amsterdam, New York (hereinafter called the
"Bank"), and Benjamin W. Ziskin, Vice President (hereinafter called "Officer").
WITNESSETH:
WHEREAS, the Officer is the Vice President of the Bank, having been in the
employ of the Bank since 1982; and
WHEREAS, the Bank has previously adopted the Agreement as of November 16,
1993,
WHEREAS, the Bank wishes to amend such Agreement in certain respects so
as to further promote the purposes of the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, and other good and valuable
consideration, it is hereby agreed by and between the Bank and the Officer that
the Agreement shall be amended and restated in its entirety as follows:
Section 1. Deferred Compensation Account.
As of the Effective Date of this Agreement, and as of the first day of
each calendar year thereafter during the continuance of the Officer's employment
by the Bank, the Bank shall credit to a unfunded book reserve established for
the purposes of providing the Target Benefit under this Agreement, (hereinafter
called "the Deferred Compensation Account") six and 19/100 percent (6.19%) of
the Officer's annual salary as of such date.
1
<PAGE>
Section 2. Investments.
Amounts credited under the Deferred Compensation Account established
under Section 1. of this Agreement shall be invested by the Bank (either in the
Bank's name or in the name of a trustee through an irrevocable trust arrangement
established by the Bank for this purpose) in one or more registered investment
companies under the Investment Company Act of 1940, to the extent permitted by
applicable banking law, and/or in one or more fixed income investment
opportunities selected in the sole discretion of the Bank. The value of the
Officer's Deferred Compensation Account at any given time shall be based solely
on the then value of the investment fund or funds selected hereunder.
Section 3. Retirement Benefit.
Upon the Officer's termination of employment with the Bank, absent
termination by the Bank for cause as specified at Section 6 hereinafter, the
supplemental retirement benefits consisting of the aggregate total of the then
value of all amounts in said Deferred Compensation Account as of the Officer's
date of termination from employment shall be payable. Such benefits will be paid
in any one of the following modes, as determined by the Bank: (i) a single lump
sum payment; (ii) purchase of a straight life or joint and survivor annuity; or
(iii) monthly installments over a period of five, ten or fifteen years. If the
Officer shall die prior to having received the total of installment payments
specified in clause (iii), above, the unpaid balance of such installments will
continue to be paid in monthly installments for the unexpired portion of the
specified installment period, to a designated beneficiary or contingent
beneficiary.
Section 4. Death Benefit.
In the event the Officer's employment shall terminate as a result of
death, the amount in the Deferred Compensation Account as of the date of death
shall be paid to the Officer's designated beneficiary, or contingent
beneficiary, as the case may be, in one of the following modes, as determined by
the Bank: (i) a single lump sum payment; or (ii) purchase of a straight life
annuity based upon the designated beneficiary's life expectancy.
Section 5. Payment to Estate; Change of Beneficiary.
If there is no designated beneficiary living at the time of the
Officer's death, the then value of all amounts in the Deferred Compensation
Account, determined as of the date of the Officer's death, shall be paid in a
single lump sum to the Officer's estate. Any designated or contingent
beneficiary referred to in Section 3. may be changed by the Officer without the
consent of any prior designated or contingent beneficiary, upon written notice
to the bank, signed by the Officer, the receipt of which has been acknowledged
in writing by an officer of the Bank.
2
<PAGE>
Section 6. Forfeiture.
In case the Officer's employment is terminated by the Bank for cause as
defined at 12 CFR 563.39(b) as determined by the Board of Directors of the Bank,
the Bank shall have no obligation to make any payments to the Officer or any
designated beneficiary or contingent beneficiary under this Agreement and the
Agreement shall terminate as of such date the Officer's employment is
terminated.
Section 7. Designation of Beneficiaries.
For the purposes of this Agreement, the Officer hereby names as primary
beneficiary(ies), Lynnette F. Ziskin, and designates The Estate of Benjamin W.
Ziskin as contingent beneficiary(ies).
Section 8. Successors and Assigns.
The right of the Officer or any beneficiary to the payment of the
supplemental retirement benefit payable under this Agreement shall not be
assigned, transferred, pledged or encumbered, except by the Officer's last will
and testament, or by the applicable laws of descent and distribution. This
Agreement will inure to the benefit of and be binding upon the Officer, the
Officer's legal representatives and estate or interstate distributees, and the
Bank, its successors and assigns, including any successor by merger or
consolidation, a statutory receiver, or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred.
Section 9. Creditor Rights.
The Officer's rights under this Agreement shall be limited to those of
an unsecured general creditor of the Bank and the Bank shall have no obligation
to fund the Target Benefit supplemental retirement benefit provided for
hereunder.
Section 10. No Right to Employment.
Nothing contained in this Agreement shall be construed as conferring
upon the Officer the right to continue in the employ of the Bank as an officer
of the Bank or in any other capacity.
3
<PAGE>
Section 11. Arbitration of Disputes.
Any dispute between the Bank and the Officer, any designated or
contingent beneficiary, or the Officer's estate as to the proper interpretation
or application of any provision of this Agreement, shall be settled by
arbitration, as follows. One arbitrator shall be selected by each of the parties
with a dispute pursuant to this Agreement and a third arbitrator chosen by the
two so selected, and the decision of a majority of the arbitrators so selected
shall be final and binding upon all of the parties to such dispute.
Section 12. Termination.
The Bank's obligation to make payments under this Agreement shall
terminate following the final payment required to be made under the applicable
payment option.
Section 13. Facility of Payment.
If the Bank shall find that any individual entitled to receive payments
under this Agreement is unable to care for his or her affairs because of age,
lack of capacity, illness or accident, the Bank may pay such benefit, unless
claim shall have been made therefor by a duly appointed legal representative, to
the spouse, descendant, other relative, or to a person with whom the individual
entitled to payment resides, and any such payment so made shall be a complete
discharge of the liability of the Bank under this Agreement.
Section 14. Records.
The records of the Bank, the Retirement Plan, and the Savings Plan,
shall be conclusive in respect of all matters involved in the calculation of
benefits under this Agreement.
Section 15. Unfunded Arrangement.
This Agreement is an unfunded supplemental benefit arrangement, subject
to the requirements of Department of Labor Regulation Section 2520.104-23.
Section 16. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 17. Authorization to Execute Agreement.
This Agreement has been approved by the Board of Directors of the Bank,
and the undersigned has been specifically authorized by the Board to execute
this Agreement on behalf of the Bank.
4
<PAGE>
Section 18. Entire Agreement; Modifications.
This instrument contains the entire Agreement of the parties relating
to the subject matter hereof and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
Section 19. Headings.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 20. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate, each of which shall be deemed to be an original for all purposes,
effective as of the day and year first above written.
OFFICER
/s/ Benjamin W. Ziskin
Print Name: Benjamin W. Ziskin
Title:Vice President/Senior Lending Officer
ATTEST:
By: /s/ Sandra M. Hammond
Print Name: Sandra M. Hammond
AMSTERDAM FEDERAL BANK
By: /s/ James J. Alescio
Print Name: James J. Alescio
Title: Executive Vice President
ATTEST:
By: /s/ Sandra M. Hammond
Print Name: Sandra M. Hammond
6
<PAGE>
AMSTERDAM FEDERAL BANK
TARGET BENEFIT
SUPPLEMENTAL RETIREMENT BENEFIT
AGREEMENT
AS AMENDED
THIS SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT, AS AMENDED
(hereinafter called the "Agreement") made and entered into as of this 17th day
of March, 1998 (hereinafter called the "Effective Date"), by and between
AMSTERDAM FEDERAL BANK, a federal savings bank having its principal office at
161 Church Street, P.O. Box 271, Amsterdam, New York (hereinafter called the
"Bank"), and John Lisicki, President (hereinafter called "Officer").
WITNESSETH:
WHEREAS, the Officer is the President of the Bank, having been in the
employ of the Bank since 1978; and
WHEREAS, the Bank has previously adopted the Agreement as of November 16,
1993,
WHEREAS, the Bank wishes to amend such Agreement in certain respects so
as to further promote the purposes of the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, and other good and valuable
consideration, it is hereby agreed by and between the Bank and the Officer that
the Agreement shall be amended and restated in its entirety as follows:
Section 1. Deferred Compensation Account.
As of the Effective Date of this Agreement, and as of the first day of
each calendar year thereafter during the continuance of the Officer's employment
by the Bank, the Bank shall credit to a unfunded book reserve established for
the purposes of providing the Target Benefit under this Agreement, (hereinafter
called "the Deferred Compensation Account") sixteen and 90/100 percent (16.90%)
of the Officer's annual salary as of such date.
1
<PAGE>
Section 2. Investments.
Amounts credited under the Deferred Compensation Account established
under Section 1. of this Agreement shall be invested by the Bank (either in the
Bank's name or in the name of a trustee through an irrevocable trust arrangement
established by the Bank for this purpose) in one or more registered investment
companies under the Investment Company Act of 1940, to the extent permitted by
applicable banking law, and/or in one or more fixed income investment
opportunities selected in the sole discretion of the Bank. The value of the
Officer's Deferred Compensation Account at any given time shall be based solely
on the then value of the investment fund or funds selected hereunder.
Section 3. Retirement Benefit.
Upon the Officer's termination of employment with the Bank, absent
termination by the Bank for cause as specified at Section 6 hereinafter, the
supplemental retirement benefits consisting of the aggregate total of the then
value of all amounts in said Deferred Compensation Account as of the Officer's
date of termination from employment shall be payable. Such benefits will be paid
in any one of the following modes, as determined by the Bank: (i) a single lump
sum payment; (ii) purchase of a straight life or joint and survivor annuity; or
(iii) monthly installments over a period of five, ten or fifteen years. If the
Officer shall die prior to having received the total of installment payments
specified in clause (iii), above, the unpaid balance of such installments will
continue to be paid in monthly installments for the unexpired portion of the
specified installment period, to a designated beneficiary or contingent
beneficiary.
Section 4. Death Benefit.
In the event the Officer's employment shall terminate as a result of
death, the amount in the Deferred Compensation Account as of the date of death
shall be paid to the Officer's designated beneficiary, or contingent
beneficiary, as the case may be, in one of the following modes, as determined by
the Bank: (i) a single lump sum payment; or (ii) purchase of a straight life
annuity based upon the designated beneficiary's life expectancy.
Section 5. Payment to Estate; Change of Beneficiary.
If there is no designated beneficiary living at the time of the
Officer's death, the then value of all amounts in the Deferred Compensation
Account, determined as of the date of the Officer's death, shall be paid in a
single lump sum to the Officer's estate. Any designated or contingent
beneficiary referred to in Section 3. may be changed by the Officer without the
consent of any prior designated or contingent beneficiary, upon written notice
to the bank, signed by the Officer, the receipt of which has been acknowledged
in writing by an officer of the Bank.
2
<PAGE>
Section 6. Forfeiture.
In case the Officer's employment is terminated by the Bank for cause as
defined at 12 CFR 563.39(b) as determined by the Board of Directors of the Bank,
the Bank shall have no obligation to make any payments to the Officer or any
designated beneficiary or contingent beneficiary under this Agreement and the
Agreement shall terminate as of such date the Officer's employment is
terminated.
Section 7. Designation of Beneficiaries.
For the purposes of this Agreement, the Officer hereby names as primary
beneficiary(ies), Jacquelyn Lisicki, and designates John Lisicki, Jr., Kenneth
Lisicki, and Robert Lisicki as contingent beneficiary(ies).
Section 8. Successors and Assigns.
The right of the Officer or any beneficiary to the payment of the
supplemental retirement benefit payable under this Agreement shall not be
assigned, transferred, pledged or encumbered, except by the Officer's last will
and testament, or by the applicable laws of descent and distribution. This
Agreement will inure to the benefit of and be binding upon the Officer, the
Officer's legal representatives and estate or interstate distributees, and the
Bank, its successors and assigns, including any successor by merger or
consolidation, a statutory receiver, or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred.
Section 9. Creditor Rights.
The Officer's rights under this Agreement shall be limited to those of
an unsecured general creditor of the Bank and the Bank shall have no obligation
to fund the Target Benefit supplemental retirement benefit provided for
hereunder.
Section 10. No Right to Employment.
Nothing contained in this Agreement shall be construed as conferring
upon the Officer the right to continue in the employ of the Bank as an officer
of the Bank or in any other capacity.
3
<PAGE>
Section 11. Arbitration of Disputes.
Any dispute between the Bank and the Officer, any designated or
contingent beneficiary, or the Officer's estate as to the proper interpretation
or application of any provision of this Agreement, shall be settled by
arbitration, as follows. One arbitrator shall be selected by each of the parties
with a dispute pursuant to this Agreement and a third arbitrator chosen by the
two so selected, and the decision of a majority of the arbitrators so selected
shall be final and binding upon all of the parties to such dispute.
Section 12. Termination.
The Bank's obligation to make payments under this Agreement shall
terminate following the final payment required to be made under the applicable
payment option.
Section 13. Facility of Payment.
If the Bank shall find that any individual entitled to receive payments
under this Agreement is unable to care for his or her affairs because of age,
lack of capacity, illness or accident, the Bank may pay such benefit, unless
claim shall have been made therefor by a duly appointed legal representative, to
the spouse, descendant, other relative, or to a person with whom the individual
entitled to payment resides, and any such payment so made shall be a complete
discharge of the liability of the Bank under this Agreement.
Section 14. Records.
The records of the Bank, the Retirement Plan, and the Savings Plan,
shall be conclusive in respect of all matters involved in the calculation of
benefits under this Agreement.
Section 15. Unfunded Arrangement.
This Agreement is an unfunded supplemental benefit arrangement, subject
to the requirements of Department of Labor Regulation Section 2520.104-23.
Section 16. Severability.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 17. Authorization to Execute Agreement.
This Agreement has been approved by the Board of Directors of the Bank,
and the undersigned has been specifically authorized by the Board to execute
this Agreement on behalf of the Bank.
4
<PAGE>
Section 18. Entire Agreement; Modifications.
This instrument contains the entire Agreement of the parties relating
to the subject matter hereof and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
Section 19. Headings.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 20. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate, each of which shall be deemed to be an original for all purposes,
effective as of the day and year first above written.
OFFICER
/s/ John M. Lisicki
Print Name: John M. Lisicki
Title: President
ATTEST:
By: /s/ Sandra M. Hammond
Print Name: Sandra M. Hammond
AMSTERDAM FEDERAL BANK
By: /s/ Benjamin W. Ziskin
Print Name: Benjamin W. Ziskin
Title: Vice President/Senior Lending Officer
ATTEST:
By: /s/ Sandra M. Hammond
Print Name: Sandra M. Hammond
6
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected consolidated financial and other data of the
Company. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements of the Company presented elsewhere in this
Annual Report. All references to the Company, unless otherwise indicated, at or
before December 26, 1995 refer to the Bank.
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Selected Consolidated (In Thousands)
Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets ..................... $ 735,472 $ 510,444 $ 472,421 $ 438,944 $ 343,334
Securities available for sale .... 244,241 205,808 200,539 74,422 --
Investment securities ............ -- -- -- -- 53,390
Loans receivable, net ............ 420,933 281,123 248,094 249,991 261,581
Deposits ......................... 461,413 333,265 298,082 311,239 293,152
Borrowed funds ................... 173,810 111,550 108,780 -- 19,000
Shareholders' equity ............. 85,893 61,202 61,518 76,015 27,414
Years Ended December 31,
1998 1997 1996 1995 1994
--------- --------- --------- -------- -----------
Selected Consolidated (Dollars in thousands, except per share data)
Operations Data:
Total interest and dividend income $38,973 $ 35,566 $ 32,348 $ 25,582 $ 23,806
Total interest expense ........... 22,441 19,654 16,435 12,746 10,192
------- --------- --------- --------- ---------
Net interest income .............. 16,532 15,912 15,913 12,836 13,614
Provision for loan losses ........ 900 1,088 9,450 1,522 1,107
------- --------- --------- --------- ---------
Net interest income after
provision for loan losses ....... 15,632 14,824 6,463 11,314 12,507
Other income ..................... 1,144 1,819 908 1,512 905
Other expenses ................... 15,075 12,190 13,136 11,383 11,340
------- --------- --------- --------- ---------
Income (loss) before taxes ....... 1,701 4,453 (5,765) 1,443 2,072
Income tax expense (benefit) ..... 670 1,693 (1,929) 586 122
------- --------- --------- --------- ---------
Net income (loss) ................ $ 1,031 $ 2,760 ($ 3,836) $ 857 $ 1,950
======= ========= ========= ========= =========
Basic earnings (loss) per share* . $ 0.26 $ 0.70 ($ 0.81) N/A N/A
======= ========= ========= ========= =========
Diluted earnings (loss) per share* $ 0.26 $ 0.69 ($ 0.81) N/A N/A
======= ========= ========= ========= =========
Dividend payout ratio ............ 96.1% 14.3% N/A N/A N/A
======= ========= ========= ========= =========
</TABLE>
*Earnings per share were not calculated for 1995 and prior periods since
the Company had no stock outstanding prior to its initial public offering
completed on December 26, 1995.
<PAGE>
<TABLE>
<CAPTION>
At or for the years ended December 31,
1998 1997 1996 1995 1994
------------------------------------------
Selected Consolidated Financial
Ratios and Other Data:
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return (loss) on average assets (1) ....... 0.18% 0.56% (0.84)% 0.25% 0.59%
Return (loss) on average equity (1) ....... 1.64 4.52 (5.24) 3.00 7.36
Interest rate information:
Average interest rate spread during year 2.32 2.58 2.74 3.36 4.01
Average net interest margin during year (2) 3.04 3.36 3.66 3.87 4.34
Efficiency ratio (3) ...................... 74.44 69.81 62.50 68.18 63.46
Ratio of average earning assets to
average interest-bearing liabilities ... 117.28 118.93 124.26 113.31 110.24
Asset Quality Ratios:
Non-performing assets to total assets (1) . 0.45 0.67 1.18 2.72 4.15
Non-performing loans to total loans ....... 0.68 1.16 1.94 3.48 3.97
Allowance for loan losses to
non-performing loans .................... 168.42 117.07 70.47 30.10 21.42
Allowance for loan losses to total loans .. 1.15 1.34 1.37 1.05 0.85
Capital Ratios:
Equity to total assets at end of period (1) 11.68 11.99 13.02 17.32 7.98
Average equity to average assets (1) ...... 11.18 12.42 15.95 8.30 7.96
Other Data:
Number of full-service offices ............ 18 12 9 9 7
<FN>
(1) Period end and average asset and equity amounts reflect securities available
for sale at fair value, with net unrealized gains/losses, net of tax, included
as a component of equity.
(2) Net interest income divided by average earning assets.
(3) The efficiency ratio represents other expenses (excluding real estate owned
and repossessed assets expenses, net, the amortization of goodwill, and certain
non-recurring expenses in 1998 totaling approximately $1.7 million, primarily
related to costs associated with the merger, costs asociated with the
termination and consulting agreements entered into with the former President and
CEO, costs incurred to defend against and settle legal actions initiated by a
shareholder, and costs associated with the core system conversion) divided by
the sum of net interest income and other income (excluding net gains (losses) on
securities transactions).
</FN>
</TABLE>
<PAGE>
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"). As such, the
Company had no material results of operations during 1995. Accordingly, any
discussion herein for periods prior to 1996 relates primarily to the Bank's
results of operations.
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 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. At December 31, 1998, the Bank's loan
receivable, net, to assets ratio was 57.2%, up from 55.1% at December 31, 1997.
In addition, the Bank's portfolio of loans secured by one- to four-family
residential mortgage and home equity loans has grown as a percentage of the
Bank's total loan portfolio to 84.3% of total loans at December 31, 1998 from
77.6% at December 31, 1997.
Forward-Looking Statements
When used in this Annual Report on Form 10-K, in future filings by the
Company with the Securities and Exchange Commision, 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,
<PAGE>
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 possiblity that costs or
difficulties related to the integration 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 lower 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 1,337,207 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 1998 consolidated statement of
operations from the date of acquisition. See Note 2 to the Consolidated
Financial Statements for further information regarding the acquisition of
AFSALA.
<PAGE>
Financial Condition
Comparison of Financial Condition at December 31, 1998 and 1997. Total
assets at December 31, 1998 were $735.5 million, an increase of $225.0 million,
or 44.1%, over the December 31, 1997 amount of $510.4 million. The primary
reason for the increase in total assets was the previously discussed acquisition
of AFSALA Bancorp, Inc. (AFSALA), which had total assets of $167.1 million at
the date of the acquisition.
Federal funds sold increased to $30.2 million at December 31, 1998 from $0
at December 31, 1997, due primarily to the balances acquired from AFSALA. In
addition, given the low interest rate environment that existed during most of
1998, the Company maintained greater liquidity at year-end 1998 as compared to
year-end 1997 to take advantage of any favorable movements in interest rates.
Securities available for sale increased by $38.6 million, from $205.8 million at
December 31, 1997 to $244.2 million at December 31, 1998, due primarily to the
$56.0 million in securities (at fair value) acquired from AFSALA. The net
decrease in securities of $17.6 million after consideration of the securities
acquired from AFSALA was due to the Company's decision to maintain greater
liquidity to take advantage of any movements in interest rates. Federal Home
Loan Bank of New York (FHLB) stock increased $3.9 million, or 119.2%, due to a
combination of purchases of additional stock of $3.4 million and the $565
thousand in FHLB stock acquired from AFSALA.
Loans receivable, net increased $139.8 million, or 49.7%, from $281.1
million at December 31, 1997, to $420.9 million at December 31, 1998, due
primarily to the $82.9 million in net loans (at fair value) acquired from
AFSALA. The majority of the loans acquired from AFSALA were one -to four-family
residential mortgage and home equity loans. The Company also experienced growth
in its own portfolio, primarily due to the purchase of $31.9 million in
residential real estate loans during the first and second quarters. The
remaining growth in the Company's loan portfolio was mainly in home equity loans
due to the offering of a product with low closing costs and competitive rates.
Premises and equipment, net increased $1.4 million due primarily to the
acquisition of assets from AFSALA.
The acquisition of AFSALA resulted in approximately $8.0 million in
goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired. Goodwill is being amortized over fifteen years using
the straight-line method. During 1998, $67 thousand of goodwill was amortized,
leaving a balance of $7.9 million at December 31, 1998.
Deposits at December 31, 1998 were $461.4 million, an increase of $128.1
million, or 38.5%, over the balance of $333.3 million at December 31, 1997. The
main reason for the increase was the deposits assumed in the acquisition of
AFSALA, which totaled $144.8 million (at fair value) at the acquisition date.
Excluding the AFSALA acquisition, deposits decreased $16.6 million, due
primarily to the competitive rate environment on time deposits and the Company's
use of borrowings as an alternative funding source.
<PAGE>
Total borrowings (including FHLB overnight and term advances and securities
sold under agreements to repurchase) increased $62.3 million from year-end 1997
to year-end 1998. The only borrowings assumed from AFSALA were $1.4 million (at
fair value) in FHLB term advances. The primary increase in borrowings was in
securities sold under agreements to repurchase, which increased $53.2 million,
or 53.6%, from $99.3 million at December 31, 1997 to $152.4 million at December
31, 1997.
The proceeds from the securities sold under agreements to repurchase were
used mainly to fund the loan growth, including the purchase of the residential
real estate loans noted above. In addition, the Company borrowed $20.0 million
in adjustable rate FHLB term advances during 1998. See Note 10 of the Notes to
Consolidated Financial Statements for further information regarding the
Company's borrowings.
Shareholders' equity increased $24.7 million, or 40.3%, from $61.2 million
at December 31, 1997 to $85.9 million at December 31, 1998, due primarily to the
acquisition of AFSALA noted above. In connection with the acquisition, the
Company issued 1,337,207 shares of common stock. Of the 1,337,207 shares issued
in the acquisition, 1,327,086 were issued from the Company's treasury stock and
10,121 were newly-issued shares. The acquisition of AFSALA had the impact of
increasing shareholders' equity by $26.9 million. Other significant items
impacting shareholders' equity during 1998 were purchases of treasury stock
($4.1 million), cash dividends paid ($1.1 million), and net income for the year
($1.0 million).
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997.
Net Income. Net income decreased by $1.7 million, or 62.6%, for the year
ended December 31, 1998 to $1.0 million from $2.8 million for the year ended
December 31, 1997. Net income for the year ended December 31, 1998 was reduced
primarily as a result of increased non-interest expenses and a decrease in
non-interest income, offset in part by increased net interest income and a
decrease in the provision for loan losses. These and other changes are discussed
in more detail below.
Net Interest Income. Net interest income increased $620 thousand, or 3.9%,
to $16.5 million for the year ended December 31, 1998 from $15.9 million for the
year ended December 31, 1997. The increase in net interest income was primarily
due to an increase of $70.9 million, or 15.0%, in the average balance of earning
assets, offset by an increase in the average balance of interest-bearing
liabilities of $66.1 million, or 16.6%, and a decrease in the interest rate
spread from 2.58% for the year ended December 31, 1997 to 2.32% for the year
ended December 31, 1998.
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.
<PAGE>
The interest rate spread, which is the difference between the yield on
average earning assets and the cost of average interest-bearing liabilities,
decreased to 2.32% for the year ended December 31, 1998 from 2.58% for the year
ended December 31, 1997. The decrease in the interest rate spread is primarily
the result of the decrease in the average yield on earning assets being greater
than the decrease in the average cost of interest-bearing liabilities.
Ambanc Holding Co., Inc. operates in an environment of intense competition
for deposits and loans. The competition in today's environment is not limited to
other local banks and thrifts, but also includes a myriad of financial services
providers that are located both within and outside the Company's local market
area. Due to this heightened level of competition to attract and retain
customers, the Company must continue to offer competitive interest rates on
loans and deposits. As a consequence of these competitive pressures, from
time-to-time, the relative spreads between interest rates earned and interest
rates paid will tighten, exerting downward pressure on net interest income, net
interest rate spread and the net interest margin. This is especially true during
periods when the growth in earning assets lags behind the growth in
interest-bearing liabilities. However, management does not want to discourage,
by offering noncompetitive interest rates, the creation of new customer
relationships or jeopardize existing relationships thereby curtailing customer
base and loan growth and the attendant benefits to be derived from them.
Management believes that the longer-term benefits to be derived from this
position will outweigh the shorter term costs associated with attracting,
cross-selling and retaining an expanding customer base. The Company's growing
customer base provides Ambanc with the potential for future, profitable customer
relationships, which should in turn increase the value of the franchise.
Interest and Dividend Income. Interest and dividend income increased by
approximately $3.4 million, or 9.6%, to $39.0 million for the year ended
December 31, 1998 from $35.6 million for the year ended December 31, 1997. The
increase was largely the result of an increase of $70.9 million, or 15.0%, in
the average balance of earning assets to $544.0 million for the year ended
December 31, 1998 as compared to $473.1 million for the year ended December 31,
1997. The increase in the average balance of earning assets consisted primarily
of increases in the average balance of loans receivable of $54.6 million, or
20.4%, securities available for sale of $11.9 million, or 6.12%, FHLB of New
York stock of $2.0 million, or 64.6 %, and federal funds sold and
interest-bearing deposits of $2.5 million, or 30.3%. Partially offsetting the
effects of the increase in the average balance of earning assets was a 36 basis
point decrease in the average yield on total earning assets.
The yield on the average balance of earning assets was 7.16% and 7.52% for
the years ended December 31, 1998 and 1997, respectively.
Interest and fees on loans increased $3.6 million, or 17.2%, to $24.6
million for the year ended December 31, 1998. This increase was primarily the
result of an increase in the average balance of net loans receivable of $54.6
million partially offset by a 21 basis point decrease in the average yield.
Interest income on securities available for sale decreased $478 thousand,
or 3.4%, to $13.5 million for the year ended December 31, 1998 from $14.0
million for the previous year. This decrease is primarily the result of a 65
basis point decrease in the average yield on securities available for sale
partially offset by an increase in the average balance of $11.9 million.
Interest Expense. Total interest expense increased by $2.8 million, or
14.2%, to $22.4 million for the year ended December 31, 1998 from $19.7 million
for the year ended December 31. 1997. Total average interest-bearing liabilities
increased by $66.1 million, or 16.6%, to $463.9 million in 1998 compared to
$397.8 million in 1997. During the same periods, the average rate paid on
interest-bearing liabilities decreased by 10 basis points to 4.84% in 1998 from
4.94% in 1997.
Total interest expense for the year ended December 31, 1998 increased
primarily due to an increase in the average balance of total borrowed funds to
$150.3 million from $98.9 million, partially offset by a decrease of 34 basis
points, to 5.73%, in the average rate paid for these funds during the year. The
increase in the average balance of borrowed funds was used primarily to fund the
increase in loans, including the purchase of loans noted above.
<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 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 provision for loan losses for the year
ended December 31, 1998 decreased $188 thousand to $900 thousand from $1.1
million for the year ended December 31, 1997. The decrease in the provision was
due primarily to the decrease in non-performing loans during the year from $3.3
million at December 31, 1997, to $2.9 million at December 31, 1998, a decrease
of 10.9%.
Non-Interest Income. Total non-interest income decreased by $675 thousand,
or 37.1%, to $1.1 million for the year ended December 31, 1998 from $1.8 million
for the year ended December 31, 1997 primarily due to net losses on securities
transactions of $165 thousand in 1998 compared to net gains of $775 thousand in
1997. This decrease in net gains (losses) on securities transactions was
partially offset by an increase in service charges on deposit accounts of $226
thousand from 1997 to 1998. The increase in service charges on deposit accounts
is primarily 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 merger.
Non-Interest Expenses. Non-interest expenses increased $2.9 million, or
23.7%, to $15.1 million for the year ended December 31, 1998 from $12.2 million
for the year ended December 31, 1997. Non-interest expenses in 1998 were
impacted by significant non-recurring expenses totaling approximately $1.7
million primarily related to costs associated with the merger of the two
companies, costs associated with the termination and consulting agreements
entered into with the former President and CEO, costs incurred to defend against
and settle legal actions initiated by a shareholder, and costs associated with
the core system conversion. These and other changes are discussed in more detail
below.
Salaries, wages and benefits expense increased by $307 thousand, or 5.0%,
due primarily to increased costs as a result of the merger, the opening of three
new branches during 1997, increased costs associated with the Company's ESOP, as
well as general cost of living and merit raises to employees. Management
believes that salaries, wages and benefits expenses 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.
During 1998, the Company incurred certain non-recurring termination
benefits totaling approximately $608 thousand. The non-recurring termination
benefits related to the termination and consulting agreements entered into with
the Company's former President and CEO, and severance packages for three former
officers.
<PAGE>
Occupancy and equipment increased $270 thousand, or 17.5%, primarily due to
the acceleration of depreciation and amortization of equipment and leasehold
improvements as a result of the merger. In addition, rent and maintenance
expense increased as a result of the branch offices opened in 1997 and the four
additional branches acquired through the merger.
Data processing increased $520 thousand, or 44.5%, primarily due to
non-recurring expenses related to the core system conversion subsequent to the
merger. The non-recurring expenses relate to the conversion of the core system
(loans and deposits) and the termination of the network contract for automated
teller machine (ATM) processing. The non-recurring expenses associated with the
conversion of the core system and the termination of the ATM processing contract
were approximately $368 thousand. Also contributing to the increase in data
processing expense was the increase in the number of loan and deposit accounts
due to the merger.
Professional fees increased $306 thousand, or 71.3%, primarily due to
charges of $219 thousand related to legal costs incurred to defend against legal
actions initiated by a shareholder.
Real estate owned and repossessed assets expenses decreased $294 thousand,
or 82.8%, to $61 thousand in 1998 as compared to $355 thousand in 1997 primarily
due to a decrease in net costs associated with foreclosed real estate properties
and repossessed assets. This decrease was largely the result of a decrease of
$298 thousand, or 69.1%, in the average balance of real estate owned and
repossessed assets during the year.
Non-interest expenses for 1998 included the amortization of goodwill
totaling approximately $67 thousand. As noted previously, goodwill is being
amortized to expense over fifteen years using the straight-line method.
Other non-interest expenses increased approximately $1.1 million, or 43.4%,
to $3.6 million for the year ended December 31, 1998 when compared to 1997. This
increase was primarily due to merger-related costs which included advertising
related to promoting the new bank, the replacement of supplies and the write-off
of software duplication between the banks, additional courier services for check
processing due to the added branches, and an increase in postage due to special
mailings to depositors and shareholders related to the merger. In addition,
costs associated with the settlement of legal actions initiated by a
shareholder, and costs related to a one-time charge to substantially modify
repurchase agreements contributed to this increase.
Income Tax Expense. Income tax expense decreased by $1.0 million, or 60.4%,
to $670 thousand for the year ended December 31, 1998 from $1.7 million for the
year ended December 31, 1997. The decrease was primarily the result of the
decrease in income before taxes.
<PAGE>
Results of Operations
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
General. The Company recorded net income of $2.8 million for the fiscal
year ended December 31, 1997 compared to a net loss of $3.8 million for the
prior year. Net interest income for 1997 and 1996 was unchanged at $15.9
million. The net loss in 1996 was due primarily to the $9.5 million provision
for loan losses and the $2.6 million of expenses incurred in connection with the
Company's real estate owned and repossessed assets. The large provision was
necessitated to replenish and increase the Company's allowance for loan losses
which was depleted as a result of write-offs associated with the Company's bulk
sale of certain loans in 1996 and the commercial bankruptcy of a large
commercial borrower.
Interest and Dividend Income. Interest and dividend income increased $3.2
million, or 9.9%, to $35.6 million in 1997 from $32.3 million in 1996. The
increase in interest income resulted from a $38.5 million, or 8.9%, increase in
the Company's average earning assets, primarily securities available for sale,
which increased $38.0 million, or 24.3% in 1997, to $194.1 million compared to
$156.1 million in 1996. The increase in securities available for sale was
primarily funded with increased borrowings.
The average yield earned on earning assets increased by 8 basis points to
7.52% in 1997 from 7.44% in the prior year. The increase in the average yield
earned was attributable primarily to a change in the composition, or mix, of the
Company's earning assets, mainly average securities available for sale which
increased in 1997 to 41.0% of total earning assets from 35.9% in 1996. The
average yield earned on the Company's securities also increased by 19 basis
points to 7.19% in 1997 compared to 7.00% in 1996.
Interest Expense. Interest expense increased by $3.2 million, or 19.6%, to
$19.6 million in 1997 compared to $16.4 million in 1996. Average
interest-bearing liabilities increased by $48.1 million, or 13.8%, to $397.8
million in 1997 compared to $349.7 million during the prior year. During the
same periods, the average rate paid on interest-bearing liabilities increased by
24 basis points to 4.94% from 4.70%.
The increase in interest expense was attributable primarily to a $31.3
million, or 46.4%, increase in the average balance of borrowed funds to $98.9
million from $67.6 million in 1996 and an increase in average certificates of
deposit which grew by $22.0 million, or 14.7%, to $172.3 million from $150.3
million. The average rates paid on borrowed funds and certificates of deposit
during 1997 also increased over 1996 by 13 basis points on borrowed funds and 8
basis points on certificates of deposit. Borrowings consisted primarily of
securities sold under agreements to repurchase, with an increase in the average
balance of $37.5 million, or 64.9%, to $95.3 million in 1997 from $57.8 million
in 1996, partially offset by a decline in average advances from the Federal Home
Loan Bank ("FHLB") of New York. These borowings were primarily used to fund the
growth in the Company's securities available for sale.
<PAGE>
Net Interest Income. Net interest income before provision for loan losses
was $15.9 million for 1997 and 1996. During 1997, the Company's average earning
assets grew by $38.5 million, or 8.9%, to $473.1 million. The average yield on
these assets also increased when compared to 1996, improving by 8 basis points
to 7.52% from 7.44%. However, the increase in average interest-bearing
liabilities exceeded the growth in average earning assets, increasing by $48.1
million to $397.8 million. The increase in the average interest-bearing
liabilities was accompanied by a 24 basis point increase in the average rate
paid on these funds to 4.94% for 1997 from 4.70% for 1996.
Provision for Loan Losses. The provision for loan losses decreased $8.4
million to $1.1 million in 1997 from $9.5 million during 1996. The higher
provision in 1996 resulted primarily from the Company's bulk sale of certain
performing and non-performing loans in the fourth quarter of 1996 and the
aggregate lending relationship with the Bennett Funding Group, a company that
filed for Chapter 11 bankruptcy protection on March 29, 1996. In order to
accelerate its objective of reducing credit risk in the loan portfolio and
better position the Company to achieve its strategic goals, management
considered it to be prudent to complete the bulk sale of certain non-performing
and performing commercial loans and manufactured home loans (which are
considered a higher credit risk consumer product) at a loss, versus continuing
to address these problem assets on an asset specific basis.
<PAGE>
At December 31, 1997, the Bank's allowance for loan losses totaled $3.8
million, or 1.3% of total loans and 117.1% of non-performing loans, compared to
$3.4 million, or 1.4% of total loans and 70.5% of non-performing loans at
December 31, 1996.
Other Income. Other income increased $906,000, or 98.5%, to $1.8 million
for the year ended December 31, 1997, from $920,000 in 1996. The primary reason
for the increase in other income was the net gains on securities transactions of
$775,000, compared to a net loss of $102,000 in 1996. As the general level of
interest rates declined during 1997, management decided that it would be prudent
to sell securities and record the net gains on the transactions. One condition
adhered to in determining the selection and timing of the securities to be sold
was that the yield obtained on the reinvestment of the sale proceeds would not
be significantly lower than the foregone yield. A second condition was that the
credit rating of the replacement securities would be no lower than the quality
of the securities sold.
Other Expenses. Other expenses decreased $951,000, or 7.2%, to $12.2
million for the year ended December 31, 1997 from $13.1 million in the same 1996
period. The primary reason for the improvement was a $2.2 million decline in the
net costs associated with the Company's real estate owned and repossessed
assets. The decrease in these expenses resulted from one-time charges in 1996
related to the bulk sale of certain foreclosed real estate properties.
Excluding the expenses related to real estate owned and repossessed assets,
other expenses increased $1.2 million, or 11.9%, to $11.8 million in 1997 from
$10.6 million in 1996, mainly due to a higher level of salaries, wages and
benefits which increased $989,000, or 19.4%, to $6.1 million from $5.1 million
in the prior year. Salaries, wages and benefits increased $250,000 as a result
of the opening of three branch offices in May 1997. Also contributing to the
higher level of salaries, wages and benefits was a $239,000 increase in the
compensation costs related to the Employee Stock Ownership Plan (ESOP) and a
$137,000 expense associated with awards of Company common stock under the
Recognition and Retention Plan (RRP) to officers. The remainder of the increase
was attributable to higher payroll taxes, employee insurance premiums and normal
cost of living and merit increases.
Occupancy and equipment expenses increased $211,000, or 15.9%, to $1.5
million, as a result of the opening of three branch offices in 1997. In
addition, other expenses increased $135,000 in 1997 as a result of awards of
Company Common Stock under the RRP to directors.
Income Tax Expense. Income tax expense increased $3.6 million to $1.7
million in 1997 due to a pre-tax loss of $5.8 million incurred in 1996 as
compared to pre-tax income of $4.5 million in 1997.
<PAGE>
Asset Quality
The Bank's loan portfolio consists primarily of one-to four-family
residential mortgage and home equity loans, which are generally considered to
have less credit risk than commercial and multi-family real estate or consumer
loans. The Bank has de-emphasized its commercial and multi-family real estate
lending, with the portfolio declining as a percentage of the Bank's total loan
portfolio to 6.5% of total loans at December 31, 1998 from 10.8% and 13.8% at
December 31, 1997 and 1996, respectively. During the same period, the Bank's
portfolio of loans secured by one- to four-family residential mortgage and home
equity loans has grown as a percentage of the Bank's total loan portfolio to
84.3% of total loans at December 31, 1998 from 77.6% and 72.3% at December 31,
1997 and 1996, respectively.
The Bank's non-performing assets consist of non-accruing loans, accruing
loans delinquent more than 90 days, troubled debt restructurings and foreclosed
and repossessed assets. Prior to 1997, the Company's performance had been
significantly hampered by the level of its non-performing assets. During 1996,
the Bank decided to dispose of certain non-performing and higher credit risk
performing assets in a bulk sale, as opposed to continuing to resolve the
problems on an asset specific basis. The bulk sale strategy was chosen in order
to accelerate the reduction in loan portfolio credit risk, reduce the drag on
earnings that resulted from carrying these assets, enhance overall asset quality
and better position the Bank to achieve its strategic goals.
Primarily as a result of the bulk sale in 1996, the ratio of non-performing
assets to total assets declined from 2.72% at December 31, 1995 to 1.18% at
December 31, 1996. This ratio experienced further improvement in 1997 and 1998,
dropping to 0.67% at December 31, 1997 and to 0.45% at December 31, 1998.
In addition, the Bank's ratios of non-performing loans to total loans and
the allowance for loan losses to non-performing loans have also improved. The
ratio of non-performing loans to total loans at December 31, 1998 was 0.68%
compared to 1.16% and 1.94% at December 31, 1997 and 1996, respectively. The
ratio of the allowance for loan losses to non-performing loans increased to
168.4% at December 31, 1998, compared to 117.1% and 70.5% at December 31, 1997
and 1996, respectively.
Market Risk
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of the Company's
business activities.
The Company does not currently engage in trading activities or use
derivative instruments, such as caps, collars or floors, to control interest
rate risk. Even though such activities may be permitted with the approval of the
Board of Directors, the Company does not intend to engage in such activities in
the immediate future.
<PAGE>
The Bank's net interest income is sensitive to changes in interest rates,
as the rates paid on its interest-bearing liabilities generally change faster
than the rates earned on its interest-earning assets. As a result, net interest
income will frequently decline in periods of rising interest rates and increase
in periods of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest
income, the Bank manages its interest rate sensitivity and asset/liability
products through its asset/liability management committee. The asset/liability
management committee meets weekly to determine the rates of interest for loans
and deposits and consists of the President and Chief Executive Officer, the
Senior Vice President and Chief Commercial Lending Officer, the Senior Vice
President and Chief Consumer Lending Officer, and the Treasurer and Chief
Financial Officer. Rates on deposits are primarily based on the Bank's needs for
funds and on a review of rates offered by other financial institutions in the
Bank's market areas. Interest rates on loans are primarily based on the interest
rates offered by other financial institutions in the Bank's primary market areas
as well as the Bank's cost of funds.
In an effort to reduce interest rate risk and protect itself from the
negative effects of rapid or prolonged changes in interest rates, the Bank has
instituted certain asset and liability management measures, including (i)
originating, for its portfolio, a large base of adjustable-rate loans, which
include residential mortgage and home equity loans, which at December 31, 1998,
totaled 23.8% of total loans, and (ii) maintaining substantial levels of federal
funds sold and debt securities with one to five year terms to maturity.
The committee manages the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The committee then monitors the impact of the interest rate risk and
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to reduce the interest rate sensitivity of its earning assets and to match, as
closely as possible, the maturities of earning assets with interest-bearing
liabilities.
The Bank is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice on a different basis or a different pace
from its earning assets. Management of the Bank believes it is important to
manage the effect interest rates have on the Bank's net portfolio value ("NPV")
and net interest income. NPV helps measure interest rate risk by calculating the
difference between the present value of expected cash flows from assets and the
present value of expected cash flows from liabilities, as well as cash flows
from off-balance sheet contracts.
<PAGE>
Presented below, as of December 31, 1998, is an analysis of the Bank's
interest rate risk as calculated by the OTS, measured by changes in the Bank's
NPV for instantaneous and sustained parallel shifts in the yield curve, in 100
basis points increments, up and down 400 basis points.
NPV as % of PV
Net Portfolio Value of Assets
------------------------------- ------------------------------
Change NPV
in Rates $Amount $Change(1) $Change(2) Ratio(3) Change(4)
-------- -------- ---------- ---------- -------- ---------
(Dollars in thousands)
+400 bp 19,875 (56,041) (74)% 2.99% -732 bp
+300 bp 34,369 (41,548) (55) 5.03 -528 bp
+200 bp 49,099 (26,817) (35) 7.00 -331 bp
+100 bp 63,278 (12,638) (17) 8.79 -152 bp
0 bp 75,916 10.31
-100 bp 85,127 9,211 12 11.36 105 bp
-200 bp 94,711 18,795 25 12.41 210 bp
-300 bp 106,432 30,516 40 13.66 335 bp
-400 bp 118,319 42,403 56 14.89 458 bp
- - -------------------------------------------------------------------------------
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by present value of total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming
no change in interest rates.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, certain shortcomings are inherent in the preceding NPV
table since the data reflects hypothetical changes in NPV based upon
assumptions used by the OTS to evaluate the Bank as well as other institutions.
The experience of the Bank has been that net interest income declines with
increases in interest rates and that net interest income increases with
decreases in interest rates. Generally, during periods of increasing interest
rates, the Bank's interest rate sensitive liabilities would reprice faster than
its interest rate sensitive assets causing a decline in the Bank's interest rate
spread and margin. This would result from an increase in the Bank's cost of
funds that would not be immediately offset by an increase in its yield on
<PAGE>
earning assets. An increase in the cost of funds without an equivalent increase
in the yield on earning assets would tend to reduce net interest income. The
Bank's interest rate spread decreased to 2.32% for the year ended December 31,
1998 from 2.58% for the year ended December 31, 1997. The reduction in the
interest rate spread was due primarily to the leveraging strategy employed by
the Company during 1998.
In times of decreasing interest rates, fixed rate assets could increase in
value and the lag in repricing of interest rate sensitive assets could be
expected to have a positive effect on the Bank's net interest income.
During 1998, proceeds from FHLB term advances and repurchase agreements
totaled approximately $162.6 million, offset by repayments of repurchase
agreements of approximately $89.4 million. These funds were primarily used to
fund the purchase of residential real estate loans and securities available for
sale, in addition to funding the home equity and residential real estate loan
growth during the year. Management believes that the strategy related to the
purchase of loans and securities with borrowed funds causes the bank's NPV to be
more sensitive to changes in interest rates. Although this strategy did not
expose the Company's net interest income and its net interest margin to an
unacceptable level of sensitivity to changes in interest rates in 1998,
management plans to de-emphasize this strategy in 1999.
<PAGE>
Average Balances, Interest Rates and 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.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- ------------------------- --------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate Balance Inc./Exp. Rate
------- --------- ------ ------- --------- ------ ------- --------- ------
Earning Assets (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) ....................... $ 322,335 $ 24,623 7.64% $ 267,726 $ 21,011 7.85% $ 262,193 $20,557 7.84%
Securities available for sale (AFS) (2)..... 205,995 13,479 6.54% 194,111 13,957 7.19% 156,093 10,921 7.00%
Federal Home Loan Bank Stock ............... 5,048 364 7.21% 3,066 204 6.65% 2,013 130 6.46%
Federal funds sold and interest-
bearing deposits ......................... 10,632 507 4.70% 8,162 394 4.76% 14,218 740 5.12%
------- ------ ------- ------ ------- ------
Total earning assets ................... 544,010 38,973 7.16% 473,065 35,566 7.52% 434,517 32,348 7.44%
------- ------ ------- ------ ------- ------
Allowance for Loan Losses .................... (4,220) (3,846) (3,686)
Due from Brokers ............................. 5,265 7,121 14,221
Unrealized Gain/(Loss) on AFS Securities ..... 225 (884) (1,475)
Other Assets ................................. 15,926 16,150 15,616
------- --------- ---------
Total Average Assets ......................... $ 561,206 $ 491,606 $ 459,193
========= ========= =========
Interest-Bearing Liabilities
Savings deposits ........................... $ 103,513 3,119 3.01% $ 99,389 $ 3,016 3.03% $103,931 $ 3,162 3.04%
NOW deposits .............................. 25,410 549 2.16% 19,990 543 2.72% 19,124 527 2.76%
Certificates of deposit .................... 176,136 9,882 5.61% 172,319 9,882 5.73% 150,300 8,492 5.65%
Money Market Accounts ...................... 8,481 272 3.21% 7,159 204 2.85% 8,765 243 2.77%
Borrowed Funds ............................. 150,335 8,619 5.73% 98,927 6,009 6.07% 67,572 4,011 5.94%
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities ..... 463,875 22,441 4.84% 397,784 19,654 4.94% 349,692 16,435 4.70%
------- ------ ------- ------ ------- ------
Other Liabilities ............................ 34,590 32,757 36,255
------- ------ ------
Total Liabilities ............................ 498,465 430,541 385,947
Shareholders' Equity ......................... 62,741 61,065 73,246
------- ------ ------
Total Average Liabilities & Equity ........... $ 561,206 $ 491,606 $ 459,193
========= ========= =========
Net interest income ...................... $ 16,532 $ 15,912 $ 15,913
======= ======= ========
Interest rate spread ..................... 2.32% 2.58% 2.74%
====== ====== ======
Net earning assets ....................... $ 80,135 $ 75,281 $ 84,825
========= ========= =========
Net interest margin ...................... 3.04% 3.36% 3.66%
====== ====== ======
Average earning assets/Average
interest-bearing liabilities ........... 117.28% 118.93% 124.26%
========== ========== ==========
<FN>
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) Securities available for sale exclude securities pending settlement.
</FN>
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1998 vs. 1997 1997 v. 1996
--------------------------------- ---------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
----------------- Increase ------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- ------- --------- -------- --------- -----------
Earning Assets (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable ..................... $ 4,154 $ (542) $ 3,612 $ 434 $ 20 $ 454
Securities available for sale (AFS) .. 1,018 (1,496) (478) 2,726 310 3,036
Federal Home Loan Bank Stock ......... 142 18 160 70 4 74
Federal funds sold and interest-
bearing deposits ................... 118 (5) 113 (298) (48) (346)
------- ------- ------- ------- -------- --------
Total earning assets ............. 5,432 (2,025) 3,407 2,932 286 3,218
------- ------- ------- ------- -------- --------
Interest-Bearing Liabilities
Savings deposits ..................... 124 (21) 103 (138) (9) (147)
NOW deposits ........................ 24 (18) 6 23 (6) 17
Certificates of deposit .............. 216 (216) -- 1,261 129 1,390
Money Market Accounts ................ 40 28 68 (46) 7 (39)
Borrowed Funds ....................... 2,926 (316) 2,610 1,902 96 1,998
------- ------- ------- ------- -------- --------
Total interest-bearing liabilities $ 3,330 $ (543) $ 2,787 $ 3,003 $ 216 $ 3,219
------- ------- ------- ------- -------- --------
Net interest income ................ $ 620 $ (1)
======= ========
</TABLE>
<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 31.97% and
27.15% at December 31, 1998 and 1997, 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
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. During 1998, borrowed funds from the FHLB of New York increased $7.7
million and borrowings under securities repurchase agreements ("repos")
increased $56.2 million. Since March 31, 1998, $100.0 million in callable repos
with the Federal Home Loan Bank have been added to borrowed funds while the
Company has reduced its obligation with other repo counterparties to take
advantage of the lower rates offered by the Federal Home Loan Bank. The Federal
Home Loan Bank repos all mature within 10 years with call dates ranging from one
year to five years and fixed rates that range from 5.01% to 5.59%. These repos
were used primarily to fund the origination and purchase of loans. At December
31, 1998 and 1997, the Company had $21.4 million and $12.3 million,
respectively, in outstanding term borrowings (advances) from the FHLB and $152.4
million and $99.3 million, respectively, in borrowings under securities
repurchase agreements. See Note 10 to the Consolidated Financial Statements for
further information regarding the Company's borrowings.
As of December 31, 1998 and 1997, the Company had $244.2 million and $205.8
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
banking 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.
<PAGE>
The Bank is subject to federal regulations that impose certain minimum
capital requirements. At December 31, 1998, the Bank's capital exceeded each of
the regulatory capital requirements of the OTS. The Bank is "well capitalized"
at December 31, 1998 according to regulatory definition. At December 31, 1998,
the Bank's tangible and core capital levels were both $63.5 million (8.83% of
total adjusted assets) and its total risk-based capital level was $67.4 million
(21.99% 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 1998, the Company repurchased 215,320 shares of stock in open-market
transactions at a total cost of $4.1 million. However, upon consummation of the
merger with AFSALA Bancorp, Inc., the Company issued 1,337,207 shares of common
stock of which 1,327,086 shares were issued from the Company's treasury stock.
Impact of the Year 2000
The Year 2000 issue confronting the Company, its vendors, and its
customers, centers on the inability of 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 might recognize "00" as the year 1900 rather than the year 2000.
Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the responsibilities
of senior management and directors. The Federal Financial Institution
Examination Council has issued several interagency statements on Y2K project
management awareness. These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors with
respect to data exchange and the potential impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each federally
regulated financial institution to survey its exposure, measure its risk and
plan to address the Y2K issue. In addition, the federal banking regulators have
issued safety and soundness guidelines to be followed by insured depository
institutions to assure resolution of any Y2K problems. The federal banking
agencies have assured that Y2K testing and certification is a key safety and
soundness issue in conjunction with regulatory exams and thus, that an
institution's failure to address appropriately the Y2K issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, the denial of applications 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 consisting of three officers and four
employees of the Bank. The 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
<PAGE>
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 taken
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 action plan includes a validation phase 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.
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.
Until and after the Year 2000 rollover takes place, 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 present risks to
the Company, including business disruptions and financial losses.
The costs incurred by the Company during fiscal 1998 to address Year 2000
compliance were approximately $41 thousand. The Company estimates it will incur
up to approximately $125 thousand in direct costs during fiscal 1999 to support
its compliance initiatives. Although the Company anticipates that its systems
will be Year 2000 compliant on or before December 31, 1999, it cannot predict
with certainty 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.
<PAGE>
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
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. In accordance with SFAS
No. 130, the Company has reported comprehensive income and its components for
1998, 1997 and 1996 in the consolidated statements of changes in shareholders'
equity. 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.
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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends and, to the
extent practicable, standardizes the financial statement disclosure requirements
applicable to such benefits. This Statement is applicable to all entities and
addresses disclosures only. The Statement does not change any of the measurement
or recognition provisions provided for in the applicable accounting standards.
The Company has provided the required disclosures under SFAS No. 132 in Note 12
to the consolidated financial statements.
<PAGE>
In June 1988, 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.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Consolidated Quarterly Financial Information
1998 1997
----------------------------------------- ------------------------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and Dividend Income ....... $9,009 $9,095 $9,955 $10,914 $8,675 $8,773 $8,827 $9,291
Net Interest Income ................ 3,862 3,848 4,085 4,737 4,020 4,008 3,881 4,003
Provision for Loan Losses .......... 225 225 225 225 363 275 225 225
Income (Loss) Before Taxes ......... 808 169 779 ( 55) 1,076 889 1,188 1,300
Net Income ......................... 446 97 478 10 652 572 736 800
Earnings per share - Basic ......... 0.12 0.03 0.13 0.00 0.16 0.14 0.19 0.21
Earnings per share - Diluted ....... 0.11 0.03 0.13 0.00 0.16 0.14 0.19 0.20
Average Shares Outstanding - Basic . 3,828,636 3,759,045 3,701,018 4,371,881 4,011,349 4,024,536 3,897,492 3,832,531
Average Shares Outstanding - Diluted 3,927,904 3,861,896 3,745,764 4,417,751 4,011,349 4,030,013 3,957,434 3,929,747
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors
Ambanc Holding Co., Inc.:
We have audited the accompanying consolidated statements of financial condition
of Ambanc Holding Co., Inc. and subsidiaries (the Company) as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ambanc Holding Co.,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Albany, New York
February 12, 1999
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Financial Condition
December 31,
1998 1997
(In thousands)
<S> <C> <C>
Assets
Cash and due from banks ....................................... $ 9,225 5,628
Interest-bearing deposits ..................................... 3,390 4,631
Federal funds sold ............................................ 30,200 0
Cash and cash equivalents .............................. 42,815 10,259
Securities available for sale, at fair value .................. 244,241 205,808
Federal Home Loan Bank of New York stock, at cost ............. 7,215 3,291
Loans receivable, net ......................................... 420,933 281,123
Accrued interest receivable ................................... 4,115 3,734
Premises and equipment, net ................................... 4,537 3,121
Real estate owned and repossessed assets ...................... 399 143
Goodwill ...................................................... 7,923 0
Other assets .................................................. 3,294 2,965
Total assets ........................................... $ 735,472 510,444
Liabilities and Shareholders' Equity
Liabilities:
Deposits ................................................... 461,413 333,265
Federal Home Loan Bank overnight advances .................. --- 12,300
Federal Home Loan Bank term advances ....................... 21,410 ---
Securities sold under agreements to repurchase ............. 152,400 99,250
Advances from borrowers for taxes and insurance ............ 2,436 1,902
Accrued interest payable ................................... 1,426 819
Accrued expenses and other liabilities ..................... 4,494 1,706
Due to brokers ............................................. 6,000 ---
Total liabilities ...................................... 649,579 449,242
Commitments and contingent liabilities (note 14)
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000 shares;
none issued at December 31, 1998 and 1997 ................ --- ---
Common stock $.01 par value. Authorized 15,000,000 shares;
5,432,371 shares issued at December 31, 1998 and 5,422,250
shares issued at December 31, 1997 ....................... 54 54
Additional paid-in capital ................................. 63,019 52,385
Retained earnings, substantially restricted ................ 26,356 26,458
Treasury stock, at cost (23,908 shares at December 31,
1998 and 1,115,832 shares at December 31, 1997) .......... (329) (12,585)
Unallocated common stock held by ESOP ...................... (2,818) (3,303)
Unearned RRP shares ........................................ (759) (1,533)
Accumulated other comprehensive income ..................... 370 (274)
Total shareholders' equity ............................. 85,893 61,202
Total liabilities and shareholders' equity ............. $ 735,472 510,444
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years ended December 31,
1998 1997 1996
(In thousands, except per share amounts)
<S> <C> <C> <C>
Interest and dividend income:
Loans receivable ...................................... $ 24,623 21,011 20,557
Securities available for sale ......................... 13,479 13,957 10,921
Federal funds sold and interest-bearing deposits ...... 507 394 740
Federal Home Loan Bank stock .......................... 364 204 130
Total interest and dividend income ................ 38,973 35,566 32,348
Interest expense:
Deposits .............................................. 13,822 13,645 12,424
Borrowings ............................................ 8,619 6,009 4,011
Total interest expense ............................ 22,441 19,654 16,435
Net interest income ............................... 16,532 15,912 15,913
Provision for loan losses ................................ 900 1,088 9,450
Net interest income after provision for loan losses 15,632 14,824 6,463
Other income:
Service charges on deposit accounts ................... 1,012 786 764
Net (losses) gains on securities transactions ......... (165) 775 (102)
Other ................................................. 297 258 246
Total other income ................................ 1,144 1,819 908
Other expenses:
Salaries, wages and benefits .......................... 6,393 6,086 5,097
Non-recurring termination benefits .................... 608 --- ---
Occupancy and equipment ............................... 1,809 1,539 1,328
Data processing ....................................... 1,688 1,168 1,088
Correspondent bank processing fees .................... 147 126 116
Real estate owned and repossessed assets expenses, net 61 355 2,563
Professional fees ..................................... 735 429 540
Amortization of goodwill .............................. 67 --- ---
Other ................................................. 3,567 2,487 2,404
Total other expenses .............................. 15,075 12,190 13,136
Income (loss) before taxes ............................... 1,701 4,453 (5,765)
Income tax expense (benefit) ............................. 670 1,693 (1,929)
Net income (loss) ................................. $ 1,031 2,760 (3,836)
Basic earnings (loss) per share $ 0.26 0.70 (0.81)
Diluted earnings (loss) per share $ 0.26 0.69 (0.81)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996 (In thousands, except share and per share data)
Additional
Common paid-in Retained Treasury
stock capital earnings stock
<S> <C> <C> <C> <C>
Balance at December 31, 1995 .................. $ 54 52,127 28,272 ---
Comprehensive loss:
Net loss ................................... --- --- (3,836) ---
Other comprehensive income, net of tax:
Unrealized net holding losses on
securities available for sale arising
during the year (pre-tax $68)
Reclassification adjustment for net
losses realized in net income during
the year (pre-tax $102)
Other comprehensive income ................. --- --- --- ---
Comprehensive loss
Purchase of treasury shares (1,030,227 shares). --- --- --- (11,208)
Release of ESOP shares (52,964 shares) ........ --- 1 --- ---
Balance at December 31, 1996 .................. 54 52,128 24,436 (11,208)
Comprehensive income:
Net income ................................. --- --- 2,760 ---
Other comprehensive loss, net of tax:
Unrealized net holding gains on
securities available for sale arising
during the year (pre-tax $452)
Reclassification adjustment for net
gains realized in net income during
the year (pre-tax $775)
Other comprehensive loss ................... --- --- --- ---
Comprehensive income
Purchase of treasury shares (216,890 shares) .. --- --- --- (3,488)
Release of ESOP shares (50,561 shares) ........ --- 257 --- 0
Issuance of RRP shares (131,285 shares) ....... --- --- (306) 2,111
RRP shares earned ............................. --- --- --- ---
Cash dividends - $0.10 per share .............. --- --- (432) ---
Balance at December 31, 1997 .................. 54 52,385 26,458 (12,585)
Comprehensive income:
Net income ................................. --- --- 1,031 ---
Other comprehensive income, net of tax:
Unrealized net holding gains on
securities available for sale arising
during the year (pre-tax $908)
Reclassification adjustment for net
losses realized in net income during
the year (pre-tax $165)
Other comprehensive income ................. --- --- --- ---
Comprehensive income
Purchase of treasury shares (215,320 shares) .. --- --- --- (4,111)
Release of ESOP shares (48,498 shares) ........ --- 331 --- ---
RRP shares earned ............................. --- --- --- ---
Tax benefit related to RRP shares earned ...... --- 76 --- ---
RRP shares forfeited (29,331 shares) .......... --- --- --- (403)
Exercises of stock options (9,489 shares) ..... --- 5 --- 125
Acquisition of AFSALA Bancorp, Inc.(see note 2) --- 10,222 --- 16,645
Cash dividends - $0.25 per share .............. --- --- (1,133) ---
Balance at December 31, 1998 .................. $ 54 63,019 26,356 (329)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity (continued)
Years ended December 31, 1998, 1997 and 1996 (In thousands, except share and per share data)
Unallocated Accumulated
common stock Unearned other
held by RRP comprehensive Comprehensive
ESOP shares income Total income(loss)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 .................... (4,338) --- (100) 76,015
Comprehensive loss:
Net loss ................................... --- --- --- (3,836) $(3,836)
Other comprehensive income, net of tax:
Unrealized net holding losses on
securities available for sale arising
during the year (pre-tax $68) ....... (41)
Reclassification adjustment for net
losses realized in net income during
the year (pre-tax $102) ............. 61
Other comprehensive income ................. --- --- 20 20 20
Comprehensive loss .............. $(3,816)
Purchase of treasury shares (1,030,227 shares) .. --- --- --- (11,208)
Release of ESOP shares (52,964 shares) .......... 526 --- --- 527
Balance at December 31, 1996 .................... (3,812) --- (80) 61,518
Comprehensive income:
Net income ................................. --- --- --- 2,760 $ 2,760
Other comprehensive loss, net of tax:
Unrealized net holding gains on
securities available for sale arising
during the year (pre-tax $452) ...... 271
Reclassification adjustment for net
gains realized in net income during
the year (pre-tax $775) ............. (465)
Other comprehensive loss ................... --- --- (194) (194) (194)
Comprehensive income ............. $ 2,566
Purchase of treasury shares (216,890 shares) .... --- --- --- (3,488)
Release of ESOP shares (50,561 shares) .......... 509 --- --- 766
Issuance of RRP shares (131,285 shares) ......... --- (1,805) --- ---
RRP shares earned ............................... --- 272 --- 272
Cash dividends - $0.10 per share ................ --- --- --- (432)
Balance at December 31, 1997 .................... (3,303) (1,533) (274) 61,202
Comprehensive income:
Net income ................................. --- --- --- 1,031 $ 1,031
Other comprehensive income, net of tax:
Unrealized net holding gains on
securities available for sale arising
during the year (pre-tax $908) ...... 545
Reclassification adjustment for net
losses realized in net income during
the year (pre-tax $165) ............. 99
Other comprehensive income ................. --- --- 644 644 644
Comprehensive income ............. $ 1,675
Purchase of treasury shares (215,320 shares) .... --- --- --- (4,111)
Release of ESOP shares (48,498 shares) .......... 485 --- --- 816
RRP shares earned ............................... --- 371 --- 371
Tax benefit related to RRP shares earned ........ --- --- --- 76
RRP shares forfeited (29,331 shares) ............ --- 403 --- ---
Exercises of stock options (9,489 shares) ....... --- --- --- 130
Acquisition of AFSALA Bancorp, Inc. (see note 2). --- --- --- 26,867
Cash dividends - $0.25 per share ................ --- --- --- (1,133)
Balance at December 31, 1998 .................... (2,818) (759) 370 85,893
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss) ......................................... $1,031 2,760 (3,836)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ...................... 848 652 558
Provision for loan losses .......................... 900 1,088 9,450
Provision for losses and writedowns on real
estate owned and repossessed assets ............. 7 171 877
Net (gains) losses on sale of real estate
owned and repossessed assets .................... (7) 38 1,260
Loss on sale of premises and equipment ............. --- --- 64
ESOP compensation expense .......................... 816 766 527
RRP expense ........................................ 371 272 0
Net losses (gains) on securities transactions ...... 165 (775) 102
Net amortization on securities ..................... 1,094 320 475
(Increase) decrease in accrued interest
receivable and other assets ..................... (17) 831 (3,316)
Increase (decrease) in accrued interest payable,
accrued expenses and other liabilities .......... 1,423 187 (1,201)
Net cash provided by operating activities 6,631 6,310 4,960
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale .......................... 126,846 194,210 34,469
Purchases of securities available for sale ................ (157,188) (247,390) (192,647)
Proceeds from principal paydowns and
maturities of securities available for sale ............ 53,743 48,029 31,508
Net decrease in due to/from brokers ....................... --- --- (28,752)
Purchases of FHLB stock ................................... (3,359) (1,262) (137)
Purchases of loans ........................................ (31,888) --- 0
Proceeds from sales of loans .............................. --- --- 18,929
Net increase in loans made to customers ................... (26,391) (34,384) (28,685)
Purchases of premises and equipment ....................... (422) (1,004) (341)
Proceeds from sales of real estate owned and
repossessed assets ..................................... 270 631 2,519
Proceeds from the sale of premises and equipment .......... --- --- 25
Cash and cash equivalents acquired in acquisition,
net of cash paid ....................................... 24,996 --- ---
Net cash used in investing activities .............. (13,393) (41,170) (163,112)
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (continued)
Years ended December 31,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in deposits .............. $(16,533) 35,183 (13,157)
Net (decrease) increase in FHLB overnight advances (12,300) 6,300 6,000
Proceeds from FHLB term advances ................. 20,000 --- ---
Repayments of FHLB term advances ................. (35) --- ---
Proceeds from repurchase agreements .............. 142,575 66,570 193,770
Repayments of repurchase agreements .............. (89,425) (70,100) (90,990)
Increase in advances from borrowers for taxes and
insurance ..................................... 150 199 11
Purchases of treasury stock ...................... (4,111) (3,488) (11,208)
Exercises of stock options ....................... 130 --- ---
Dividends paid ................................... (1,133) (432) 0
Net cash provided by financing activities . 39,318 34,232 84,426
Net increase (decrease) in cash and cash equivalents ...... 32,556 (628) (73,726)
Cash and cash equivalents at beginning of year ............ 10,259 10,887 84,613
Cash and cash equivalents at end of year .................. $42,815 10,259 10,887
Supplemental disclosures of cash flow
information - cash paid during the year for:
Interest ......................................... $ 21,834 19,912 15,360
Income taxes ..................................... $ 1,429 1,770 306
Noncash investing and financing activities:
Net transfer of loans to real estate owned and
repossessed assets ............................... $ 386 268 2,203
Increase in amounts due to brokers from purchases of
securities available for sale .................... $ 6,000 --- ---
Fair value of non-cash assets acquired in acquisition $142,820 --- ---
Fair value of liabilities assumed in acquisition ..... $148,565 --- ---
Issuance of RRP shares ............................... $ --- 2,111 ---
Tax benefit related to vested RRP shares ............. $ 76 --- ---
RRP shares forfeited ................................. $ 403 --- ---
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Ambanc Holding Co., Inc. (Ambanc or the Holding
Company), and its wholly owned subsidiaries, Mohawk Community
Bank, formerly known as Amsterdam Savings Bank, FSB (the Bank),
and A.S.B. Insurance Agency, Inc., collectively referred to as
the Company. All significant intercompany accounts have been
eliminated in consolidation. The accounting and reporting
policies of the Company conform in all material respects to
generally accepted accounting principles and to general practice
within the banking industry.
(b) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination
of the allowance for loan losses. In connection with the
determination of the allowance for loan losses, management
obtains appraisals for significant assets.
Management believes that the allowance for loan losses is
adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments
about information available to them at the time of their
examination which may not be currently available to management.
A substantial portion of the Company's assets are loans secured
by real estate in the upstate New York area. Accordingly, the
ultimate collectibility of a considerable portion of the
Company's loan portfolio is dependent upon market conditions in
the upstate New York region.
(c) Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
<PAGE>
(d) Securities Available for Sale, Securities Held to Maturity and
FHLB of New York Stock
Management determines the appropriate classification of
securities at the time of purchase. If management has the
positive intent and ability to hold debt securities to maturity,
they are classified as securities held to maturity and are
stated at amortized cost. All other debt and marketable equity
securities are classified as securities available for sale and
are reported at fair value, with net unrealized gains and losses
reported in accumulated other comprehensive income. The Company
does not maintain a trading portfolio and at December 31, 1998
and 1997, the Company had no securities classified as held to
maturity.
Unrealized losses on securities that reflect a decline in value
that is other than temporary are charged to income.
Non-marketable equity securities, such as Federal Home Loan Bank
(FHLB) of New York stock, are stated at cost. The investment in
FHLB of New York stock is required for membership and is pledged
to secure FHLB borrowings.
Mortgage-backed securities, which are guaranteed by the
Government National Mortgage Association ("GNMA"), Freddie Mac
or Fannie Mae, represent participation interests in pools of
long-term first mortgage loans originated and serviced by the
issuers of the securities.
Gains and losses on the sale and redemption of securities
available for sale are based on the amortized cost of the
specific security sold or redeemed. The cost of securities is
adjusted for the amortization of premiums and the accretion of
discounts, which is calculated on an effective interest method.
Purchases and sales are recorded on a trade date basis.
Receivables and payables from unsettled transactions are shown
as due from brokers or due to brokers in the consolidated
statements of financial condition.
(e) Loans Receivable and Loan Fees
Loans receivable are stated at the unpaid principal amount, net
of unearned discount, net deferred loan fees and costs, and the
allowance for loan losses. Discounts are amortized to income
over the contractual life of the loan using the level-yield
method. Loan fees received and the related direct costs of
originations are deferred and recorded as yield adjustments over
the lives of the related loans using the interest method of
amortization.
<PAGE>
Non-performing loans include nonaccrual loans, restructured
loans and loans which are 90 days or more past due and still
accruing interest. Loans considered doubtful of collection by
management are placed on a nonaccrual status with respect to
interest income recognition. Generally, loans past due 90 days
or more as to principal or interest are placed on nonaccrual
status except for certain loans which, in management's judgment,
are adequately secured and for which collection is probable.
Previously accrued income that has not been collected is
reversed from current income. Thereafter, the application of
payments received (principal or interest) on nonaccrual loans is
dependent on the expectation of ultimate repayment of the loan.
If ultimate repayment of the loan is reasonably assured, any
payments received are applied in accordance with the contractual
terms. If ultimate repayment of principal is not reasonably
assured or management judges it to be prudent, any payment
received is applied to principal until ultimate repayment of the
remaining balance is reasonably assured. Loans are removed from
nonaccrual status when they are estimated to be fully
collectible as to principal and interest. Amortization of the
related deferred fees or costs is suspended when a loan is
placed on nonaccrual status.
The allowance for loan losses is maintained at a level deemed
appropriate by management based on an evaluation of the known
and inherent risks in the portfolio, the level of non-performing
loans, past loan loss experience, the estimated value of
underlying collateral, and current and prospective economic
conditions. The allowance is increased by provisions for loan
losses charged to operations. Losses on loans (including
impaired loans) are charged to the allowance when all or a
portion of a loan is deemed to be uncollectible. Recoveries of
loans previously charged off are credited to the allowance when
realized.
(f) Loan Impairment
Management considers a loan to be impaired if, based on current
information, it is probable that the Company will be unable to
collect all scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. When a
loan is considered to be impaired, the amount of the impairment
is measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or
the fair value of the collateral if the loan is collateral
dependent. Except for loans restructured in a troubled debt
restructuring subsequent to January 1, 1995, management excludes
large groups of smaller balance homogeneous loans such as
residential mortgages and consumer loans which are collectively
evaluated for impairment. Impairment losses, if any, are
recorded through a charge to the provision for loan losses.
(g) Real Estate Owned and Repossessed Assets
Real estate owned and repossessed assets include assets received
from foreclosures, in-substance foreclosures, and repossessions.
A loan is classified as an in-substance foreclosure when the
Company has taken possession of the collateral regardless of
whether formal foreclosure proceedings have taken place.
<PAGE>
Real estate owned and repossessed assets, including in-substance
foreclosures, are recorded on an individual asset basis at the
lower of fair value less estimated costs to sell or "cost"
(defined as the fair value at initial foreclosure or
repossession). When a property is acquired or identified as an
in-substance foreclosure, the excess of the loan balance over
fair value is charged to the allowance for loan losses.
Subsequent writedowns to carry the property at fair value less
costs to sell are included in noninterest expense. Costs
incurred to develop or improve properties are capitalized, while
holding costs are charged to expense.
At December 31, 1998 and 1997, real estate owned and repossessed
assets consisted primarily of one-to-four family residential
properties, recreational vehicles and automobiles. The Company
had no in-substance foreclosures at December 31, 1998 or 1997.
(h) Premises and Equipment, Net
Premises and equipment are carried at cost, less accumulated
depreciation applied on a straight-line basis over the estimated
useful lives of the assets. Leasehold improvements are amortized
on a straight-line basis over the respective original lease
terms without regard to lease renewal options.
(i) Goodwill
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired for transactions accounted
for using purchase accounting. Goodwill is being amortized over
fifteen years using the straight-line method. Accumulated
amortization of goodwill amounted to approximately $67,000 at
December 31, 1998. Goodwill is periodically reviewed by
management for recoverability, and impairment is recognized by a
charge to income if a permanent loss in value is indicated.
(j) Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers the
underlying securities to a third party custodian's account that
explicitly recognizes the Company's interest in the securities.
These agreements are accounted for as secured financing
transactions provided the Company maintains effective control
over the transferred securities and meets other criteria for
such accounting as specified in Statement of Financial
Accounting Standards (SFAS) No. 125. The Company's agreements
are accounted for as secured financings; accordingly, the
transaction proceeds are recorded as borrowed funds and the
underlying securities continue to be carried in the Company's
securities available for sale portfolio.
<PAGE>
(k) Income Taxes
The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." Under the asset and
liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to temporary differences between financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income tax expense in the period that includes
the enactment date. The Company's policy is that deferred tax
assets are reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be recognized.
In considering if it is more likely than not that some or all of
the deferred tax assets will not be realized, the Company
considers taxable temporary differences, historical income taxes
paid and estimates of future taxable income.
(l) Financial Instruments
In the normal course of business, the Company is a party to
certain financial instruments with off-balance sheet risk such
as commitments to extend credit, unused lines of credit and
standby letters of credit. The Company's policy is to record
such instruments when funded.
(m) Stock-Based Compensation Plans
The Company accounts for its stock option plan in accordance
with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense is recognized only if the
exercise price of the option is less than the fair value of the
underlying stock at the grant date. SFAS No. 123, "Accounting
for Stock-Based Compensation," encourages entities to recognize
the fair value of all stock-based awards on the date of grant as
compensation expense over the vesting period. Alternatively,
SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosures required by SFAS No.
123.
The Company's Recognition and Retention Plan (RRP) is also
accounted for in accordance with APB Opinion No. 25. The fair
value of the shares awarded, measured as of the grant date, is
recognized as unearned compensation (a deduction from
shareholders' equity) and amortized to compensation expense as
the shares become vested.
<PAGE>
(n) Earnings per Share
Basic earnings per share (EPS) 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.
(o) Official Bank Checks
The Company's official bank checks (including expense checks),
which are drawn upon the Bank and are ultimately paid through
the Bank's Federal Reserve Bank of New York correspondent
account, are included in accrued expenses and other liabilities
in the consolidated statements of financial condition.
(p) 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. In
accordance with SFAS No. 130, the Company has reported
comprehensive income and its components for 1998, 1997 and 1996
in the consolidated statements of changes in shareholders'
equity. 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.
(q) Segment Reporting
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.
<PAGE>
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.
(r) Reclassifications
Amounts in the prior years' consolidated financial statements
are reclassified whenever necessary to conform to the current
year's presentation.
(2) Acquisition of AFSALA Bancorp, Inc.
On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. (AFSALA)
and its wholly owned subsidiary, Amsterdam Federal Bank. At the date of
the merger, AFSALA had approximately $167.1 million in assets, $144.1
million in deposits, and $19.2 million in shareholders' equity. Pursuant
to the merger agreement, AFSALA was merged with and into Ambanc Holding
Co., Inc., and Amsterdam Federal Bank was merged with and into the
former Amsterdam Savings Bank, FSB. The combined bank now operates as
one institution under the name "Mohawk Community Bank".
Upon consummation of the merger, each share of AFSALA common stock was
converted into the right to receive 1.07 shares of Ambanc common stock.
Based on the 1,249,727 shares of AFSALA common stock issued and
outstanding immediately prior to the merger, the Company issued
1,337,207 shares of common stock in the merger. Of the 1,337,207 shares
issued in the merger, 1,327,086 were issued from the Company's treasury
stock and 10,121 were newly-issued shares. In addition, under the merger
agreement, the Company assumed unexercised, fully-vested options to
purchase 144,118 shares of AFSALA common stock, which converted into
fully-vested options to purchase 154,206 shares of Ambanc common stock.
See also Note 12(d).
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 1998 consolidated
statement of operations from the date of acquisition.
<PAGE>
In conjunction with the acquisition of AFSALA, premiums on securities,
loans, time deposits and FHLB term advances were recorded totaling
approximately $155,000, $1,459,000, $651,000 and $26,000, respectively,
in order to record these assets and liabilities at their fair values
based on market interest rates at the acquisition date. The premiums are
being amortized over the estimated period to repricing of the respective
items. For the year ended December 31, 1998, the impact on net income
from the net amortization of the premiums was not significant.
The following unaudited proforma combined consolidated financial
information gives effect to the November 16, 1998 acquisition of AFSALA
as if it had been consummated as of the beginning of 1998 and 1997,
respectively, after giving effect to certain adjustments, including (1)
the amortization of goodwill, (2) the elimination of the expense related
to AFSALA's ESOP and Restricted Stock Plan which terminated as of the
merger date, (3) the elimination of AFSALA's acquisition-related
expenses, and (4) the related income tax effects. The unaudited proforma
combined consolidated financial information does not reflect any
potential cost savings or revenue enhancements which may result from the
combination of operations of Ambanc and AFSALA and, accordingly, may not
be indicative of the results that actually would have occurred had the
acquisition been consummated at the beginning of the years presented, or
that may be obtained in the future.
Years ended December 31,
1998 1997
------------------------
(Unaudited)
(In thousands, except per share data)
Net interest income $ 21,154 21,209
Net income 1,491 3,639
Basic earnings per share 0.28 0.66
Diluted earnings per share 0.27 0.66
(3) Conversion to Stock Ownership
On December 26, 1995, the Holding Company sold 5,422,250 shares of
common stock at $10.00 per share to depositors and employees of the
former Amsterdam Savings Bank, FSB. Net proceeds from the sale of stock
of the Holding Company, after deducting conversion expenses of
approximately $2.0 million, were $52.2 million and are reflected as
common stock and additional paid-in capital in the accompanying
consolidated financial statements. The Company utilized $26.0 million of
the net proceeds to acquire all of the capital stock of the former
Amsterdam Savings Bank, FSB.
<PAGE>
As part of the conversion of the former Amsterdam Savings Bank, FSB, and
the former Amsterdam Federal Bank, liquidation accounts were established
for the benefit of eligible depositors who continue to maintain their
deposit accounts after conversion. In the unlikely event of a complete
liquidation of the Bank, each eligible depositor will be entitled to
receive a liquidation distribution from the liquidation accounts, in the
proportionate amount of the then current adjusted balance for deposit
accounts held, before distribution may be made with respect to the
Bank's capital stock. The Bank may not declare or pay a cash dividend to
the Holding Company on, or repurchase any of, its capital stock if the
effect thereof would cause the retained earnings of the Bank to be
reduced below the amount required for the liquidation accounts. Except
for such restrictions, the existence of the liquidation accounts does
not restrict the use or application of retained earnings.
The Bank's capital exceeds all of the fully phased-in capital regulatory
requirements. The Office of Thrift Supervision (OTS) regulations provide
that an institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution could,
after prior notice but without the approval by the OTS, make capital
distributions during the calendar year of up to 100% of its net income
to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year.
Any additional capital distributions would require prior regulatory
approval. At December 31, 1998, the maximum amount that could have been
paid by the Bank to the Holding Company was approximately $18.7 million.
(4) Reserves and Investments Required by Law
The Company is required to maintain certain reserves of cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve
requirement, included in cash and due from banks, was approximately
$2,378,000 and $1,123,000 at December 31, 1998 and 1997, respectively.
The Company is required to maintain certain levels of stock in the
Federal Home Loan Bank. The Company has pledged its investment in this
stock, as well as a blanket pledge of qualifying residential real estate
loans, to secure its borrowings from the Federal Home Loan Bank of New
York.
<PAGE>
(5) Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated
fair values of securities available for sale at December 31, 1998 and
1997 are as follows:
1998
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(In thousands)
U.S. Government and agency securities $ 83,665 400 (65) 84,000
Mortgage-backed securities .......... 96,140 253 (137) 96,256
Collateralized mortgage obligations . 62,000 244 (96) 62,148
States and political subdivisions ... 1,819 18 -- 1,837
------- ------- ------- -------
Total ..................... $ 243,624 915 (298) 244,241
======= ======= ======= =======
1997
------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
(In thousands)
U.S. Government and agency securities $ 63,198 60 (113) 63,145
Mortgage-backed securities .......... 132,272 100 (386) 131,986
Collateralized mortgage obligations . 10,040 -- (129) 9,911
States and political subdivisions ... 755 11 -- 766
------- ------- ------- -------
Total ..................... $ 206,265 171 (628) 205,808
======= ======= ======= =======
<PAGE>
The amortized cost and estimated fair value of debt securities available
for sale at December 31, 1998, by contractual maturity, are shown below
(mortgage-backed securities and collateralized mortgage obligations are
included by final contractual maturity). Expected maturities will differ
from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Estimated
cost fair value
-------- --------
(In thousands)
Due within one year ................... $ 6,872 6,886
Due after one year through five years . 12,077 12,117
Due after five years through ten years 50,106 50,167
Due after ten years ................... 174,569 175,071
-------- --------
Totals .......................... $243,624 244,241
======== ========
The following table sets forth information with regard to sales of
securities available for sale for the years ended December 31:
1998 1997 1996
---- ---- ----
(In thousands)
Proceeds from sale .. $79,101 174,010 34,469
Gross realized gains 154 1,017 14
Gross realized losses 319 242 116
Securities available for sale with a carrying value of $163,169,000 at
December 31, 1998 and $111,153,000 at December 31, 1997 were pledged
to secure securities repurchase agreements.
<PAGE>
(6) Loans Receivable, Net
Loans receivable consisted of the following at December 31, 1998 and
1997:
1998 1997
-------- -------
(In thousands)
Loans secured by real estate:
1 - 4 family ................................ $ 273,523 189,666
Home equity ................................. 83,949 30,246
Non-residential ............................. 23,506 26,585
Multi-family ................................ 4,165 4,152
Construction ................................ 3,600 2,081
--------- --------
Total loans secured by real estate 388,743 252,730
--------- --------
Other loans:
Consumer loans:
Auto loans ............................. 14,146 16,237
Recreational vehicles .................. 4,990 6,775
Other secured .......................... 6,289 1,781
Unsecured .............................. 3,712 1,847
Manufactured homes ..................... 385 494
--------- --------
Total consumer loans .............. 29,522 27,134
--------- --------
Commercial loans:
Secured ................................ 5,101 3,233
Unsecured .............................. 508 471
--------- --------
Total commercial loans ............ 5,609 3,704
--------- --------
Total loans receivable ............ 423,874 283,568
Deferred costs, net of deferred fees
and discounts ............................. 1,950 1,362
Allowance for loan losses ................... (4,891) (3,807)
--------- --------
Loans receivable, net ............. $ 420,933 281,123
========= ========
A summary of activity in the allowance for loan losses for the years
ended December 31 is as follows:
1998 1997 1996
------- ------- ------
(In thousands)
Balance at beginning of year .. $ 3,807 3,438 2,647
Provision charged to operations 900 1,088 9,450
Charge-offs ................... (1,226) (1,214) (8,718)
Recoveries .................... 295 495 59
Allowance acquired ............ 1,115 -- --
------- ------- -------
Balance at end of year ........ $ 4,891 3,807 3,438
======= ======= =======
<PAGE>
The following table sets forth information with regard to
non-performing loans at December 31:
1998 1997 1996
------ ------ ------
(In thousands)
Non-accrual loans ......................... $1,610 1,876 3,123
Loans contractually past due 90 days
or more and still accruing interest .... 580 451 725
Restructured loans ........................ 714 931 1,031
------ ------ ------
Total non-performing loans ................ $2,904 3,258 4,879
====== ====== ======
There are no material commitments to extend further credit to
borrowers with non-performing loans.
Accumulated interest on the above non-performing loans of approximately
$118,000, $277,000 and $375,000 was not recognized as income in 1998,
1997 and 1996, respectively. Approximately $238,000, $192,000 and
$229,000 of interest on restructured and non-accrual loans was collected
and recognized as income in 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, the recorded investment in loans that are
considered to be impaired totaled approximately $328,000 and $769,000,
respectively, for which the related allowance for loan losses was
approximately $44,000 and $338,000, respectively. As of December 31,
1998 and 1997, there were no impaired loans which did not have an
allowance for loan losses. The average recorded investment in impaired
loans during the years ended December 31, 1998, 1997 and 1996 was
approximately $688,000, $1,445,000 and $6,918,000, respectively. For the
years ended December 31, 1998, 1997 and 1996, the Company recognized
interest income on those impaired loans of approximately $78,000,
$15,000 and $110,000, respectively, which included $50,000, $0 and
$14,000, respectively, of interest income recognized using the cash
basis method of income recognition.
Certain directors and executive officers of the Company are customers of
and have other transactions with the Company in the ordinary course of
business. Loans to these parties are made in the ordinary course of
business at the Company's normal credit terms, including interest rate
and collateralization. The aggregate of such loans totaled less than 5%
of total shareholders' equity at both December 31, 1998 and 1997.
<PAGE>
(7) Accrued Interest Receivable
Accrued interest receivable consisted of the following at December 31:
1998 1997
------ ------
(In thousands)
Loans $ 2,031 1,347
Securities available for sale 2,084 2,387
------- -------
$ 4,115 3,734
======= =======
(8) Premises and Equipment
A summary of premises and equipment is as follows at December 31:
1998 1997
------- -------
Land and buildings ........................... $ 3,342 2,362
Furniture, fixtures and equipment ............ 4,182 3,737
Leasehold improvements ....................... 1,614 1,100
Construction in progress ..................... 195 --
------- -------
9,333 7,199
Less accumulated depreciation and amortization (4,796) (4,078)
------- -------
$ 4,537 3,121
======= =======
Amounts charged to depreciation and amortization expense were
approximately $735,000, $606,000 and $501,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
<PAGE>
(9) Deposits
Deposits are summarized as follows at December 31:
1998 1997
-------- --------
(In thousands)
Savings accounts (2.92%-3.00% at December 31, 1998
and 3.00% at December 31, 1997) ............. $136,921 97,591
-------- --------
Time deposits:
3.01 to 4.00% ............................... 1,806 1,011
4.01 to 5.00% ............................... 61,030 6,688
5.01 to 6.00% ............................... 140,676 154,377
6.01 to 7.00% ............................... 11,432 10,801
7.01 to 8.00% ............................... 13,061 10,455
-------- --------
228,005 183,332
-------- --------
NOW accounts (1.73%-2.75% at December 31,
1998 and 2.75% at December 31, 1997) ........ 38,814 22,718
Money market accounts (2.25%-4.87% at December 31,
1998 and 2.96% at December 31, 1997) ........ 21,359 6,877
Demand accounts (non-interest bearing) ........... 36,314 22,747
-------- --------
Total deposits ......................... $461,413 333,265
======== ========
The approximate amount of contractual maturities of time deposits for
the years subsequent to December 31, 1998 are as follows:
(In thousands)
Years ending December 31,
1999 $150,517
2000 57,742
2001 10,560
2002 4,581
2003 4,605
--------
$228,005
========
The aggregate amount of time deposits with a balance of $100,000 or
more was approximately $25.9 million and $17.9 million at December 31,
1998 and 1997, respectively.
<PAGE>
Interest expense on deposits for the years ended December 31, 1998,
1997 and 1996, is summarized as follows:
1998 1997 1996
------- ------- -------
(In thousands)
Savings accounts .... $ 3,119 3,016 3,162
Time deposits ....... 9,882 9,882 8,492
NOW accounts ........ 549 543 527
Money market accounts 272 204 243
------- ------- -------
Total ....... $13,822 13,645 12,424
======= ======= =======
(10) Borrowed Funds
At December 31, 1998, the Company had a $26.2 million overnight line of
credit and a $26.2 million 30 day line of credit with the FHLB of New
York. As of December 31, 1998, the Company had no amounts outstanding on
these lines of credit. At December 31, 1997, the Company had a $24.2
million overnight line of credit and a $24.2 million 30 day line of
credit with the FHLB. As of December 31, 1997, the Company had borrowed
$12.3 million under these lines of credit. Under the terms of a blanket
collateral agreement with the FHLB, any outstanding balances are
collateralized by FHLB stock and certain qualifying assets not otherwise
pledged (primarily first-lien mortgage loans).
The Company also has longer-term advances with the FHLB totaling $21.4
million at December 31, 1998. These advances consist of the following:
(i) $20.0 million of interest-only, non-prepayable, adjustable rate
advances, with the interest rate tied to LIBOR and adjusted quarterly;
$10.0 million matures in July 2001 and $10.0 million matures in July
2003; and (ii) $1.4 million of adjustable rate amortizing advances with
interest rates ranging from 5.91% to 7.91% at December 31, 1998; final
maturities on these advances range from April 2000 to September 2004.
<PAGE>
The following table presents the detail of the Company's borrowings and
weighted-average interest rates thereon for the years ended December 31,
1998, 1997 and 1996:
Securities
FHLB FHLB Sold Under
Overnight Term Agreements
Advances Advances to Repurchase
--------- -------- -------------
(Dollars in thousands)
1998:
Balance at December 31 ........ $ -- $ 21,410 $152,400
Average balance during the year 9,366 8,493 132,476
Maximum month-end balance ..... 38,800 21,446 165,150
Weighted-average interest rate:
At December 31 ........... -- 5.32% 5.48%
During the year .......... 5.49% 5.71 5.67
1997:
Balance at December 31 ........ $ 12,300 $ -- $ 99,250
Average balance during the year 3,667 -- 95,261
Maximum month-end balance ..... 14,400 -- 99,410
Weighted-average interest rate:
At December 31 ........... 6.38% -- 6.04%
During the year .......... 5.43 -- 6.01
1996:
Balance at December 31 ........ $ 6,000 $ -- $102,780
Average balance during the year 9,757 -- 57,815
Maximum month-end balance ..... 28,000 -- 102,780
Weighted-average interest rate:
At December 31 ........... 6.88% -- 5.96%
During the year .......... 5.35 -- 5.94
<PAGE>
Information concerning outstanding securities repurchase agreements as
of December 31, 1998 is summarized as follows:
Securities Repurchase Agreements
--------------------------------------------------------
Accrued Weighted- Fair Value
Remaining Term to Repurchase Interest Average of Collateral
Final Maturity (1) Liability Payable Rate Securities (2)
------------------ ---------- -------- ---- --------------
(Dollars in thousands)
Within 90 days ........ $ -- -- -- $ --
After 90 days but
within one year .. 22,400 191 5.94% 24,411
After one year but
within five years 30,000 199 5.75 32,903
After five years but
within ten years . 100,000 836 5.30 107,086
-------- -------- ---- --------
Total ....... $152,400 1,226 5.48% $164,400
======== ======== ==== ========
(1) The weighted-average remaining term to final maturity was
approximately 7.0 years at December 31, 1998. At December 31,
1998, $115.0 million of the securities repurchase agreements
contained call provisions. The weighted-average rate at
December 31, 1998 on the callable securities repurchase
agreements was 5.37%, with a weighted-average remaining period
of 2.1 years to the call date. At December 31, 1998, $37.4
million of the securities repurchase agreements did not
contain call provisions. The weighted-average rate at December
31, 1998 on the non-callable securities repurchase agreements
was 5.82%, with a weighted-average remaining period of 1.8
years to the repurchase date.
(2) Represents the fair value of the securities which were
transferred, plus accrued interest receivable of approximately
$1.2 million at December 31, 1998.
At December 31, 1998, the "amount at risk" (defined as the excess of (i)
the carrying amount, or fair value, if higher, of the securities
transferred plus accrued interest receivable over (ii) the amount of the
repurchase liability plus accrued interest payable) with any individual
counterparty was less than ten percent of total shareholders' equity.
<PAGE>
(11) Income Taxes
The components of income tax expense (benefit) are as follows for the
years ended December 31:
1998 1997 1996
------- ------- ------
(In thousands)
Current tax expense (benefit):
Federal .......................... $ 763 1,389 (1,893)
State ............................ 13 270 1
------- ------- ------
776 1,659 (1,892)
Deferred tax (benefit) expense ........ (106) 34 (37)
------- ------- ------
Total income tax expense (benefit) $ 670 1,693 (1,929)
======= ======= ======
Actual income tax expense (benefit) for the years ended December 31,
1998, 1997 and 1996 differs from expected income tax expense (benefit),
computed by applying the Federal corporate tax rate of 34% to income
(loss) before taxes, as a result of the following items:
1998 1997 1996
------- ------- -------
(In thousands)
Expected tax expense (benefit) $ 578 1,514 (1,960)
State taxes, net of Federal
income tax benefit ........ 1 178 1
Non-deductible portion of ESOP
compensation expense ...... 113 89 --
Other items, net ............. (22) (88) 30
------- ------- -------
$ 670 1,693 (1,929)
======= ======= =======
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
1998 1997
------- -------
(In thousands)
Deferred tax assets:
Allowance for loan losses .................. $ 1,939 1,508
Deferred compensation ...................... 469 227
Unvested RRP shares ........................ 76 109
Purchase accounting adjustments ............ 237 --
Other deductible temporary differences ..... 148 105
------- -------
Total deferred tax assets ............. 2,869 1,949
------- -------
Deferred tax liabilities:
Tax bad debt reserve ....................... 174 216
Net deferred loan costs .................... 681 409
Defined benefit pension plan ............... 245 243
Property and equipment ..................... 91 113
Prepaid expenses ........................... 61 83
Purchase accounting adjustments ............ 626 --
Other taxable temporary differences ........ 107 18
------- -------
Total deferred tax liabilities ........ 1,985 1,082
------- -------
Net deferred tax asset at
end of year ........................ 884 867
Net deferred tax asset at
beginning of year .................. 867 901
------- -------
(17) 34
Net deferred tax asset acquired ............ 285 --
Initial net deferred tax liability
for purchase accounting adjustments ..... (374) --
------- -------
Deferred tax (benefit) expense for year $ (106) 34
======= =======
In addition to the deferred tax items shown in the table above, the
Company also had a deferred tax liability of approximately $247,000 at
December 31, 1998, and a deferred tax asset of approximately $183,000 at
December 31, 1997, relating to the net unrealized gain or loss on
securities available for sale.
There was no valuation allowance for deferred tax assets at December 31,
1998 and 1997, or change in the valuation allowance for the years ended
December 31, 1998, 1997 and 1996. Management believes that the
realization of the recognized net deferred tax asset at December 31,
1998 and 1997 is more likely than not, based on historical taxable
income, available tax planning strategies and expectations as to future
taxable income.
<PAGE>
As a thrift institution, the Bank is subject to special provisions in
the Federal and New York State tax laws regarding its allowable tax bad
debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on loss experience
or a percentage of taxable income. Tax bad debt reserves are maintained
equal to the excess of allowable deductions over actual bad debt losses
and other reserve reductions. These reserves consist of a defined
base-year amount, plus additional amounts ("excess reserves")
accumulated after the base year. Deferred tax liabilities are recognized
with respect to such excess reserves, as well as any portion of the
base-year amount which is expected to become taxable (or "recaptured")
in the foreseeable future.
Certain amendments to the Federal and New York State tax laws regarding
bad debt deductions were enacted in 1996. The Federal amendments include
elimination of the percentage of taxable income method for tax years
beginning after December 31, 1995, and imposition of a requirement to
recapture into taxable income (over a period of six years) the bad debt
reserves in excess of the base-year amounts. The Bank previously
established, and will continue to maintain, a deferred tax liability
with respect to such excess Federal reserves. The New York State
amendments redesignate the state bad debt reserves at December 31, 1995
as the base-year amount and also provide for future additions to the
base-year reserve using the percentage of taxable income method.
In accordance with SFAS No. 109, the Company has not recognized deferred
tax liabilities with respect to the Bank's Federal and state base-year
reserves of approximately $5.2 million and $10.1 million, respectively,
at December 31, 1998, since the Company does not expect that these
amounts will become taxable in the foreseeable future. Under the tax
laws, as amended, events that would result in taxation of these reserves
include (i) redemptions of the Bank's stock or certain excess
distributions to the Holding Company, and (ii) failure of the Bank to
maintain a specified qualifying assets ratio or meet other thrift
definition tests for New York State tax purposes. The unrecognized
deferred tax liability at December 31, 1998 with respect to the Federal
base-year reserve was approximately $1.8 million. The unrecognized
deferred tax liability at December 31, 1998 with respect to the state
base-year reserve was approximately $598,000 (net of Federal benefit).
(12) Employee Benefit Plans
(a) Pension Plan
The Bank maintains a non-contributory pension plan with the RSI
Retirement Trust, covering substantially all employees age 21
and over with 1 year of service, with the exception of hourly
paid employees. Benefits are computed as two percent of the
highest three year average annual earnings multiplied by
credited service, up to a maximum of 35 years.
<PAGE>
The amounts contributed to the plan are determined annually on
the basis of (a) the maximum amount that can be deducted for
Federal income tax purposes, or (b) the amount certified by a
consulting actuary as necessary to avoid an accumulated funding
deficiency as defined by the Employee Retirement Income Security
Act of 1974. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those
expected to be earned in the future. Assets of the plan are
primarily invested in pooled equity funds and fixed income
funds.
The following table provides a summary of the changes in the
plan's projected benefit obligation and the fair value of the
plan's assets for the years ended December 31, and a
reconciliation of the plan's funded status at December 31:
<TABLE>
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Changes in the projected benefit obligation:
Projected benefit obligation at January 1 ........... $ 4,508 4,060
Service cost ................................... 219 183
Interest cost .................................. 318 304
Benefits paid .................................. (224) (238)
Settlements .................................... -- (2)
Actuarial loss ................................. 435 201
------ ------
Projected benefit obligation at December 31 ......... 5,256 4,508
------ ------
Changes in the fair value of plan assets:
Fair value of plan assets at January 1 .............. 5,994 5,093
Actual (loss) return on plan assets ............ (10) 1,104
Benefits paid .................................. (224) (238)
Employer contributions ......................... -- 37
Settlements .................................... -- (2)
------ ------
Fair value of plan assets at December 31 ............ 5,760 5,994
------ ------
Funded status:
Funded status at December 31 ........................ 504 1,486
Unrecognized portion of net asset at transition ..... (39) (85)
Unrecognized prior service cost ..................... 9 12
Unrecognized net loss (gain) ........................ 131 (806)
------ ------
Prepaid pension asset recognized in other assets $ 605 607
====== ======
</TABLE>
<PAGE>
The following table provides the components of net periodic pension
cost for the years ended December 31:
1998 1997 1996
----- ----- -----
(In thousands)
Service cost - benefits earned during the year $ 219 183 187
Interest cost on projected benefit obligation 318 304 288
Expected return on plan assets ............... (471) (398) (362)
Amortization of unrecognized net asset at
transition ................................. (46) (46) (46)
Amortization of unrecognized prior service
cost ....................................... 3 3 3
Amortization of unrecognized net actuarial
gain ....................................... (22) -- --
----- ----- -----
Net periodic pension cost ............... $ 1 46 70
===== ===== =====
Prior service costs are amortized on a straight-line basis over
the average future service period of active plan participants.
Unrecognized net actuarial gains or losses in excess of 10% of
the greater of the projected benefit obligation or the fair
value of the plan assets are amortized over the average
remaining service period of active plan participants.
The assumptions used in the measurement of the Company's
projected benefit obligation and net periodic pension cost are
shown in the table below:
1998 1997 1996
----- ----- -----
Weighted-average assumptions at December 31:
Discount rate 6.50% 7.25% 7.75%
Rate of increase in future
compensation levels 4.50 5.00 5.50
Expected return on plan assets 8.00 8.00 8.00
(b) 401(k) Savings Plan
The Company maintains a defined contribution 401(k) savings
plan, covering all full time employees who have attained age 21
and have completed one year of employment. Prior to March 1,
1997, the Company matched 50% of employee contributions that
were less than or equal to 3% of the employee's salary. After
that date, there were no employee matching contributions. Total
expense related to the 401(k) plan during 1997 and 1996 was
approximately $5,000 and $38,000, respectively (none in 1998).
<PAGE>
(c) Employee Stock Ownership Plan
As part of the conversion discussed in note 3, an employee stock
ownership plan (ESOP) was established to provide substantially
all employees of the Company the opportunity to become
shareholders. The ESOP borrowed $4.3 million from the Company
and used the funds to purchase 433,780 shares of Company common
stock issued in the conversion. The loan will be repaid
principally from the Company's discretionary contributions to
the ESOP over a period of ten years. At December 31, 1998 and
1997, the loan had an outstanding balance of $3.0 million and
$3.5 million, respectively. The loan obligation is reduced by
the amount of loan repayments made by the ESOP. Shares are
released for allocation and unearned compensation is amortized
over the loan repayment period based on the amount of principal
and interest paid on the loan as a percentage of the total
principal and interest to be paid on the loan over its entire
term. Shares purchased with the loan proceeds are held in a
suspense account for allocation among participants as the loan
is repaid. Contributions to the ESOP and shares released from
the suspense account are allocated among participants on the
basis of compensation in the year of allocation.
The Company accounts for the ESOP in accordance with the
American Institute of Certified Public Accountants' Statement of
Position No. 93-6, "Employers' Accounting for Employee Stock
Ownership Plans." Accordingly, the shares pledged as collateral
are reported as unallocated ESOP shares in shareholders' equity.
As shares are released from collateral, the Company reports
compensation expense equal to the average market price of the
shares (during the applicable service period), and the shares
become outstanding for earnings per share computations.
Unallocated ESOP shares are not included in the earnings per
share computations. The Company recorded approximately $816,000,
$766,000 and $527,000 of compensation expense related to the
ESOP during the years ended December 31, 1998, 1997 and 1996,
respectively.
The ESOP shares as of December 31, 1998 were as follows:
Allocated shares 103,525
Shares released for allocation 48,498
Unallocated shares 281,757
-----------
433,780
===========
Market value of unallocated shares
at December 31, 1998 $5,001,187
===========
(d) Stock Option Plan
On May 23, 1997, the Company's shareholders approved the 1997
Stock Option and Incentive Plan ("Stock Option Plan"). The
primary objective of the Stock Option Plan is to provide
officers and directors with a proprietary interest in the
Company as an incentive to encourage such persons to remain with
the Company.
<PAGE>
The Stock Option Plan provides for awards in the form of stock
options, stock appreciation rights and limited stock
appreciation rights. Under the Stock Option Plan, 542,225
authorized but unissued shares are reserved for issuance upon
option exercises. The Company also has the alternative to fund
the Stock Option Plan with treasury stock. Options under the
plan may be either non-qualified stock options or incentive
stock options. Each option entitles the holder to purchase one
share of common stock at an exercise price equal to the fair
value on the date of grant. Options expire no later than ten
years following the date of grant.
Upon shareholder ratification of the Stock Option Plan, options
to purchase 373,974 shares were awarded at an exercise price of
$13.75 per share. These shares have a ten-year term and vest at
a rate of 25% per year from the grant date.
In addition, under the terms of the merger agreement with AFSALA
discussed in note 2, the Company issued 154,206 fully-vested
options with an exercise price of $12.97 in exchange for 144,118
fully-vested AFSALA options with an exercise price of $13.88.
The estimated fair value of these options was $9.95 per option.
The issuance of these options was included in the computation of
goodwill, with the offsetting credit to additional paid-in
capital.
A summary of the stock option activity for the years ended
December 31, 1998 and 1997 is presented below:
Weighted-Avg.
No. of Exercise
Shares Price
-------- ------
Granted on May 23, 1997 and
outstanding at December 31, 1997 373,974 $ 13.75
Exercised .............. (9,489) 13.75
Forfeited .............. (77,947) 13.75
Issued in acquisition .. 154,206 12.97
-------- ------
Outstanding at December 31, 1998 440,744 $ 13.48
======== ======
<PAGE>
The following table summarizes information about the Company's
stock options at December 31, 1998:
Weighted-Avg.
Exercise Remaining
Price Outstanding Contractual Life Exercisable
-------- ----------- ---------------- -----------
$12.97 154,206 8.4 years 154,206
13.75 286,538 8.4 years 84,005
--------- ---------
440,744 238,211
========= =========
All options have been granted at an exercise price equal to the
fair value of the common stock at the grant date. Accordingly,
no compensation expense has been recognized for the Stock Option
Plan. SFAS No. 123 requires companies not using a
fair-value-based method of accounting for employee stock options
or similar plans, to provide pro forma disclosures of net income
and earnings per share as if that method of accounting had been
applied. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in
1997: dividend yield of 1.32%; expected volatility of 40.90%;
risk free interest rate of 5.48%; and expected option life of 5
years. The estimated fair value of the options granted in 1997
was $5.30.
Pro-forma disclosures for the Company for the years ended
December 31, 1998 and 1997 are as follows:
(In thousands, except per share data)
1998 1997
---- ----
Net income:
As reported... $ 1,031 2,760
Pro-forma .... 740 2,533
Basic EPS:
As reported... 0.26 0.70
Pro-forma .... 0.19 0.64
Diluted EPS:
As reported... 0.26 0.69
Pro-forma .... 0.19 0.64
The full impact of calculating compensation expense for stock
options under SFAS No. 123 is not reflected in the pro-forma net
income amounts presented above because compensation expense is
reflected over the options' vesting period of four years.
<PAGE>
Because the Company's employee stock options have
characteristics significantly different from those of traded
options for which the Black-Scholes model was developed, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, the existing models,
in management's opinion, do not necessarily provide a reliable
single measure of the fair value of its stock options.
(e) Recognition and Retention Plan
On May 23, 1997, the Company's shareholders also approved the
Ambanc Holding Co., Inc. Recognition and Retention Plan (RRP).
The purpose of the plan is to promote the long-term interests of
the Company and its shareholders by providing a stock-based
compensation program to attract and retain officers and
directors. Under the RRP, 216,890 shares of authorized but
unissued shares are reserved for issuance under the plan. The
Company also has the alternative to fund the RRP with treasury
stock.
On May 23, 1997, 131,285 shares were awarded under the RRP. The
shares vest in four equal installments commencing one year from
the date of grant. The fair market value of the shares awarded
under the plan at the grant date was $13.75 per share and is
being amortized to expense on a straight-line basis over the
four year vesting period. During 1998, 29,331 unvested RRP
shares were forfeited and transferred to treasury stock at the
grant date fair market value of $13.75 per share.
(f) Postretirement Benefits
Certain postretirement health insurance benefits have been
committed to a closed group of retired employees. The Company
has formally adopted measures to not offer these benefits to any
additional employees. The annual health insurance increase and
discount rate used to calculate the transition obligation were
6.0% and 8.5%, respectively. There are no plan assets. The
estimated transition obligation at January 1, 1995 was $260,000.
The net periodic postretirement benefit cost in 1998, 1997 and
1996 was approximately $26,000 in each year.
(g) Directors' Deferred Compensation Agreements
Under the Directors' Deferred Compensation Agreements, the
Company's directors were eligible to elect to defer fees for
services that were otherwise currently payable. Fees were
deferred over a period of five years. The Company utilized the
deferred fees to purchase life insurance policies to fund the
benefits on each director with the Bank named as the
beneficiary. Each director participating in such agreements
deferred their fees over a five year period with a set amount
established as an annual payout over a ten year period after
five years from the date of the agreement or upon reaching the
age of 65, whichever is later. The present value of the
remaining installments due under these agreements was
approximately $616,000 and $562,000 at December 31, 1998 and
1997, respectively, and is included in other liabilities in the
consolidated statements of financial condition. The cash
surrender value of the life insurance policies was approximately
$221,000 and $214,000 at December 31, 1998 and 1997,
respectively, and is included in other assets in the
consolidated statements of financial condition.
<PAGE>
(13) Earnings Per Share
The calculation of basic EPS and diluted EPS is as follows:
<TABLE>
<CAPTION>
Weighted
Net Average Per Share
Income Shares Amount
-------- --------- ---------
(In thousands, except share and per share data)
For the year ended December 31, 1998
<S> <C> <C> <C>
Basic EPS
Net income available to common shareholders $ 1,031 3,916,047 $0.26
======== =====
Effect of Dilutive Securities
Stock options 49,043
Unvested RRP shares 24,155
---------
Diluted EPS
Net income available to common shareholders plus
assumed conversions $ 1,031 3,989,245 $0.26
======== ========= =====
Weighted
Net Average Per Share
Income Shares Amount
-------- --------- ---------
(In thousands, except share and per share data)
For the year ended December 31, 1997
Basic EPS
Net income available to common shareholders $ 2,760 3,940,867 $0.70
======== =====
Effect of Dilutive Securities
Stock options 24,285
Unvested RRP shares 16,374
---------
Diluted EPS
Net income available to common shareholders plus
assumed conversions $ 2,760 3,981,526 $0.69
======== ========= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Weighted
Net Average Per Share
Income Shares Amount
-------- --------- ---------
(In thousands, except share and per share data)
For the year ended December 31, 1996
<S> <C> <C> <C>
Basic EPS
Net loss applicable to common shareholders $ (3,836) 4,761,393 $(0.81)
======== =====
Effect of Dilutive Securities
No dilutive securities during 1996
Diluted EPS
Net loss applicable to common shareholders $ (3,836) 4,761,393 $(0.81)
======== ========= =====
</TABLE>
(14) Commitments and Contingent Liabilities
(a) Legal Proceedings
The Company and its subsidiaries may, from time to time, be
defendants in legal proceedings relating to the conduct of their
business. In the best judgments of management, the consolidated
financial position of the Company and its subsidiaries will not
be affected materially by the outcome of any pending legal
proceedings.
The Bank was a defendant in an action brought by the current
owners of F. H. Doherty Associates, Inc., a company which the
Bank sold to the current owners. The action sought to rescind
the sale of stock, recover any additional capital contributions
made by the plaintiffs, as well as certain punitive damages and
indemnification on a potential claim. During 1996, the Bank
stipulated to a settlement and agreed to pay $262,500 to the
plaintiffs. The Bank charged $175,000 against the allowance for
probable loss which was established for this matter in 1995. The
remaining $87,500 was charged to 1996 operations.
<PAGE>
(b) Nationar Receivables
On February 6, 1995, the Superintendent of Banks for the State
of New York ("Superintendent") seized Nationar, a check-clearing
and trust company, freezing all of Nationar's assets. On that
date, the Bank had a demand account balance of $233,000, and a
Nationar debenture of $100,000 collateralized by a $1,000,000
investment security. On September 26, 1995, the Company entered
into a standby letter of credit with the Superintendent for
$1,086,250 which replaced the $1,000,000 pledged security. As of
December 31, 1995, the Company charged off the Nationar
debenture of $100,000 and established an additional reserve of
$105,000 for potential losses on the demand account and standby
letter of credit.
During 1996, the Company received a cash payment of $233,000 for
its demand account balance, issued a new standby letter of
credit for $150,000 to the Superintendent, and cancelled the
initial standby letter of credit. Concurrent with the new
standby letter of credit, the Company was required to pay
$58,000 under the original standby letter of credit agreement,
which was charged against the reserve. Subsequently, the
$150,000 standby letter of credit was canceled and the Company
was released from any further liability in connection with its
agreement with the Superintendent. During 1997, the Bank
received approximately $45,000 from the Superintendent as a
partial recovery of the amounts previously charged off, which is
included in other income.
(c) Lease Commitments
The Company leases certain branch facilities and office space
under noncancelable operating leases. Minimum rental commitments
under these leases are as follows:
(In thousands)
Years ending December 31,
1999 $ 493
2000 281
2001 214
2002 152
2003 106
2004 and thereafter 816
----------------
$ 2,062
================
Amounts charged to rent expense were approximately $385,000,
$315,000 and $225,000 for the years ended December 31, 1998, 1997
and 1996.
<PAGE>
(d) Off-Balance Sheet Financial Instruments and Concentrations of
Credit
The Company is a party to certain financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, unused lines
of credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit risk in excess
of the amounts recognized on the consolidated statement of
financial condition. The contract amounts of these instruments
reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the commitments to extend
credit, unused lines of credit and standby letters of credit is
represented by the contractual notional amount of these
instruments. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Unless otherwise noted, the Company does not require collateral
or other security to support off-balance sheet financial
instruments with credit risk.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral, if any, required
by the Company upon the extension of credit is based on
management's credit evaluation of the customer. Mortgage
commitments are secured by a first lien on real estate.
Collateral on extensions of credit for commercial loans varies
but may include property, plant and equipment, and income
producing commercial property.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
borrowing arrangements. The credit risk involved in issuing
standby letters of credit is essentially the same as that
involved in extending loan facilities to customers.
<PAGE>
Contract amounts of financial instruments with off-balance-sheet
credit risk as of December 31, 1998 and 1997 at fixed and variable
interest rates are as follows:
Fixed Variable Total
------- -------- -------
(In thousands)
1998:
Commitments to extend credit $12,004 514 12,518
Unused lines of credit ..... 2,665 3,375 6,040
Standby letters of credit .. -- 30 30
------- ------- -------
$14,669 3,919 18,588
======= ======= =======
1997:
Commitments to extend credit $ 3,797 393 4,190
Unused lines of credit ..... 1,025 4,336 5,361
Standby letters of credit .. -- 100 100
------- ------- -------
$ 4,822 4,829 9,651
======= ======= =======
The range of interest rates on fixed rate commitments was 6.50%
to 12.50% at December 31, 1998 and 5.50% to 8.75% at December
31, 1997. All variable rate commitments were at 8.75% at
December 31, 1998, and ranged from 6.75% to 7.25% at December
31, 1997.
(15) Fair Values of Financial Instruments
A financial instrument is defined as cash, evidence of ownership
interest in an entity, or a contract that imposes on one entity a
contractual obligation to deliver cash or another financial instrument
to a second entity or to exchange other financial instruments on
potentially unfavorable terms with a second entity and conveys to that
second entity a contractual right to receive cash or another financial
instrument from the first entity or to exchange other financial
instruments on potentially favorable terms with the first entity.
<PAGE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected net
cash flows, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial assets or liabilities
include the deferred tax assets and liabilities, and premises and
equipment. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in the estimates of fair
value. There also are significant intangible assets that the fair value
estimates do not recognize, such as the value of "core deposits" and the
Company's branch network.
Financial Assets and Liabilities
The specific estimation methods and assumptions used can have a
substantial impact on the resulting fair values ascribed to financial
assets and liabilities The following is a brief summary of the
significant methods and assumptions used:
Securities Available for Sale
The fair value of securities, except certain state and municipal
securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The
fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so
fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
one-to-four family residential loans, consumer loans and commercial
loans. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and non-performing
categories.
<PAGE>
The fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimate of maturity is based on the
contractual term of the loans to maturity, taking into
consideration certain prepayment assumptions.
The fair value for significant non-performing loans is based on
recent external appraisals and discounted cash flow analyses.
Estimated cash flows are discounted using a rate commensurate with
the risk associated with the estimated cash flows. Assumptions
regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and
specific borrower information.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings accounts, NOW
accounts and money market accounts, is the amount payable on
demand. The fair value of time deposits is based on the discounted
value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits with similar
remaining maturities.
The fair value estimates above do not include the benefit that
results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market.
FHLB Advances and Securities Sold Under Agreements to Repurchase
The fair value of FHLB advances and securities sold under
agreements to repurchase due in 90 days or less, or that reprice in
90 days or less, is estimated to approximate the carrying amounts.
The fair value of longer-term FHLB advances and securities sold
under agreements to repurchase is estimated by discounting
scheduled cash flows based on current rates available to the
Company for similar types of borrowing arrangements.
Other Items
The following items are considered to have a fair value equal to
the carrying value due to the nature of the financial instrument
and the period within which it will be settled or repriced: cash
and cash equivalents, FHLB stock, accrued interest receivable,
advances from borrowers for taxes and insurance, accrued interest
payable and due to brokers.
<PAGE>
The carrying values and estimated fair values of financial assets
and liabilities as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents .................... $ 42,815 42,815 10,259 10,259
Securities available for sale ................ 244,241 244,241 205,808 205,808
FHLB of New York stock ....................... 7,215 7,215 3,291 3,291
Loans ........................................ 425,824 423,163 284,930 280,765
Less: Allowance for loan losses ........... (4,891) -- (3,807) --
--------- --------- --------- ---------
Loans receivable, net .............. 420,933 423,163 281,123 280,765
========= ========= ========= =========
Accrued interest receivable .................. 4,115 4,115 3,734 3,734
Financial liabilities:
Deposits:
Demand, savings, money market, and NOW
accounts ............................. 233,408 233,408 149,933 149,933
Time deposits ........................... 228,005 230,399 183,332 184,208
FHLB overnight advances ...................... -- -- 12,300 12,300
FHLB term advances ........................... 21,410 21,419 -- --
Securities sold under agreements to repurchase 152,400 153,340 99,250 98,706
Advances from borrowers for taxes and
insurance ............................... 2,436 2,436 1,902 1,902
Accrued interest payable ..................... 1,426 1,426 819 819
Due to brokers ............................... 6,000 6,000 -- --
</TABLE>
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated based on the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current interest rates
and the committed rates. The fair value of standby letters of credit is
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations
with the counterparties. The Company believes that the carrying value of
these off-balance sheet financial instruments equals fair value and the
amounts are not significant.
<PAGE>
(16) Regulatory Capital Requirements
Office of Thrift Supervision (OTS) capital regulations require savings
institutions to maintain minimum levels of regulatory capital. Under the
regulations in effect at December 31, 1998, the Bank was required to
maintain a minimum ratio of tangible capital to total tangible assets of
1.5%; a minimum leverage ratio of core (Tier 1) capital to total
adjusted tangible assets of 3.0% to 4.0%; and a minimum ratio of total
capital (core capital and supplementary capital) to risk-weighted assets
of 8.0%, of which 4.0% must be core (Tier 1) capital.
Under the prompt corrective action regulations, the OTS is required to
take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions
could have a direct material effect on an institution's financial
statements. The regulations establish a framework for the classification
of savings institutions into five categories: well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a core (Tier 1)
capital ratio of at least 5.0% (based on average total assets); a core
(Tier 1) risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS
about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1998 and 1997, the Bank met
all capital adequacy requirements to which it was subject. Further, the
most recent OTS notification categorized the Bank as a well capitalized
institution under the prompt corrective action regulations. There have
been no conditions or events since that notification that management
believes have changed the Bank's capital classification.
<PAGE>
The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1998 and 1997. Although the OTS capital
regulations apply at the Bank level only, the Company's consolidated
capital amounts and ratios are also presented. The OTS does not have a
holding company capital requirement.
1998 1997
----------------- -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in thousands)
Bank
----
Tangible capital .... $63,509 8.83% $49,722 9.88%
Tier 1 (core) capital 63,509 8.83 49,722 9.88
Risk-based capital:
Tier 1 ............ 63,509 20.73 49,722 23.42
Total ............. 67,351 21.99 52,390 24.68
Consolidated
------------
Tangible capital .... 77,600 10.68 61,476 11.99
Tier 1 (core) capital 77,600 10.68 61,476 11.99
Risk-based capital:
Tier 1 ............ 77,600 25.17 61,476 28.79
Total ............. 81,442 26.42 64,159 30.04
<PAGE>
(17) Holding Company Financial Information
The Holding Company's statements of financial condition as of December
31, 1998 and 1997, and the related statements of income and cash flows
for the years ended December 31, 1998, 1997 and 1996 are presented
below. These financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
Statements of Financial Condition
1998 1997
------ ------
(In thousands)
Assets
Cash and cash equivalents .......................... $ 3,516 1,046
Securities available for sale* ..................... 6,097 9,400
Loan receivable from subsidiary .................... 3,036 3,470
Accrued interest receivable ........................ 64 115
Investment in subsidiary ........................... 71,797 49,467
Other assets ....................................... 1,570 334
------ ------
Total assets ............................. $ 86,080 63,832
====== ======
Liabilities and Shareholders' Equity
Liabilities:
Security sold under agreement to repurchase** . $ -- 2,600
Other liabilities ............................. 187 30
Shareholders' equity ............................... 85,893 61,202
------ ------
Total liabilities and shareholders' equity $ 86,080 63,832
====== ======
* The Holding Company's securities available for sale consisted of
U.S. Government agency and mortgage-backed securities with a
contractual weighted-average maturity of 9.1 years (2.2 years to
call date) and 2.9 years (none callable) at December 31, 1998 and
1997, respectively.
** Weighted-average rate at December 31, 1997 was 5.91% with a
maturity date of February 20, 1998.
<PAGE>
<TABLE>
<CAPTION>
Statements of Income
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary ................. $ 5,000 -- --
Interest income ................................ 649 868 1,128
Other income ................................... 1 -- --
------ ------ ------
Total income .............................. 5,650 868 1,128
------ ------ ------
Expenses:
Interest expense ............................... 34 170 2
Net loss (gain) on securities transactions ..... -- 153 (1)
RRP expense .................................... 371 272 --
Other expenses ................................. 735 221 310
------ ------ ------
Total expenses ............................ 1,140 816 311
------ ------ ------
Income before taxes and effect of subsidiary earnings
and distributions .............................. 4,510 52 817
Income tax (benefit) expense ........................ (199) 21 328
------ ------ ------
Income before effect of subsidiary earnings and
distributions .................................. 4,709 31 489
Effect of subsidiary earnings and distributions:
Distributions in excess of earnings .......... (3,678) -- --
Equity in undistributed earnings (loss) ...... -- 2,729 (4,325)
------ ------ ------
Net income (loss) ................................... $ 1,031 2,760 (3,836)
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss) .............................................. $ 1,031 2,760 (3,836)
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Distributions in excess of subsidiary earnings ......... 3,678 -- --
Equity in undistributed (earnings) loss of subsidiary .. -- (2,729) 4,325
Net loss (gain) on securities transactions ............. -- 153 (1)
RRP expense ............................................ 371 272 --
Increase in accrued interest receivable and other assets (1,124) (274) (163)
Increase (decrease) in other liabilities ............... 157 (341) 371
-------- -------- --------
Net cash provided by (used in)
operating activities .................... 4,113 (159) 696
-------- -------- --------
Cash flows from investing activities:
Purchases of securities available for sale ..................... (7,998) (11,052) (19,985)
Proceeds from principal paydowns and maturities of securities
available for sale ........................................ 11,338 8,159 3,984
Proceeds from sales of securities available for sale ........... -- 7,515 1,796
Payments received on loan receivable from subsidiary ........... 434 434 434
Net cash acquired in acquisition ............................... 2,297 -- --
-------- -------- --------
Net cash provided by (used in) investing
activities .............................. 6,071 5,056 (13,771)
-------- -------- --------
Cash flows from financing activities:
Net (decrease) increase in securities sold under agreements to
repurchase ................................................ (2,600) (400) 3,000
Purchases of treasury stock .................................... (4,111) (3,488) (11,208)
Exercises of stock options ..................................... 130 -- --
Dividends paid ................................................. (1,133) (432) --
-------- -------- --------
Net cash used in financing activities ........ (7,714) (4,320) (8,208)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............. 2,470 577 (21,283)
Cash and cash equivalents:
Beginning of year ........................................... 1,046 469 21,752
-------- -------- --------
End of year ................................................. $ 3,516 1,046 469
======== ======== ========
</TABLE>
<PAGE>
CORPORATE AND SHAREHOLDER INFORMATION
Company and Bank Address
11 Division Street
Amsterdam, New York 12010-4303
Telephone: (518) 842-7200
Fax: (518) 842-7500
Stock Price Information
The Company's stock is traded on The Nasdaq National Market System under
the symbol "AHCI". The table below shows the range of high and low bid prices of
the Company's Common Stock during 1997 and 1998. The information set forth in
the table below was provided by The Nasdaq Stock Market. Such information
reflects interdealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
Dividends
High Low Per Share
1997 First Quarter 14.875 11.125 $0.00
1997 Second Quarter 16.625 12.500 0.00
1997 Third Quarter 16.500 15.125 0.05
1997 Fourth Quarter 19.750 15.375 0.05
1998 First Quarter 19.375 16.750 $0.06
1998 Second Quarter 20.000 16.500 0.06
1998 Third Quarter 19.250 11.750 0.06
1998 Fourth Quarter 17.750 12.000 0.07
For information regarding restrictions on dividends, see Note 3 to the
Notes to Consolidated Financial Statements.
As of March 29, 1999, the Company had approximately 1,382 shareholders of record
and 5,315,463 outstanding shares of Common Stock.
Special Counsel
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934
Telephone: (202) 414-6100
<PAGE>
Independent Auditors
KPMG LLP
515 Broadway
Albany, NY 12207
Telephone: (518) 427-4600
Investor Relations
Shareholders, investors and analysts interested in additional information may
contact:
Sandra Hammond, Assistant Vice President
Executive Asst./Investor Relations
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
Telephone: (518) 842-7200
Fax: (518) 842-1688
Annual Report on Form 10-K
Copies of Ambanc Holding Co., Inc.'s Annual Report for year ended December
31, 1998 on Form 10-K filed with the Securities and Exchange Commission are
available without charge to shareholders upon written request to:
Investor Relations
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m., New York
time, on Friday, May 28, 1999 at the Best Western, located at 10 Market Street,
Amsterdam, New York.
Stock Transfer Agent and Registrar
Ambanc Holding Co., Inc.'s transfer agent, American Stock Transfer & Trust,
maintains all shareholder records and can assist with stock transfer and
registration address changes, changes or corrections in social security or tax
identification numbers and 1099 tax reporting questions. If you have questions,
please contact the stock transfer agent at the address below:
American Stock Transfer & Trust
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (718) 921-8290
<PAGE>
Mohawk Community Bank Offices:
Corporate 11 Division Street
Amsterdam, N.Y. 12010
(518) 842-7200
Traditional Branches:
11 Division Street, Amsterdam, NY 12010
161 Church Street, Amsterdam, NY 12010
Route 30N, Amsterdam, NY 12010
Route 30 & Maple Avenue, Amsterdam, NY 12010
Riverfront Center, Amsterdam, NY 12010
Grand Union Plaza, Route 50, Ballston Spa, NY 12020
Village Plaza, Clifton Park, NY 12068
19 River Street, Fort Plain, NY 13339
Arterial at Fifth Avenue, Gloversville, NY 12078
5 New Karner Road, Guilderland, NY 12084
Supermarket Branches:
Price Chopper Supermarkets:
Sanford Farms Plaza, Amsterdam, NY 12010
873 New Loudon Rd., Latham, NY 12110
1640 Eastern Parkway, Schenectady, NY 12309
115 Ballston Avenue, Saratoga, NY 12866
Route 50, Saratoga, NY 12866
5631 State Highway 12, Norwich, NY 13815
Hannaford Supermarkets:
235 Fifth Avenue Ext., Gloversville, NY 12078
Route 28, Oneonta, NY 13850
Operations Center 35 East Main Street
Amsterdam, N.Y. 12010
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors
- - ------------------
(Ambanc Holding Co., Inc. and Mohawk Community Bank) Year appointed
to Bank Board
Lauren T. Barnett, Barnett Agency, Inc., Chairman of the Board 1966
John M. Lisicki, President & Chief Executive Officer 1998
Paul W. Baker, Retired, Morrison & Putman Music Store 1963
James J. Bettini, Vice President, Farm Family Insurance 1998
John J. Daly, Alpin Haus 1988
Robert J. Dunning D.D.S., Dentist 1972
Lionel H. Fallows, Retired, Lieutenant Colonel 1981
Dr. Daniel J. Greco, Retired, School Superintendent 1998
Marvin R. LeRoy, Jr., Alzheimers Association, Northeastern NY Chapter 1996
Charles S. Pedersen, Independent Manufacturers' Representative 1977
Carl A. Schmidt, Jr., Sofco, Inc. 1974
Dr. Ronald S. Tecler, Dentist 1998
John A. Tesiero, Jr., Owner, Construction Supply Business 1998
William A. Wilde, Jr., Amsterdam Printing and Litho Corp. 1966
Charles E. Wright, President, WW Custom Clad 1998
Executive Officers of Ambanc Holding Co., Inc. and Mohawk Community Bank
- - ------------------------------------------------------------------------
John M. Lisicki President/Chief Executive Officer
James J. Alescio Sr.Vice President/Treasurer/Chief Financial Officer
Benjamin Ziskin Sr. Vice President/Sr. Consumer Lending Officer
Thomas Nachod Sr. Vice President/Sr. Commercial Lending Officer
Robert Kelly Vice President/General Counsel/Secretary
<PAGE>
Subsidiary Name State of Incorporation
- - ------------------------------- ----------------------
Mohawk Community Bank New York
ASB Insurance Agency, Inc. New York
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors
Ambanc Holding Co., Inc.
We consent to incorporation by reference in the following registration
statements:
File No. 333-50973 on Form S-8, and
File No. 333-50975 on Form S-8
of Ambanc Holding Co., Inc. of our report dated February 12, 1999, relating to
the consolidated statements of financial condition of Ambanc Holding Co., Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998 Annual Report on Form 10-K of Ambanc Holding
Co., Inc.
/s/ KPMG LLP
Albany, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1998 OF AMBANC HOLDING
CO., INC. AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,225
<INT-BEARING-DEPOSITS> 3,390
<FED-FUNDS-SOLD> 30,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 244,241
<INVESTMENTS-CARRYING> 0
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<LOANS> 425,824
<ALLOWANCE> 4,891
<TOTAL-ASSETS> 735,472
<DEPOSITS> 461,413
<SHORT-TERM> 22,400
<LIABILITIES-OTHER> 14,356
<LONG-TERM> 151,410
0
0
<COMMON> 54
<OTHER-SE> 85,839
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<SECURITIES-GAINS> (165)
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</TABLE>
