UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934. For the quarterly period ended September 30, 2000
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the transition period from to .
----------- -----------
Commission File Number: 0-27036
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Ambanc Holding Co., Inc.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 14-1783770
------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Division Street, Amsterdam, New York 12010-4303
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)842-7200
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at November 14, 2000
----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,673,648
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 2000
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Interim Statements of Financial Condition at
September 30, 2000 and December 31, 1999 ...................... 3
Consolidated Interim Statements of Income for the nine months
and three months ended September 30, 2000 and 1999 ............ 4
Consolidated Interim Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 ...................... 5
Notes to Unaudited Interim Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....28
Part II. OTHER INFORMATION..................................................28
Item 1. Legal Proceedings .............................................28
Item 2. Changes in Securities .........................................28
Item 3. Defaults Upon Senior Securities ...............................28
Item 4. Submission of Matters to a Vote of Security Holders ...........28
Item 5. Other Information .............................................28
Item 6. Exhibits and Reports on Form 8-K...................................28
SIGNATURES....................................................................29
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (unaudited)
(dollars in thousands, except per share amounts) Sept 30, December 31,
2000 1999
Assets ---------- ----------
Cash and due from banks ................................$ 14,110 $ 26,380
Interest-bearing deposits .............................. 1,281 3,231
--------- ---------
Cash and cash equivalents ......................... 15,391 29,611
Securities available for sale, at fair value ........... 203,442 212,145
Federal Home Loan Bank of New York stock, at cost ...... 8,870 8,748
Loans receivable ....................................... 467,155 470,986
Allowance for loan losses ......................... (5,689) (5,509)
--------- ---------
Loans receivable, net ............................. 461,466 465,477
Accrued interest receivable ............................ 4,604 4,411
Premises and equipment, net ............................ 5,368 5,593
Real estate owned and repossessed assets ............... 254 322
Goodwill ............................................... 6,991 7,390
Other assets ........................................... 5,203 6,975
--------- ---------
Total assets ......................................$ 711,589 $ 740,672
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ............................................$ 476,639 $ 450,134
Federal Home Loan Bank short-term borrowings ........ 18,600 71,200
Federal Home Loan Bank long-term borrowings ......... 57,981 20,965
Securities sold under agreements to repurchase ...... 72,500 112,740
Advances from borrowers for taxes and insurance ..... 1,489 3,641
Accrued interest payable ............................ 1,007 1,508
Accrued expenses and other liabilities .............. 4,063 4,891
--------- ---------
Total liabilities ................................. 632,279 665,079
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none issued at September 30, 2000 and
December 31, 1999 .................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,245 issued at September 30, 2000
and December 31, 1999 .............................. 54 54
Additional paid-in capital .......................... 63,468 63,314
Retained earnings,substantially restricted .......... 29,923 28,879
Treasury stock, at cost (538,597 shares at September
30, 2000 and 465,155 shares at December 31, 1999). (8,457) (7,486)
Unallocated common stock held by ESOP ............... (2,018) (2,353)
Unearned RRP shares ................................. (247) (443)
Accumulated other comprehensive loss ................ (3,413) (6,372)
--------- ---------
Total shareholders' equity ........................ 79,310 75,593
--------- ---------
Total liabilities and shareholders' equity ........$ 711,589 $ 740,672
========= =========
See accompanying notes to unaudited interim consolidated financial statements
3
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine months Three months
ended Sept 30, ended Sept 30,
2000 1999 2000 1999
-------- -------- -------- --------
Interest and dividend income:
<S> <C> <C> <C> <C>
Loans receivable ..................................... $ 26,070 $ 23,970 $ 8,681 $ 8,350
Securities available for sale ........................ 10,718 11,488 3,493 3,830
Federal funds sold and interest-bearing deposits ..... 117 429 45 27
Federal Home Loan Bank stock ......................... 448 368 154 127
-------- -------- -------- --------
Total interest and dividend income ................. 37,353 36,255 12,373 12,334
-------- -------- -------- --------
Interest expense:
Deposits ............................................. 13,762 12,587 4,928 4,185
Borrowings ........................................... 7,426 6,877 2,242 2,257
-------- -------- -------- --------
Total interest expense ............................. 21,188 19,464 7,170 6,442
-------- -------- -------- --------
Net interest income ................................ 16,165 16,791 5,203 5,892
Provision for loan losses ............................... 360 670 120 175
-------- -------- -------- --------
Net interest income after provision
for loan losses .................................. 15,805 16,121 5,083 5,717
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 987 1,030 346 347
Net losses on securities transactions ................ (102) -- (56) --
Other ................................................ 381 349 111 170
-------- -------- -------- --------
Total non-interest income .......................... 1,266 1,379 401 517
-------- -------- -------- --------
Non-interest expenses:
Salaries, wages and benefits ......................... 6,085 5,835 1,960 2,075
Occupancy and equipment .............................. 1,740 1,733 570 549
Data processing ...................................... 1,189 985 408 359
Real estate owned and repossessed assets expenses, net 62 46 15 26
Professional fees .................................... 379 289 140 113
Amortization of goodwill ............................. 399 399 133 133
Other ................................................ 2,455 2,329 770 779
-------- -------- -------- --------
Total non-interest expenses ........................ 12,309 11,616 3,996 4,034
-------- -------- -------- --------
Income before taxes .................................... 4,762 5,884 1,488 2,200
Income tax expense ...................................... 1,945 2,500 584 943
-------- -------- -------- --------
Net income ......................................... $ 2,817 $ 3,384 $ 904 $ 1,257
======== ======== ======== ========
Basic earnings per share ................................ $ 0.61 $ 0.68 $ 0.19 $ 0.26
Diluted earnings per share .............................. $ 0.60 $ 0.68 $ 0.19 $ 0.26
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited)
(dollars in thousands) Nine months
ended September 30,
2000 1999
-------- -------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income ........................................ $ 2,817 $ 3,384
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises
and equipment .............................. 676 677
Amortization of goodwill ........................ 399 399
Net amortization of premium on securities ....... 212 688
Net losses on securities transactions ........... 102 --
Provision for loan losses ....................... 360 670
Provision for losses and writedowns on real
estate owned and repossessed assets ........ 14 6
Net losses on sales of real estate owned
and repossessed assets ..................... 26 7
ESOP compensation expense ....................... 488 561
RRP expense ..................................... 363 321
(Increase) decrease in accrued interest
receivable and other assets ................ (393) 281
(Decrease) increase in accrued interest
payable, accrued expenses and
and other liabilities ...................... (1,329) 2,176
-------- -------
Net cash provided by
operating activities ........... 3,735 9,170
-------- -------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale .............. 5,446 12,000
Purchases of securities available for sale ...... (4,227) (60,140)
Proceeds from principal paydowns and
maturities of securities available for sale 12,102 54,085
Purchase of Federal Home Loan Bank of New
York stock ................................ (122) (324)
Net decrease (increase) in loans made
to customers .............................. 13,489 (35,700)
Purchase of loans ............................... (10,000) ---
Purchases of premises and equipment ............. (451) (1,446)
Proceeds from sales of real estate owned and
repossessed assets ......................... 190 322
-------- -------
Net cash provided by (used in)
investing activities ........... 16,427 (31,203)
-------- -------
(continued)
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited) (continued)
(dollars in thousands) Nine months
ended September 30,
2000 1999
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits .............. $ 26,505 $ (8,466)
Net (decrease) increase in FHLB short-term
borrowings ................................... (52,600) 28,500
Proceeds from FHLB long-term advances ............ 40,000 --
Repayments of FHLB long-term advances ............ (2,984) (333)
Proceeds from repurchase agreements .............. 22,651 2,810
Repayments of repurchase agreements .............. (62,891) (22,400)
(Decrease) increase in advances from borrowers
for taxes and insurance .................... (2,152) 2,187
Purchases of treasury stock ...................... (1,142) (7,438)
Excercises of stock options ...................... -- 139
Dividends paid ................................... (1,769) (1,262)
-------- -------
Net cash used in financing activities ...... (34,382) (6,263)
-------- -------
Net decrease in cash and cash equivalents ............ (14,220) (28,296)
Cash and cash equivalents at beginning of period ..... 29,611 42,815
-------- -------
Cash and cash equivalents at end of period ........... $ 15,391 $ 14,519
======== =======
Supplemental disclosures of cash flow information -
cash paid during the period for:
Interest ............................................. $ 21,689 $ 19,678
======== =======
Income taxes ......................................... $ 1,715 $ 1,952
======== =======
Noncash investing and financing activities:
Net transfer of loans to real estate owned
and repossessed assets .......................... $ 162 $ 271
======== =======
Adjustment of securities available for sale to
fair value, net of tax $ 2,959 ($ 4,557)
======== =======
Tax benefit related to vesting of RRP shares ......... $ 1 $ 21
======== =======
See accompanying notes to unaudited interim consolidated financial statements.
6
<PAGE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) In management's opinion, the financial information included herein, which is
unaudited, reflects all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial information as
of and for the three and nine month periods ended September 30, 2000 and 1999,
in conformity with generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with Ambanc Holding Co.,
Inc.'s ("the Company" herein) 1999 Annual Report on Form 10-K. The results of
operations for the 2000 interim periods are not necessarily indicative of the
results of operations to be expected for the full fiscal year ended December 31,
2000.
(2) Amounts in the prior periods' unaudited interim consolidated financial
statements are reclassified whenever necessary to conform to current periods'
presentation.
(3) 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. Unallocated ESOP shares are not
considered outstanding for purposes of computing EPS. Shares of restricted stock
(RRP shares) are considered outstanding common shares and included in the
computation of basic EPS when they become fully vested. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (such as the Company's stock options and unvested RRP shares) were
exercised into common stock or resulted in the issuance or vesting of common
stock.
The calculation of basic EPS and diluted EPS is as follows:
Net Weighted
Income Average Per Share
(in thousands) Shares Amount
For the nine months ended Sept. 30, 2000------------ ---------- ---------
Basic EPS
Net income $2,817 4,650,055 $0.61
====== =====
Effect of dilutive securities:
Stock options 21,625
Unvested RRP shares 12,033
---------
Diluted EPS
Net income $2,817 4,683,712 $0.60
====== ========= =====
For the nine months ended Sept. 30, 1999
Basic EPS
Net income $3,384 4,946,378 $0.68
====== =====
Effect of dilutive securities:
Stock options 42,431
Unvested RRP shares 14,961
---------
Diluted EPS
Net income $3,384 5,003,770 $0.68
====== ========= =====
7
<PAGE>
For the quarter ended Sept. 30, 2000
Basic EPS
Net income $ 904 4,653,495 $0.19
====== =====
Effect of dilutive securities:
Stock options 33,273
Unvested RRP shares 6,093
---------
Diluted EPS
Net income $ 904 4,692,862 $0.19
====== ========= =====
For the quarter ended Sept. 30, 1999
Basic EPS
Net income $1,257 4,838,482 $0.26
====== =====
Effect of dilutive securities:
Stock options 47,339
Unvested RRP shares 8,476
---------
Diluted EPS
Net income $1,257 4,894,297 $0.26
====== ========= =====
(4) Comprehensive Income (Loss)
Comprehensive income (loss) represents the sum of net income and items of
other comprehensive income or loss, 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. Accumulated other comprehensive income or loss,
which is included in shareholders' equity, represents the net unrealized gain or
loss on securities available for sale, net of tax
Comprehensive income (loss) for the nine-month periods ended September, 30,
2000 and 1999 was $5.8 million and ($1.2) million, respectively. Comprehensive
income for the three-month periods ended September 30, 2000 and 1999 was $3.3
million and $435 thousand, respectively.
(5) Recent Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As amended, this
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Based on management's evaluation of Statement No. 133, the
adoption of this statement will not have a material impact on the Company's
consolidated financial statements, as the Company currently does not have any
derivative instruments, nor have any derivative instruments embedded in other
contracts been identified.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Ambanc Holding Co., Inc. ("Ambanc" or the "Company") is a unitary 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").
Mohawk Community Bank's (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, non-interest income, such as
fees on deposit-related services, the provision for loan losses, and income
taxes.
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. Recently the Company has also been focusing on
developing its commercial loan department. At September 30, 2000, the Bank's
loans receivable, net, to assets ratio was 64.9%, up from 62.8% at December 31,
1999. The Bank's portfolio of one- to four-family residential mortgage and home
equity loans was 83.4% of total loans at September 30, 2000.
Forward-Looking Statements
When used in this Form 10-Q, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results and
those presently anticipated or projected, including, but not limited to, changes
in economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition. The 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.
9
<PAGE>
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.
Financial Condition
Comparison of Financial Condition at September 30, 2000 and December 31,
1999. Total assets decreased by $29.1 million, or 3.9%, to $711.6 million at
September 30, 2000 from $740.7 million at December 31, 1999, primarily due to
decreases in cash and cash equivalents and securities available for sale of
$14.2 million and $8.7 million, respectively, in addition to a decrease in loans
receivable, net of $4.0 million.
Cash and cash equivalents decreased by $14.2 million, or 48.0%, to $15.4
million at September 30, 2000 from $29.6 million at December 31, 1999. This
decrease was primarily due to a decrease in cash and due from banks of $12.3
million, or 46.5%, from $26.4 million at December 31, 1999 to $14.1 million at
September 30, 2000, in addition to a decrease in interest-bearing deposits from
$3.2 million at December 31, 1999 to $1.3 million at September 30, 2000. The
decrease in cash and due from banks is the result of the Company's decision to
temporarily increase vault cash in preparation for potential year 2000 liquidity
needs of depositors at year end 1999. However, early in the first quarter of
2000, vault cash returned to more normal levels. Securities available for sale
decreased $8.7 million, or 4.1%, to $203.4 million at September 30, 2000 from
$212.1 million at December 31, 1999, resulting primarily from the maturities,
paydowns and calls of securities, in addition to the sale of securities. During
the nine months ended September 30, 2000, the Company sold approximately $4.5
million in securities recognizing a pre-tax loss of $102 thousand. Loans
receivable, net decreased $4.0 million from $465.5 million at December 31, 1999,
to $461.5 million at September 30, 2000. During the third quarter, the Company
entered into a $10 million commercial loan participation with an unrelated
financial institution in its market area. In addition, other assets decreased
$1.8 million, or 25.4%, to $5.2 million at September 30, 2000 due primarily to
the deferred tax consequences related to the adjustment of securities available
for sale to fair value.
Deposits increased by $26.5 million, or 5.9%, to $476.6 million at
September 30, 2000 from $450.1 million at December 31, 1999 primarily due to
various marketing promotions offered during the first half of the year.
Securities repurchase agreements decreased $40.2 million, or 35.7%, to $72.5
million at September 30, 2000 from $112.7 million at December 31, 1999, due
primarily to the maturity of repurchase agreements. Short-term borrowings from
the FHLB decreased by $52.6 million, or 73.9%, to $18.6 million at September 30,
2000. These funding reductions were replaced in part with a combination of
long-term advances from the FHLB and increased deposits. Long-term advances from
the FHLB increased $37.0 million, or 176.6%, to $58.0 million at September 30,
2000 from $21.0 million at December 31, 1999. The shift to longer-term
borrowings is part of the Company's effort to improve its interest rate risk
position by more closely matching the maturities of its assets and liabilities.
10
<PAGE>
Shareholders' equity increased $3.7 million, or 4.9%, from $75.6 million at
December 31, 1999 to $79.3 million at September 30, 2000, primarily due to net
income of $2.8 million and the decrease in net unrealized losses on securities
available for sale, net of tax, of $3.0 million partially offset by the payment
of cash dividends of $1.8 million for the first nine months of the year. Other
items impacting shareholders' equity were the repurchases of treasury stock, the
release of ESOP shares, the grant of RRP shares in lieu of Directors' Board
fees, and the amortization of unearned RRP shares.
Consolidated Average Balances, Interest Rates & Yields
The following table presents for the periods indicated the total dollar
amount of interest and dividend income earned on average earning assets and the
resultant yields, as well as the total dollar amount of interest expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are daily average
balances. Non-accruing loans have been included in the table as loans with
interest earned on a cash basis only. Securities available for sale are included
at amortized cost.
11
<PAGE>
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
------------------------------------ -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
<S> <C> <C> <C> <C> <C> <C>
Earning assets (Dollars in thousands)
Loans receivable $461,575 $8,681 7.48% $449,850 $8,350 7.36%
Securities available for sale (AFS) 213,319 3,493 6.51% 236,345 3,830 6.43%
Federal Home Loan Bank stock 8,870 154 6.91% 7,232 127 6.97%
Federal funds sold &
interest-bearing deposits 2,709 45 6.61% 2,062 27 5.19%
-------------- --------- -------- ------------ --------- --------
Total earning assets 686,473 12,373 7.17% 695,489 12,334 7.04%
-------------- --------- -------- ------------ --------- --------
Allowance for loan losses (5,587) (5,437)
Unrealized gain/(loss) on AFS securities (9,698) (5,623)
Other assets 33,830 33,052
--------------- ------------
Total assets $705,018 $717,481
=============== ============
Interest-bearing liabilities
Savings deposits 126,598 873 2.74% 138,366 1,023 2.93%
NOW deposits 41,443 194 1.86% 36,182 142 1.56%
Certificates of deposit 249,613 3,627 5.78% 222,597 2,773 4.94%
Money market accounts 24,228 234 3.84% 25,405 247 3.86%
Borrowed funds 141,162 2,242 6.32% 165,604 2,257 5.41%
-------------- --------- -------- ------------ --------- --------
Total interest-bearing liabilities 583,044 7,170 4.89% 588,154 6,442 4.34%
-------------- --------- -------- ------------ --------- --------
Demand deposits 37,887 37,382
Other liabilities 7,634 11,990
--------------- ------------
Total liabilities 628,565 637,526
--------------- ------------
Stockholders' equity 76,453 79,955
--------------- ------------
Total liabilities & equity $705,018 $717,481
=============== ============
Net interest income $5,203 $5,892
Interest rate spread 2.28% 2.70%
Net earning assets $103,429 $107,335
Net interest margin 3.02% 3.36%
Average earning assets/Average
interest-bearing liabilities 117.74% 118.25%
</TABLE>
12
<PAGE>
Consolidated Rate/Volume Analysis of Net Interest Income
The following table presents the dollar amount of changes in interest and
dividend income and interest expense for major components of earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and the changes due to changes in interest rates. For each
category of earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e. changes in
volume multiplied by old rate) and (ii) changes in rate (i.e. changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
Three months ended September 30,
2000 vs. 1999
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (In thousands)
Loans receivable .......................... $ 205 $ 126 $ 331
Securities available for sale ............. (378) 41 (337)
Federal Home Loan Bank stock .............. 28 (1) 27
Federal funds sold and interest-bearing
deposits ............................... 10 8 18
--------- -------- --------
Total earning assets .................. (135) 174 39
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (85) (65) (150)
NOW deposits ............................. 22 30 52
Certificates of deposit ................... 356 498 854
Money market accounts ..................... (12) (1) (13)
Borrowed funds ............................ (361) 346 (15)
--------- -------- --------
Total interest-bearing liabilities .... (80) 808 728
--------- -------- --------
Net interest income ..................... $ (55) $ (634) $ (689)
========= ======== ========
13
<PAGE>
Comparison of Operating Results for the Three Months Ended September 30, 2000
and 1999.
Net Income. Net income for the three months ended September 30, 2000 was $904
thousand compared to $1.3 million for the three months ended September 30, 1999.
Net income for the three months ended September 30, 2000 was reduced primarily
as a result of decreased net interest income and non-interest income offset in
part by decreases in non-interest expenses, the provision for loan losses, and
income tax expense. These and other changes are discussed in more detail below.
Net Interest Income. Net interest income decreased $689 thousand, or 11.7%, to
$5.2 million for the three months ended September 30, 2000 from $5.9 million for
the three months ended September 30, 1999. The decrease in net interest income
was primarily due to a decrease in the interest rate spread from 2.70% for the
three months ended September 30, 1999 to 2.28% for the three months ended
September 30, 2000, as well as a decrease in the net interest margin from 3.36%
to 3.02%.
Earning assets consist of loans receivable, securities available for sale,
federal funds sold, interest-bearing deposits, and FHLB of New York stock.
Interest-bearing liabilities consist of interest-bearing deposits, FHLB advances
and securities repurchase agreements.
The interest rate spread, which is the difference between the yield on
average earning assets and the cost of average interest-bearing liabilities,
decreased to 2.28% for the three months ended September 30, 2000, from 2.70% for
the three months ended September 30, 1999. The decrease in the interest rate
spread is due to the increase in the average cost of interest-bearing
liabilities exceeding the increase in the average yield on earning assets during
the period. The Company redeployed assets from lower-yielding securities
available for sale to the higher-yielding loan portfolio. Primarily due to this
shift in asset mix, the average yield on earning assets increased from 7.04% for
the three months ended September 30, 1999 to 7.17% for the three months ended
September 30, 2000. The impact of this increase was offset primarily by
increases in the average balance of the higher costing certificates of deposit
and NOW deposits of $27.0 million and $5.3 million, respectively. Likewise, for
the three months ended September 30, 2000 the average rate paid on certificates
of deposit and NOW deposits increased 84 basis points, to 5.78%, and 30 basis
points, to 1.86%, respectively. Thus, the average cost of interest-bearing
liabilities increased to 4.89% for the three months ended September 30, 2000
from 4.34% for the same period of the previous year.
The experience of the Company 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 Company's interest rate sensitive liabilities re-price faster than
its interest rate sensitive assets causing a decline in the Company's interest
rate spread and net interest margin. This would result from an increase
14
<PAGE>
in the Company's cost of funds that would not be immediately offset by an
increase in its yield on earning assets. An increase in the cost of funds
without an equivalent increase in the yield on earning assets would tend to
reduce net interest income. This trend was evident in 1999 and the first nine
months of 2000 when interest rates generally began to increase during the second
half of 1999 and into 2000. This increase in interest rates caused a decline in
the net interest margin from 3.36% for the quarter ended September 30, 1999, to
3.19% for the quarter ended December 31, 1999 to 3.15% for the quarter ended
March 31, 2000, to 3.14% for the quarter ended June 30, 2000, and to 3.02% for
the quarter ended September 30, 2000.
The Company 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, the 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 the Company's 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 growing customer base provides the Company 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 $39
thousand, or 0.3%, to $12.4 million for the three months ended September 30,
2000 from $12.3 million for the three months September 30, 1999. The increase
was largely the result of the shift in the average balance of earning assets
from securities available for sale to loans receivable (and, to a much lesser
extent, FHLB stock), offset in part by a decrease in the average balance of
total earning assets. The average balance of loans receivable increased $11.7
million, or 2.6%, and the average balance of FHLB stock increased $1.6 million,
or 22.6%. These increases were more than offset by a decrease in the average
balance of securities available for sale of $23.0 million, or 9.7%. In addition
to the decrease and shift in the average balance of earning assets was a 13
basis point increase in the average yield on total earning assets. The yield on
the average balance of earning assets was 7.17% and 7.04% for the three months
ended September 30, 2000 and 1999, respectively.
Interest and fees on loans increased $331 thousand, or 4.0%, to $8.7
million for the three months ended September 30, 2000. This increase was
primarily the result of an increase in the average balance of net loans
receivable of $11.7 million, or 2.6%, to $461.6 million for the three months
ended September 30, 2000 from $449.9 million for the three months ended
September 30, 1999.
15
<PAGE>
Interest income on securities available for sale decreased $339 thousand,
or 8.8%, to $3.5 million for the three months ended September 30, 2000 from $3.8
million for the previous period. This decrease is primarily the result of a
decrease in the average balance of securities available for sale of $23.0
million offset in part by an 8 basis point increase in the average yield on
these securities.
Interest income on federal funds sold and interest-bearing deposits
increased $18 thousand, or 66.7%, to $45 thousand for the three months ended
September 30, 2000 from $27 thousand for the previous year's quarter primarily
due to a increase in the average balance of federal funds sold and
interest-bearing deposits of $647 thousand, or 31.4%, coupled with a 142 basis
point increase in its average yield.
Interest Expense. Total interest expense increased by $728 thousand, or 11.3%,
to $7.2 million for the three months ended September 30, 2000 from $6.4 million
for the three months ended September 30, 1999. Total average interest-bearing
liabilities decreased by $5.1 million, or 0.9%, to $583.0 million for the third
quarter of 2000 compared to $588.2 million for the same period of the previous
year primarily due to the pay down of borrowed funds, partially offset by an
increase in average deposits. The average balance of borrowed funds decreased
$24.4 million, or 14.8%, from $165.6 million for the three months ended
September 30, 1999 to $141.2 million for the three months ended September 30,
2000. During the same periods, the average rate paid on interest-bearing
liabilities increased by 55 basis points to 4.89% from 4.34%.
Total interest expense for the three months ended September 30, 2000
increased primarily due to an increase of 84 basis points, to 5.78%, in the
average rate paid on certificates of deposit during the period. In addition, the
average balance on these deposit accounts increased to $249.6 million for the
three months ended September 30, 2000, from $222.6 million for the previous
period. Likewise, interest expense relative to NOW accounts increased as a
result of increases in the average balances on these deposit accounts in
addition to increases in the average cost of these deposit accounts from 1.56%
for the three months ended September 30, 1999 to 1.86% for the three months
ended September 30, 2000.
Provision for Loan Losses. The Company's provision for loan losses is based upon
management's analysis of the adequacy of the allowance for loan losses. The
allowance is increased by a charge to the provision for loan losses, the amount
of which depends upon an analysis of the changing risks inherent in the loan
portfolio. Management determines the adequacy of the allowance for loan losses
based upon its analysis of risk factors in the loan portfolio. This analysis
includes evaluation of credit risk for specifically reserved loans, historical
loss experience, current economic conditions, estimated fair value of underlying
collateral, delinquencies, and other factors. The provision for loan losses for
the three months ended September 30, 2000 decreased $55 thousand to $120
thousand from $175 thousand for the three months ended September 30, 1999. The
provision was reduced primarily due to improved asset quality, as evidenced by
the decrease in the ratio of non-performing loans to total loans from 0.89% at
December 31, 1999 to 0.67% at September 30, 2000, partially offset by an
increase in net loan charge-offs.
16
<PAGE>
Non-Interest Income. Total non-interest income decreased by $116 thousand, or
22.4%, from $517 thousand for the three months ended September 30, 1999 to $401
thousand for the three months ended September 30, 2000. Contributing to this
decrease was the sale of approximately $1.5 million of securities during the
quarter ended September 30, 2000, resulting in a pre-tax loss of $56 thousand.
Moreover, included in other non-interest income for the third quarter of 1999
was approximately $70 thousand representing interest received from IRS tax
refunds as well as a $20 thousand gain on the sale of assets which were fully
depreciated.
Non-Interest Expenses. Non-interest expenses decreased $38 thousand, or 0.9%, to
$4.0 million for the three months ended September 30, 2000 primarily due to
decreased costs associated with salaries, wages and benefits and real estate
owned and repossessed assets. Also impacting non-interest expenses during the
third quarter of 2000 were increased data processing costs and professional fees
associated with certain tax planning strategies being implemented by the
Company. These and other changes are discussed in more detail below.
Salaries, wages and benefits expense decreased by $115 thousand, or 5.5%,
for the third quarter of 2000 due primarily to the elimination of temporary
outside services relative to work performed during the second half of 1999. Also
contributing to this decrease was a reduction in pension expense (which is based
on certain actuarial calculations) and ESOP expense. The expense related to the
ESOP for the third quarter of 2000 was $17 thousand lower than the comparable
quarter in 1999 due to the lower stock price in 2000 relative to 1999.
Management believes that salaries, wages and benefits expenses may fluctuate in
future periods as costs related to the Company's ESOP are dependent on the
Company's average stock price.
Occupancy and equipment increased $21 thousand, or 3.8%, to $570 thousand
for the three months ended September 30, 2000, from $549 thousand in 1999
primarily due to an increase in depreciation on buildings resulting from
renovations completed at the Main Office and a branch office during the third
quarter of 1999.
Data processing increased $49 thousand to $408 thousand for the quarter
ended September 30, 2000 primarily due to the increase in volume of deposit and
loan accounts serviced by the Bank.
Real estate owned and repossessed assets expense decreased $11 thousand to
$15 thousand for the three months ended September 30, 2000 due primarily to
losses recognized on the sale of real estate owned and repossessed assets during
the third quarter of 1999.
17
<PAGE>
Professional fees increased $27 thousand, or 23.9%, to $140 thousand for
the three months ended September 30, 2000, from $113 thousand for the comparable
period of the previous year. The increased professional fees were primarily
associated with certain tax planning strategies being implemented by the
Company. As discussed in Part 88, Item 5 of this report, on October 6, 2000, the
Company announced that its tender offer to acquire Cohoes Bancorp, Inc.
("Cohoes") had expired, and that the depositary for the offer was instructed to
promptly return all shares tendered and not previously withdrawn. As a result of
the expiration of the tender offer for Cohoes, the Company expects a charge to
professional fees in the fourth quarter of 2000 of approximately $240 to $260
thousand, representing direct costs incurred in connection with the Company's
attempted acquisition of Cohoes. Prior to the expiration of the tender offer,
these direct costs were being deferred.
Other non-interest expense decreased $9 thousand, or 1.2%, to $770 thousand
for the three months ended September 30, 2000 when compared to the previous
period. This decrease was primarily due to reduced expenses associated with the
changes in the courier system as well as the armored car service during the
quarter ended September 30, 2000.
Income Tax Expense. Income tax expense decreased by $359 thousand, or 38.1%, to
$584 thousand for the three months ended September 30, 2000 from $943 thousand
for the three months ended September 30, 1999. The decrease was primarily the
result of the decrease in income before taxes, as well as certain tax planning
strategies now implemented by the Company.
Consolidated Average Balances, Interest Rates & Yields
The following table presents for the periods indicated the total dollar
amount of interest and dividend income earned on average earning assets and the
resultant yields, as well as the total dollar amount of interest expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are daily average
balances. Non-accruing loans have been included in the table as loans with
interest earned on a cash basis only. Securities available for sale are included
at amortized cost.
18
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
------------------------------------ -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
<S> <C> <C> <C> <C> <C> <C>
Earning assets (Dollars in thousands)
Loans receivable $467,286 $26,070 7.45% $434,766 $23,970 7.37%
Securities available for sale (AFS) 216,943 10,718 6.60% 243,340 11,488 6.31%
Federal Home Loan Bank stock 8,819 448 6.79% 7,221 368 6.81%
Federal funds sold &
interest-bearing deposits 2,668 117 5.86% 12,151 429 4.72%
-------------- --------- -------- ------------ --------- --------
Total earning assets 695,716 37,353 7.17% 697,478 36,255 6.95%
-------------- --------- -------- ------------ --------- --------
Allowance for loan losses (5,551) (5,223)
Unrealized gain/(loss) on AFS securities (10,272) (1,881)
Other assets 34,541 32,966
--------------- ------------
Total assets $714,434 $723,340
=============== ============
Interest-bearing liabilities
Savings deposits 128,297 2,635 2.75% 139,089 3,034 2.91%
NOW deposits 38,598 441 1.52% 36,969 441 1.59%
Certificates of deposit 238,263 9,917 5.56% 225,294 8,439 5.01%
Money market accounts 26,701 769 3.84% 23,492 673 3.84%
Borrowed funds 163,630 7,426 6.06% 168,414 6,877 5.46%
-------------- --------- -------- ------------ --------- --------
Total interest-bearing liabilities 595,489 21,188 4.75% 593,258 19,464 4.39%
-------------- --------- -------- ------------ --------- --------
Demand deposits 36,632 34,541
Other liabilities 6,565 12,140
--------------- ------------
Total liabilities 638,686 639,939
--------------- ------------
Stockholders' equity 75,748 83,401
--------------- ------------
Total liabilities & equity $714,434 $723,340
=============== ============
Net interest income $16,165 $16,791
Interest rate spread 2.42% 2.56%
Net earning assets $100,227 $104,220
Net interest margin 3.10% 3.22%
Average earning assets/Average
interest-bearing liabilities 116.83% 117.57%
</TABLE>
19
<PAGE>
Consolidated Rate/Volume Analysis of Net Interest Income
The following table presents the dollar amount of changes in interest and
dividend income and interest expense for major components of earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and the changes due to changes in interest rates. For each
category of earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e. changes in
volume multiplied by old rate) and (ii) changes in rate (i.e. changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
Nine months ended September 30,
2000 vs. 1999
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (In thousands)
Loans receivable .......................... $ 1,831 $ 269 $2,100
Securities available for sale ............. (1,292) 522 (770)
Federal Home Loan Bank stock .............. 82 (2) 80
Federal funds sold and interest-bearing
deposits ............................... (398) 86 (312)
--------- -------- --------
Total earning assets .................. 223 875 1,098
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (226) (173) (399)
NOW deposits ............................. 19 (19) --
Certificates of deposit ................... 507 971 1,478
Money market accounts ..................... 93 3 96
Borrowed funds ............................ (199) 748 549
--------- -------- --------
Total interest-bearing liabilities .... 194 1,530 1,724
--------- -------- --------
Net interest income ..................... $ 29 $ (655) $ (626)
========= ======== ========
20
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
1999.
Net Income. Net income decreased by $567 thousand, or 16.8%, for the nine months
ended September 30, 2000 to $2.8 million from $3.4 million for the nine months
ended September 30, 1999. Net income for the nine months ended September 30,
2000 was reduced primarily as a result of decreased net interest income and
non-interest income, in addition to an increase in non-interest expenses, offset
in part by a decrease in the provision for loan losses and income tax expense.
These and other changes are discussed in more detail below.
Net Interest Income. Net interest income decreased $626 thousand, or 3.7%, to
$16.2 million for the nine months ended September 30, 2000 from $16.8 million
for the nine months ended September 30, 1999. The decrease in net interest
income was primarily due to a decrease in the interest rate spread from 2.56%
for the nine months ended September 30, 1999 to 2.42% for the nine months ended
September 30, 2000, as well as a decrease in the net interest margin from 3.22%
to 3.10%.
Interest and Dividend Income. Interest and dividend income increased by $1.1
million, or 3.0%, to $37.4 million for the nine months ended September 30, 2000
from $36.3 million for the nine months ended September 30, 1999. The increase
was largely the result of increases in the average balance of loans receivable
of $32.5 million, or 7.5%, and FHLB stock of $1.6 million, or 22.1%, which were
more than offset by decreases in securities available for sale of $26.4 million,
or 10.8%, and federal funds sold and interest-bearing deposits of $9.5 million,
or 78.0%. In addition to the decrease and shift in the average balance of
earning assets was a 22 basis point increase in the average yield on total
earning assets. The yield on the average balance of earning assets was 7.17% and
6.95% for the nine months ended September 30, 2000 and 1999, respectively.
Interest and fees on loans increased $2.1 million, or 8.8%, to $26.1 million for
the nine months ended September 30, 2000. This increase was primarily the result
of an increase in the average balance of net loans receivable of $32.5 million,
or 7.5%, to $467.3 million for the nine months ended September 30, 2000 from
$434.8 million for the nine months ended September 30, 1999.
Interest income on securities available for sale decreased $770 thousand, or
6.7%, to $10.7 million for the nine months ended September 30, 2000 from $11.5
million for the same period of the previous year. This decrease is primarily the
result of a decrease in the average balance of securities available for sale of
$26.4 million offset in part by a 29 basis point increase in the average yield
on these securities.
Interest income on federal funds sold and interest-bearing deposits decreased
$312 thousand, or 72.7%, to $117 thousand for the nine months ended September
30, 2000 from $429 thousand for the previous year primarily due to a decrease in
the average balance of federal funds sold and interest-bearing deposits of $9.5
million, or 78.0%, resulting from the shift from lower yielding federal funds
sold and interest-bearing deposits to higher yielding loans receivable.
21
<PAGE>
Interest Expense. Total interest expense increased by $1.7 million, or 8.9%, to
$21.2 million for the nine months ended September 30, 2000 from $19.5 million
for the nine months ended September 30, 1999. Total average interest-bearing
liabilities increased by $2.2 million, or 0.4%, to $595.5 million for the first
nine months of 2000 compared to $593.3 million for the same period of the
previous year primarily due to the funding of the repurchases of the Company's
stock. During the same periods, the average rate paid on interest-bearing
liabilities increased by 36 basis points to 4.75% from 4.39%.
Total interest expense for the nine months ended September 30, 2000
increased primarily due to an increase of 55 basis points, to 5.56%, in the
average rate paid on certificates of deposit during the period. In addition, the
average balance on these deposit accounts increased to $238.3 million for the
nine months ended September 30, 2000, from $225.3 million for the previous
period. Likewise, interest expense relative to borrowed funds and money market
accounts increased during the period. Moreover, the increase in interest on
borrowed funds was primarily due to increases in the average cost of these funds
from 5.46% for the nine months ended September 30, 1999 to 6.06% for the nine
months ended September 30, 2000.
Provision for Loan Losses. The provision for loan losses for the nine months
ended September 30, 2000 decreased $310 thousand to $360 thousand from $670
thousand for the nine months ended September 30, 1999. The provision was reduced
primarily due to improved asset quality, as evidenced by the decrease in the
ratio of non-performing loans to total loans from 0.89% at December 31, 1999 to
0.67% at September 30, 2000, offset in part by an increase in net loan
charge-offs.
Non-Interest Income. Total non-interest income decreased by $113 thousand, or
8.2%, to $1.3 million for the nine months ended September 30, 2000 from $1.4
million for the nine months ended September 30, 1999. During the nine months
ended September 30, 2000, the Company sold approximately $4.5 million in
securities recognizing a pre-tax loss of $102 thousand. Likewise, service
charges on deposit accounts decreased $43 thousand from comparable periods
primarily due to the reduction in volume of NSF charges to customers. During the
first quarter of 2000, the Company increased its fees charged for cashing
non-customer tax refund checks, in addition to fees associated with the purchase
of bank checks and money orders. Moreover, the Bank now charges an ATM fee for
non-customer transactions made at the Bank's ATM machines. Also included in
other non-interest income during the first quarter of 2000 was the recognition
of income for an experience refund from an insurance carrier on consumer loans
in the amount of $11 thousand.
Non-Interest Expenses. Non-interest expenses increased $693 thousand, or 6.0%,
to $12.3 million for the nine months ended September 30, 2000 from $11.6 million
for the nine months ended September 30, 1999 primarily due to increased costs
associated with salaries, wages and benefits and data processing. Also impacting
non-interest expenses during the first quarter of 1999 were the acceleration of
depreciation and amortization of equipment and leasehold improvements due to the
closing of a branch. These and other changes are discussed in more detail below.
22
<PAGE>
Salaries, wages and benefits expense increased by $250 thousand, or 4.3%,
for the first nine months of 2000 primarily due to an increase in salaries and
wages associated with the increase in staff in the commercial loan department
due to the Company's decision to increase emphasis in growing commercial
lending, coupled with the establishment of the Senior Management Salary
Incentive Plan during the second quarter of 1999. Also contributing to this
increase was the general cost of living and merit raises given to employees at
the beginning of 2000. These increases were offset in part by the elimination of
temporary outside services relative to work performed during the second half of
1999. In addition, during the first quarter of 1999, salaries, wages and
benefits expense was reduced due to the reversal of an accrual associated with
severance offered to an employee terminated at the time of the merger with
AFSALA Bancorp, Inc. in November 1998, which was not accepted. Management
believes that salaries, wages and benefits expenses may fluctuate in future
periods as costs related to the Company's ESOP are dependent on the Company's
average stock price. The expense related to the ESOP for the first nine months
of 2000 was $73 thousand lower than the comparable period in 1999 due to the
lower stock price in 2000 relative to 1999.
Occupancy and equipment increased $7 thousand to $1.7 million for the nine
months ended September 30, 2000 when compared to the previous period primarily
due to an increase in depreciation of furniture, fixtures and equipment
primarily resulting from computer hardware and software upgrades related to year
2000 compliance subsequent to the first quarter of 1999. Likewise, depreciation
on buildings increased due primarily to renovations completed at the Main Office
and a branch office during the third quarter of 1999. Offsetting these increases
was the acceleration of depreciation and amortization of equipment and leasehold
improvements, during the first quarter of 1999, on a branch being closed as a
result of the acquisition of AFSALA Bancorp, Inc.
Data processing increased $204 thousand, or 20.7%, from $985 thousand in
1999 to $1.2 million for the nine months ended September 30, 2000. During the
first quarter of 1999, at the time of the initial conversion of the core
application data system, the Bank received credits from the new data center
totaling approximately $92 thousand to be applied against data processing fees
in the first quarter of 1999. No such credits were received in the 2000 period.
In addition, data processing costs have increased due to the increase in volume
of deposit and loan accounts serviced by the Bank.
Professional fees increased $90 thousand, or 31.1%, to $379 thousand for
the nine months ended September 30, 2000, from $289 thousand for the comparable
period of the previous year. The increased professional fees were primarily
associated with certain tax planning strategies being implemented by the
Company.
Other non-interest expenses increased $126 thousand, or 5.4%, to $2.5
million for the nine months ended September 30, 2000 when compared to the
previous period. This increase was primarily due to expenses associated with the
promotion and advertising of time deposit and lending products offered during
the first half of 2000.
Income Tax Expense. Income tax expense decreased by $555 thousand, or 22.2%, to
$1.9 million for the nine months ended September 30, 2000 from $2.5 million for
the nine months ended September 30, 1999. The decrease was primarily the result
of the decrease in income before taxes, as well as certain tax planning
strategies implemented by the Company.
23
<PAGE>
ASSET QUALITY
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated.
Sept.30, Dec.31,
2000 1999
------ ------
(In thousands)
Non-accruing loans:
One-to four-family (1) ....... $1,270 $1,570
Commercial real estate ....... 108 274
Consumer ..................... 382 434
Commercial business .......... 394 298
------ ------
Total ...................... 2,154 2,576
------ ------
Accruing loans delinquent
more than 90 days:
One-to four-family (1) ....... 357 372
Commercial real estate ....... 53 685
Consumer ..................... 41 11
------ ------
Total ...................... 451 1,068
------ ------
Troubled debt restructured loans:
One-to four-family (1) ....... 83 84
Commercial real estate ....... 462 475
Commercial business .......... 2 7
------ ------
Total ...................... 547 566
------ ------
Total non-performing loans ...... 3,152 4,210
------ ------
Foreclosed assets:
One-to four-family (1) ....... 135 126
Commercial real estate ....... 112 142
Consumer ..................... 7 54
------ ------
Total ...................... 254 322
------ ------
Total non-performing assets ..... $3,406 $4,532
====== ======
Non-performing loans as a
percentage of total loans ..... 0.67% 0.89%
====== ======
Non-performing assets as a
percentage of total assets .... 0.48% 0.61%
====== ======
(1) Includes home equity loans.
24
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risks inherent in the Bank's loan
portfolio and changes in the nature and volume of its loan activity, including
those loans that are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectibility may
not be reasonably assured, considers, among other matters, the estimated fair
value of the underlying collateral for collateral dependent loans, the net
present value of estimated future cash flows if the loan is not collateral
dependent, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. The following table sets forth an analysis of the Company's allowance
for loan losses.
For the nine months
ended September 30,
2000 1999
------- -------
(In thousands)
Balance at beginning of period ........ $ 5,509 $ 4,891
Charge-offs:
One- to four-family (1) .......... (14) (87)
Consumer ......................... (217) (104)
Commercial business .............. (21) (49)
------- -------
Total charge-offs ............. (252) (240)
Recoveries:
One- to four-family (1) .......... 3 4
Commercial real estate ........... 13 147
Consumer ......................... 44 84
Commercial business .............. 12 24
------- -------
Total recoveries .............. 72 259
Net (charge-offs) recoveries .......... (180) 19
Provisions charged to operations ...... 360 670
------- -------
Balance at end of period .............. 5,689 5,580
======= =======
Ratio of allowance for loan
losses to total loans (period end) .... 1.22% 1.21%
Ratio of allowance for loan losses
to non-performing loans (period end) .. 180.49% 138.70%
Ratio of net charge-offs (net recoveries)
during the period to average loans
outstanding during period (annualized) 0.05% (0.01%)
(1) Includes home equity loans.
25
<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 31.78% and
28.36% at September 30, 2000 and December 31, 1999, respectively.
The Company's sources of liquidity include cash flows from operations,
principal and interest payments on loans, mortgage-backed securities and
collateralized mortgage obligations, maturities of securities, deposit inflows,
borrowings from the FHLB of New York and proceeds from the sale of securities
sold under agreements to repurchase.
While maturities and scheduled amortization of loans and securities are, in
general, a predictable source of funds, deposit flows and prepayments on loans
and securities are greatly influenced by general interest rates, economic
conditions and competition. In addition, the Bank invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
In addition to deposit growth, the Company borrows funds from the FHLB of
New York or may utilize other types of borrowed funds to supplement its cash
flows. At September 30, 2000 and December 31, 1999, the Company had $76.6
million and $92.2 million, respectively, in outstanding borrowings from the FHLB
and $72.5 million and $112.7 million, respectively, in securities repurchase
agreements, the vast majority of which are also with the FHLB.
As of September 30, 2000 and December 31, 1999, the Company had $203.4
million and $212.1 million, respectively, of securities classified as available
for sale. The liquidity of the securities available for sale portfolio provides
the Company with additional potential cash flows to meet loan growth and deposit
flows.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry, and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on the
Company's commitment to make loans and management's assessment of the Company's
ability to generate funds.
The Bank is subject to federal regulations that impose certain minimum
capital requirements. At September 30, 2000, the Bank's capital exceeded each of
the regulatory capital requirements of the OTS. The Bank is "well capitalized"
at September 30, 2000 according to regulatory definition. At September 30, 2000,
the Bank's tangible and core capital levels were both $65.7 million (9.29% of
total adjusted assets) and its total risk-based capital level was $70.0 million
(20.17% of total risk-weighted assets). The minimum regulatory capital ratio
requirements of the Bank are 1.5% for tangible capital, 4.0% for core capital,
and 8.0% for total risk-based capital.
During the first nine months of 2000, the Company repurchased 84,224 shares
of its common stock in open-market transactions at a total cost of $1.1 million.
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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 Pronouncement
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As amended, this
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Based on management's evaluation of Statement No. 133, the
adoption of this statement will not have a material impact on the Company's
consolidated financial statements, as the Company currently does not have any
derivative instruments, nor have any derivative instruments embedded in other
contracts been identified.
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Item 3.
Quantitative And Qualitative Disclosures About Market Risk
There have been no material changes in the Company's interest rate risk
position since December 31, 1999. Other types of market risk, such as foreign
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On October 6, 2000, the Company announced that its tender offer to acquire
Cohoes Bancorp, Inc ("Cohoes") would expire as of 12:00 midnight, New York time,
on Friday, October 6, 2000. The Company instructed the depositary for the offer
to return promptly all shares tendered to date and not previously withdrawn. In
addition, on November 3, 2000, the Company announced that it had withdrawn its
nominees for election as directors of Cohoes at the 2000 annual meeting of
Cohoes shareholders to be held on November 30, 2000, and that it intends to
support the nominations made by TrustCo Bank Corp NY ("Trustco"). In August
2000, the Company announced that it had submitted three nominees to Cohoes for
election at the next Cohoes annual meeting. Around the same time, TrustCo
nominated four individuals out of a total of four Board seats open to election
at the 2000 annual meeting of Cohoes shareholders. Ambanc does not intend to
solicit proxies in favor of TrustCo's nominees or with respect to any other
proposals at the Cohoes annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
Financial data schedule, Exhibit #27
(b) Reports on Form 8-K
Filed on July 18, 2000 regarding press release dated July, 17,
2000 "Ambanc Requests Shareholder List From Cohoes"
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
/s/ John M. Lisicki
John M. Lisicki
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000
/s/ James J. Alescio
James J. Alescio
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: November 14, 2000
29
