UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934. For the quarterly period ended June 30, 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 August 11, 2000
----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,893,648
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
June 30, 2000
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Interim Statements of Financial Condition at
June 30, 2000 and December 31, 1999 ........................... 3
Consolidated Interim Statements of Income for the six months
and three months ended June 30, 2000 and 1999 ................. 4
Consolidated Interim Statements of Cash Flows for the six
months ended June 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.......................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....26
Part II. OTHER INFORMATION..................................................27
Item 4. Submission of Matters to a Vote of Security Holders ...............27
Item 5. Other Information .................................................27
Item 6. Exhibits and Reports on Form 8-K...................................27
SIGNATURES....................................................................28
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) June 30, December 31,
2000 1999
Assets ---------- ----------
Cash and due from banks ............................... $ 12,235 $ 26,380
Interest-bearing deposits ............................. 1,337 3,231
Federal funds sold .................................... 4,500 ---
---------- ----------
Cash and cash equivalents ........................ 18,072 29,611
Securities available for sale, at fair value .......... 205,066 212,145
Federal Home Loan Bank of New York stock, at cost ..... 8,870 8,748
Loans receivable ...................................... 466,125 470,986
Allowance for loan losses ........................ (5,574) (5,509)
---------- ----------
Loans receivable, net ............................ 460,551 465,477
Accrued interest receivable ........................... 4,244 4,411
Premises and equipment, net ........................... 5,426 5,593
Real estate owned and repossessed assets .............. 242 322
Goodwill .............................................. 7,124 7,390
Other assets .......................................... 6,666 6,975
---------- ----------
Total assets ..................................... $ 716,261 $ 740,672
========== ==========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ........................................... $ 475,021 $ 450,134
Federal Home Loan Bank short-term borrowings ....... 30,000 71,200
Federal Home Loan Bank long-term advances .......... 44,438 20,965
Securities sold under agreements to repurchase ..... 82,651 112,740
Advances from borrowers for taxes and insurance .... 4,385 3,641
Accrued interest payable ........................... 1,406 1,508
Accrued expenses and other liabilities ............. 2,039 4,891
---------- ----------
Total liabilities ................................ 639,940 665,079
---------- ----------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none issued at June 30, 2000 and
December 31, 1999 ................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,245 issued at June 30, 2000
and December 31, 1999 ............................. 54 54
Additional paid-in capital ......................... 63,410 63,314
Retained earnings,substantially restricted ......... 29,656 28,879
Treasury stock, at cost (538,597 shares at June 30,
2000 and 465,155 shares at December 31, 1999) ... (8,457) (7,486)
Unallocated common stock held by ESOP .............. (2,128) (2,353)
Unearned RRP shares ................................ (368) (443)
Accumulated other comprehensive loss ............... (5,846) (6,372)
---------- ----------
Total shareholders' equity ....................... 76,321 75,593
---------- ----------
Total liabilities and shareholders' equity ....... $ 716,261 $ 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>
Six months Three months
ended June 30, ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Interest and dividend income:
<S> <C> <C> <C> <C>
Loans receivable ..................................... $ 17,389 $ 15,620 $ 8,692 $ 7,839
Securities available for sale ........................ 7,225 7,658 3,558 3,866
Federal funds sold and interest-bearing deposits ..... 72 402 39 130
Federal Home Loan Bank stock ......................... 294 241 147 122
-------- -------- -------- --------
Total interest and dividend income ................. 24,980 23,921 12,436 11,957
-------- -------- -------- --------
Interest expense:
Deposits ............................................. 8,834 8,402 4,470 4,190
Borrowings ........................................... 5,184 4,620 2,520 2,261
-------- -------- -------- --------
Total interest expense ............................. 14,018 13,022 6,990 6,451
-------- -------- -------- --------
Net interest income ................................ 10,962 10,899 5,446 5,506
Provision for loan losses ............................... 240 495 120 240
-------- -------- -------- --------
Net interest income after provision for loan losses. 10,722 10,404 5,326 5,266
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 641 683 306 350
Net losses on securities transactions ................ (46) -- (46) --
Other ................................................ 270 179 116 88
-------- -------- -------- --------
Total non-interest income .......................... 865 862 376 438
-------- -------- -------- --------
Non-interest expenses:
Salaries, wages and benefits ......................... 4,125 3,760 2,023 1,922
Occupancy and equipment .............................. 1,170 1,184 572 555
Data processing ...................................... 781 626 394 391
Real estate owned and repossessed assets, net ........ 47 20 44 (6)
Professional fees .................................... 239 176 149 88
Amortization of goodwill ............................. 266 266 133 133
Other ................................................ 1,685 1,550 820 753
-------- -------- -------- --------
Total non-interest expenses ........................ 8,313 7,582 4,135 3,836
-------- -------- -------- --------
Income before taxes .................................... 3,274 3,684 1,567 1,868
Income tax expense ...................................... 1,361 1,557 638 776
-------- -------- -------- --------
Net income ......................................... $ 1,913 $ 2,127 $ 929 $ 1,092
======== ======== ======== ========
Basic earnings per share ................................ $ 0.41 $ 0.43 $ 0.20 $ 0.22
Diluted earnings per share .............................. $ 0.41 $ 0.42 $ 0.20 $ 0.22
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited)
(dollars in thousands) Six months
ended June 30,
2000 1999
-------- -------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income ........................................ $ 1,913 $ 2,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises
and equipment .............................. 451 445
Amortization of goodwill ........................ 266 266
Net amortization of premium on securities ....... 141 551
Net losses on securities transactions ........... 46 --
Provision for loan losses ....................... 240 495
Provision for losses and writedowns on real
estate owned and repossessed assets ........ 3 3
Net losses (gains) on sales of real estate owned
and repossessed assets ..................... 27 (6)
ESOP compensation expense ....................... 320 375
RRP expense ..................................... 242 210
Decrease (increase) in accrued interest
receivable and other assets ................ 126 (3)
(Decrease) increase in accrued interest
payable, accrued expenses and
and other liabilities ...................... (2,954) 1,258
-------- -------
Net cash provided by
operating activities ........... 821 5,721
-------- -------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale .............. 2,893 10,500
Purchases of securities available for sale ...... (3,277) (53,140)
Proceeds from principal paydowns and
maturities of securities available for sale 8,153 39,494
Purchase of Federal Home Loan Bank of New
York stock ................................ (122) --
Net decrease (increase) in loans made
to customers .............................. 4,562 (9,023)
Purchases of premises and equipment ............. (284) (782)
Proceeds from sales of real estate owned and
repossessed assets ......................... 174 254
-------- -------
Net cash provided by (used in)
investing activities ........... 12,099 (12,697)
-------- -------
(continued)
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited) (continued)
(dollars in thousands) Six months
ended June 30,
2000 1999
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits .............. $ 24,887 $ (1,247)
Net decrease in FHLB short-term borrowings ....... (41,200) --
Proceeds from FHLB long-term advances ............ 25,000 --
Repayments of FHLB long-term advances ............ (1,527) (222)
Proceeds from repurchase agreements .............. 12,651 --
Repayments of repurchase agreements .............. (42,740) (14,400)
Increase in advances from borrowers
for taxes and insurance .................... 744 1,086
Purchases of treasury stock ...................... (1,142) (1,557)
Excercises of stock options ...................... -- 139
Dividends paid ................................... (1,132) (799)
-------- -------
Net cash used in financing activities ...... (24,459) (17,000)
-------- -------
Net decrease in cash and cash equivalents ............ (11,539) (23,976)
Cash and cash equivalents at beginning of period ..... 29,611 42,815
-------- -------
Cash and cash equivalents at end of period ........... $ 18,072 $ 18,839
======== =======
Supplemental disclosures of cash flow information -
cash paid during the period for:
Interest ............................................. $ 14,120 $ 13,157
======== =======
Income taxes ......................................... $ 1,380 $ 1,167
======== =======
Noncash investing and financing activities:
Net transfer of loans to real estate owned
and repossessed assets .......................... $ 124 $ 62
======== =======
Increase in amounts due to brokers from
purchases of securities available for sale ... --- $ 1,000
======== =======
Adjustment of securities available for sale to
fair value, net of tax $ 526 ($ 3,735)
======== =======
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 six month periods ended June 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 six months ended June 30, 2000 ------------ ---------- ---------
Basic EPS
Net income $1,913 4,648,316 $0.41
====== =====
Effect of dilutive securities:
Stock options 15,800
Unvested RRP shares 15,003
---------
Diluted EPS
Net income $1,913 4,679,119 $0.41
====== ========= =====
For the six months ended June 30, 1999
Basic EPS
Net income $2,127 5,001,220 $0.43
====== =====
Effect of dilutive securities:
Stock options 39,978
Unvested RRP shares 18,203
---------
Diluted EPS
Net income $2,127 5,059,401 $0.42
====== ========= =====
7
<PAGE>
For the quarter ended June 30, 2000
Basic EPS
Net income $ 929 4,627,006 $0.20
====== =====
Effect of dilutive securities:
Stock options 25,950
Unvested RRP shares 13,306
---------
Diluted EPS
Net income $ 929 4,666,262 $0.20
====== ========= =====
For the quarter ended June 30, 1999
Basic EPS
Net income $1,092 4,993,494 $0.22
====== =====
Effect of dilutive securities:
Stock options 48,352
Unvested RRP shares 16,204
---------
Diluted EPS
Net income $1,092 5,058,050 $0.22
====== ========= =====
(4) Comprehensive Income
Comprehensive income 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 six-month periods ended June, 30, 2000
and 1999 was $2.4 million and ($1.6) million, respectively. Comprehensive income
(loss) for the three-month periods ended June 30, 2000 and 1999 was $1.4 million
and ($2.1) million, respectively.
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").
8
<PAGE>
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. At June 30, 2000, the Bank's loans receivable,
net, to assets ratio was 64.3%, up from 62.8% at December 31, 1999. The Bank's
portfolio of one- to four-family residential mortgage and home equity loans was
85.4% of total loans at June 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.
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 June 30, 2000 and December 31, 1999.
Total assets decreased by $24.4 million, or 3.3%, to $716.3 million at June 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 $11.5 million and
$7.1 million, respectively, in addition to a decrease in loans receivable, net
of $4.9 million.
9
<PAGE>
Cash and cash equivalents decreased by $11.5 million, or 39.0%, to $18.1
million at June 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 $14.1 million, or
53.6%, from $26.4 million at December 31, 1999 to $12.2 million at June 30,
2000, in addition to a decrease in interest-bearing deposits from $3.2 million
at December 31, 1999 to $1.3 million at June 30, 2000. This was offset by an
increase in federal funds sold of $4.5 million. 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. However, early in the first quarter of 2000, vault cash returned to
more normal levels. Securities available for sale decreased $7.1 million, or
3.3%, to $205.1 million at June 30, 2000 from $212.1 million at December 31,
1999, resulting primarily from the maturities and calls of securities, in
addition to the sale of securities. The Company sold approximately $3.0 million
in investments of mortgage-related securities during the second quarter of 2000
recognizing a loss of $46 thousand. Loans receivable, net decreased $4.9 million
from $465.5 million at December 31, 1999, to $460.6 million at June 30, 2000.
Deposits increased by $24.9 million, or 5.5%, to $475.0 million at June 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 $30.1 million, or 26.7%, to $82.7 million at June 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 $41.2
million, or 57.9%, to $30.0 million at June 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 $23.5 million, or
112.0%, to $44.4 million at June 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. Accrued expenses and other liabilities decreased
$2.9 million, or 58.3%, to $2.0 million at June 30, 2000, primarily due to a
change in processing of teller drafts and money orders.
Shareholders' equity increased $728 thousand, or 1.0%, from $75.6 million
at December 31, 1999 to $76.3 million at June 30, 2000, primarily due to net
income of $1.9 million partially offset by the payment of cash dividends of $1.1
million for the first six months of the year. Other items impacting
shareholders' equity during the first half of 2000 were the after-tax impact of
the change in the net unrealized losses on securities available for sale, 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.
10
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 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 $469,311 $8,692 7.45% $429,013 $7,839 7.33%
Securities available for sale (AFS) 216,673 3,558 6.60% 249,045 3,866 6.23%
Federal Home Loan Bank stock 8,838 147 6.69% 7,215 122 6.78%
Federal funds sold &
interest-bearing deposits 2,472 39 6.35% 10,648 130 4.90%
-------------- --------- -------- ------------ --------- --------
Total earning assets 697,294 12,436 7.17% 695,921 11,957 6.89%
-------------- --------- -------- ------------ --------- --------
Allowance for loan losses (5,536) (5,245)
Unrealized gain/(loss) on AFS securities (10,508) (311)
Other assets 33,932 35,283
--------------- ------------
Total assets $715,182 $725,648
=============== ============
Interest-bearing liabilities
Savings deposits 129,788 887 2.75% 140,076 1,015 2.91%
NOW deposits 38,356 135 1.42% 36,967 155 1.68%
Certificates of deposit 233,128 3,187 5.50% 225,599 2,808 4.99%
Money market accounts 27,286 261 3.85% 22,637 212 3.76%
Borrowed funds 168,030 2,520 6.03% 165,982 2,261 5.46%
-------------- --------- -------- ------------ --------- --------
Total interest-bearing liabilities 596,588 6,990 4.71% 591,261 6,451 4.38%
-------------- --------- -------- ------------ --------- --------
Demand deposits 36,637 34,963
Other liabilities 6,776 14,701
--------------- ------------
Total liabilities 640,001 640,925
--------------- ------------
Stockholders' equity 75,181 84,723
--------------- ------------
Total liabilities & equity $715,182 $725,648
=============== ============
Net interest income $5,446 $5,506
Interest rate spread 2.46% 2.51%
Net earning assets $100,706 $104,660
Net interest margin 3.14% 3.17%
Average earning assets/Average
interest-bearing liabilities 116.88% 117.70%
</TABLE>
11
<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 June 30,
2000 vs. 1999
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (Dollars in thousands)
Loans receivable .......................... $ 727 $ 126 $ 853
Securities available for sale ............. (555) 247 (308)
Federal Home Loan Bank stock .............. 27 (2) 25
Federal funds sold and interest-bearing
deposits ............................... (149) 58 (91)
--------- -------- --------
Total earning assets .................. 50 429 479
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (74) (54) (128)
NOW deposits ............................. 6 (26) (20)
Certificates of deposit ................... 94 285 379
Money market accounts ..................... 44 5 49
Borrowed funds ............................ 27 232 259
--------- -------- --------
Total interest-bearing liabilities .... 97 442 539
--------- -------- --------
Net interest income ..................... $ (47) $ (13) $ (60)
========= ======== ========
12
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
1999.
Net Income. Net income for the three months ended June 30, 2000 was $929
thousand compared to $1.1 million for the three months ended June 30, 1999. Net
income for the three months ended June 30, 2000 was reduced primarily as a
result of increased non-interest expenses and decreased net interest income and
non-interest income, offset in part by a decrease in the provision for loan
losses. These and other changes are discussed in more detail below.
Net Interest Income. Net interest income decreased $60 thousand, or 1.1%,
to $5.4 million for the three months ended June 30, 2000 from $5.5 million for
the three months ended June 30, 1999. The decrease in net interest income was
primarily due to an increase in the average balance of interest bearing
liabilities being greater than the increase in the average balance of earning
assets. During the period, the average earning assets increased $1.4 million to
$697.3 million. However, the increase in the average balance of interest-bearing
liabilities of $5.3 million to $596.6 million exceeded the increase in average
earning assets. The increase in interest-bearing liabilities exceeded the
increase in earning assets due primarily to the Company's repurchase of 448
thousand shares of stock for a total cost of $7.0 million from the period July
1, 1999 through June 30, 2000.
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 2.46% for the three months ended June 30, 2000, from 2.51% for the
three months ended June 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 federal funds sold and
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 6.89% for the three months ended June 30, 1999 to 7.17% for the three
months ended June 30, 2000. The impact of this increase was offset by increases
in the average balance of the higher costing certificates of deposit and
borrowed funds of $7.5 million and $2.0 million, respectively. Likewise, for the
three months ended June 30, 2000 the average rate paid on certificates of
deposit and borrowed funds increased 51 basis points, to 5.50%, and 57 basis
points, to 6.03%, respectively. Thus, the average cost of interest-bearing
liabilities increased to 4.71% for the three months ended June 30, 2000 from
4.38% for the same period of the previous year. Many of the Company's securities
repurchase agreements contain call features. If these repurchase agreements are
called (which is likely if interest rates continue to increase) and the Company
cannot replace the funding at a similar or lower interest rate, the interest
rate spread is likely to continue to decrease.
13
<PAGE>
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 would 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
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 six
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, and to 3.14% for the quarter ended June 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
$479 thousand, or 4.0%, to $12.4 million for the three months ended June 30,
2000 from $12.0 million for the three months June 30, 1999. The increase was
largely the result of the increase and shift in the average balance of earning
assets from federal fund sold and securities available for sale to loans
receivable (and, to a much lesser extent, FHLB stock.) This shift consisted
primarily of increases in the average balance of loans receivable of $40.3
million, or 9.4%, and FHLB stock of $1.6 million, or 22.49%, substantially
offset by decreases in securities available for sale of $32.4 million, or 13.0%,
and federal funds sold and interest-bearing deposits of $8.2 million, or 76.8%.
In addition to the increase and shift in the average balance of earning assets
was a 28 basis point increase in the average yield on total earning assets. The
yield on the average balance of earning assets was 7.17% and 6.89% for the three
months ended June 30, 2000 and 1999, respectively.
14
<PAGE>
Interest and fees on loans increased $853 thousand, or 10.9%, to $8.7
million for the three months ended June 30, 2000. This increase was primarily
the result of an increase in the average balance of net loans receivable of
$40.3 million, or 9.4%, to $469.3 million for the three months ended June 30,
2000 from $429.0 million for the three months ended June 30, 1999.
Interest income on securities available for sale decreased $308 thousand,
or 8.0%, to $3.6 million for the three months ended June 30, 2000 from $3.9
million for the previous period. This decrease is primarily the result of a
decrease in the average balance of securities available for sale of $32.4
million offset in part by a 36 basis point increase in the average yield on
these securities.
Interest income on federal funds sold and interest-bearing deposits
decreased $91 thousand, or 70.0%, to $39 thousand for the three months ended
June 30, 2000 from $130 thousand for the previous year's quarter primarily due
to a decrease in the average balance of federal funds sold and interest-bearing
deposits of $8.2 million, or 76.8%, resulting from the shift from lower yielding
federal funds sold and interest-bearing deposits to higher yielding loans
receivable.
Interest Expense. Total interest expense increased by $539 thousand, or
8.4%, to $7.0 million for the three months ended June 30, 2000 from $6.5 million
for the three months ended June 30, 1999. Total average interest-bearing
liabilities increased by $5.3 million, or 0.9%, to $596.6 million for the second
quarter of 2000 compared to $591.3 million for the same period of the previous
year primarily due to the funding of the increase in average earning assets and
the repurchases of the Company's stock. During the same periods, the average
rate paid on interest-bearing liabilities increased by 33 basis points to 4.71%
from 4.38%.
Total interest expense for the three months ended June 30, 2000 increased
primarily due to an increase of 57 basis points, to 6.03%, in the average rate
paid on total borrowed funds during the period. In addition, the average balance
on these funds increased to $168.0 million for the three months ended June 30,
2000, from $166.0 million for the previous period. Likewise, interest expense
relative to certificates of deposit and money market accounts increased as a
result of increases in the average balances on these deposit accounts. Moreover,
the increase in interest on certificates of deposit was primarily due to
increases in the average cost of these deposit accounts from 4.99% for the three
months ended June 30, 1999 to 5.50% for the three months ended June 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, 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 June 30,
2000 decreased $120 thousand to $120 thousand from $240 thousand for the three
months ended June 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 0.59% at June 30, 2000, offset
by an increase in net loan charge-offs.
15
<PAGE>
Non-Interest Income. Total non-interest income decreased by $62 thousand,
or 14.2%, from $438 thousand for the three months ended June 30, 1999 to $376
thousand for the three months ended June 30, 2000. This decrease was primarily
due to the sale of approximately $3.0 million in investments of mortgage-related
securities during the quarter ended June 30, 2000, resulting in a loss of $46
thousand. In addition, service charges on deposit accounts decreased $44
thousand to $306 thousand for the second quarter of 2000 from $350 thousand for
the same period of the previous year primarily due to the reduction in volume of
NSF fees charged to customers. Partially, offsetting this decrease were
increases relative to the increase in 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.
Non-Interest Expenses. Non-interest expenses increased $299 thousand, or
7.8%, to $4.1 million for the three months ended June 30, 2000 from $3.8 million
for the three months ended June 30, 1999 primarily due to increased costs
associated with salaries, wages and benefits and real estate owned and
repossessed assets. Also impacting non-interest expenses during the second
quarter of 2000 were 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 increased by $101 thousand, or 5.3%,
for the second quarter 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. 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 second quarter of 2000 was $22 thousand lower than the comparable
quarter in 1999 due to the lower stock price in 2000 relative to 1999.
Occupancy and equipment increased $17 thousand, or 3.1%, to $572 thousand
for the three months ended June 30, 2000, from $555 thousand in 1999 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 during the second quarter of 1999.
Real estate owned and repossessed assets expense increased $50 thousand to
$44 thousand for the three months ended June 30, 2000 due primarily from losses
recognized on the sale of real estate owned and repossessed assets during the
period.
Professional fees increased $61 thousand, or 69.3%, to $149 thousand for
the three months ended June 30, 2000, from $88 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. Moreover, if the Company's tender offer for the purchase of Cohoes
Bancorp, Inc. ("Cohoes") is unsuccessful it's expected that professional fees
will increase in future periods. See Part II item 5 for further information
regarding the Company's tender offer of Cohoes.
16
<PAGE>
Other non-interest expense increased $67 thousand, or 8.9%, to $820
thousand for the three months ended June 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 quarter ended June 30, 2000.
Income Tax Expense. Income tax expense decreased by $138 thousand, or
17.8%, to $638 thousand for the three months ended June 30, 2000 from $776
thousand for the three months ended June 30, 1999. The decrease was primarily
the result of the decrease in income before taxes, as well as certain tax
planning strategies being 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.
17
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 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 $470,173 $17,389 7.44% $427,099 $15,620 7.38%
Securities available for sale (AFS) 218,775 7,225 6.64% 246,897 7,658 6.25%
Federal Home Loan Bank stock 8,793 294 6.72% 7,215 241 6.74%
Federal funds sold &
interest-bearing deposits 2,648 72 5.47% 17,279 402 4.69%
-------------- --------- -------- ------------ --------- --------
Total earning assets 700,389 24,980 7.17% 698,490 23,921 6.91%
-------------- --------- -------- ------------ --------- --------
Allowance for loan losses (5,533) (5,115)
Unrealized gain/(loss) on AFS securities (10,563) 20
Other assets 34,902 32,924
--------------- ------------
Total assets $719,195 $726,319
=============== ============
Interest-bearing liabilities
Savings deposits 129,156 1,762 2.74% 139,457 2,007 2.90%
NOW deposits 37,159 247 1.34% 37,369 299 1.61%
Certificates of deposit 232,525 6,290 5.44% 226,665 5,670 5.04%
Money market accounts 27,952 535 3.85% 22,520 426 3.81%
Borrowed funds 174,987 5,184 5.96% 169,843 4,620 5.49%
-------------- --------- -------- ------------ --------- --------
Total interest-bearing liabilities 601,779 14,018 4.68% 595,854 13,022 4.41%
-------------- --------- -------- ------------ --------- --------
Demand deposits 35,998 33,096
Other liabilities 6,026 12,216
--------------- ------------
Total liabilities 643,803 641,166
--------------- ------------
Stockholders' equity 75,392 85,153
--------------- ------------
Total liabilities & equity $719,195 $726,319
=============== ============
Net interest income $10,962 $10,899
Interest rate spread 2.49% 2.50%
Net earning assets $ 98,610 $102,636
Net interest margin 3.15% 3.15%
Average earning assets/Average
interest-bearing liabilities 116.39% 117.23%
</TABLE>
18
<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.
Six months ended June 30,
2000 vs. 1999
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (Dollars in thousands)
Loans receivable .......................... $ 1,632 $ 137 $1,769
Securities available for sale ............. (946) 513 (433)
Federal Home Loan Bank stock .............. 53 -- 53
Federal funds sold and interest-bearing
deposits ............................... (412) 82 (330)
--------- -------- --------
Total earning assets .................. 327 732 1,059
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (141) (104) (245)
NOW deposits ............................. (2) (50) (52)
Certificates of deposit ................... 154 466 620
Money market accounts ..................... 105 4 109
Borrowed funds ............................ 147 417 564
--------- -------- --------
Total interest-bearing liabilities .... 263 733 996
--------- -------- --------
Net interest income ..................... $ 64 $ (1) $ 63
========= ======== ========
19
<PAGE>
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999.
Net Income. Net income decreased by $214 thousand, or 10.1%, for the six
months ended June 30, 2000 to $1.9 million from $2.1 million for the six months
ended June 30, 1999. Net income for the six months ended June 30, 2000 was
reduced primarily as a result of increased non-interest expenses, offset in part
by a decrease in the provision for loan losses and an increase in net interest
income. These and other changes are discussed in more detail below.
Net Interest Income. Net interest income increased $63 thousand, or 0.6%,
to $11.0 million for the six months ended June 30, 2000 from $10.9 million for
the six months ended June 30, 1999. The increase in net interest income was
primarily due to an increase of $1.9 million in the average balance of earning
assets partially offset by an increase in the average balance of
interest-bearing liabilities of $5.9 million, or 1.0%. The interest rate spread
and net interest margin for the six months ended June 30, 2000 of 2.49% and
3.15%, respectively, were consistent with the ratios for the six months ended
June 30, 1999 of 2.50% and 3.15%, respectively.
Interest and Dividend Income. Interest and dividend income increased by
$1.1 million, or 4.4%, to $25.0 million for the six months ended June 30, 2000
from $23.9 million for the six months ended June 30, 1999. The increase was
largely the result of increases in the average balance of loans receivable of
$43.1 million, or 10.1%, and FHLB stock of $1.6 million, or 21.9%, substantially
offset by decreases in securities available for sale of $28.1 million, or 11.4%,
and federal funds sold and interest-bearing deposits of $14.6 million, or 84.7%.
In addition to the increase and shift in the average balance of earning assets
was a 26 basis point increase in the average yield on total earning assets. The
yield on the average balance of earning assets was 7.17% and 6.91% for the six
months ended June 30, 2000 and 1999, respectively.
Interest and fees on loans increased $1.8 million, or 11.3%, to $17.4
million for the six months ended June 30, 2000. This increase was primarily the
result of an increase in the average balance of net loans receivable of $43.1
million, or 10.1%, to $470.2 million for the six months ended June 30, 2000 from
$427.1 million for the six months ended June 30, 1999.
Interest income on securities available for sale decreased $433 thousand,
or 5.7%, to $7.2 million for the six months ended June 30, 2000 from $7.7
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
$28.1 million offset in part by a 39 basis point increase in the average yield
on these securities.
Interest income on federal funds sold and interest-bearing deposits
decreased $330 thousand, or 82.1%, to $72 thousand for the six months ended June
30, 2000 from $402 thousand for the previous year primarily due to a decrease in
the average balance of federal funds sold and interest-bearing deposits of $14.6
million, or 84.7%, resulting from the shift from lower yielding federal funds
sold and interest-bearing deposits to higher yielding loans receivable.
20
<PAGE>
Interest Expense. Total interest expense increased by $996 thousand, or
7.6%, to $14.0 million for the six months ended June 30, 2000 from $13.0 million
for the six months ended June 30, 1999. Total average interest-bearing
liabilities increased by $5.9 million, or 1.0%, to $601.8 million for the first
six months of 2000 compared to $595.9 million for the same period of the
previous year primarily due to the funding of the increase in average earning
assets and the repurchases of the Company's stock. During the same periods, the
average rate paid on interest-bearing liabilities increased by 27 basis points
to 4.68% from 4.41%.
Total interest expense for the six months ended June 30, 2000 increased
primarily due to an increase of 47 basis points, to 5.96%, in the average rate
paid on total borrowed funds during the period. In addition, the average balance
on these funds increased to $175.0 million for the six months ended June 30,
2000, from $169.8 million for the previous period. Likewise, interest expense
relative to certificates of deposit and money market accounts increased as a
result of increases in the average balances on these deposit accounts. Moreover,
the increase in interest on certificates of deposit was primarily due to
increases in the average cost of these deposit accounts from 5.04% for the six
months ended June 30, 1999 to 5.44% for the six months ended June 30, 2000.
Provision for Loan Losses. The provision for loan losses for the six months
ended June 30, 2000 decreased $255 thousand to $240 thousand from $495 thousand
for the six months ended June 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 0.59% at
June 30, 2000, offset by an increase in net loan charge-offs.
Non-Interest Income. Total non-interest income increased by $3 thousand, or
0.3%, to $865 thousand for the three months ended June 30, 2000 from $862
thousand for the three months ended June 30, 1999. As previously mentioned,
during the quarter ended June 30, 2000, the Company sold approximately $3.0
million in investments of mortgage-related securities recognizing a loss of $46
thousand. Likewise, service charges on deposit accounts decreased $42 thousand
from comparable periods primarily due to the reduction in volume of NSF fees
charged 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 $731 thousand, or
9.6%, to $8.3 million for the three months ended June 30, 2000 from $7.6 million
for the three months ended June 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.
21
<PAGE>
Salaries, wages and benefits expense increased by $365 thousand, or 9.7%,
for the first six 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. 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 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 six months of 2000 was $56 thousand lower than
the comparable period in 1999 due to the lower stock price in 2000 relative to
1999.
Occupancy and equipment decreased $14 thousand, or 1.2%, to $1.2 million
for the six months ended June 30, 2000 when compared to the previous period
primarily due to 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. Offsetting these
decreases was 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.
Data processing increased $155 thousand, or 24.8%, from $626 thousand in
1999 to $781 thousand for the six months ended June 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.
Other non-interest expenses increased $135 thousand, or 8.7%, to $1.7
million for the six months ended June 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 $196 thousand, or
12.6%, to $1.4 million for the six months ended June 30, 2000 from $1.6 million
for the six months ended June 30, 1999. The decrease was primarily the result of
the decrease in income before taxes.
22
<PAGE>
ASSET QUALITY
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated.
June 30, Dec.31,
2000 1999
------ ------
(In thousands)
Non-accruing loans:
One-to four-family (1)............ $1,308 $1,570
Commercial real estate ........... 84 274
Consumer ......................... 261 434
Commercial business .............. 389 298
------ ------
Total .......................... 2,042 2,576
------ ------
Accruing loans delinquent
more than 90 days:
One-to four-family (1)............ 164 372
Commercial real estate ........... -- 685
Consumer ......................... 9 11
------ ------
Total .......................... 173 1,068
------ ------
Troubled debt restructured loans:
One-to four-family (1)............ 83 84
Commercial real estate ........... 466 475
Commercial business .............. 4 7
------ ------
Total .......................... 553 566
------ ------
Total non-performing loans .......... 2,768 4,210
------ ------
Foreclosed assets:
One-to four-family (1)............ 109 126
Commercial real estate ........... 112 142
Consumer ......................... 21 54
------ ------
Total .......................... 242 322
------ ------
Total non-performing assets ......... $3,010 $4,532
====== ======
Non-performing loans as a percentage
of total loans ...................... 0.59% 0.89%
Non-performing assets as a percentage
of total assets ..................... 0.42% 0.61%
(1) Includes home equity loans.
23
<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 six months
ended June 30,
2000 1999
------- -------
(In thousands)
Balance at beginning of period ........ $ 5,509 $ 4,891
Charge-offs:
One- to four-family (1)........... (1) (55)
Consumer ......................... (186) (51)
Commercial business .............. (6) (49)
------- -------
Total charge-offs ............. (193) (155)
Recoveries:
One- to four-family (1)........... 1 --
Commercial real estate ........... -- 35
Consumer ......................... 11 71
Commercial business .............. 6 15
------- -------
Total recoveries .............. 18 121
Net charge-offs ....................... (175) (34)
Provisions charged to operations ...... 240 495
------- -------
Balance at end of period .............. 5,574 5,352
======= =======
Ratio of allowance for loan
losses to total loans (period end) .... 1.20% 1.23%
Ratio of allowance for loan losses
to non-performing loans (at period end) 201.37% 167.98%
Ratio of net charge-offs during the
period to average loans outstanding
during period (annualized) ............ 0.07% 0.02%
(1) Includes home equity loans.
24
<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 31.86% and
28.36% at June 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 June 30, 2000 and December 31, 1999, the Company had $74.4 million and
$92.2 million, respectively, in outstanding borrowings from the FHLB and $82.6
million and $112.7 million, respectively, in securities repurchase agreements,
the vast majority of which are also with the FHLB.
As of June 30, 2000 and December 31, 1999, the Company had $205.1 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 June 30, 2000, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
June 30, 2000 according to regulatory definition. At June 30, 2000, the Bank's
tangible and core capital levels were both $66.4 million (9.30% of total
adjusted assets) and its total risk-based capital level was $70.4 million
(21.99% 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.
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During the first six 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.
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. Management is currently evaluating what impact, if any, this
Statement will have on the Company's consolidated financial statements.
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.
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Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Ambanc Holding Co., Inc.'s Annual Meeting of Shareholders was convened on
May 26, 2000.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to management's nominees as listed in the proxy statement, and all
such nominees were elected.
With respect to management's nominees, voting was as follows: John J.,
Daly, For - 4,424,325, Withheld - 239,738, Marvin R. LeRoy, Jr., For -
4,423,830, Withheld - 240,233 Lawrence B. Seidman, For - 4,406,788, Withheld -
257,275, Ronald S. Tecler, For - 4,424,307, Withheld - 239,756.
Proxies were also solicited at the annual meeting for the ratification of
the appointment of KPMG LLP as independent auditors of the Company. The proposal
was adopted, with 4,647,789 shares voting For, 10,330 shares voting Against, and
5,944 shares Abstaining.
Item 5. Other Information
On July 27, 2000, the Company announced its intention to solicit proxies
against the proposed merger of Cohoes Bancorp, Inc. ("Cohoes") with Hudson River
Bancorp., Inc. (the "Merger"). On July 31, 2000, the Company filed preliminary
proxy materials with the Securities and Exchange Commission ("SEC"). The Company
intends to mail its proxy materials as soon as possible following completion of
SEC review of the materials. In addition, on August 9, 2000, the Company
commenced a tender offer for all of the outstanding shares of Cohoes for $16.50
per share and filed its tender offer materials with the SEC on that date.
Investors are urged to carefully read the proxy materials, as well as the tender
offer materials, filed with the SEC, because they contain important information.
Investors may obtain a free copy of the preliminary proxy materials, and the
tender offer materials, at the SEC's website at www.sec.gov. These documents may
also be obtained for free from the Company by directing a written request to
Ambanc Holding Co., Inc., 11 Division Street, Amsterdam, New York 12010,
Attention: Secretary. The Company and its directors and executive officers may
be deemed to be "participants" in the Company's solicitation of proxies from
Cohoes shareholders to be voted against the proposed Merger. Information about
the participants, including their holdings of Cohoes stock, may be obtained
through the SEC's website in a Rule 14a-12 statement filed by the Company with
the SEC.
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
During the quarter under report, a Form 8-K (item 5 & 7) was
filed on June 30, 2000.
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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: August 11, 2000
/s/ James J. Alescio
James J. Alescio
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: August 11, 2000
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