UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from_______ to __________.
Commission file number: 0-27036
AMBANC HOLDING CO., INC.
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(Exact name of registrant as specified in its charter)
Delaware 14-1783770
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Division Street, Amsterdam, New York 12010-4303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)842-7200
---------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES [X]. NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock on the
Nasdaq National Market as of March 23, 2000, was $65,586,561. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)
As of March 23, 2000, there were issued and outstanding 4,926,690 shares of
the Registrant's Common Stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to
Shareholders for the year ended December 31, 1999.
Part III of Form 10-K - Portions of the Proxy Statement for the Annual
Meeting of Shareholders for the year ended December 31, 1999.
PART I
Item 1. Description of Business
General
Ambanc Holding Co., Inc. (the "Company") was formed as a Delaware
corporation in June 1995 to act as the holding company for Mohawk Community Bank
(formerly known as Amsterdam Savings Bank, FSB) (the "Bank") upon the completion
of the Bank's conversion from mutual to stock form (the "Conversion"). The
Company received approval from the Office of Thrift Supervision (the "OTS") to
acquire all of the common stock of the Bank to be outstanding upon completion of
the Conversion. The Conversion was completed on December 26, 1995. The Company's
Common Stock trades on The Nasdaq National Market under the symbol "AHCI". All
references to the Company, unless otherwise indicated, at or before December 26,
1995 refer to the Bank.
On November 16, 1998, the Company acquired AFSALA Bancorp. Inc. ("AFSALA")
and its wholly owned subsidiary, Amsterdam Federal Bank. At the date of the
merger, AFSALA had approximately $167.1 million in assets, $144.1 million in
deposits, and $19.2 million in shareholders' equity. Pursuant to the merger
agreement, AFSALA was merged with and into the Company, and Amsterdam Federal
Bank was merged with and into the former Amsterdam Savings Bank, FSB. The
combined bank now operates as one institution under the name "Mohawk Community
Bank". Upon consummation of the merger, each share of AFSALA common stock was
converted into the right to receive 1.07 shares of Ambanc common stock. Based on
the 1,249,727 shares of AFSALA common stock issued and outstanding immediately
prior to the merger, the Company issued 1,337,081 shares of common stock in the
merger and paid out 126 fractional shares in cash. Of the 1,337,081 shares
issued in the merger, 1,327,086 were issued from the Company's treasury stock
and 9,995 were newly-issued shares. In addition, under the merger agreement, the
Company assumed unexercised, fully-vested options to purchase 144,118 shares of
AFSALA common stock which converted into fully-vested options to purchase
154,203 shares of Ambanc common stock.
At December 31, 1999, the Company had $740.7 million of assets and
shareholders' equity of $75.6 million or 10.2% of total assets.
The Bank, organized in 1886, is a federally chartered savings bank
headquartered in Amsterdam, New York. The principal business of the Bank
consists of attracting retail deposits from the general public and using those
funds, together with borrowings and other funds, to originate primarily one- to
four-family residential mortgage loans, home equity loans and consumer loans,
and to a lesser extent, commercial and multi-family real estate, and commercial
business loans in the Bank's primary market area. See "Market Area." The Bank
also invests in mortgage-backed securities, U.S. Government and agency
obligations and other permissible investments. Revenues are derived primarily
from interest on loans, mortgage-backed and related securities and investments.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank is a member of the Bank Insurance Fund (the
"BIF"), which is administered by the Federal Deposit Insurance Corporation (the
"FDIC"). Its deposits are insured up to applicable limits by the FDIC, which
insurance is backed by the full faith and credit of the United States
Government. The Bank primarily solicits deposits in its primary market area and
currently does not have brokered deposits. The Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
The Company's and the Bank's executive office is located at 11 Division
Street, Amsterdam, New York, 12010-4303, and its telephone number is (518)
842-7200.
Forward-looking Statements
When used in this Annual Report on Form 10-K, in future filings by the
Company with the Securities and Exchange 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.
Market Area
The Company's primary market area is comprised of Albany, Schenectady,
Saratoga, Montgomery, Fulton, Chenango, Schoharie and Otsego Counties in New
York, which are serviced through the Bank's main office, sixteen other banking
offices and its operations center.
The Company's primary market area consists principally of suburban and
rural communities but also includes the capital of New York State, Albany. The
economy of the Company's primary market area is highly dependent on
manufacturing, state government services (including the State University of New
York at Albany), and private higher education services. These three sectors
provide the basis for the region's economy and the principal support for its
remaining sectors, such as retail trade, finance, and medical services.
Significant reductions in two of the region's main sectors, manufacturing and
state government, from completed, announced, and anticipated layoffs and
relocations are expected to continue to have a negative effect on the economy in
the Company's primary market area.
<PAGE>
Lending Activities
General
The Company primarily originates fixed- and adjustable rate, one- to
four-family mortgage loans. The Company's general policy is to originate
mortgages with terms between 15 and 30 years for retention in its portfolio. The
Company also originates fixed and adjustable rate consumer loans. Adjustable
rate mortgage ("ARM"), home equity and consumer loans are originated in order to
maintain loans with more frequent terms to repricing or shorter maturities than
fixed-rate, one- to four-family mortgage loans. See "- Loan Portfolio
Composition" and "- One- to Four-Family Residential Real Estate Lending." In
addition, the Company originates commercial and multi-family real estate,
construction and commercial business loans in its primary market area. Loan
originations are generated by the Company's marketing efforts, which include
print and radio advertising, lobby displays and direct contact with local civic
and religious organizations, as well as by the Company's present customers,
walk-in customers and referrals from real estate agents, brokers and builders.
At December 31, 1999, the Company's net loan portfolio totaled $465.5 million.
Loan applications are initially considered and approved at various levels
of authority, depending on the type, amount and loan-to-value ratio of the loan.
Bank employees with lending authority are designated, and their lending limit
authority defined, by the Board of Directors of the Bank. The approval of the
Bank's Board of Directors is required for all loan relationships whose aggregate
borrowings are in excess of $2,000,000. The Bank also has an Officer/Director
Loan Committee which has authority to approve loans between $1,250,000 and
$2,000,000 and meets as needed to approve loans between Board meetings.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At
December 31, 1999, the maximum amount which the Bank could have loaned to any
one borrower and the borrower's related entities was approximately $10.2
million. At such date, the Bank did not have any loans or series of loans to
related borrowers with an outstanding balance in excess of this amount.
<PAGE>
Loan Portfolio Composition.
The following table presents information concerning the composition of the
Company's loan portfolio in dollar amounts and in percentages (before deferred
costs, net of deferred fees and discounts, and the allowance for loan losses) as
of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------ -------- ------ -------- ------ -------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $306,665 65.43% $273,523 64.53% $189,666 66.88% 158,182 63.15% $133,468 53.20%
Home Equity 92,605 19.76 83,949 19.80 30,246 10.67 22,817 9.11 17,519 6.98
Multi-family 3,881 0.83 4,165 0.98 4,152 1.46 4,724 1.88 8,176 3.26
Commercial 27,910 5.96 23,506 5.55 26,585 9.38 29,947 11.96 41,929 16.71
Construction 4,924 1.05 3,600 0.85 2,081 0.73 2,234 0.89 1,073 0.43
-------- ----- -------- ----- -------- ------ -------- ------ -------- ------
Total Real Estate 435,985 93.03 388,743 91.71 252,730 89.12 217,904 86.99 202,165 80.58
-------- ----- -------- ----- -------- ------ -------- ------ -------- ------
Other Loans:
Consumer Loans
Auto Loans 11,641 2.48 14,146 3.34 16,237 5.73 12,417 4.96 9,337 3.72
Recreational Vehicles 3,551 0.76 4,990 1.18 6,775 2.39 9,416 3.76 12,881 5.13
Manufactured Homes 249 0.05 385 0.09 494 0.17 620 0.25 13,484 5.37
Other Secured 4,697 1.00 6,289 1.48 1,781 0.63 1,866 0.74 2,020 0.81
Unsecured 5,918 1.26 3,712 0.88 1,847 0.65 1,445 0.58 1,299 0.52
-------- ----- -------- ----- ------- ------ -------- ------ -------- ------
Total Consumer Loans 26,056 5.56 29,522 6.96 27,134 9.57 25,764 10.29 39,021 15.55
-------- ----- -------- ----- ------- ------ -------- ------ -------- ------
Commercial Business Loans:
Secured 5,562 1.19 5,101 1.20 3,233 1.14 6,199 2.47 9,346 3.73
Unsecured 1,063 0.23 508 0.12 471 0.17 620 0.25 350 0.14
-------- ----- -------- ----- ------- ------ -------- ------ -------- ------
Total Commercial
Business Loans 6,625 1.41 5,609 1.32 3,704 1.31 6,819 2.72 9,696 3.87
-------- ----- -------- ----- ------- ------ -------- ------ -------- ------
Total Loan Portfolio, Gross 468,666 100.00% 423,874 100.00% 283,568 100.00% 250,487 100.00% 250,882 100.00%
====== ====== ====== ====== ======
Deferred costs, net of deferred
fees and discounts
Allowance for Loan Losses 2,320 1,950 1,362 1,045 1,756
(5,509) (4,891) (3,807) (3,438) (2,647)
Total Loans Receivable, Net -------- -------- -------- -------- --------
$465,477 $420,933 $281,123 $248,094 $249,991
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table shows the composition of the Company's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
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1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Loans:
Real Estate:
One- to four-family $254,438 54.29% $204,184 48.17% $124,457 43.89% $111,841 44.65% $ 91,528 36.48%
Home Equity 86,596 18.48 77,553 18.30 23,099 8.14 15,234 6.08 8,405 3.35
Commercial and Multi-family 12,212 2.60 6,201 1.46 2,723 0.96 2,590 1.03 2,633 1.05
Construction 4,924 1.05 2,867 0.68 2,081 0.73 1,840 0.73 633 0.25
-------- ------ -------- ------ -------- ------- -------- ------- -------- -------
Total Real Estate 358,170 76.42 290,805 68.61 152,360 53.72 131,505 52.49 103,199 41.13
Consumer 26,009 5.55 28,771 6.79 26,260 9.26 25,110 10.03 33,343 13.29
Commercial Business 4,579 0.98 3,501 0.83 1,415 0.50 3,124 1.24 4,476 1.79
-------- ------ -------- ------ -------- ------- -------- ------- -------- -------
Total fixed-rate loans 388,758 82.95 323,077 76.22 180,035 63.48 159,739 63.76 141,018 56.21
-------- ------ -------- ------ -------- ------- -------- ------- -------- -------
Adjustable Rate Loans:
Real Estate:
One- to four-family 52,227 11.14 69,339 16.36 65,209 23.00 46,341 18.50 41,940 16.72
Home Equity 6,009 1.28 6,396 1.51 7,147 2.52 7,583 3.03 9,114 3.63
Commercial and Multi-family 19,579 4.18 21,470 5.07 28,014 9.88 32,081 12.81 47,472 18.92
Construction -- -- 733 0.17 --- ---- 394 0.16 440 0.18
-------- ------ -------- ------ -------- ------- -------- ------- -------- -------
Total Real Estate 77,815 16.60 97,938 23.10 100,370 35.40 86,399 34.50 98,966 39.45
Consumer 47 0.01 751 0.18 874 0.31 654 0.26 5,678 2.26
Commercial Business 2,046 0.44 2,108 0.17 2,289 0.81 3,695 1.48 5,220 2.08
-------- ------ -------- ------ -------- ------- -------- ------- -------- -------
Total adjustable-rate loans 79,908 17.05 100,797 23.78 103,533 36.52 90,748 36.24 109,864 43.79
-------- ------ -------- ------ -------- ------- -------- ------- -------- -------
Total Loan Portfolio, Gross 468,666 100.00% 423,874 100.00% 283,568 100.00% 250,487 100.00% 250,882 100.00%
====== ====== ====== ====== ======
Deferred costs, net of deferred
fees and discounts 2,320 1,950 1,362 1,045 1,756
Allowance for Loan Losses (5,509) (4,891) (3,807) (3,438) (2,647)
-------- -------- -------- -------- --------
Total Loans Receivable, Net $465,477 $420,933 $281,123 $248,094 $249,991
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table illustrates the maturity of the Company's loan
portfolio at December 31, 1999. Loans which have adjustable or renegotiable
interest rates are shown as maturing in the period during which the interest
rate changes. The schedule does not reflect the effects of possible prepayments
or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------------
One- to Multi-
Four-Family Family and Commercial
and Home Equity Commercial Construction Consumer Business Total
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Due During Periods
Ending December 31,
2000 (1) $34,486 $ 6,730 $ 773 $3,388 $3,268 $48,645
2001 to 2004 46,505 14,558 --- 17,788 1,634 80,485
2005 and beyond 318,279 10,503 4,151 4,915 1,688 339,536
------- ------- ------ ------- ------- -------
Totals $399,270 $31,791 $4,924 $26,091 $6,590 $468,666
======= ======= ====== ======= ======= =======
<FN>
- ---------------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</FN>
</TABLE>
As of December 31, 1999, the total amount of loans due after December 31,
2000 which have fixed interest rates was $361.6 million, while the total amount
of loans due after such date which have floating or adjustable interest rates
was $58.4 million.
One- to Four-Family Residential Real Estate Lending
The Company's residential first mortgage loans consist primarily of one- to
four-family, owner-occupied mortgage loans. At December 31, 1999, $306.7
million, or 65.4%,of the Company's gross loans consisted of one- to four-family
residential first mortgage loans. Approximately 83.0% of the Company's one- to
four-family residential first mortgage loans provide for fixed rates of interest
and for repayment of principal over a fixed period not to exceed 30 years. The
Company's fixed-rate one- to four-family residential mortgage loans are priced
competitively with the market. Accordingly, the Company attempts to distinguish
itself from its competitors based on quality of service.
The Company generally underwrites its fixed-rate, one- to four-family,
residential, first mortgage loans using Federal National Mortgage Association
("FNMA") secondary market standards. The Company generally holds for investment
all one- to four-family residential first mortgage loans it originates. In
underwriting one- to four-family residential first mortgage loans, the Company
evaluates both the borrower's ability to make monthly payments and the value of
the property securing the loan. Properties securing real estate loans made by
the Company are appraised by independent fee appraisers approved by the Board of
Directors. The Company requires borrowers to obtain title insurance, and fire
and property insurance (including flood insurance, if necessary) in an amount
not less than the amount of the loan.
The Company currently offers one, three, five and seven year residential
ARM loans with an interest rate that adjusts annually in the case of a one-year
ARM loan, and every three, five or seven years in the case of a three, five or
seven year ARM loan, respectively, based on the change in the relevant Treasury
constant maturity index. These loans provide for up to a 2.0% periodic cap and a
lifetime cap of 6.0% over the initial rate. As a consequence of using caps, the
interest rates on these loans may not be as rate sensitive as is the Company's
cost of funds. Borrowers of one-year residential ARM loans are generally
qualified at a rate 2.0% above the initial interest rate. The Company's
residential ARM loans may be modified into fixed-rate loans. ARM loans generally
pose greater credit risks than fixed-rate loans, primarily because as interest
rates rise, the required periodic payment by the borrower rises, increasing the
potential for default.
The Company's one- to four-family mortgage loans do not contain prepayment
penalties and do not permit negative amortization of principal. Real estate
loans originated by the Company generally contain a "due on sale" clause
allowing the Company to declare the unpaid principal balance due and payable
upon the sale of the security property. The Company has waived the due on sale
clause on loans held in its portfolio from time to time to permit assumptions of
the loans by qualified borrowers.
The Company does not currently originate residential mortgage loans if the
ratio of the loan amount to the value of the property securing the loan (i.e.,
the "loan-to-value" ratio) exceeds 95%. If the loan-to-value ratio exceeds 90%,
the Company requires that borrowers obtain private mortgage insurance in amounts
intended to reduce the Company's exposure to 80% or less of the lower of the
appraised value or the purchase price of the real estate security.
The Company makes construction loans to individuals for the construction of
their residences. The Company has occasionally made loans to builders for the
construction of residential homes, provided the builder has a sales contract to
sell the home upon completion. No construction loan is approved unless there is
evidence of a commitment for permanent financing upon completion of the
residence, whether through the Company or another financial institution.
Construction loans generally will require construction stage inspections before
funds may be released to the borrower. Such inspections are generally performed
by outside fee appraisers.
At December 31, 1999, the Company's construction loan portfolio totaled
$4.9 million, or 1.1% of its gross loan portfolio. Substantially all of these
construction loans were to individuals intending to occupy such residences and
were secured by property located within the Company's primary market area.
Although no construction loans were classified as non-performing as of December
31, 1999, these loans do involve a higher level of risk than conventional one-
to four-family residential mortgage loans. For example, if a project is not
completed and the borrower defaults, the Company may have to hire another
contractor to complete the project at a higher cost.
Home Equity Lending
The Company's home equity loans and lines of credit are secured by a lien
on the borrower's residence and generally do not exceed $300,000. The Company
uses the same underwriting standards for home equity loans as it uses for one-
to four-family residential mortgage loans. Home equity loans are generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 90% of the appraised value of the property securing the loan. The
interest rates for home equity loans and lines of credit adjust at a stated
margin over the prime rate or, in the case of loans (but not lines of credit),
have fixed interest rates. Home equity lines of credit generally require
interest only payments on the outstanding balance for the first five years of
the loan, after which the outstanding balance is converted into a fully
amortizing, adjustable-rate loan with a term not in excess of 15 years. As of
December 31, 1999, the Company had $92.6 million in home equity loans and lines
of credit outstanding, with an additional $3.0 million of unused home equity
lines of credit.
Commercial and Multi-Family Real Estate Lending
The Company has engaged in commercial and multi-family real estate lending
secured primarily by apartment buildings, small office buildings, motels,
warehouses, nursing homes, strip shopping centers and churches located in the
Company's primary market area. At December 31, 1999, the Company had $27.9
million and $3.9 million of commercial real estate and multi-family real estate
loans, respectively, which represented 6.0% and 0.8%, respectively, of the
Company's gross loan portfolio at that date.
The Bank's commercial and multi-family real estate loans generally have
adjustable rates and terms to maturity that do not exceed 20 years. The
Company's current lending guidelines generally require that the multi-family or
commercial income-producing property securing a loan generate net cash flows of
at least 125% of debt service after the payment of all operating expenses,
excluding depreciation, and a loan-to-value ratio not exceeding 65%. Prior to
September 1990, the Company originated commercial and multi-family loans with
loan-to-value ratios of up to 75%. Due to declines in the value of some
properties as a result of the economic conditions in the Company's primary
market area, however, the current loan-to-value ratio of some commercial and
multi-family real estate loans in the Company's portfolio may exceed the initial
loan-to-value ratio. Adjustable rate commercial and multi-family real estate
loans provide for interest at a margin over a designated index, with periodic
adjustments at frequencies of up to five-years. The Company generally analyzes
the financial condition of the borrower, the borrower's credit history, the
reliability and predictability of the cash flows generated by the property
securing the loan and the value of the property itself. The Company generally
requires personal guarantees of the borrowers in addition to the security
property as collateral for such loans. Appraisals on properties securing
commercial and multi-family real estate loans originated by the Company are
performed by independent fee appraisers approved by the Board of Directors.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed, or a
bankruptcy court modifies a lease term, or a major tenant is unable to fulfill
its lease obligations), the borrower's ability to repay the loan may be impaired
and the value of the property may be reduced. The balances of these types of
loans have declined over the past five years with a significant decrease from
$50.1 million at December 31, 1995 to $31.8 million at December 31, 1999, due
primarily to the bulk sale of certain performing and non-performing loans in
1996. At December 31, 1999, $1.4 million or 4.5% of the Company's multi-family
and commercial real estate loan portfolio was non-performing.
Consumer Lending
The Company offers a variety of secured consumer loans, including loans
secured by automobiles and recreational vehicles ("RV's"). In addition, the
Company offers other secured and unsecured consumer loans. The Company currently
originates substantially all of its consumer loans in its primary market area.
The Company originates consumer loans on a direct basis only, where the Company
extends credit directly to the borrower. At December 31, 1999 the Company's
consumer loan portfolio totaled $26.1 million, or 5.6% of the gross loan
portfolio. At December 31, 1999, 99.8% of the Company's consumer loans were
fixed-rate loans and 0.2% were adjustable-rate loans.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. Terms to maturity range
up to 15 years for manufactured homes and certain RV's and up to 60 months for
other secured and unsecured consumer loans. The Company offers both open- and
closed-end credit. Open-end credit is extended through lines of credit that are
generally tied to a checking account. These credit lines currently bear interest
up to 18% and are generally limited to $10,000.
The underwriting standards employed by the Company for consumer loans
include, a determination of the applicant's payment history on other debts and
an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
At December 31, 1999, automobile loans and RV loans (such as motor homes,
boats, motorcycles, snowmobiles and other types of recreational vehicles)
totaled $11.6 million and $3.6 million or 44.7% and 13.6% of the Company's total
consumer loan portfolio, and 2.5% and 0.8% of its gross loan portfolio,
respectively.
Originations are generated primarily through advertising and lobby
displays. The Company has also maintained relationships with local automobile
dealerships in order to further enhance automobile originations through their
referrals. The Company's maximum loan-to-value ratio on new automobiles is 100%
of the borrower's cost including sales tax, and on used automobiles up to 5
years old, 100% of the vehicle's average retail value, based on NADA (National
Auto Dealers Association) valuation. Non-performing automobile loans as of
December 31, 1999 totaled $32,000 or 0.1% of the Company's consumer loan
portfolio.
Of the RV loan balance, approximately $2.6 million and $1.0 million were
secured by new and used RVs, respectively. Approximately 75% of the RV portfolio
consists of loans that were originated through the Company's relationship with
Alpin Haus, Inc., a retail RV dealer formerly owned by one of the Company's
directors. The Company's maximum loan-to-value ratio on new and used RV loans is
the lesser of (i) 85% of the borrower's cost, which includes such items as sales
tax and dealer options or (ii) 115% of either the factory invoice for a new RV
or the wholesale value, plus sales tax, for a used RV. In the case of used RV's,
the wholesale value is determined using published guide books. At December 31,
1999, RV loans totaling $147,000 or 4.1% of the total RV portfolio were
non-performing.
Consumer loans may entail greater credit risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, e.g. RVs and automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of high
initial loan-to-value ratios, repossession, rehabilitation and carrying costs,
and the greater likelihood of damage, loss or depreciation of the underlying
collateral. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on these loans. In the case of RV loans,
which tend to have loan balances in excess of the resale value of the
collateral, borrowers may abandon the collateral property making repossession by
the Company and subsequent losses more likely.
During 1996, the Company sold certain performing and non-performing loans
as part of a bulk sale, including a majority of its manufactured home loan
portfolio, as well as certain RV loans, thereby significantly reducing its
credit risk exposure on these types of loans. However, management expects that
delinquencies in its consumer loan portfolio may increase as RV loans continue
to season. At December 31, 1999, a total of $445,000, or 1.7%, of the Company's
consumer loan portfolio was non-performing (including the non-performing
automobile and RV loans previously discussed). There can be no assurances that
additional delinquencies will not occur in the future.
Commercial Business Lending
The Company also originates commercial business loans. Although the
origination of these types of loans had been de-emphasized by the Bank prior to
the merger with AFSALA, management intends to actively originate commercial
loans with a particular emphasis on small business lending. At December 31,
1999, commercial business loans comprised $6.6 million, or 1.4% of the Company's
gross loan portfolio. Most of the Company's commercial business loans have been
extended to finance local businesses and include primarily short term loans to
finance machinery and equipment purchases and, to a lesser extent, inventory and
accounts receivable. Loans made to finance inventory and accounts receivable
will only be made if the borrower secures such loans with the inventory and/or
receivables plus additional collateral acceptable to the Company, generally real
estate. Commercial loans also involve the extension of revolving credit for a
combination of equipment acquisitions and working capital in expanding
companies.
The terms of loans extended on machinery and equipment are based on the
projected useful life of such machinery and equipment, generally not to exceed
seven years. Secured, non-mortgage lines of credit are available to borrowers
provided that the outstanding balance is paid in full (i.e., the credit line has
a zero balance) for at least 30 consecutive days every year. In the event the
borrower does not meet this 30 day requirement, the line of credit is generally
terminated and the outstanding balance is converted into an amortizing loan.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property, the value of which tends to be
more easily ascertainable, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the
business itself (which, in turn, is often dependent upon the general economic
environment). The Company's commercial business loans are usually, but not
always, secured by business assets. However, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business. As part of its commercial business
lending policy, the Company generally requires all borrowers with commercial
business loans to submit annual financial statements to the Company.
The Company's commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Consideration of the borrower's
cash flows is also an important aspect of the Company's current credit analysis.
The Company generally obtains personal guarantees on its commercial business
loans. Nonetheless, such loans are believed to carry higher credit risk than
more traditional thrift institution investments, such as residential mortgage
loans.
Loan Originations and Sales
Loan originations are developed from continuing business with depositors
and borrowers, soliciting realtors, dealerships and mortgage brokers, as well as
walk-in customers. Loans are originated by the Company's staff of salaried loan
officers.
While the Company originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon demand for loans in its market.
Demand is affected by the local economy and interest rate environment. The
Company currently retains fixed-rate and adjustable-rate real estate loans it
originates in its portfolio. As a regular part of its business, the Company does
not sell loans and, with the exception of the purchase of $31.9 million of
residential real estate loans in 1998, has not purchased a significant amount of
loans since 1989. During 1996, the Company completed the bulk sale of certain
performing and nonperforming loans in order to improve the credit quality of its
loan portfolio.
For the year ended December 31, 1999, the Company originated $138.7 million
of loans compared to $120.9 million and $91.5 million in 1998 and 1997,
respectively. The Company also purchased $31.9 million in residential mortgage
loans during 1998. These loans were located in Ohio and New Jersey. The current
balance of the loans purchased in 1998 is $17.0 million. The Company currently
has no plans or intentions to purchase additional loans. During 1999, 1998 and
1997 the Company increased its originations of one- to four-family mortgages
through the referrals of several local brokers.
In periods of economic uncertainty, the Company's ability to originate
large dollar volumes of real estate loans with acceptable underwriting
characteristics may be substantially reduced or restricted with a resultant
decrease in operating earnings.
Delinquency Monitoring
Generally, when a borrower fails to make a required payment on a loan
secured by residential real estate or consumer products, the Company initiates
collection procedures by mailing a delinquency notice after the account is 15
days delinquent. At 30 days delinquent, a personal letter is generally sent to
the customer requesting him or her to make arrangements to bring the loan
current. If the delinquency is not cured by the 45th day, the customer is
generally contacted by telephone and another personal letter is sent, with the
same procedure being repeated if the loan becomes 60 days delinquent. At 90 days
past due, a demand letter is generally sent. If there is no response, a final
demand letter for payment in full is sent, and unless satisfactory repayment
arrangements are made subsequent to the final demand letter, immediate
repossession or foreclosure procedures are commenced.
Similar collection procedures are employed for loans secured by commercial
real estate and commercial business collateral, except when such loans are 60
days delinquent, a letter is generally sent requesting rectification of the
delinquency within seven days, otherwise foreclosure or repossession procedures,
as applicable, are commenced.
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated. Loans are generally placed on non-accrual status
when the loan is more than 90 days delinquent (except for FHA insured and VA
guaranteed loans) or when the collection of principal and/or interest in full
becomes doubtful. When loans are designated as non-accrual, all accrued but
unpaid interest is reversed against current period income and, as long as the
loan remains on non-accrual status interest is recognized using the cash basis
method of income recogntion. Accruing loans delinquent 90 days or more include
FHA insured loans, VA guaranteed loans, and loans that are in the process of
negotiating a refinancing or restructuring with the Bank, excluding troubled
debt restructurings (TDRs), or where the Bank has been notified by the borrower
that the outstanding loan balance plus accrued interest and late fees will be
paid-in-full within a relatively short period of time from the date of such
notification. Foreclosed assets includes assets acquired in settlement of loans.
<PAGE>
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family (1) $1,570 $1,018 $843 $ 259 $1,525
Multi-family --- --- 28 --- 77
Commercial real estate 274 20 265 339 1,549
Consumer 434 342 293 256 605
Commercial business 298 230 447 2,269 743
------- -------- ------- ------- -------
Total 2,576 1,610 1,876 3,123 4,499
------- -------- ------- ------- -------
Accruing loans delinquent
more than 90 days:
One- to four-family (1) 372 358 280 151 261
Commercial real estate 685 215 13 568 ---
Consumer 11 7 2 6 ---
Commercial business --- --- 156 --- ---
------- -------- ------- ------- -------
Total 1,068 580 451 725 261
------- -------- ------- ------- -------
Troubled debt restructured loans:
One- to four-family (1) 84 85 86 88 89
Multi-family --- --- 34 38 1,626
Commercial real estate 475 537 761 781 2,185
Consumer --- --- -- 56 84
Commercial business 7 92 50 68 51
------- -------- ------- ------- -------
Total 566 714 931 1,031 4,035
------- -------- ------- ------- -------
Total non-performing loans 4,210 2,904 3,258 4,879 8,795
------- -------- ------- ------- -------
Foreclosed assets:
One- to four-family (1) 126 313 69 194 459
Multi-family --- --- --- 282 926
Commercial real estate 142 30 --- --- 1,503
Consumer 54 56 74 239 281
------- -------- ------- ------- -------
Total 322 399 143 715 3,169
------- -------- ------- ------- -------
Total non-performing assets $4,532 $3,303 $3,401 $5,594 $11,964
======= ======== ======= ======= =======
Total as a percentage of total assets 0.61% 0.45% 0.67% 1.18% 2.72%
<FN>
- --------------------------------------
(1) Includes home equity loans
</FN>
</TABLE>
<PAGE>
For the year ended December 31, 1999, gross interest income which would
have been recorded had the year end non-performing loans been current in
accordance with their original terms amounted to $498,000 ($404,000 from
non-accruing loans and $94,000 from restructured loans). The amount that was
included in interest income on such loans was $304,000 ($254,000 from
non-accruing loans and $50,000 from restructured loans), which represented
actual receipts. Consequently, $194,000 ($150,000 from non-accruing loans and
$44,000 from restructured loans) was not recognized in gross interest income for
the period.
Non-Accruing Loans
At December 31, 1999, the Company had $2.6 million in non-accruing loans,
which constituted 0.5% of the Company's gross loan portfolio. There were no
non-accruing loans or aggregate non-accruing loans-to-one-borrower in excess of
$500,000.
Accruing Loans Delinquent More than 90 Days
As of December 31, 1999, the Company had $1.1 million of accruing loans
delinquent more than 90 days. Of these loans, $345,000 were FHA insured or VA
guaranteed one-to four-family residential loans. The remaining $723,000
represented one (1) one-to four-family real estate loan, six (6) commercial real
estate loans, and four (4) consumer loans for which management believes that all
contractual payments are collectible.
Restructured Loans
As of December 31, 1999, the Company had restructured loans of $566,000.
The Company's restructured loans at that date consisted of one (1) one- to
four-family residential mortgage loan, three (3) commercial real estate loans,
and one (1) commercial business loans.
Foreclosed and Reposessed Assets
As of December 31, 1999, the Company had $322,000 in carrying value of
foreclosed and repossessed assets. One-to four-family real estate represented
39.1% of the Company's foreclosed and repossessed property, consisting of three
(3) properties. Commercial real estate represented 44.1% of the Company's
foreclosed and repossessed assets and consisted of two (2) properties.
Repossessed consumer assets represented 16.8% of the Company's foreclosed and
repossessed properties, consisting of six (6) recreational vehicles (including
automobiles).
Other Loans of Concern
As of December 31, 1999, there were $2.5 million of other loans not
included in the table or discussed above where known information about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms. Set forth
below is a description of other loans of concern in excess of $500,000.
The largest other loan of concern at December 31, 1999 consisted of a
commercial real estate loan secured by a one story educational facility located
in the Bank's market area. This loan was originated in December 1995 as a
$1,000,000 line of credit with a loan to value ratio of 25%. The loan matured on
December 31, 1998 with a principal balance of $892,000. After the borrower made
a principal payment of approximately $192,000 the remaining balance of the loan
was rewritten in February 1999 as a fully amortizing commercial mortgage in the
amount of $700,000 with a 15 year term. The value of the collateral was
reaffirmed by an independent appraisal. Continued concern regarding the source
of the loan's repayment has resulted in its continued status as a loan of
concern. At December 31, 1999, the loan was current and had a principal balance
of $665,000.
The second largest other loan of concern at December 31, 1999 consisted of
a multi-family real estate loan secured by a 32 unit apartment building located
outside of the Bank's primary market area. This loan was originated in December
1989 with a loan to value ratio of 72.2%. Although the property was 91% occupied
based on the latest rent roll, the cashflow generated was not sufficient to
service the debt. The borrower has been able to keep the loan current by
utilizing other sources of funds. Current financial information has been
requested from the guarantors for this loan to confirm the amount of resources
available to keep this loan current. The principal balance of this loan matured
on March 1, 2000. The borrower is currently in the process of obtaining
financing at another financial institution, which would result in the full
repayment of the Bank's loan. At December 31, 1999, the loan was current and had
a principal balance of $617,000.
There were no other loans with a balance in excess of $500,000 being
specially monitored by the Company as of December 31, 1999. Other loans of
concern with balances less than $500,000 at December 31, 1999 consisted of 10
commercial and multi-family real estate loans totaling $789,000, 4 commercial
business loans totaling $250,000 and 5 one-to four-family mortgage loans
totaling $165,000. These loans have been considered by management in conjunction
with the analysis of the adequacy of the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is increased through a provision for loan
losses based on management's evaluation of the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activity, including
those loans which are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectability may
not be reasonably assured, considers among other matters, the estimated fair
value, less estimated disposal costs, of the underlying collateral, economic
conditions, historical loan loss experience, and other factors that warrant
recognition in providing for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at fair
value, less estimated disposal costs. If fair value at the date of foreclosure
is lower than the carrying value of the related loan, the difference will be
charged to the allowance for loan losses at the time of transfer. Valuations of
the property are periodically updated by management and if the value declines,
the asset's recorded value is written down by a charge to income.
Although management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net earnings could be significantly affected if
circumstances differ substantially from the assumptions used in determining the
level of the allowance. Future additions to the Company's allowance for loan
losses will be the result of periodic loan, property and collateral reviews and
thus cannot be predicted in advance. In addition, federal regulatory agencies,
as an integral part of the examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based upon their judgment of the
information available to them at the time of their examination. At December 31,
1999, the Company had a total allowance for loan losses of $5.5 million,
representing 130.9% of non-performing loans at that date.
<PAGE>
The following table sets forth an analysis of the activity in the Company's
allowance for loan losses.
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $4,891 $3,807 $3,438 $2,647 $2,235
Charge-offs:
One- to four-family (1) (103) (69) (15) (530) (31)
Multi-family -- (129) (51) (1,174) (171)
Commercial real estate -- (437) (372) (2,564) (568)
Consumer (311) (275) (316) (1,834) (400)
Commercial business (49) (316) (460) (2,616) (46)
----------- ----------- ----------- ----------- -----------
Total charge-offs (463) (1,226) (1,214) (8,718) (1,216)
----------- ----------- ----------- ----------- -----------
Recoveries:
One- to four-family (1) 10 6 1 10 ---
Multi-family -- -- -- -- 64
Commercial real estate 147 59 26 -- 1
Consumer 88 56 76 49 41
Commercial business 46 174 392 -- ---
----------- ----------- ----------- ----------- -----------
Total recoveries 291 295 495 59 106
----------- ----------- -----------------------------------
Net Charge-offs (172) (931) (719) (8,659) (1,110)
Allowance acquired from
AFSALA Bancorp. Inc. -- 1,115 -- -- --
Provisions charged to operations 790 900 1,088 9,450 1,522
----------- ---------- ----------- ----------- ----------
Balance at end of period $5,509 $4,891 $3,807 $3,438 $2,647
=========== ========== =========== =========== ==========
Ratio of allowance for loan
losses to total loans
(at period end) 1.17% 1.15% 1.34% 1.37% 1.05%
====== ====== ====== ====== ======
Ratio of allowance for loan
losses to non-performing loans
(at period end) 130.86% 168.42% 116.85% 70.47% 30.10%
====== ====== ====== ====== ======
Ratio of net charge-offs during
the period to average loans
outstanding during period 0.04% 0.29% 0.27% 3.30% 0.42%
====== ====== ====== ====== ======
<FN>
- -------------------------------------
(1) Includes home equity loans.
</FN>
</TABLE>
<PAGE>
No portion of the allowance is restricted to any loan or group of loans,
and the entire allowance is available to absorb realized losses. The amount and
timing of realized losses and future allowance allocations may vary from current
estimates. The following table summarizes the distribution of the Company's
allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------- --------------------- -------------------- -------------------- -------------------
Percent Percent Percent Percent Percent
Amount of loans Amount of loans Amount of loans Amount of loans Amount of loans
of in each of in each of in each of in each of in each
Loan category Loan category Loan category Loan category Loan category
Loss to total Loss to total Loss to total Loss to total Loss to total
Allowance loans Allowance loans Allowance loans Allowance loans Allowance loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family (1) $2,205 85.19% $1,661 84.33% $897 77.55% $ 157 72.26% $268 60.18%
Multi-family and
commercial real estate 1,153 6.79 1,383 6.53 1,818 10.84% 1,599 13.84% 1,097 19.97%
Construction --- 1.05 --- 0.85 --- 0.73% --- 0.89% --- 0.43%
Consumer 466 5.56 397 6.96 449 9.57% 355 10.29% 718 15.55%
Commercial business 488 1.41 666 1.32 483 1.31% 1,327 2.72% 268 3.87%
Unallocated 1,197 ---- 784 ---- 160 ---- --- ---- 296 ----
------ ------ ------ ------ ------ ------- ------ ------- ------ -------
Total $5,509 100.00% $4,891 100.00% $3,807 100.00% $3,438 100.00% $2,647 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<FN>
- -------------------------------
(1) Includes home equity loans.
</FN>
</TABLE>
Investment Activities
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and above
levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At December 31, 1999, the Bank's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 28.7%.
Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based upon the Company's need
for liquidity, to achieve the proper balance between its desire to minimize risk
and maximize yield, to provide collateral for borrowings and to fulfill the
Company's asset/liability management objectives. The Company's investment
strategy has been directed primarily toward high-quality mortgage-backed
securities, as well as U.S. Government and agency securities and collateralized
mortgage obligations.
All of the mortgage-backed securities owned by the Company are issued,
insured or guaranteed either directly or indirectly by a federal agency. At
December 31, 1999, all of the Company's securities were classified as available
for sale. The fair value and amortized cost of the Company's securities
(excluding FHLB stock) at December 31, 1999 were $212.1 million and $222.8
million, respectively. For additional information on the Company's securities,
see Note 5 of the Notes to Consolidated Financial Statements in the Annual
Report to Shareholders filed as Exhibit 13 to this document (the "Annual
Report).
At December 31, 1999, the fair value and amortized cost of the Company's
collaterized mortgage obligations ("CMOs") were $42.0 million and $44.2 million,
respectively. CMOs owned by the Company consisted of either AAA rated securities
or securities issued, insured or guaranteed either directly or indirectly by a
federal agency.
Mortgage-backed securities and CMOs generally increase the quality of the
Company's assets by virtue of the insurance or guarantees that back them. Such
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Company. At December 31,
1999, $74.6 million or 60.2% of the Company's mortgage-backed securities and
CMOs were pledged to secure various obligations of the Company.
While mortgage-backed securities and CMOs carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities. The prepayment risk associated with
mortgage-backed securities is monitored periodically, and prepayment rate
assumptions adjusted as appropriate to update the Company's mortgage-backed
securities accounting and asset/liability reports. Classification of the
Company's mortgage-backed securities and CMOs portfolio as available for sale is
designed to minimize that risk.
At December 31, 1999, the contractual maturity of 96.0% of all of the
Company's mortgage-backed securities and CMOs were in excess of ten years. The
actual maturity of a mortgage-backed security or CMO is typically less than its
stated maturity due to prepayments of the underlying mortgages. Prepayments that
are different than anticipated will affect the yield to maturity. The yield is
based upon the interest income and the amortization of any premium or discount
related to the mortgage-backed security or CMO. In accordance with generally
accepted accounting principles, premiums and discounts are amortized/accreted
over the estimated lives of the securities, which decrease and increase interest
income, respectively. The prepayment assumptions used to determine the
amortization/accretion period for premiums and discounts can significantly
affect the yield of a mortgage-backed security, and these assumptions are
reviewed periodically to reflect actual prepayments. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
falling mortgage interest rates, if the coupon rate of the underlying mortgages
exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Company may be
subject to reinvestment risk because to the extent that the Company's
mortgage-backed securities amortize or prepay faster than anticipated, the
Company may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.
<PAGE>
The following table sets forth the composition of the Company's securities
portfolio and FHLB stock at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------
Carrying Carrying Carrying
Value (1) %of Total Value (1) %of Total Value (1) %of Total
----------- -------- ----------- -------- ------------ --------
(Dollars in Thousands)
<S> <C> <C> C> <C> <C> <C>
Securities:
U.S. Government and agency $ 85,033 38.50% $ 84,000 33.41% $ 63,145 30.19%$
State and political subdivisions 907 0.41% 1,837 0.73% 766 0.37%
Corporate bonds 2,240 1.01% -- -- -- --
Mortgage-backed securities 81,941 37.10% 96,256 38.28% 131,986 63.11%
Collateralized mortgage
obligations 42,024 19.02% 62,148 24.71% 9,911 4.74%
--------- ------- --------- ------- ---------- ------- -
Total debt securities 212,145 96.04% 244,241 97.13% 205,808 98.41%
FHLB stock 8,748 3.96% 7,215 2.87% 3,291 1.57%
--------- ------- --------- ------- ---------- ------- -
Total securities and FHLB stock $ 220,893 100.00% $ 251,456 100.00% $ 209,133 100.00%
========= ======= ========= ======= ========== =======
<FN>
-------------------------------------
(1)Debt securities are classified as available for sale and are carried at fair
value. The FHLB stock is non-marketable and accordingly is carried at cost.
</FN>
</TABLE>
<PAGE>
The composition and contractual maturities of the securities portfolio (all
of which are categorized as available for sale), excluding FHLB stock, are
indicated in the following table. The Company's securities portfolio at December
31, 1999, contained no securities of any issuer with an aggregate book value in
excess of 10% of the Company's equity, excluding those issued by the United
States Government or its agencies. Securities are stated at their contractual
maturity date (mortgage-backed securities and collateralized mortgage
obligations are included by final contractual maturity). Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------------------------------
Over One Over Five
One Year Year through Years through Over
or less Five Years Ten Years Ten Years Total Securities
-------------- -------------- -------------- -------------- ---------------------------
Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost Fair Value
-------------- -------------- -------------- -------------- -------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agency $ --- $ 15,755 $ 54,691 $ 19,530 $ 89,976 $ 85,033
State and political subdivisions --- 911 --- --- 911 907
Corporate bonds --- --- --- 2,538 2,538 2,240
Mortgage-backed securities 281 2,473 681 81,739 85,174 81,941
Collateralized mortgage
obligations --- --- 1,699 42,267 44,166 42,024
------- ------- ------- ------- ------- -------
Total securities $ 281 $ 19,139 $ 57,071 $146,274 $222,765 $212,145
======= ======= ======= ======= ======= =======
Weighted average yield 5.92% 5.97% 6.44% 7.01% 6.77%
======= ======= ======= ======= =======
</TABLE>
Sources of Funds
General
The Company's primary sources of funds are deposits, borrowings,
amortization and prepayment of loan and mortgage-backed security principal,
maturities of securities, short-term investments, and funds provided from
operations.
<PAGE>
Deposits
The Company offers a variety of deposit products having a range of interest
rates and terms. The Company's deposits consist of savings accounts, money
market accounts, transaction accounts, and certificate accounts currently
ranging in terms from 91 days to 60 months. The Company primarily solicits
deposits from its primary market area and at December 31, 1999, did not have
brokered deposits. The Company relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits. The
Company has utilized premiums and promotional gifts for new accounts in
connection with the opening of new branches or with club accounts. At times the
Company also uses small advertising give-aways in the aisles of the supermarkets
where it maintains branches. For information regarding average balances and rate
information on deposit accounts, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report and for
information on the dollar amount of deposits in the various deposit types
offered by the Company, see Note 9 of the Notes to Consolidated Financial
Statements in the Annual Report.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The variety of deposit products offered by the Company has allowed
it to be competitive in obtaining funds and to respond with flexibility to
changes in consumer demand. The Company has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Company manages the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability objectives. Based on
its experience, the Company believes that its savings accounts and transaction
accounts are relatively stable sources of deposits. However, the ability of the
Company to attract and maintain money market accounts and certificates of
deposit and the rates paid on these deposits have been and will continue to be
significantly affected by market conditions.
At December 31, 1999, the Company's certificates of deposit totaled $220.3
million. These certificates of deposit were issued at interest rates ranging
from 3.21% to 7.36%. (For additional information regarding certificate of
deposit interest rates, see Note 9 of the Notes to Consolidated Financial
Statements in the Annual Report.)
<PAGE>
The following table indicates the amount of the Company's certificates of
deposit by time remaining until maturity as of December 31, 1999.
Maturity
-------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
--------- -------- -------- -------- --------
(In thousands)
Certificates of deposit
less than $100,000 $43,906 $40,337 $50,047 $55,613 $189,903
Certificates of deposit
of $100,000 or more 8,862 8,193 7,902 5,476 30,433
--------- -------- -------- -------- --------
Total certificates of deposit $52,768 $48,530 $57,949 $61,089 $220,336
========= ======== ======== ======== ========
Borrowings
Although deposits are the Company's primary source of funds, the Company's
policy generally has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when the
Company needs additional funds to satisfy loan demand.
The Company's borrowings prior to 1996 primarily consisted of advances from
the FHLB of New York. Such advances can be made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. At December 31, 1999, the Company had $92.2 million in FHLB
advances. During 1996, the Company significantly increased its other borrowings.
These borrowings were used to purchase various investments including Federal
agency obligations and mortgage-backed securities which were simultaneously
pledged as securities sold under agreements to repurchase. At December 31, 1999,
securities repurchase agreements totaled $112.7 million. The positive interest
rate spread between the volume of pledged securities and the related borrowings
has produced an increase in net interest income but at an interest rate spread
that is less than the Company has earned historically. For further information
regarding the Company's borrowings, see Note 10 of the Notes to Consolidated
Financial Statements contained in the Annual Report.
Subsidiary and Other Activities
As a federally chartered savings association, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or $14.5 million at December 31,
1999, in the stock of, or in loans to, service corporation subsidiaries. As of
such date, the Bank had no investments in service corporation subsidiaries. The
Bank may invest an additional 1% of its assets in service corporations where
such additional funds are used for inner-city or community development purposes
and up to 50% of its total capital in conforming loans to service corporations
in which it owns more than 10% of the capital stock. Federal associations also
are permitted to invest an unlimited amount in operating subsidiaries engaged
solely in activities which a federal association may engage in directly.
The Bank organized a single service corporation in 1984, which is known as
ASB Insurance Agency, Inc. ("ASB Insurance"). In November 1996, the Company
purchased the service corporation from the Bank for $1,000. ASB Insurance offers
mutual funds, annuity and brokerage services through a registered broker-dealer
to the Company's customers and members of the general public. ASB Insurance
recognized gross revenues of $122,800 and $63,800 for the years ended December
31, 1999 and 1998, respectively.
Regulation
General
The Bank is a federally chartered savings bank, the deposits of which are
federally insured by the FDIC (up to certain limits) and backed by the full
faith and credit of the United States Government. Accordingly, the Bank is
subject to broad federal regulation and oversight by the OTS extending to all
its operations. The Bank is a member of the FHLB of New York and is subject to
certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As a savings and loan holding company, the
Company also is subject to federal regulation and oversight. The Bank is a
member of the Bank Insurance Fund (the "BIF"), which is administered by the
FDIC. Its deposits are insured up to applicable limits by the FDIC. As a result,
the FDIC also has certain regulatory and examination authority over the Bank.
As a result of the acquisition of AFSALA and its subsidiary savings
association, a portion of the deposits of the Bank are insured by the Savings
Association Insurance Fund (the "SAIF"). The rules and regulations governing the
SAIF are similar in many ways to those for the BIF.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS, its
primary federal banking regulator, and the FDIC. The last regular OTS
examination of the Bank was as of March 31, 1999. When these examinations are
conducted by the OTS and the FDIC, the examiners, if they deem appropriate, may
require the Bank to provide for higher general or specific loan loss reserves.
All savings associations are subject to a semi-annual assessment, based upon the
savings association's total assets, to fund the operations of the OTS. The
Bank's OTS assessment for the fiscal year ended December 31, 1999, was $136,300.
The OTS also has extensive enforcement authority over savings associations
and their holding companies, including the Bank and the Company. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal law. For instance, no savings institution may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Bank is in compliance with the noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1999, the Bank's lending limit was $10.2 million. The Bank is in
compliance with the loans-to-one-borrower limitation.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines, by regulation or order, to pose a serious risk to the insurance
fund. The FDIC also has the authority to initiate enforcement actions against
savings associations, after giving the OTS an opportunity to take such action,
and may terminate deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) or considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC semi-annually.
The FDIC is authorized to adjust the insurance premium rates for banks that
are insured by the BIF, such as the Bank, in order to maintain the reserve ratio
of the BIF at 1.25% of BIF insured deposits. The ranges of BIF premium rates in
effect during 1999 was 0% to 0.27%. In addition, BIF insured institutions are
required to contribute to the cost of financial bonds that were issued to
finance the cost of resolving the thrift failures in the 1980s (the "FICO
Premium").
A portion of the insurance premium paid by the Bank is assessed for the
SAIF because a portion of the deposits of the Bank are insured by the SAIF. For
these deposits, the FDIC assesses a premium to maintain the reserve ratio of the
SAIF at 1.25% of SAIF insured deposits. During the past several years, the
insurance premium rates for SAIF members were higher than those for BIF members
and SAIF members were also required to pay a special assessment to the SAIF.
SAIF members must also pay the FICO Premium.
In general, the FDIC limits the insurance that may be paid to a person or
entity through all of that person's or entity's deposit accounts to $100,000.
The FDIC is considering whether to propose an increase in this limit to
$200,000. Any increase in insurance could result in an increase in the premiums
paid by all BIF and SAIF members. The FDIC is authorized to increase deposit
insurance rates on a semi-annual basis if it determines that this action is
necessary to cause the balance in the SAIF or BIF to reach the designated
reserve ratio of 1.25% of insured deposits within a reasonable period of time.
The FDIC may impose special assessments on SAIF or BIF members for any reason
deemed necessary by the FDIC.
Regulatory Capital Requirements
All federally insured savings institutions are required to maintain a
minimum level of regulatory capital. The OTS has established capital standards,
including a tangible capital requirement, a leverage ratio (or core capital)
requirement and a risk-based capital requirement applicable to such savings
associations. The OTS is also authorized to impose capital requirements in
excess of these standards on a case-by-case basis. At December 31, 1999, the
Bank was in compliance with its regulatory capital requirements. See Note 16 of
the Notes to Consolidated Financial Statements contained in the Annual Report.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the Bank
or the Company may have a substantial adverse effect on the Company's operations
and profitability. Company shareholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution of a
shareholder's percentage ownership of the Company.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the retained earnings of the association would
be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. For
additional information on the limitations on dividends and other capital
distributions, see Notes 3 and 16 of the consolidated financial statements in
the Annual Report.
Qualified Thrift Lender Test
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings association may maintain 60% of its assets in those
assets specified under Section 7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential housing related loans
and investments. At December 31, 1999, the Bank met the test and has always met
the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If such an association has not yet requalified or converted to a national
bank, its new investments and activities are limited to those permissible for
both a savings association and a national bank, and it is limited to national
bank branching rights in its home state. In addition, the association is
immediately ineligible to receive any new FHLB borrowings and is subject to
national bank limits for payment of dividends. If such association has not
requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA requires the OTS, in
connection with the examination of the Bank, to assess the institution's record
of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a merger or the
establishment of a branch, by the Bank. An unsatisfactory rating may be used as
the basis for the denial of an application by the OTS.
The Bank was last examined for CRA compliance in June 1999 and received a
rating of "satisfactory".
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. The Company is required to register and file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over the Company and its non-savings
association subsidiaries, which authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally is not
subject to many activity restrictions. If the Company acquires control of
another savings association as a separate subsidiary, it would become a multiple
savings and loan holding company, and the activities of the Company and any of
its subsidiaries (other than the Bank or any savings association) would
generally become subject to additional restrictions.
If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company.
Federal banking law was materially affected by the passage of the
Gramm-Leach-Bliley Act. However, this act may not materially impact the Company
or the Bank unless the Company chooses to become a financial holding company.
This act, effective in March 2000, allows, among other things, qualifying bank
holding companies to become financial holding companies and thereby affiliate
with securities firms and insurance companies and engage in other activities
that are financial in nature or incidental to a financial activity. In addition,
the act enacts a number of consumer protections, including provisions intended
to protect privacy of bank customers' financial information and provisions
requiring disclosure of ATM fees imposed by banks on customers of other banks.
Other parts of the act, affecting newly created savings and loan holding
companies, do not impact existing savings and loan holding companies such as the
Company.
Federal Taxation
Savings associations such as the Bank that meet certain definitional tests
relating to the composition of assets and other conditions prescribed by the
Internal Revenue Code of 1986, as amended (the "Code"), are permitted to
establish reserves for bad debts and to make annual additions thereto which may,
within specified formula limits, be taken as a deduction in computing taxable
income for federal income tax purposes. The amount of the bad debt reserve
deduction is computed under the experience method. Under the experience method,
the bad debt reserve deduction is an amount determined under a formula based
generally upon the bad debts actually sustained by the savings association over
a period of years.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.
To the extent prior years earnings appropriated to a savings association's
bad debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed under
the experience method and to the extent of the association's supplemental
reserves for losses on loans ("Excess"), such Excess may not, without adverse
tax consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses).
The Company and its subsidiaries file consolidated federal income tax
returns on a calendar year basis using the accrual method of accounting.
The Bank and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns through December 31,
1996. With respect to years examined by the IRS, either all deficiencies have
been satisfied or sufficient reserves have been established to satisfy asserted
deficiencies.
New York Taxation
The Bank and its subsidiaries are subject to New York State taxation. The
Bank is subject to the New York State Franchise Tax on Banking Corporations in
an annual amount equal to the greater of (i) 9% (being scaled down to 7.5% over
a number of years) of the Bank's "entire net income" allocable to New York State
during the taxable year, or (ii) the applicable alternative minimum tax. The
alternative minimum tax is generally the greater of (a) 0.01% of the value of
the Bank's assets allocable to New York State with certain modifications, (b) 3%
of the Bank's "alternative entire net income" allocable to New York State, or
(c) $250. Entire net income is similar to federal taxable income, subject to
certain modifications (including the fact that net operating losses cannot be
carried back or carried forward) and alternative entire net income is equal to
entire net income without certain modifications. The Bank and its consolidated
subsidiaries have been audited by the New York State Department of Taxation and
Finance through December 31, 1998. With respect to years examined by the State
Department of Taxation and Finance, either all deficiencies have been satisfied
or sufficient reserves have been established to satisfy asserted deficiencies.
Delaware Taxation
As a Delaware holding company, the Company is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
Competition
The Company faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions, commercial banks, credit
unions and mortgage brokers making loans secured by real estate located in the
Company's primary market area. Other savings institutions, commercial banks,
credit unions and finance companies also provide vigorous competition in
consumer lending.
The Company attracts substantially all of its deposits through its branch
offices, primarily from the communities in which those branch offices are
located; therefore, competition for those deposits is principally from mutual
funds and other savings institutions, commercial banks and credit unions doing
business in the same communities. The Company competes for these deposits by
offering a variety of deposit products at competitive rates, convenient business
hours, and convenient branch locations with interbranch deposit and withdrawal
privileges. Automated teller machine facilities are also available.
Employees
At December 31, 1999, the Company had a total of 247 employees, including
45 part-time employees. The Company's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
<PAGE>
Executive Officers of the Company and the Bank Who Are Not Directors
The following information as to the business experience during the past
five years is supplied with respect to the executive officers of the Company and
the Bank who do not serve on the Company's or the Bank's Board of Directors.
There are no arrangements or understandings between such persons named and any
persons pursuant to which such officers were selected.
Benjamin Ziskin, age 41, is the Senior Vice President of the Company and
the Bank since November 1998. Mr. Ziskin served as Treasurer of Amsterdam
Federal Bank from 1985 to 1993 and was appointed Vice President of Amsterdam
Federal Bank in 1989 and of AFSALA upon its formation in 1996.
James J. Alescio, age 38, is Senior Vice President, Chief Financial Officer
and the Treasurer of the Company and the Bank, positions he has held with the
Company since November 1998. Mr. Alescio served as Assistant Treasurer of
Amsterdam Federal Bank from 1984 to 1987 and was appointed Treasurer and Chief
Financial Officer of Amsterdam Federal Bank in 1993 and of AFSALA upon its
formation.
Thomas Nachod, age 58, is Senior Vice President of the Company and the
Bank. Mr. Nachod joined the Company in December 1998. Between July 1997 to
November 1998, he held the position of Senior Vice President at ALBANK. From
November 1990 to June 1997, Mr. Nachod worked in a variety of rolls at KeyBank.
In addition, Mr. Nachod served as Chief Executive Officer of two banks,
Connecticut Community Bank in Greenwich, CT and Fidelity Bank of Scottsdale, AZ.
Robert Kelly, age 52, is Vice President, Secretary and General Counsel to
the Company, positions he has held with the Company since its incorporation in
June 1995. Mr. Kelly has been Vice President and General Counsel to the Bank
since July 1994. In January 1995 he was appointed Secretary of the Bank. Prior
to joining the Bank in 1994, Mr. Kelly was self-employed in the general practice
of law in the State of New York.
Item 2. Description of Property
The Company conducts its business at its main office, sixteen other banking
offices and an operations office in its primary market area. The Company owns
its Main Office, its operations center and three branch offices and leases the
remaining thirteen branch offices. The Company also owns a parking lot located
at 18-22 Division Street, Amsterdam, New York, which is used to service the main
office. The net book value of the Company's premises and equipment (including
land, buildings and leasehold improvements and furniture, fixtures and
equipment) at December 31, 1999 was $5.6 million. See Note 8 of Notes to
Consolidated Financial Statements in the Annual Report. The Company believes
that its current facilities are adequate to meet the present and foreseeable
needs of the Bank and the Company, subject to possible future expansion.
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Company's financial position or results of operations.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The information required herein is incorporated by reference to
the section entitled "Stock Price Information" in the Annual
Report
Item 6. Selected Financial Data
The information required herein is incorporated by reference to
the section entitled "Selected Consolidated Financial
Information" in the Annual Report
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required herein is incorporated by reference to
the indentically captioned section in the Annual Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required herein is incorporated by reference to
the section entitled "Market Risk" in the Annual Report
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary data listed in response to
Item 14 of this report are herein incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
- ---------
Information concerning Directors of the Registrant is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 26, 2000, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Executive Officers
- ------------------
Information concerning executive officers of the Company is set forth under
the caption "Executive Officers of the Company and the Bank who are not
Directors" contained in Part 1 of this Form 10-K.
Compliance with Section 16(a)
- -----------------------------
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more that 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based soley on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders scheduled to be held on May 26, 2000, except for information
contained under the heading "Compensation Committee Report on Executive
Compensation" and "Shareholder Return Performance Presentation", a copy of which
will be filed not later than 120 days after the close of the fiscal year.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 26, 2000, except for information contained under the heading "Compensation
Committee Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders scheduled to be held on May 26, 2000,
except for information contained under the heading "Compensation Committee
Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Annual Report (Exhibit 13), is
incorporated by reference:
- Independent Auditors' Report
- Consolidated Statements of Financial Condition as of December 31,
1999 and 1998
- Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997
- Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997
<PAGE>
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is
not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
Index to Exhibits
Exhibit
Number Document
- ------ ------------------------------------------------------------
3(i) Registrants's Certificate of Incorporation as currently in
effect, filed as an exhibit to Registrants's Registration
Statement of Form S-1 (File No. 33-96654), is incorporated
herein by reference.
3(ii) Registrants's Bylaws as amended on October 22, 1999 and
currently in effect, filed as an exhibit to Current Report
on Form 8-K, filed on February 8, 2000, is incorporated
herein by reference.
4 Registrant's Specimen Stock Certificate, filed as an exhibit
to Registrant's Registration Statement on Form S-1 (File No.
33-96654), is incorporated herein by reference.
10.1 Employment Agreement between the Registrant and Robert
Kelly, filed as an exhibit to Registrant's Registration
Statement on Form S-1 (File No. 33-96654), is incorporated
herein by reference.
10.2 Forms of Employment Agreements between the Registrant and
John M. Lisicki, James J. Alescio, and Benjamin W. Ziskin,
filed as exhibits to the Registrant's Registration Statement
on Form S-4 (File No. 333-59721).
10.3 Supplemental Retirement Benefit agreement with John M.
Lisicki and Benjamin W. Ziskin, filed as Exchibit 10.3 to
Registrant's December 31, 1998 Form 10-K.
10.4 Registrant's 1997 Stock Option and Incentive Plan, Filed as
Exhibit A to Registrant's Proxy Statement filed with the
Commission on March 26, 1997, pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (File No.
0-27036), is incorporated herein by reference.
10.5 Registrant's Recognition and Retention Plan, filed as
Exhibit B to Registrant's Proxy Statement filed with the
Commission on March 26, 1997, pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (File No.
0-27036), is incorporated herein by reference.
10.6 AFSALA Bancorp, Inc. 1997 Stock Option Plan, filed as
Exhibit 10.4 to the 1997 Annual Report on Form 10-KSB of
AFSALA Bancorp, Inc. (file number 0-2113), and the amendment
to the Plan, filed as an appendix to the definitive proxy
statement filed with the Commision by AFSALA Bancorp, Inc.
on January 8, 1998, are incorporated herein by reference.
10.7 Settlement and Standstill Agreement with S. Holtzman, filed
as Exhibit 99.1 to the Current Report on Form 8-K, filed on
August 12, 1998, is incorporated herein by reference.
10.8 Standstill agreement with L. Seidman.
11 Statement re: computation of per share earnings (see Notes
1(n) and 13 of the Notes to Consolidated Financial
Statements contained in the Annual Report to Shareholders
filed as Exhibit 13 herein).
13 Portions of Annual Report to Security Holders (only those
portions incorporated by reference in this document are
deemed filed).
21 Subsidiaries of the Registrant
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed during the last quarter of the
period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
Date: March 24, 2000 By: /s/ John M. Lisicki
------------------------------ ----------------------
John M. Lisicki, President
and Chief Executive Officer
(Duly Authorized Representative)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on March 24, 2000:
/s/ John M. Lisicki /s/ James J. Alescio
- ----------------------------------- -------------------------------------
John M. Lisicki, President James J. Alescio, Senior Vice
and Chief Executive Officer President, Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting
` officer)
/s/ Lauren T. Barnett /s/ James J. Bettini
- ----------------------------------- -------------------------------------
Lauren T. Barnett, Director James J. Bettini, Director
/s/ John J. Daly /s/ Lionel H. Fallows
- ----------------------------------- -------------------------------------
John J. Daly, Director Lionel H. Fallows, Director
/s/ Dr. Daniel J. Greco /s/ Seymour Holtzman
- ----------------------------------- -------------------------------------
Dr. Daniel J. Greco, Director Seymour Holtzman, Director
/s/ Marvin R. LeRoy, Jr. /s/ Allan R. Lyons
- ----------------------------------- -------------------------------------
Marvin R. LeRoy, Jr., Director Allan R. Lyons, Director
/s/ Charles S. Pedersen /s/ William L. Petrosino
- ----------------------------------- -------------------------------------
Charles S. Pedersen, Director William L. Petrosino, Director
/s/ Lawrence B. Seidman
- -----------------------------------
Lawrence B. Seidman
/s/ Dr. Ronald S. Tecler /s/ John A. Tesiero
- ----------------------------------- -------------------------------------
Dr. Ronald S. Tecler, Director John A. Tesiero, Jr., Director
/s/ William A. Wilde, Jr. /s/ Charles E. Wright
- ----------------------------------- -------------------------------------
William A. Wilde, Jr., Director Charles E. Wright, Director
Standstill Agreement
By and Among
Ambanc Holding Co., Inc.
and
Lawrence B. Seidman
and the Seidman Group
This Agreement is made this 24th day of March, 2000 among Lawrence B.
Seidman ("Seidman"), having an office at 100 Misty Lane, Parsippany, New Jersey,
the "Seidman Group" as that term is defined in paragraph 9, and Ambanc Holding
Co., Inc.("Ambanc" or the "Company"), having an office at 11 Division Street,
Amsterdam, New York.
1. The Board of Directors of Ambanc shall take all actions necessary to
appoint Seidman to Ambanc's Board of Directors for a term commencing
immediately following the March 24, 2000 meeting of the Board of
Directors and ending at the 2000 Annual Meeting of Stockholders,
currently scheduled to be held on May 26, 2000. The Board shall
nominate Seidman for election at the 2000 Annual Meeting for a term
expiring in 2003. The Board shall solicit proxies for Seidman's
election along with the solicitation of proxies by the Board for the
other three nominees nominated by the Board.
2. Immediately following the Annual Meeting of Stockholders, Ambanc shall
take such action as may be necessary to appoint Seidman as a director
of Mohawk Community Bank (the "Bank") for a term comparable to his term
as a director of Ambanc as set forth in Section 1 of this Agreement.
3. The Seidman Group, as defined below, shall vote all stock of Ambanc
owned or controlled by any of them as of the record date for the 2000
Annual Meeting of Stockholders in favor of the election of Seidman and
in favor of the election of the three other nominees for directorships
nominated by the Board of Directors, currently expected to be John J.
Daly, Marvin R. Leroy, Jr. and Dr. Ronald S. Tecler.
4. It is understood that John M. Lisicki is the only current member of the
Company's Board of Directors who is eligible to seek reelection to the
Board in the year 2001. Therefore, the Seidman Group shall vote all
stock of Ambanc owned or controlled by any of them as of the record
date for the 2001 Annual Meeting of Stockholders in favor of the
reelection of John M. Lisicki as a director of the Company.
5. The Seidman Group will not acquire any shares of common stock of Ambanc
which would cause its percentage ownership of the issued and
outstanding common stock of Ambanc to exceed 14.9% through the period
ended March 31, 2001. The Seidman Group will comply with all regulatory
requirements applicable to them in connection with any acquisition of
stock in excess of 9.9% of the outstanding shares of common stock of
the Company. The Seidman Group acknowledges the voting restrictions set
forth in Article Fourth C of the Company's Certificate of
Incorporation.
6. The Seidman Group will not engage in or support a solicitation of
proxies or other stockholder action in opposition to management of
Ambanc or submit any of their own proposals for stockholder approval
without Board approval or otherwise attempt to effect a change in
control of Ambanc or the corporate policy of Ambanc that is not
supported by a majority of the Board of Directors. Subject to the
provisions of Paragraph 4 to this Agreement, this provision shall not
apply to the nomination of directors and the solicitation of proxies
for such nominees, or any other matter arising, at the Annual Meeting
of Stockholders to be held in 2001 or thereafter. Nothing contained in
this paragraph shall be interpreted to prohibit Seidman from voting,
as a director, in such manner as he deems appropriate on any matter
which may come before the Board of Directors or any committee of
Ambanc or the Bank, nor shall the same prohibit him from including, in
any disclosure made by Ambanc pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), any statement explaining his
vote if he is required by law to include such an explanation in such
disclosure.
7. Seidman & Associates, LLC will withdraw its nominations of Lawrence B.
Seidman, Richard Baer and Dennis Pollack as directors for election at
the 2000 Annual Meeting of Stockholders of Ambanc and its request for a
list of the Company's stockholders all dated as of February 22, 2000.
8. The Seidman Group concurs that, subject to whatever fiduciary duties
may exist as required by the Employee Retirement Income Security Act,
as amended, ESOP shares and shares of restricted stock may be voted in
accordance with the terms of the plans.
9. The Seidman Group will not take any action indirectly, or induce any
other person or entity to take any action which, if taken directly by
the member of the Seidman Group, would be in violation of this
Agreement, nor will the Seidman Group take any action which would
reasonably be anticipated to thwart any of the provisions of this
Agreement. All the members of the Seidman Group individually, and all
members of limited liability companies, partners of partnerships,
stockholders, directors and officers of corporations, trustees and
beneficiaries of trusts, and other persons holding comparable
positions in any other entities, making up the Seidman Group shall be
personally bound by the provisions of this Agreement which by their
terms are applicable to the Seidman Group. The members of the Seidman
Group agree not to seek to use the press or other public
pronouncements to publicly air disputes with the Company through and
including March 31, 2001.
10. The term "the Seidman Group" shall mean Seidman & Associates, LLC,
Seidman Investment Partnership, L.P., Seidman Investment Partnership
II, L.P., Seidman & Associates II, LLC, Kerrimatt, L.P., Federal
Holdings, LLC, Dennis Pollack, Lawrence B. Seidman, Lawrence B.
Seidman Clients, Veteri Place Corp., Richard Greenberg, Sonia Seidman,
Melissa Baer, Richard Baer, Seidecal Associates, LLC and Brant Cali.
The foregoing represents a complete and accurate list of all
"affiliates" and "associates" of Seidman as such terms are defined in
Rule 405 under the Securities Act of 1933, as amended, or with whom
Seidman may be "acting in concert" as such term is defined in 12
C.F.R. Section 574.2(c). The terms and conditions of this Agreement
shall be binding upon all parties who subsequently become members of
the Seidman Group and their respective successors. The Seidman Group
will strictly comply with all reporting requirements applicable to it
under the Exchange Act and will adhere to Company trading policies and
procedures with respect to trading in the Company's stock to the same
extent as all directors and executive officers of the Company.
11. As of the date of this Agreement, the Seidman Group beneficially owns
117,442 shares of Ambanc common stock.
12. Ambanc and Seidman shall agree with each other as to the form and
substance of any press release related to this Agreement or the
transactions contemplated hereby, and consult with each other as to the
form and substance of other public disclosures which may relate to the
transactions contemplated by this Agreement, provided, however, that
nothing contained herein shall prohibit either party, following
notification to the other party, from making any disclosure which is
required by law or regulation.
13. Seidman hereby represents and warrants that he has the authority to
bind all of the members of the Seidman Group to this Agreement and that
by his signature below he binds himself and all of such other members
of the Seidman Group.
AMBANC HOLDING CO., INC.
By: /s/ John M. Lisicki
------------------------------------
John M Lisicki
President and Chief Executive Officer
THE SEIDMAN GROUP
By: /s/ Lawrence B. Seidman
------------------------------------
Lawrence B. Seidman, personally and
as agent for the persons and entities
named in paragraph 10, other than
those who separate signatures are
provided below
/s/ Dennis Pollack
------------------------------------
Dennis Pollack
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected consolidated financial and other data of the
Company. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements of the Company presented elsewhere in this
Annual Report. All references to the Company, unless otherwise indicated, at or
before December 26, 1995 refer to the Bank.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Selected Consolidated (In thousands)
Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets ..................... $ 740,672 $ 735,472 $ 510,444 $ 472,421 $ 438,944
Securities available for sale .... 212,145 244,241 205,808 200,539 74,422
Loans receivable, net ............ 465,477 420,933 281,123 248,094 249,991
Deposits ......................... 450,134 461,413 333,265 298,082 311,239
Borrowed funds ................... 204,905 173,810 111,550 108,780 --
Shareholders' equity ............. 75,593 85,893 61,202 61,518 76,015
Years Ended December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Selected Consolidated (Dollars in thousands, except per share data)
Operations Data:
Total interest and dividend income $48,767 $38,973 $ 35,566 $ 32,348 $ 25,582
Total interest expense ........... 26,319 22,441 19,654 16,435 12,746
------- ------- --------- --------- ---------
Net interest income .............. 22,448 16,532 15,912 15,913 12,836
Provision for loan losses ........ 790 900 1,088 9,450 1,522
------- ------- --------- --------- ---------
Net interest income after
provision for loan losses ....... 21,658 15,632 14,824 6,463 11,314
Non-interest income .............. 1,803 1,144 1,819 908 1,512
Non-interest expense.............. 16,063 15,075 12,190 13,136 11,383
------- ------- --------- --------- ---------
Income (loss) before taxes ....... 7,398 1,701 4,453 (5,765) 1,443
Income tax expense (benefit) ..... 3,095 670 1,693 (1,929) 586
------- ------- --------- --------- ---------
Net income (loss) ................ $ 4,303 $ 1,031 $ 2,760 ($ 3,836) $ 857
======= ======= ========= ========= =========
Basic earnings (loss) per share* . $ 0.88 $ 0.26 $ 0.70 ($ 0.81) N/A
======= ======= ========= ========= =========
Diluted earnings (loss) per share* $ 0.87 $ 0.26 $ 0.69 ($ 0.81) N/A
======= ======= ========= ========= =========
Dividend payout ratio ............ 38.6% 96.1% 14.3% N/A N/A
======= ======= ========= ========= =========
</TABLE>
*Earnings per share were not calculated for 1995 and prior periods since
the Company had no stock outstanding prior to its initial public offering
completed on December 26, 1995.
<PAGE>
<TABLE>
<CAPTION>
At or for the years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Selected Consolidated Financial
Ratios and Other Data:
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return (loss) on average assets (1) ....... 0.59% 0.18% 0.56% (0.84)% 0.25%
Return (loss) on average equity (1) ....... 5.26 1.64 4.52 (5.24) 3.00
Interest rate information:
Interest rate spread during year ....... 2.57 2.32 2.58 2.74 3.36
Net interest margin during year (2) .... 3.21 3.04 3.36 3.66 3.87
Efficiency ratio (3) ...................... 63.79 74.44 69.81 62.50 68.18
Ratio of average earning assets to
average interest-bearing liabilities ... 117.24 117.28 118.93 124.26 113.31
Asset Quality Ratios:
Non-performing assets to total assets (1) . 0.61 0.45 0.67 1.18 2.72
Non-performing loans to total loans ....... 0.89 0.68 1.16 1.94 3.48
Allowance for loan losses to
non-performing loans .................... 130.86 168.42 117.07 70.47 30.10
Allowance for loan losses to total loans .. 1.17 1.15 1.34 1.37 1.05
Capital Ratios:
Equity to total assets at end of period (1) 10.21 11.68 11.99 13.02 17.32
Average equity to average assets (1) ...... 11.29 11.18 12.42 15.95 8.30
Other Data:
Number of full-service offices ............ 17 18 12 9 9
<FN>
(1) Period end and average asset and equity amounts reflect securities available
for sale at fair value, with net unrealized gains/losses, net of tax, included
as a component of equity.
(2) Net interest income divided by average earning assets.
(3) The efficiency ratio represents other expenses (excluding real estate owned
and repossessed assets expenses, net, the amortization of goodwill, and certain
non-recurring expenses in 1998 totaling approximately $1.7 million, primarily
related to costs associated with the merger, costs asociated with the
termination and consulting agreements entered into with the former President and
CEO, costs incurred to defend against and settle legal actions initiated by a
shareholder, and costs associated with the core system conversion) divided by
the sum of net interest income and non-interest income (excluding net gains
(losses) on securities transactions).
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Ambanc Holding Co., Inc. ("Ambanc" or the "Company") is a 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").
On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. ("AFSALA") and
its wholly owned subsidiary, Amsterdam Federal Bank. Pursuant to the merger
agreement, AFSALA was merged with and into Ambanc Holding Co., Inc., and
Amsterdam Federal Bank was merged with and into the former Amsterdam Savings
Bank, FSB. The combined bank now operates as one institution under the name
"Mohawk Community Bank" (the "Bank"). See "Acquisition of AFSALA Bancorp, Inc."
The Bank's results of operations are primarily dependent on its net interest
income, which is the difference between the interest and dividend income earned
on its assets, primarily loans and securities, and the interest expense on its
liabilities, primarily deposits and borrowings. Net interest income may be
affected significantly by general economic and competitive conditions and
policies of regulatory agencies, particularly those with respect to market
interest rates. The results of operations are also significantly influenced by
the level of non-interest expenses, such as employee salaries and benefits,
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 December 31, 1999, the Bank's loans receivable, net,
to assets ratio was 62.8%, up from 57.2% at December 31, 1998. The Bank's
portfolio of one- to four-family residential mortgage and home equity loans was
85.2% of total loans at December 31, 1999, compared to 84.3% at December 31,
1998.
Forward-Looking Statements
When used in this Annual Report, 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.
Acquisition Of AFSALA Bancorp, Inc.
On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. and its wholly
owned subsidiary, Amsterdam Federal Bank. At the date of the merger, AFSALA had
approximately $167.1 million in assets, $144.1 million in deposits, and $19.2
million in shareholders' equity. Pursuant to the merger agreement, AFSALA was
merged with and into Ambanc Holding Co., Inc., and Amsterdam Federal Bank was
merged with and into the former Amsterdam Savings Bank, FSB. The combined bank
now operates as one institution under the name "Mohawk Community Bank".
Upon consummation of the merger, each share of AFSALA common stock was converted
into the right to receive 1.07 shares of Ambanc common stock. Based on the
1,249,727 shares of AFSALA common stock issued and outstanding immediately prior
to the merger, the Company issued 1,337,081 shares of common stock in the merger
and paid out 126 fractional shares in cash. Of the 1,337,081 shares issued in
the merger, 1,327,086 were issued from the Company's treasury stock and 9,995
were newly-issued shares. In addition, under the merger agreement, the Company
assumed unexercised, fully-vested options to purchase 144,118 shares of AFSALA
common stock which converted into fully-vested options to purchase 154,203
shares of Ambanc common stock.
The acquisition was accounted for using purchase accounting in accordance with
APB Opinion No. 16, "Business Combinations" (APB No. 16). Under purchase
accounting, the purchase price is allocated to the respective assets acquired
and liabilities assumed based on their estimated fair values. The acquisition of
AFSALA resulted in approximately $8.0 million in excess of cost over net assets
acquired ("goodwill"). Goodwill is being amortized to expense over a period of
fifteen years using the straight-line method. The results of operations of
AFSALA have been included in the Company's consolidated statements of income
from the date of acquisition. See Note 2 to the consolidated financial
statements for further information regarding the acquisition of AFSALA.
Many of the fluctuations noted below, including increases in average balances
and certain income and expenses, are the result of AFSALA's operations being
included for all of 1999 but for only approximately a month and a half in 1998.
Financial Condition
Comparison of Financial Condition at December 31, 1999 and 1998. Total assets
increased by $5.2 million, or 0.7%, to $740.7 million at December 31, 1999 from
$735.5 million at December 31, 1998, primarily due to increases in loans
receivable, net, Federal Home Loan Bank of New York (FHLB) stock, and other
assets of $44.5 million, $1.5 million, and $3.7 million, respectively, offset by
decreases in cash and cash equivalents and securities available for sale of
$13.2 million and $32.1 million, respectively.
Cash and cash equivalents decreased by $13.2 million, or 30.8%, to $29.6 million
at December 31, 1999 from $42.8 million at December 31, 1998 primarily due to a
decrease in federal funds sold from $30.2 million at December 31, 1998 to $0 at
December 31, 1999, partially offset by an increase in cash and due from banks
from $9.2 million at December 31, 1998 to $26.4 million at December 31, 1999.
The increase 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. Vault cash returned to more normal levels in
early 2000. Securities available for sale decreased $32.1 million, or 13.1%, to
$212.1 million at December 31, 1999 from $244.2 million at December 31, 1998
resulting primarily from the maturities and calls of securities and the
reinvestment of the proceeds in the loan portfolio. Loans receivable, net
increased $44.5 million from $420.9 million at December 31, 1998, to $465.5
million at December 31, 1999, an increase of 10.6% due to increased loan
activity primarily in residential mortgage and home equity loans. The shift in
assets from lower-yielding federal funds sold and securities available for sale
to higher-yielding loans is consistent with the Company's strategy to attempt to
increase its interest rate spread and net interest margin, while limiting its
interest rate risk.
FHLB stock increased $1.5 million from $7.2 million at December 31, 1998, to
$8.7 million at December 31, 1999, an increase of 21.2% due to purchases of
additional stock. In addition, other assets increased $3.7 million, or 111.7%,
to $7.0 million at December 31, 1999 due primarily to the deferred tax
consequences related to the adjustment of securities available for sale to fair
value.
Deposits decreased by $11.3 million, or 2.4%, to $450.1 million at December 31,
1999 from $461.4 million at December 31, 1998 due primarily to the competitive
rate environment on time deposits and the Company's use of FHLB borrowings as an
alternative funding source. Likewise, securities repurchase agreements decreased
$39.7 million, or 26.0%, to $112.7 million at December 31, 1999 from $152.4
million at December 31, 1998, due primarily to the maturity of repurchase
agreements and the replacement of the funding with FHLB borrowings. In addition,
due to brokers decreased $6.0 million to $0 at December 31, 1999, resulting from
the payment of amounts due to brokers from purchases of securities outstanding
in January 1999. Offsetting these decreases was an increase in short-term
borrowings from the FHLB of $71.2 million. See Note 10 to the consolidated
financial statements for further information regarding the Company's borrowings.
Shareholders' equity decreased $10.3 million, or 12.0%, from $85.9 million at
December 31, 1998 to $75.6 million at December 31, 1999, due primarily to an
increase in treasury stock totaling $7.1 million, and the increase in net
unrealized losses on securities available for sale, net of tax, of $6.7 million.
In addition, the Company paid cash dividends of $1.8 million. These decreases
were partially offset by net income of $4.3 million for the year ended December
31, 1999. Other significant items impacting shareholders' equity during 1999
were the release of ESOP shares, and the continued amortization of the unearned
RRP shares.
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar
amount of interest and dividend income earned on average earning assets and the
resultant yields, as well as the total dollar amount of interest expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are daily average
balances. Non-accruing loans have been included in the table as loans with
interest earned on a cash basis only. Securities available for sale are included
at amortized cost.
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- -------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate Balance Inc./Exp. Rate
------- --------- ------ ------- --------- ------ ------- --------- ------
Earning assets (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) .......................$ 442,802 $ 32,578 7.36% $ 322,335 $ 24,623 7.64% $ 267,726 $ 21,011 7.85%
Securities available for sale (AFS) (2)..... 239,439 15,245 6.37% 205,995 13,479 6.54% 194,111 13,957 7.19%
Federal Home Loan Bank stock ............... 7,402 503 6.80% 5,048 364 7.21% 3,066 204 6.65%
Federal funds sold and interest-
bearing deposits ......................... 9,319 441 4.73% 10,632 507 4.77% 8,162 394 4.83%
------- ------ ------- ------ ------- ------
Total earning assets ................... 698,962 48,767 6.98% 544,010 38,973 7.16% 473,065 35,566 7.52%
------- ------ ------- ------ ------- ------
Allowance for loan losses .................... (5,314) (4,220) (3,846)
Unrealized gain/(loss) on AFS securities ..... (3,176) 225 (884)
Other assets ................................. 33,970 21,191 23,271
------- ------- ---------
Total average assets .........................$ 724,442 $ 561,206 $ 491,606
========= ========= =========
Interest-bearing liabilities
Savings deposits ...........................$ 137,506 4,001 2.91% $ 103,513 3,119 3.01% $ 99,389 $ 3,016 3.03%
NOW deposits .............................. 36,703 567 1.54% 25,410 549 2.16% 19,990 543 2.72%
Certificates of deposit .................... 223,551 11,242 5.03% 176,136 9,882 5.61% 172,319 9,882 5.73%
Money market accounts ...................... 24,628 945 3.84% 8,481 272 3.21% 7,159 204 2.85%
Borrowed funds ............................. 173,803 9,564 5.50% 150,335 8,619 5.73% 98,927 6,009 6.07%
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities ..... 596,191 26,319 4.41% 463,875 22,441 4.84% 397,784 19,654 4.94%
------- ------ ------- ------ ------- ------
Other liabilities ............................ 46,458 34,590 32,757
------- ------- ------
Total liabilities ............................ 642,649 498,465 430,541
Shareholders' equity ......................... 81,793 62,741 61,065
------- ------- ------
Total average liabilities & equity ...........$ 724,442 $ 561,206 $ 491,606
========= ========= =========
Net interest income ...................... $ 22,448 $ 16,532 $ 15,912
======= ======= =======
Interest rate spread ..................... 2.57% 2.32% 2.58%
====== ====== ======
Net earning assets ....................... $ 102,771 $ 80,135 $ 75,281
========= ========= =========
Net interest margin ...................... 3.21% 3.04% 3.36%
====== ====== ======
Average earning assets/Average
interest-bearing liabilities ........... 117.24% 117.28% 118.93%
========== ========== ==========
<FN>
(1) Calculated net of deferred loan fees and costs, loan discounts and loans in
process.
(2) Securities available for sale exclude securities pending settlement.
</FN>
</TABLE>
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following table presents the dollar amount of changes in interest and
dividend income and interest expense for major components of earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and the changes due to changes in interest rates. For each
category of earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by old rate) and (ii) changes in rate (i.e. changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
--------------------------------- ---------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
----------------- Increase ----------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease
---------- ------- --------- ----------- ------- ---------
Earning Assets (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable ..................... $ 8,826 $ (871) $ 7,955 $ 4,154 $ (542) $ 3,612
Securities available for sale ........ 2,118 (352) 1,766 1,018 (1,496) (478)
Federal Home Loan Bank stock ......... 159 (20) 139 142 18 160
Federal funds sold and interest-
bearing deposits ................... (61) (5) (66) 118 (5) 113
------- ------- ------- ------- ------- -------
Total earning assets ............. 11,042 (1,248) 9,794 5,432 (2,025) 3,407
------- ------- ------- ------- ------- -------
Interest-Bearing Liabilities
Savings deposits ..................... 985 (103) 882 124 (21) 103
NOW deposits ........................ 50 (32) 18 24 (18) 6
Certificates of deposit .............. 2,212 (852) 1,360 216 (216) --
Money market accounts ................ 610 63 673 40 28 68
Borrowed funds ....................... 1,273 (328) 945 2,926 (316) 2,610
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 5,130 $(1,252) $ 3,878 $ 3,330 $ (543) $ 2,787
------- ------- ------- ------- ------- -------
Net interest income ................ $ 5,912 $ 4 $ 5,916 $ 2,102 $(1,482) $ 620
======= ======== ======= ======= ======= =======
</TABLE>
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998.
Net Income. Net income increased by $3.3 million for the year ended December 31,
1999 to $4.3 million from $1.0 million for the year ended December 31, 1998. Net
income for the year ended December 31, 1999 increased primarily as a result of
increased net interest income and non-interest income, offset in part by an
increase in non-interest expenses and income tax expense. These and other
changes are discussed in more detail below.
Net Interest Income. Net interest income increased $5.9 million, or 35.8%, to
$22.4 million for the year ended December 31, 1999 from $16.5 million for the
year ended December 31, 1998. The increase in net interest income was primarily
due to an increase of $155.0 million, or 28.5%, in the average balance of
earning assets (primarily due to the acquisition of AFSALA), in addition to an
increase in the interest rate spread from 2.32% for the year ended December 31,
1998 to 2.57% for the year ended December 31, 1999. This was offset by an
increase in the average balance of interest-bearing liabilities of $132.3
million (primarily due to the acquisition of AFSALA), or 28.5%.
Earning assets primarily consist of loans receivable, securities available for
sale, federal funds sold, FHLB of New York stock, and interest-bearing deposits.
Interest-bearing liabilities primarily consist of interest-bearing deposits,
FHLB advances and securities repurchase agreements.
The interest rate spread, which is the difference between the yield on average
earning assets and the cost of average interest-bearing liabilities, increased
to 2.57% for the year ended December 31, 1999, from 2.32% for the year ended
December 31, 1998. Likewise, the net interest margin increased from 3.04% in
1998 to 3.21% in 1999. The increase in the interest rate spread and net interest
margin from 1998 to 1999 was due primarily to three factors. First, during 1999
the Company redeployed assets from lower-yielding federal funds sold and
securities available for sale to the higher-yielding loan portfolio. Second, the
average cost of the Company's interest-bearing deposits decreased from 4.40% in
1998 to 3.97% in 1999. This was due primarily to a decrease in the average rate
paid on time deposits, which decreased from 5.61% in 1998 to 5.03% in 1999.
Third, the average cost of the Company's borrowed funds decreased from 5.73% in
1998 to 5.50% for 1999. However, 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 and net interest margin are likely to decrease. For further information
regarding the Company's borrowings, see Note 10 to the consolidated financial
statements.
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 Company's growing customer base provides Ambanc
with the potential for future, profitable customer relationships, which should
in turn increase the value of the franchise.
Interest and Dividend Income. Interest and dividend income increased by
approximately $9.8 million, or 25.1%, to $48.8 million for the year ended
December 31, 1999 from $39.0 million for the year ended December 31, 1998. The
increase was largely the result of an increase of $155.0 million, or 28.5%, in
the average balance of earning assets to $699.0 million for the year ended
December 31, 1999 as compared to $544.0 million for the year ended December 31,
1998. The increase in the average balance of earning assets consisted primarily
of increases in the average balance of loans receivable of $120.5 million, or
37.4%, securities available for sale of $33.4 million, or 16.2%, and FHLB stock
of $2.4 million, or 46.6 %, offset in part by a decrease in federal funds sold
and interest-bearing deposits of $1.3 million, or 12.3%. Offsetting the effects
of the increase in the average balance of earning assets was an 18 basis point
decrease in the average yield on total earning assets. The yield on the average
balance of earning assets was 6.98% and 7.16% for the years ended December 31,
1999 and 1998, respectively.
Interest and fees on loans increased $8.0 million, or 32.3%, to $32.6 million
for the year ended December 31, 1999. This increase was primarily the result of
an increase in the average balance of net loans receivable of $120.5 million
offset in part by a 28 basis point decrease in the average yield. The reduction
in the average yield is the result of the decline in market interest rates
during 1998 and the first half of 1999 which provided opportunity for borrowers
to refinance their existing loans at lower rates. For further information
regarding changes in market interest rates and its impact on the interest rate
spread and net interest margin, please refer to "Market Risk".
Interest income on securities available for sale increased $1.8 million, or
13.1%, to $15.2 million for the year ended December 31, 1999 from $13.5 million
for the previous year. This increase is primarily the result of an increase in
the average balance of securities available for sale of $33.4 million offset in
part by a 17 basis point decrease in the average yield on these securities.
Interest Expense. Total interest expense increased by $3.9 million, or 17.3%, to
$26.3 million for the year ended December 31, 1999 from $22.4 million for the
year ended December 31. 1998. Total average interest-bearing liabilities
increased by $132.3 million, or 28.5%, to $596.2 million in 1999 compared to
$463.9 million in 1998. During the same periods, the average rate paid on
interest-bearing liabilities decreased by 43 basis points to 4.41% from 4.84%.
Total interest expense for the year ended December 31, 1999 increased
primarily due to an increase in the interest expense relative to savings, time
deposits, and money market accounts as a result of increases in the average
balances on these deposit accounts as a result of the acquisition of AFSALA.
Offsetting these increases was a decline in the average rates paid on savings,
NOW, and time deposit accounts. This decrease was due primarily from offering
lower interest rates paid on these deposit products. Also contributing to the
increased total interest expense was an increase in the average balance of total
borrowed funds from $150.3 million in 1998 to $173.8 million in 1999, partially
offset by a decrease of 23 basis points, to 5.50%, in the average rate paid for
these funds during the year.
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 year ended December 31,
1999 decreased $110 thousand to $790 thousand from $900 thousand for the year
ended December 31, 1998. The decrease in the provision was due primarily to the
decrease in net charge-offs, partially offset by the impact of an increase in
non-performing loans, as well as the overall growth in the loan portfolio.
Non-Interest Income. Total non-interest income increased by $659 thousand to
$1.8 million for the year ended December 31, 1999 from $1.1 million for the year
ended December 31, 1998, an increase of 57.6%. An increase in service charges on
deposit accounts of $364 thousand attributable to the restructuring of service
charges on certain deposit products, in addition to an increase in the number of
deposit accounts due to the acquisition of AFSALA, along with net losses on
securities transactions recorded during 1998 of $165 thousand, are the primary
reasons for the increase from the previous year. Also, included in other
non-interest income during 1999 was approximately $70 thousand representing
interest received on IRS tax refunds as well as a $20 thousand gain on the sale
of assets which were fully depreciated.
Non-Interest Expenses. Non-interest expenses increased $988 thousand, or 6.6%,
to $16.1 million for the year ended December 31, 1999 from $15.1 million for the
year ended December 31, 1998. Non-interest expenses were impacted by increased
salaries, wages and benefits primarily due to the additional AFSALA branches
acquired, and the amortization of goodwill as a result of the acquisition of
AFSALA. Also impacting non-interest expenses were the acceleration of
depreciation and amortization of equipment and leasehold improvements due to the
closing of a branch, and costs associated with the relocation of a branch. These
and other changes are discussed in more detail below.
Salaries, wages and benefits expense increased by $1.6 million, or 25.0%, from
the previous year due primarily to increased costs as a result of the
acquisition of AFSALA, the opening of a new branch in February 1999, as well as
general cost of living and merit raises to employees. Management believes that
salaries, wages and benefits 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 1999 was $73 thousand lower than 1998
due to the lower stock price in 1999 relative to 1998.
Also impacting non-interest expenses during 1998 were $608 thousand of expenses
incurred in connection with the termination and consulting agreements entered
into with the Company's former President and CEO, and severance packages for
three former officers. There were no such expenses in 1999.
Occupancy and equipment increased $498 thousand, or 27.5%, to $2.3 million for
the year ended December 31, 1999, from $1.8 million in 1998 primarily due to
increased rent and maintenance expense resulting from the opening of a new
branch in February 1999 and the four additional AFSALA branches acquired. Also
contributing to this increase was the acceleration of depreciation and
amortization of equipment and leasehold improvements on a branch being closed as
a result of the acquisition of AFSALA, as well as costs associated with the
relocation of a branch during the third quarter of 1999.
Data processing decreased $328 thousand, or 19.4%, primarily due to
non-recurring expenses incurred during the fourth quarter of 1998 related to
contract terminations associated with the core system (loans and deposits)
conversion.
Professional fees decreased $199 thousand, or 27.1%, from 1998 to 1999 due
primarily to $219 thousand in legal expenses incurred by the Company during 1998
to defend against litigation initiated by a shareholder. However, during the
fourth quarter of 1999, the Company incurred professional fees in the amount of
$124 thousand in connection with the Company's response to inquires from, and
preliminary discussions with, third parties regarding possible business
combinations with the Company. These discussions were terminated by the parties
in the fourth quarter without reaching any agreements.
Non-interest expenses for 1999 included the amortization of goodwill totaling
approximately $533 thousand for a full year, up from $67 thousand in 1998 for
the month and a half after the acquisition. As noted previously, goodwill is
being amortized to expense over fifteen years using the straight-line method.
Other non-interest expense decreased $444 thousand, or 12.1%, to $3.2 million
for the year ended December 31, 1999, from $3.7 million for the year ended
December 31, 1998. This decrease was primarily due to merger-related expenses
incurred during the fourth quarter of 1998, in addition to expenses related to
the settlement of a shareholder action and a one-time charge related to
significantly modifying repurchase agreements incurred during the third quarter
of 1998.
Income Tax Expense. Income tax expense increased by $2.4 million to $3.1 million
for the year ended December 31, 1999 from $670 thousand for the year ended
December 31, 1998. The increase was primarily the result of the increase in
income before income taxes, as well as the impact of the non-deductible goodwill
amortization.
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997.
Net Income. Net income decreased by $1.7 million, or 62.6%, for the year ended
December 31, 1998 to $1.0 million from $2.8 million for the year ended December
31, 1997. Net income for the year ended December 31, 1998 was reduced primarily
as a result of increased non-interest expenses and a decrease in non-interest
income, offset in part by increased net interest income and a decrease in the
provision for loan losses. These and other changes are discussed in more detail
below.
Net Interest Income. Net interest income increased $620 thousand, or 3.9%, to
$16.5 million for the year ended December 31, 1998 from $15.9 million for the
year ended December 31, 1997. The increase in net interest income was primarily
due to an increase of $70.9 million, or 15.0%, in the average balance of earning
assets, offset by an increase in the average balance of interest-bearing
liabilities of $66.1 million, or 16.6%, and a decrease in the interest rate
spread from 2.58% for the year ended December 31, 1997 to 2.32% for the year
ended December 31, 1998.
The interest rate spread decreased to 2.32% for the year ended December 31, 1998
from 2.58% for the year ended December 31, 1997. The decrease in the interest
rate spread was primarily the result of the decrease in the average yield on
earning assets being greater than the decrease in the average cost of
interest-bearing liabilities.
Interest and Dividend Income. Interest and dividend income increased by
approximately $3.4 million, or 9.6%, to $39.0 million for the year ended
December 31, 1998 from $35.6 million for the year ended December 31, 1997. The
increase was largely the result of an increase of $70.9 million, or 15.0%, in
the average balance of earning assets to $544.0 million for the year ended
December 31, 1998 as compared to $473.1 million for the year ended December 31,
1997. The increase in the average balance of earning assets consisted primarily
of increases in the average balance of loans receivable of $54.6 million, or
20.4%, securities available for sale of $11.9 million, or 6.1%, FHLB of New York
stock of $2.0 million, or 64.6 %, and federal funds sold and interest-bearing
deposits of $2.5 million, or 30.3%. Partially offsetting the effects of the
increase in the average balance of earning assets was a 36 basis point decrease
in the average yield on total earning assets.
The yield on the average balance of earning assets was 7.16% and 7.52% for the
years ended December 31, 1998 and 1997, respectively.
Interest and fees on loans increased $3.6 million, or 17.2%, to $24.6 million
for the year ended December 31, 1998. This increase was primarily the result of
an increase in the average balance of net loans receivable of $54.6 million
partially offset by a 21 basis point decrease in the average yield.
Interest income on securities available for sale decreased $478 thousand, or
3.4%, to $13.5 million for the year ended December 31, 1998 from $14.0 million
for the previous year. This decrease is primarily the result of a 65 basis point
decrease in the average yield on securities available for sale partially offset
by an increase in the average balance of $11.9 million.
Interest Expense. Total interest expense increased by $2.8 million, or 14.2%, to
$22.4 million for the year ended December 31, 1998 from $19.7 million for the
year ended December 31. 1997. Total average interest-bearing liabilities
increased by $66.1 million, or 16.6%, to $463.9 million in 1998 compared to
$397.8 million in 1997. During the same periods, the average rate paid on
interest-bearing liabilities decreased by 10 basis points to 4.84% from 4.94% in
1997.
Total interest expense for the year ended December 31, 1998 increased primarily
due to an increase in the average balance of total borrowed funds to $150.3
million from $98.9 million, partially offset by a decrease of 34 basis points,
to 5.73%, in the average rate paid for these funds during the year. The increase
in the average balance of borrowed funds was used primarily to fund the increase
in loans, including the purchase of $31.9 million in residential real estate
loans.
Provision for Loan Losses. The provision for loan losses for the year ended
December 31, 1998 decreased $188 thousand to $900 thousand from $1.1 million for
the year ended December 31, 1997. The decrease in the provision was due
primarily to the decrease in non-performing loans during the year from $3.3
million at December 31, 1997, to $2.9 million at December 31, 1998, a decrease
of 10.9%.
Non-Interest Income. Total non-interest income decreased by $675 thousand, or
37.1%, to $1.1 million for the year ended December 31, 1998 from $1.8 million
for the year ended December 31, 1997 primarily due to net losses on securities
transactions of $165 thousand in 1998 compared to net gains of $775 thousand in
1997. This decrease in net gains (losses) on securities transactions was
partially offset by an increase in service charges on deposit accounts of $226
thousand from 1997 to 1998. The increase in service charges on deposit accounts
is primarily attributable to the restructuring of service charges on certain
deposit products, in addition to an increase in the number of deposit accounts
due to the merger.
Non-Interest Expenses. Non-interest expenses increased $2.9 million, or 23.7%,
to $15.1 million for the year ended December 31, 1998 from $12.2 million for the
year ended December 31, 1997. Non-interest expenses in 1998 were impacted by
significant non-recurring expenses totaling approximately $1.7 million primarily
related to costs associated with the merger of the two companies, costs
associated with the termination and consulting agreements entered into with the
former President and CEO, costs incurred to defend against and settle legal
actions initiated by a shareholder, and costs associated with the core system
conversion. These and other changes are discussed in more detail below.
Salaries, wages and benefits expense increased by $307 thousand, or 5.0%, due
primarily to increased costs as a result of the merger, the opening of three new
branches during 1997, increased costs associated with the Company's ESOP, as
well as general cost of living and merit raises to employees.
During 1998, the Company incurred certain non-recurring termination benefits
totaling approximately $608 thousand. The non-recurring termination benefits
related to the termination and consulting agreements entered into with the
Company's former President and CEO, and severance packages for three former
officers.
Occupancy and equipment increased $270 thousand, or 17.5%, primarily due to the
acceleration of depreciation and amortization of equipment and leasehold
improvements as a result of the merger. In addition, rent and maintenance
expense increased as a result of the branch offices opened in 1997 and the four
additional branches acquired through the merger.
Data processing increased $520 thousand, or 44.5%, primarily due to
non-recurring expenses related to the core system conversion subsequent to the
merger. The non-recurring expenses relate to the conversion of the core system
(loans and deposits) and the termination of the network contract for automated
teller machine (ATM) processing. The non-recurring expenses associated with the
conversion of the core system and the termination of the ATM processing contract
were approximately $368 thousand. Also contributing to the increase in data
processing expense was the increase in the number of loan and deposit accounts
due to the merger.
Professional fees increased $306 thousand, or 71.3%, primarily due to charges of
$219 thousand related to legal costs incurred to defend against legal actions
initiated by a shareholder.
Real estate owned and repossessed assets expenses decreased $294 thousand, or
82.8%, to $61 thousand in 1998 as compared to $355 thousand in 1997 primarily
due to a decrease in net costs associated with foreclosed real estate properties
and repossessed assets. This decrease was largely the result of a decrease of
$298 thousand, or 69.1%, in the average balance of real estate owned and
repossessed assets during the year.
Non-interest expenses for 1998 included the amortization of goodwill totaling
approximately $67 thousand.
Other non-interest expenses increased approximately $1.1 million, or 43.4%, to
$3.6 million for the year ended December 31, 1998 when compared to 1997. This
increase was primarily due to merger-related costs which included advertising
related to promoting the new bank, the replacement of supplies and the write-off
of software duplication between the banks, additional courier services for check
processing due to the added branches, and an increase in postage due to special
mailings to depositors and shareholders related to the merger. In addition,
costs associated with the settlement of legal actions initiated by a
shareholder, and costs related to a one-time charge to substantially modify
repurchase agreements contributed to this increase.
Income Tax Expense. Income tax expense decreased by $1.0 million, or 60.4%, to
$670 thousand for the year ended December 31, 1998 from $1.7 million for the
year ended December 31, 1997. The decrease was primarily the result of the
decrease in income before taxes.
Asset Quality
The Bank's loan portfolio consists primarily of one-to four-family residential
mortgages and home equity loans which as a percentage of the Bank's total loan
portfolio were 85.2% at December 31, 1999. This percentage has grown from 84.3%
and 77.6% at December 31, 1998 and 1997, respectively. During 1999, the Bank
also began to re-emphasize commercial lending. Commercial loans, in nature, tend
to be of a shorter term than one-to-four family residential mortgages. In
addition, the interest rate charged on these loans generally adjusts within a
period of five years or less. The growth in commercial loans should improve the
interest rate risk position of the Bank. The commercial and multi-family real
estate portfolio increased $4.1 million to $31.8 million at December 31, 1999
from $27.7 million at December 31, 1998, an increase of 14.9%.
The Bank's non-performing assets consist of non-accruing loans, accruing loans
delinquent more than 90 days, troubled debt restructurings and foreclosed and
repossessed assets. Total non- performing assets at December 31, 1999 were $4.5
million, or 0.61% of total assets, compared with $3.3 million and $3.4 million
at December 31, 1998 and 1997, respectively. The increase in total
non-performing assets was due to a $1.3 million increase in total non-performing
loans. Total non-performing loans increased to $4.2 million at December 31, 1999
from $2.9 million at December 31, 1998. This increase was due to increases in
non-accruing loans and accruing loans delinquent more than 90 days. Non-accruing
loans and accruing loans delinquent more than 90 days increased $966 thousand
and $488 thousand, to $2.6 million and $1.1 million, respectively, at December
31, 1999. The Bank's ratio of non-performing loans to total loans and allowance
for loan losses to non-performing loans were 0.89% and 130.9%, respectively, at
December 31, 1999.
Market Risk
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
The Company does not currently engage in trading activities or use derivative
instruments, such as caps, collars or floors, to manage interest rate risk. Even
though such activities may be permitted with the approval of the Board of
Directors, the Company does not intend to engage in such activities in the
immediate future.
The Bank's net interest income is sensitive to changes in interest rates, as the
rates paid on its interest-bearing liabilities generally change faster than the
rates earned on its interest-earning assets. As a result, net interest income
will frequently decline in periods of rising interest rates and increase in
periods of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest income,
the Bank manages its interest rate sensitivity and asset/liability products
through its asset/liability management committee. The asset/liability management
committee meets weekly to determine the rates of interest for loans and deposits
and consists of the President and Chief Executive Officer, the Senior Vice
President and Chief Commercial Lending Officer, the Senior Vice President and
Chief Consumer Lending Officer, and the Treasurer and Chief Financial Officer.
Rates on deposits are primarily based on the Bank's needs for funds and on a
review of rates offered by other financial institutions in the Bank's market
areas. Interest rates on loans are primarily based on the interest rates offered
by other financial institutions in the Bank's primary market areas, as well as
the Bank's cost of funds.
The committee manages the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The committee then monitors the impact on interest rate risk and the
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to reduce the interest rate sensitivity of its interest-earning assets and to
match, as closely as possible, the maturities of interest-earning assets with
interest-bearing liabilities.
The Bank is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice on a different basis or at a different pace
than its interest-earning assets. Management of the Bank believes it is
important to manage the effect interest rates have on the Bank's net portfolio
value ("NPV") and net interest income. NPV helps measure interest rate risk by
calculating the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance sheet contracts.
Presented below is an analysis of the Bank's interest rate risk as calculated by
the OTS as of December 31, 1999, measured by changes in the Bank's NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
points increments, up and down 300 basis points.
NPV as % of PV
Net Portfolio Value of Assets
---------------------------------- ------------------
Change NPV
in Rates $Amount $Change(1) %Change(2) Ratio(3) Change(4)
-------- ------- ---------- ---------- -------- ---------
(Dollars in thousands)
+300 bp 19,534 (52,501) (73)% 2.91% -693 bp
+200 bp 36,655 (35,380) (49) 5.31 -454 bp
+100 bp 63,278 (12,638) (24) 7.66 -219 bp
0 bp 72,035 9.85
-100 bp 87,416 15,381 21 11.65 181 bp
-200 bp 100,062 28,025 39 13.06 322 bp
-300 bp 112,221 40,186 56 14.36 452 bp
- -------------------------------------------------------------------------------
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by present value of total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings associations were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, certain shortcomings are inherent in the preceding NPV
table since the data reflects hypothetical changes in NPV based upon assumptions
used by the OTS to evaluate the Bank as well as other institutions.
The experience of the Bank has been that net interest income declines with
increases in interest rates and that net interest income increases with
decreases in interest rates. Generally, during periods of increasing interest
rates, the Bank's interest rate sensitive liabilities would re-price faster than
its interest rate sensitive assets causing a decline in the Bank's interest rate
spread and net interest margin. This would result from an increase in the Bank's
cost of funds that would not be immediately offset by an increase in its yield
on 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 is evident in 1999 when interest rates generally began to
increase during the second half of the year. 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. If
interest rates continue to increase, management expects the net interest margin
to decline.
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 28.36% and 31.97% at
December 31, 1999 and 1998, respectively.
The Company's sources of liquidity include cash flows from operations, principal
and interest payments on loans, mortgage-backed securities and collateralized
mortgage obligations, maturities of securities, deposit inflows, borrowings from
the FHLB of New York and proceeds from the sale of securities sold under
agreements to repurchase.
While maturities and scheduled amortization of loans and securities are, in
general, a predictable source of funds, deposit flows and prepayments on loans
and securities are greatly influenced by general interest rates, economic
conditions and competition. In addition, the Bank invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
In addition to deposit growth, the Company borrows funds from the FHLB of New
York or may utilize other types of borrowed funds to supplement its cash flows.
At December 31, 1999 and 1998, the Company had $92.2 and $21.4 million,
respectively, in outstanding borrowings from the FHLB and $112.7 million and
$152.4 million, respectively, in securities repurchase agreements, the vast
majority of which are also with the FHLB. See note 10 to the consolidated
financial statements for further information regarding the Company's borrowings.
As of December 31, 1999 and 1998, the Company had $212.1 million and $244.2
million, respectively, of securities classified as available for sale. The
liquidity of the securities available for sale portfolio provides the Company
with additional potential cash flows to meet loan growth and deposit 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 December 31, 1999, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
December 31, 1999 according to regulatory definition. At December 31, 1999, the
Bank's tangible and core capital levels were both $67.8 million (9.18% of total
adjusted assets) and its total risk-based capital level was $72.1 million (20.8%
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. See note 16 to the consolidated financial
statements for further information regarding the Bank's regulatory capital
requirements.
The Board of Directors previously authorized the repurchase of up to 10% of the
Company's common stock, or approximately 543,000 shares. During 1999, the
Company repurchased 459,000 shares of the Company's common stock in open-market
transactions at a total cost of $7.4 million.
Year 2000
The Year 2000 issue confronting the Company centered on the inability of some
computer systems to properly recognize the year 2000. The Company formulated a
plan to address the Year 2000 issue. Since the inception of the Year 2000
project, the costs incurred by the Company to address year 2000 compliance
totaled approximately $181 thousand, of which $135 thousand were hardware and
software upgrades which were capitalized and will be depreciated or amortized
over their estimated useful lives of three to five years. The Company has
experienced no material operational or financial problems relating to year 2000
compliance. The Company continues to monitor its systems for any latent year
2000 compliance problems but does not expect any material problems or costs.
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.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Consolidated Quarterly Financial Information
1999 1998
----------------------------------------- -----------------------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and Dividend Income ....... $11,964 $11,957 $12,334 $12,512 $9,009 $9,095 $9,955 $10,914
Net Interest Income ................ 5,393 5,506 5,892 5,657 3,862 3,848 4,085 4,737
Provision for Loan Losses .......... 255 240 175 120 225 225 225 225
Income (Loss) Before Taxes ......... 1,816 1,868 2,200 1,514 808 169 779 ( 55)
Net Income ......................... 1,035 1,092 1,257 919 446 97 478 10
Earnings per share - Basic ......... 0.21 0.22 0.26 0.20 0.12 0.03 0.13 0.00
Earnings per share - Diluted ....... 0.20 0.22 0.26 0.19 0.11 0.03 0.13 0.00
Average Shares Outstanding - Basic . 5,009,031 4,993,494 4,838,482 4,673,154 3,828,636 3,759,045 3,701,018 4,371,881
Average Shares Outstanding - Diluted 5,060,835 5,058,050 4,894,297 4,731,445 3,927,904 3,861,896 3,745,764 4,417,751
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors
Ambanc Holding Co., Inc.:
We have audited the accompanying consolidated statements of financial condition
of Ambanc Holding Co., Inc. and subsidiaries (the Company) as of December 31,
1999 and 1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ambanc Holding Co.,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Albany, New York
February 16, 2000
<PAGE>
<TABLE>
<CAPTION>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31,
1999 1998
--------- ---------
(In thousands)
Assets
<S> <C> <C>
Cash and due from banks ..................................... $ 26,380 9,225
Interest-bearing deposits ................................... 3,231 3,390
Federal funds sold .......................................... -- 30,200
--------- ---------
Cash and cash equivalents .............................. 29,611 42,815
Securities available for sale, at fair value ................ 212,145 244,241
Federal Home Loan Bank of New York stock, at cost ........... 8,748 7,215
Loans receivable, net ....................................... 465,477 420,933
Accrued interest receivable ................................. 4,411 4,115
Premises and equipment, net ................................. 5,593 4,537
Real estate owned and repossessed assets .................... 322 399
Goodwill .................................................... 7,390 7,923
Other assets ................................................ 6,975 3,294
--------- ---------
Total assets ........................................... $ 740,672 735,472
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ................................................... 450,134 461,413
Federal Home Loan Bank short-term borrowings ............... 71,200 --
Federal Home Loan Bank long-term advances .................. 20,965 21,410
Securities sold under agreements to repurchase ............. 112,740 152,400
Advances from borrowers for taxes and insurance ............ 3,641 2,436
Accrued interest payable ................................... 1,508 1,426
Accrued expenses and other liabilities ..................... 4,891 4,494
Due to brokers ............................................. -- 6,000
--------- ---------
Total liabilities ...................................... 665,079 649,579
--------- ---------
Commitments and contingent liabilities (note 14)
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000 shares;
none issued at December 31, 1999 and 1998 ................ -- --
Common stock $.01 par value. Authorized 15,000,000 shares;
5,432,245 shares issued at December 31, 1999 and 1998 .... 54 54
Additional paid-in capital ................................. 63,314 63,019
Retained earnings, substantially restricted ................ 28,879 26,356
Treasury stock, at cost (465,155 shares at December 31, 1999
and 23,908 shares at December 31, 1998 ................... (7,486) (329)
Unallocated common stock held by ESOP ...................... (2,353) (2,818)
'Unearned RRP shares ....................................... (443) (759)
Accumulated other comprehensive (loss) income .............. (6,372) 370
--------- ---------
Total shareholders' equity ............................. 75,593 85,893
--------- ---------
Total liabilities and shareholders' equity ............. $ 740,672 735,472
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31,
1999 1998 1997
------- ------- -------
(In thousands, except per share amounts)
Interest and dividend income:
<S> <C> <C> <C>
Loans receivable ...................................... $32,578 24,623 21,011
Securities available for sale ......................... 15,245 13,479 13,957
Federal funds sold and interest-bearing deposits ...... 441 507 394
Federal Home Loan Bank stock .......................... 503 364 204
------- ------- -------
Total interest and dividend income ................ 48,767 38,973 35,566
------- ------- -------
Interest expense:
Deposits .............................................. 16,755 13,822 13,645
Borrowings ............................................ 9,564 8,619 6,009
------- ------- -------
Total interest expense ............................ 26,319 22,441 19,654
------- ------- -------
Net interest income ............................... 22,448 16,532 15,912
Provision for loan losses .............................. 790 900 1,088
------- ------- -------
Net interest income after provision for loan losses 21,658 15,632 14,824
------- ------- -------
Non-interest income:
Service charges on deposit accounts ................... 1,376 1,012 786
Net (losses) gains on securities transactions ......... -- (165) 775
Other ................................................. 427 297 258
------- ------- -------
Total non-interest income ......................... 1,803 1,144 1,819
------- ------- -------
Non-interest expenses:
Salaries, wages and benefits .......................... 8,027 6,423 6,113
Non-recurring termination benefits .................... -- 608 --
Occupancy and equipment ............................... 2,307 1,809 1,539
Data processing ....................................... 1,360 1,688 1,168
Real estate owned and repossessed assets expenses, net 60 61 355
Professional fees ..................................... 536 735 429
Amortization of goodwill .............................. 533 67 --
Other ................................................. 3,240 3,684 2,586
------- ------- -------
Total non-interest expenses ....................... 16,063 15,075 12,190
------- ------- -------
Income before taxes .................................... 7,398 1,701 4,453
Income tax expense ..................................... 3,095 670 1,693
------- ------- -------
Net income ........................................ $ 4,303 1,031 2,760
======= ======= =======
Basic earnings per share ............................... $ 0.88 0.26 0.70
======= ======= =======
Diluted earnings per share ............................. $ 0.87 0.26 0.69
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity Years
ended December 31, 1999, 1998 and 1997
(In thousands, except share and per share data)
Additional
Common paid-in Retained Treasury
stock capital earnings stock
------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 .......................... $ 54 52,128 24,436 (11,208)
Comprehensive income:
Net income ........................................... -- -- 2,760 --
Other comprehensive loss, net of tax:
Unrealized net holding gains on securities available
for sale arising during the year (pre-tax $452)
Reclassification adjustment for net gains realized
in net income during the year (pre-tax $775)
Other comprehensive loss ............................. -- -- -- --
Comprehensive income
Purchase of treasury shares (216,890 shares) .......... -- -- -- (3,488)
Release of ESOP shares (50,561 shares) ................ -- 257 -- --
Issuance of RRP shares (131,285 shares) ............... -- -- (306) 2,111
RRP shares vested ..................................... -- -- -- --
Cash dividends - $0.10 per share ...................... -- -- (432) --
------- ---------- -------- --------
Balance at December 31, 1997 .......................... 54 52,385 26,458 (12,585)
Comprehensive income:
Net income ........................................... -- -- 1,031 --
Other comprehensive loss, net of tax:
Unrealized net holding gains on securities available
for sale arising during the year (pre-tax $908)
Reclassification adjustment for net gains realized
in net income during the year (pre-tax $165)
Other comprehensive income ........................... -- -- -- --
Comprehensive income
Purchase of treasury shares (215,320 shares) .......... -- -- -- (4,111)
Release of ESOP shares (48,498 shares) ................ -- 331 -- --
RRP shares vested ..................................... -- -- -- --
Tax benefit related to RRP shares earned .............. -- 76 -- --
RRP shares forfeited (29,331 shares) .................. -- -- -- (403)
Exercises of stock options (9,489 shares) ............. -- 5 -- 125
Acquisition of AFSALA Bancorp, Inc. (see note 2)....... -- 10,222 -- 16,645
Cash dividends - $0.25 per share ...................... -- -- (1,133) --
------- ---------- -------- --------
Balance at December 31, 1998 .......................... 54 63,019 26,356 (329)
Comprehensive loss:
Net income ........................................... -- -- 4,303 --
Other comprehensive loss, net of tax:
Unrealized net holding losses on securities available
for sale arising during the year (pre-tax $11,237) -- -- -- --
Comprehensive loss
Purchase of treasury shares (459,000 shares) .......... -- -- -- (7,438)
Release of ESOP shares (46,434 shares) ................ -- 279 -- --
Issuance of RRP shares (7,586 shares) ................. -- -- (4) 121
RRP shares vested ..................................... -- -- -- --
Tax benefit related to RRP shares earned .............. -- 21 -- --
Exercises of stock options (10,167 shares) ............ -- (5) (16) 160
Cash dividends - $0.34 per share ...................... -- -- (1,760) --
------- ---------- -------- --------
Balance at December 31, 1999 .......................... $ 54 63,314 28,879 (7,486)
======= ========== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (continued)
Years ended December 31, 1999, 1998 and 1997
(In thousands, except share and per share data)
Unallocated Accumulated
common stock Unearned other
held by RRP comprehensive Comprehensive
ESOP shares (loss) income Total income (loss)
----------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 .......................... $(3,812) -- (80) 61,518
Comprehensive income:
Net income ........................................... -- -- -- 2,760 $ 2,760
Other comprehensive loss, net of tax:
Unrealized net holding gains on securities available
for sale arising during the year (pre-tax $452) .. 271
Reclassification adjustment for net gains realized
in net income during the year (pre-tax $775) ..... (465)
-------
Other comprehensive loss ............................. -- -- (194) (194) (194)
-------
Comprehensive income ............................ $ 2,566
=======
Purchase of treasury shares (216,890 shares) .......... -- -- -- (3,488)
Release of ESOP shares (50,561 shares) ................ 509 -- -- 766
Issuance of RRP shares (131,285 shares) ............... -- (1,805) -- --
RRP shares vested ..................................... -- 272 -- 272
Cash dividends - $0.10 per share ...................... -- -- -- (432)
----------- ---------- ------------ --------
Balance at December 31, 1997 .......................... (3,303) (1,533) (274) 61,202
Comprehensive income:
Net income ........................................... -- -- -- 1,031 1,031
Other comprehensive loss, net of tax:
Unrealized net holding gains on securities available
for sale arising during the year (pre-tax $908) .. 545
Reclassification adjustment for net gains realized
in net income during the year (pre-tax $165) ..... 99
-------
Other comprehensive income ........................... -- -- 644 644 644
-------
Comprehensive income ............................ $ 1,675
=======
Purchase of treasury shares (215,320 shares) .......... -- -- -- (4,111)
Release of ESOP shares (48,498 shares) ................ 485 -- -- 816
RRP shares vested ..................................... -- 371 -- 371
Tax benefit related to RRP shares earned .............. -- -- -- 76
RRP shares forfeited (29,331 shares) .................. -- 403 -- --
Exercises of stock options (9,489 shares) ............. -- -- -- 130
Acquisition of AFSALA Bancorp, Inc. (see note 2)....... -- -- -- 26,867
Cash dividends - $0.25 per share ...................... -- -- -- (1,133)
----------- ---------- ------------ --------
Balance at December 31, 1998 .......................... (2,818) (759) 370 85,893
Comprehensive loss:
Net income ........................................... -- -- -- 4,303 4,303
Other comprehensive loss, net of tax:
Unrealized net holding losses on securities available
for sale arising during the year (pre-tax $11,237) -- -- (6,742) (6,742) (6,742)
-------
Comprehensive loss .............................. $ (2,439)
=======
Purchase of treasury shares (459,000 shares) .......... -- -- -- (7,438)
Release of ESOP shares (46,434 shares) ................ 465 -- -- 744
Issuance of RRP shares (7,586 shares) ................. -- (117) -- --
RRP shares vested ..................................... -- 433 -- 433
Tax benefit related to RRP shares earned .............. -- -- -- 21
Exercises of stock options (10,167 shares) ............ -- -- -- 139
Cash dividends - $0.34 per share ...................... -- -- -- (1,760)
----------- ---------- ------------ --------
Balance at December 31, 1999 .......................... $(2,353) (443) (6,372) 75,593
=========== ========== ============ ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
1999 1998 1997
------- ------- -------
(In thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
<S> <C> <C> <C>
Net income .......................................... $ 4,303 1,031 2,760
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises and
equipment .................................... 888 735 606
Amoritization of goodwill ....................... 533 67 --
Net amoritization of purchase accounting
adjustments .................................. (204) (36) --
Net amortization of premium on securities ....... 734 1,094 320
Provision for loan losses ....................... 790 900 1,088
Provision for losses and writedowns on real
estate owned and repossessed assets .......... 6 7 171
Net (gains) losses on sales of real estate
owned and repossessed assets ................. -- (7) 38
ESOP compensation expense ....................... 744 816 766
RRP expense ..................................... 433 371 272
Net losses (gains) on securities transactions ... -- 165 (775)
Decrease in accrued interest
receivable and other assets .................. 539 65 877
Increase in accrued interest payable and
accrued expenses and other liabilities ....... 479 1,423 187
------- ------- -------
Net cash provided by operating activities 9,245 6,631 6,310
------- ------- -------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale ..................... 12,500 126,846 194,210
Purchases of securities available for sale .......... (60,296) (157,188) (247,390)
Proceeds from principal paydowns and
maturities of securities available for sale ....... 61,885 53,743 48,029
Purchases of FHLB stock ............................. (1,533) (3,359) (1,262)
Net increase in loans made to customers ................ (46,025) (26,391) (34,384)
Purchases of loans ..................................... 0 (31,888) --
Purchases of premises and equipment .................... (1,944) (422) (1,004)
Proceeds from sales of real estate owned and
repossessed assets ................................ 419 270 631
Net cash acquired in acquisition .................... -- 24,996 --
------- ------- -------
Net cash used in investing activities ........... (34,994) (13,393) (41,170)
------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31,
1999 1998 1997
------- ------- -------
Cash flows from financing activities: (In thousands)
<S> <C> <C> <C>
Net (decrease) increase in deposits ............... $ (10,709) (16,533) 35,183
Net increase (decrease) in FHLB short-term
borrowings ...................................... 71,200 (12,300) 6,300
Proceeds from FHLB long-term advances ............. -- 20,000 --
Repayments of FHLB long-term advances ................ (432) (35) --
Proceeds from repurchase agreements .................. 15,550 142,575 66,570
Repayments of repurchase agreements .................. (55,210) (89,425) (70,100)
Increase in advances from borrowers for taxes and
insurance ....................................... 1,205 150 199
Purchases of treasury stock ....................... (7,438) (4,111) (3,488)
Exercises of stock options ........................... 139 130 --
Dividends paid .................................... (1,760) (1,133) (432)
------- ------- -------
Net cash provided by financing activities ..... 12,545 39,318 34,232
------- ------- -------
Net (decrease) increase in cash and cash equivalents . (13,204) 32,556 (628)
Cash and cash equivalents at beginning of year ....... 42,815 10,259 10,887
------- ------- -------
Cash and cash equivalents at end of year ............. $ 29,611 42,815 10,259
======= ======= =======
Supplemental disclosures of cash flow information -
cash paid during the year for:
Interest .......................................... $ 26,237 21,834 19,912
======= ======= =======
Income taxes ...................................... $ 2,866 1,429 1,770
======= ======= =======
Noncash investing and financing activities:
Net transfer of loans to real estate owned and
repossessed assets ................................ $ 348 386 268
======= ======= =======
Increase (decrease) in amounts due to brokers for
purchases of securities available for sale ........ $ (6,000) 6,000 --
======= ======= =======
Fair value of non-cash assets acquired in acquisition $ -- 142,820 --
======= ======= =======
Fair value of liabilities assumed in acquisition .... $ -- 148,565 --
======= ======= =======
Issuance of RRP shares .............................. $ 121 -- 2,111
======= ======= =======
Tax benefit related to vesting of RRP shares ........ $ 21 76 --
======= ======= =======
RRP shares forfeited ................................ $ -- 403 --
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Ambanc Holding Co., Inc. (Ambanc or the Holding Company),
and its wholly owned subsidiaries, Mohawk Community Bank, formerly
known as Amsterdam Savings Bank, FSB (the Bank), and A.S.B. Insurance
Agency, Inc., collectively referred to as the Company. All significant
intercompany accounts have been eliminated in consolidation. The
accounting and reporting policies of the Company conform in all
material respects to generally accepted accounting principles and to
general practice within the banking industry.
(b) Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance
for loan losses. In connection with the determination of the allowance
for loan losses, management obtains appraisals for significant assets.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the
time of their examination which may not be currently available to
management.
A substantial portion of the Company's assets are loans secured by
real estate in the upstate New York area. Accordingly, the ultimate
collectibility of a considerable portion of the Company's loan
portfolio is dependent upon market conditions in the upstate New York
region.
(c) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.
<PAGE>
(d) Securities Available for Sale, Securities Held to Maturity and
FHLB of New York Stock
Management determines the appropriate classification of securities at
the time of purchase. If management has the positive intent and
ability to hold debt securities to maturity, they are classified as
securities held to maturity and are stated at amortized cost. All
other debt and marketable equity securities are classified as
securities available for sale and are reported at fair value, with net
unrealized gains and losses reported in accumulated other
comprehensive income or loss. Unrealized losses on securities that
reflect a decline in value that is other than temporary are charged to
income. The Company does not maintain a trading portfolio and at
December 31, 1999 and 1998, the Company had no securities classified
as held to maturity.
Non-marketable equity securities, such as Federal Home Loan Bank
(FHLB) of New York stock, are stated at cost. The investment in FHLB
of New York stock is required for membership and is pledged to secure
FHLB borrowings.
Mortgage-backed securities, which are guaranteed by Ginnie Mae,
Freddie Mac or Fannie Mae, represent participation interests in pools
of long-term first mortgage loans originated and serviced by the
issuers of the securities. Gains and losses on the sale and redemption
of securities available for sale are based on the amortized cost of
the specific security sold or redeemed. The cost of securities is
adjusted for the amortization of premiums and the accretion of
discounts, which is calculated on an effective interest method.
Purchases and sales are recorded on a trade date basis. Receivables
and payables from unsettled transactions are shown as due from brokers
or due to brokers in the consolidated statements of financial
condition.
(e) Loans Receivable and Allowance for Loan Losses
Loans receivable are stated at the unpaid principal amount, net of
unearned discount, net deferred loan fees and costs, and the allowance
for loan losses. Discounts are amortized to income over the
contractual life of the loan using the level-yield method. Loan fees
received and the related direct costs of originations are deferred and
recorded as yield adjustments over the lives of the related loans
using the interest method of amortization.
<PAGE>
Non-performing loans include nonaccrual loans, restructured loans and
loans which are 90 days or more past due and still accruing interest.
Loans considered doubtful of collection by management are placed on a
nonaccrual status with respect to interest income recognition.
Generally, loans past due 90 days or more as to principal or interest
are placed on nonaccrual status except for certain loans which, in
management's judgment, are adequately secured and for which collection
is probable. Previously accrued income that has not been collected is
reversed from current income. Thereafter, the application of payments
received (principal or interest) on nonaccrual loans is dependent on
the expectation of ultimate repayment of the loan. If ultimate
repayment of the loan is reasonably assured, any payments received are
applied in accordance with the contractual terms. If ultimate
repayment of principal is not reasonably assured or management judges
it to be prudent, any payment received is applied to principal until
ultimate repayment of the remaining balance is reasonably assured.
Loans are removed from nonaccrual status when they are estimated to be
fully collectible as to principal and interest. Amortization of the
related deferred fees or costs is suspended when a loan is placed on
nonaccrual status.
The allowance for loan losses is maintained at a level deemed
appropriate by management based on an evaluation of the known and
inherent risks in the portfolio, the level of non-performing loans,
past loan loss experience, the estimated value of underlying
collateral, and current and prospective economic conditions. The
allowance is increased by provisions for loan losses charged to
operations. Losses on loans (including impaired loans) are charged to
the allowance when all or a portion of a loan is deemed to be
uncollectible. Recoveries of loans previously charged off are credited
to the allowance when realized.
(f) Loan Impairment
Management considers a loan to be impaired if, based on current
information, it is probable that the Company will be unable to collect
all scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. When a loan is considered
to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the
loan is collateral dependent. Except for loans restructured in a
troubled debt restructuring subsequent to January 1, 1995, management
excludes large groups of smaller balance homogeneous loans such as
residential mortgages and consumer loans which are collectively
evaluated for impairment. Impairment losses, if any, are recorded
through a charge to the provision for loan losses.
(g) Real Estate Owned and Repossessed Assets
Real estate owned and repossessed assets include assets received from
foreclosures, in-substance foreclosures, and repossessions. A loan is
classified as an in-substance foreclosure when the Company has taken
possession of the collateral regardless of whether formal foreclosure
proceedings have taken place.
<PAGE>
Real estate owned and repossessed assets, including in-substance
foreclosures, are recorded on an individual asset basis at the lower
of fair value less estimated costs to sell or "cost" (defined as the
fair value at initial foreclosure or repossession). When a property is
acquired or identified as an in-substance foreclosure, the excess of
the loan balance over fair value is charged to the allowance for loan
losses. Subsequent writedowns to carry the property at fair value less
costs to sell are included in noninterest expense. Costs incurred to
develop or improve properties are capitalized, while holding costs are
charged to expense.
At December 31, 1999 and 1998, real estate owned and repossessed
assets consisted primarily of one-to-four family residential
properties, commercial properties, recreational vehicles and
automobiles. The Company had no in-substance foreclosures at December
31, 1999 or 1998.
(h) Premises and Equipment, Net
Premises and equipment are carried at cost, less accumulated
depreciation applied on a straight-line basis over the estimated
useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the respective original lease terms without
regard to lease renewal options.
(i) Goodwill
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired for transactions accounted for using
the purchase method of accounting. Goodwill is being amortized over
fifteen years using the straight-line method. Accumulated amortization
of goodwill amounted to approximately $600,000 and $67,000 at December
31, 1999 and 1998, respectively. Goodwill is periodically reviewed by
management for recoverability, and impairment is recognized by a
charge to income if a permanent loss in value is indicated.
(j) Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers the
underlying securities to a third party custodian's account that
explicitly recognizes the Company's interest in the securities. These
agreements are accounted for as secured financing transactions
provided the Company maintains effective control over the transferred
securities and meets other criteria for such accounting as specified
in Statement of Financial Accounting Standards (SFAS) No. 125. The
Company's agreements are accounted for as secured financings;
accordingly, the transaction proceeds are recorded as borrowed funds
and the underlying securities continue to be carried in the Company's
securities available for sale portfolio.
<PAGE>
(k) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date. The Company's
policy is that deferred tax assets are reduced by a valuation
allowance if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not
be recognized. In considering if it is more likely than not that some
or all of the deferred tax assets will not be realized, the Company
considers taxable temporary differences, historical income taxes paid
and estimates of future taxable income.
(l) Financial Instruments
In the normal course of business, the Company is a party to certain
financial instruments with off-balance sheet risk such as commitments
to extend credit, unused lines of credit and standby letters of
credit. The Company's policy is to record such instruments when
funded.
(m) Stock-Based Compensation Plans
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation
expense is recognized only if the exercise price of the option is less
than the fair value of the underlying stock at the grant date. SFAS
No. 123, "Accounting for Stock-Based Compensation," encourages
entities to recognize the fair value of all stock-based awards on the
date of grant as compensation expense over the vesting period.
Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma disclosures of
net income and earnings per share as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosures required by SFAS No. 123.
The Company's Recognition and Retention Plan (RRP) is also accounted
for in accordance with APB Opinion No. 25. The fair value of the
shares awarded, measured as of the grant date, is recognized as
unearned compensation (a deduction from shareholders' equity) and
amortized to compensation expense as the shares become vested.
<PAGE>
(n) Earnings per share
Basic earnings per share (EPS) excludes dilution and is calculated by
dividing net income available to common shareholders by the weighted
average number of shares outstanding during the period. Shares of
restricted stock are considered outstanding common shares and included
in the computation of basic EPS when they become fully vested. Diluted
EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock (such as the Company's stock
options and unvested RRP shares) were exercised into common stock or
resulted in the issuance of common stock.
(o) Official Bank Checks
The Company's official bank checks (including expense checks), which
are drawn upon the Bank and are ultimately paid through the Bank's
Federal Reserve Bank of New York correspondent account, are included
in accrued expenses and other liabilities in the consolidated
statements of financial condition.
(p) Comprehensive Income or Loss
Comprehensive income or 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.
(q) Segment Reporting
The Company engages in the traditional operations of a community
banking enterprise, principally the delivery of loan and deposit
products and other financial services. Management makes operating
decisions and assesses performance based on an ongoing review of the
Company's community banking operations, which constitute the Company's
only operating segment for financial reporting purposes. The Company
operates primarily in upstate New York in Montgomery, Fulton,
Schenectady, Saratoga, Albany, Otsego, Chenango and Schoharie counties
and surrounding areas.
(r) Reclassifications
Amounts in the prior years' consolidated financial statements are
reclassified whenever necessary to conform to the current year's
presentation.
<PAGE>
(2) Acquisition of AFSALA Bancorp, Inc.
On November 16, 1998, the Company acquired AFSALA Bancorp, Inc. (AFSALA) and
its wholly owned subsidiary, Amsterdam Federal Bank. At the date of the
merger, AFSALA had approximately $167.1 million in assets, $144.1 million in
deposits, and $19.2 million in shareholders' equity. Pursuant to the merger
agreement, AFSALA was merged with and into Ambanc Holding Co., Inc., and
Amsterdam Federal Bank was merged with and into the former Amsterdam Savings
Bank, FSB. The combined bank now operates as one institution under the name
"Mohawk Community Bank".
Upon consummation of the merger, each share of AFSALA common stock was
converted into the right to receive 1.07 shares of Ambanc common stock.
Based on the 1,249,727 shares of AFSALA common stock issued and outstanding
immediately prior to the merger, the Company issued 1,337,081 shares of
common stock in the merger and paid out 126 fractional shares in cash. Of
the 1,337,081 shares issued in the merger, 1,327,086 were issued from the
Company's treasury stock and 9,995 were newly-issued shares. In addition,
under the merger agreement, the Company assumed unexercised, fully-vested
options to purchase 144,118 shares of AFSALA common stock, which converted
into fully-vested options to purchase 154,203 shares of Ambanc common stock.
See also Note 12(d).
The acquisition was accounted for using purchase accounting in accordance
with APB Opinion No. 16, "Business Combinations" (APB No. 16). Under
purchase accounting, the purchase price is allocated to the respective
assets acquired and liabilities assumed based on their estimated fair
values. The acquisition of AFSALA resulted in approximately $8.0 million in
excess of cost over net assets acquired ("goodwill"). Goodwill is being
amortized to expense over a period of fifteen years using the straight-line
method. The results of operations of AFSALA have been included in the
Company's consolidated statements of income from the date of acquisition.
In conjunction with the acquisition of AFSALA, premiums on securities,
loans, time deposits and FHLB term advances were recorded totaling
approximately $155,000, $1,459,000, $651,000 and $26,000, respectively, in
order to record these assets and liabilities at their fair values based on
market interest rates at the acquisition date. The premiums are being
amortized over the estimated period to repricing of the respective items.
For the years ended December 31, 1999 and 1998, the impact of the net
amortization of the premiums was to increase net income by approximately
$122,000 and $21,000, respectively.
<PAGE>
(3) Conversion to Stock Ownership
On December 26, 1995, the Holding Company sold 5,422,250 shares of common
stock at $10.00 per share to depositors and employees of the former
Amsterdam Savings Bank, FSB. Net proceeds from the sale of stock of the
Holding Company, after deducting conversion expenses of approximately $2.0
million, were $52.2 million and are reflected as common stock and additional
paid-in capital in the accompanying consolidated financial statements. The
Company utilized $26.0 million of the net proceeds to acquire all of the
capital stock of the former Amsterdam Savings Bank, FSB.
As part of the conversion of the former Amsterdam Savings Bank, FSB, and the
former Amsterdam Federal Bank, liquidation accounts were established for the
benefit of eligible depositors who continue to maintain their deposit
accounts after conversion. In the unlikely event of a complete liquidation
of the Bank, each eligible depositor will be entitled to receive a
liquidation distribution from the liquidation accounts, in the proportionate
amount of the then current adjusted balance for deposit accounts held,
before distribution may be made with respect to the Bank's capital stock.
The Bank may not declare or pay a cash dividend to the Holding Company on,
or repurchase any of, its capital stock if the effect thereof would cause
the retained earnings of the Bank to be reduced below the amount required
for the liquidation accounts. Except for such restrictions, the existence of
the liquidation accounts does not restrict the use or application of
retained earnings.
(4) Reserves and Investments Required by Law
The Company is required to maintain certain reserves of cash and/or deposits
with the Federal Reserve Bank. The amount of this reserve requirement,
included in cash and due from banks, was approximately $4.4 million and $2.4
million at December 31, 1999 and 1998, respectively.
The Company is required to maintain certain levels of stock in the Federal
Home Loan Bank. The Company has pledged its investment in this stock, as
well as a blanket pledge of qualifying residential real estate loans, to
secure its borrowings from the Federal Home Loan Bank of New York.
<PAGE>
(5) Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair
values of securities available for sale at December 31, 1999 and 1998 are as
follows:
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------- ------- -------- --------
(In thousands)
U.S. Government and agency securities $ 89,976 -- (4,943) 85,033
Mortgage-backed securities .......... 85,174 25 (3,258) 81,941
Collateralized mortgage obligations . 44,166 4 (2,146) 42,024
Corporate debt securities ........... 2,538 -- (298) 2,240
States and political subdivisions ... 911 2 (6) 907
-------- ------- -------- --------
Total ....................... $222,765 31 (10,651) 212,145
======== ======= ======== ========
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------- ------- -------- --------
(In thousands)
U.S. Government and agency securities $ 83,665 400 (65) 84,000
Mortgage-backed securities .......... 96,140 253 (137) 96,256
Collateralized mortgage obligations . 62,000 244 (96) 62,148
States and political subdivisions ... 1,819 18 -- 1,837
-------- ------- -------- --------
Total ....................... $243,624 915 (298) 244,241
======== ======= ======== ========
<PAGE>
The amortized cost and estimated fair value of debt securities available for
sale at December 31, 1999, by contractual maturity, are shown below
(mortgage-backed securities and collateralized mortgage obligations are
included by final contractual maturity). Expected maturities will differ
from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Estimated
cost fair value
(In thousands)
Due within one year ................... $ 281 279
Due after one year through five years . 19,139 18,645
Due after five years through ten years 57,071 54,006
Due after ten years ................... 146,274 139,215
-------- --------
Totals ........................... $222,765 212,145
======== ========
The following table sets forth information with regard to sales of
securities available for sale for the years ended December 31:
1999 1998 1997
(In thousands)
Proceeds from sale $ - 79,101 174,010
Gross realized gains - 154 1,017
Gross realized losses - 319 242
Securities available for sale with a fair value of approximately $122.3
million and $163.2 million at December 31, 1999 and 1998, respectively, were
pledged to secure securities repurchase agreements.
<PAGE>
(6) Loans Receivable, Net
Loans receivable consisted of the following at December 31, 1999 and 1998:
1999 1998
--------- ---------
(In thousands)
Loans secured by real estate:
1 - 4 family ................................ $ 306,665 273,523
Home equity ................................. 92,605 83,949
Commercial .................................. 27,910 23,506
Multi-family ................................ 3,881 4,165
Construction ................................ 4,924 3,600
--------- ---------
Total loans secured by real estate .. 435,985 388,743
--------- ---------
Other loans:
Consumer loans:
Auto loans .............................. 11,641 14,146
Recreational vehicles ................... 3,551 4,990
Other secured ........................... 4,697 6,289
Unsecured ............................... 5,918 3,712
Manufactured homes ...................... 249 385
--------- ---------
Total consumer loans ................ 26,056 29,522
--------- ---------
Commercial loans:
Secured ................................. 5,562 5,101
Unsecured ............................... 1,063 508
--------- ---------
Total commercial loans .............. 6,625 5,609
--------- ---------
Total loans receivable .............. 468,666 423,874
Deferred costs, net of deferred fees and discounts 2,320 1,950
Allowance for loan losses ........................ (5,509) (4,891)
--------- ---------
Loans receivable, net ............... $ 465,477 420,933
========= =========
A summary of activity in the allowance for loan losses for the years
ended December 31 is as follows:
1999 1998 1997
------- ------- -------
(In thousands)
Balance at beginning of year .. $ 4,891 3,807 3,438
Provision charged to operations 790 900 1,088
Charge-offs ................... (463) (1,226) (1,214)
Recoveries .................... 291 295 495
Allowance acquired ............ -- 1,115 --
------- ------- -------
Balance at end of year ........ $ 5,509 4,891 3,807
======= ======= =======
<PAGE>
The following table sets forth information with regard to non-performing
loans at December 31:
1999 1998 1997
------ ------ ------
(In thousands)
Non-accrual loans ...................... $2,576 1,610 1,876
Loans contractually past due 90 days
or more and still accruing interest 1,068 580 451
Restructured loans ..................... 566 714 931
------ ------ ------
Total non-performing loans ........ $4,210 2,904 3,258
====== ====== ======
There are no material commitments to extend further credit to borrowers with
non-performing loans.
Interest income not recognized on the above non-performing loans was
approximately $194,000, $118,000 and $277,000 in 1999, 1998 and 1997,
respectively. Approximately $304,000, $238,000 and $192,000 of interest on
the above non-performing loans was collected and recognized as income in
1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, the recorded investment in loans that are
considered to be impaired totaled approximately $572,000 and $328,000,
respectively, for which the related allowance for loan losses was
approximately $61,000 and $44,000, respectively. As of December 31, 1999 and
1998, there were no impaired loans which did not have an allowance for loan
losses. The average recorded investment in impaired loans during the years
ended December 31, 1999, 1998 and 1997 was approximately $481,000, $688,000
and $1,445,000, respectively. For the years ended December 31, 1999, 1998
and 1997, the Company recognized interest income on those impaired loans of
approximately $52,000, $78,000 and $15,000, respectively, which included
$26,000, $50,000 and $0, respectively, of interest income recognized using
the cash basis method of income recognition.
Certain directors and executive officers of the Company are customers of and
have other transactions with the Company in the ordinary course of business.
Loans to these parties are made in the ordinary course of business at the
Company's normal credit terms, including interest rate and
collateralization. The aggregate of such loans totaled less than 5% of total
shareholders' equity at both December 31, 1999 and 1998.
<PAGE>
(7) Accrued Interest Receivable
Accrued interest receivable consisted of the following at December 31:
1999 1998
------ ------
(In thousands)
Loans ....................... $2,204 2,031
Securities available for sale 2,207 2,084
------ ------
$4,411 4,115
====== ======
(8) Premises and Equipment
A summary of premises and equipment is as follows at December 31:
1999 1998
-------- --------
(In thousands)
Land and buildings ........................... $ 3,520 3,342
Furniture, fixtures and equipment ............ 5,200 4,182
Leasehold improvements ....................... 2,071 1,614
Construction in progress ..................... 486 195
-------- --------
11,277 9,333
Less accumulated depreciation and amortization (5,684) (4,796)
-------- --------
$ 5,593 4,537
======== ========
Amounts charged to depreciation and amortization expense were approximately
$888,000, $735,000 and $606,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
<PAGE>
(9) Deposits
Deposits are summarized as follows at December 31:
1999 1998
-------- --------
(In thousands)
Savings accounts (2.73%-3.00% at December 31, 1999
and 2.92%-3.00% at December 31, 1998) ................ $129,359 136,921
-------- --------
Time deposits:
3.01 to 4.00% ........................................ 1,042 1,806
4.01 to 5.00% ........................................ 120,458 61,030
5.01 to 6.00% ........................................ 76,084 140,676
6.01 to 7.00% ........................................ 9,452 11,432
7.01 to 8.00% ........................................ 13,300 13,061
-------- --------
220,336 228,005
-------- -------
NOW accounts (1.23% at December 31, 1999 and 1.73%-2.75% at
December 31, 1998) ................................... 35,884 38,814
Money market accounts (2.19%-4.34% at December 31, 1999
and 2.25%-4.87% at December 31, 1998) ................ 29,009 21,359
Demand accounts (non-interest bearing) .................... 35,546 36,314
-------- --------
Total deposits ................................... $450,134 461,413
======== ========
The approximate amount of contractual maturities of time deposits for the
years subsequent to December 31, 1999 are as follows:
(In thousands)
Years ending December 31,
2000 $ 159,247
2001 46,290
2002 6,994
2003 4,899
2004 2,906
---------------
$ 220,336
===============
The aggregate amount of time deposits with a balance of $100,000 or more was
approximately $30.4 million and $25.9 million at December 31, 1999 and 1998,
respectively.
<PAGE>
Interest expense on deposits for the years ended December 31, 1999, 1998 and
1997, is summarized as follows:
1999 1998 1997
------- ------- -------
(In thousands)
Savings accounts .... $ 4,001 3,119 3,016
Time deposits ....... 11,242 9,882 9,882
NOW accounts ........ 567 549 543
Money market accounts 945 272 204
------- ------- -------
Total ......... $16,755 13,822 13,645
======= ======= =======
(10) Borrowed Funds
At December 31, 1999, the Company had short-term borrowings from the FHLB
totaling $71.2 million. This included $24.2 million and $12.0 million,
respectively, outstanding on a $27.4 million overnight line of credit and a
$27.4 million 30 day line of credit. The Company also had $35.0 million in
additional short-term borrowings with the FHLB with interest rates tied to
LIBOR and adjusted monthly. These additional borrowings of $35.0 million had
a weighed-average remaining maturity of 68 days at December 31, 1999. Under
the terms of a blanket collateral agreement with the FHLB, any outstanding
borrowings are collateralized by FHLB stock and certain qualifying assets
not otherwise pledged (primarily first-lien residential mortgage loans).
At December 31, 1998, the Company had a $26.2 million overnight line of
credit and a $26.2 million 30 day line of credit with the FHLB. As of
December 31, 1998, the Company had no amounts outstanding on these lines of
credit.
The Company also had long-term advances with the FHLB totaling $21.0 million
at December 31, 1999, and $21.4 million at December 31, 1998. These advances
consisted of the following: (i) $20.0 million of interest-only,
non-prepayable, adjustable rate advances, with the interest rate tied to
LIBOR and adjusted quarterly; $10.0 million matures in July 2001 and $10.0
million matures in July 2003; and (ii) adjustable rate amortizing advances
of $1.0 million and $1.4 million at December 31, 1999 and 1998,
respectively, with interest rates ranging from 6.00% to 7.97% at December
31, 1999, and from 5.91% to 7.91% at December 31, 1998; final maturities on
these advances range from April 2000 to September 2004.
<PAGE>
The following table presents the detail of the Company's borrowings and
weighted-average interest rates thereon for the years ended December 31,
1999, 1998 and 1997:
Securities
FHLB FHLB Sold Under
Short-Term Long-Term Agreements
Borrowings Advances to Repurchase
---------- ---------- -------------
(Dollars in thousands)
1999:
Balance at December 31 ........ $ 71,200 $ 20,965 $112,740
Average balance during the year 15,429 21,148 137,226
Maximum month-end balance ..... 71,200 21,347 152,400
Weighted-average interest rate:
At December 31 ............ 5.71% 6.23% 5.51%
During the year ........... 5.62% 5.22% 5.53%
1998:
Balance at December 31 ........ $ -- $ 21,410 $152,400
Average balance during the year 9,366 8,493 132,476
Maximum month-end balance ..... 38,800 21,446 165,150
Weighted-average interest rate:
At December 31 ............ -- 5.32% 5.48%
During the year ........... 5.49% 5.71 5.67
1997:
Balance at December 31 ........ $ 12,300 $ -- $ 99,250
Average balance during the year 3,667 -- 95,261
Maximum month-end balance ..... 14,400 -- 99,410
Weighted-average interest rate:
At December 31 ............ 6.38% -- 6.04%
During the year ........... 5.43 -- 6.01
<PAGE>
Information concerning outstanding securities repurchase agreements as of
December 31, 1999 is summarized as follows:
Securities Repurchase Agreements
----------------------------------------------------------
Accrued Weighted- Fair Value
Remaining Term to Repurchase Interest Average of Collateral
Final Maturity (1) Liability Payable Rate Securities (2)
-------------------- ---------- --------- ---------- --------------
(Dollars in thousands)
Within 90 days ................. $ 2,740 20 5.96% $ 2,844
After 90 days but within
one year ............... -- -- -- --
After one year but within
five years ............. 30,000 416 5.75 30,169
After five years but within
ten years .............. 80,000 645 5.41 90,541
-------- -------- ---- --------
Total ................. $112,740 1,081 5.51% $123,544
======== ======== ==== ========
(1) The weighted-average remaining term to final maturity was approximately
6.7 years at December 31, 1999. At December 31, 1999, $110.0 million of
the securities repurchase agreements contained call provisions. The
weighted-average rate at December 31, 1999 on the callable securities
repurchase agreements was 5.50%, with a weighted-average remaining
period of 1.5 years to the call date. At December 31, 1999, $2.7 million
of the securities repurchase agreements did not contain call provisions.
The weighted-average rate at December 31, 1999 on the non-callable
securities repurchase agreements was 5.96%, with a weighted-average term
to maturity of 46 days.
(2) Represents the fair value of the securities subject to the repurchase
agreements, plus accrued interest receivable of approximately $1.2
million at December 31, 1999.
At December 31, 1999, the "amount at risk" (defined as the excess of the
fair value of the securities transferred plus accrued interest receivable
over the amount of the repurchase liability plus accrued interest
payable) with the FHLB was approximately $8.6 million. The
weighed-average remaining term to final maturity at December 31, 1999 was
8.5 years on securities repurchase agreements with the FHLB
(weighted-average remaining term of 1.9 years to the call date).
<PAGE>
(11) Income Taxes
The components of income tax expense are as follows for the years ended
December 31:
1999 1998 1997
------ ------ ------
(In thousands)
Current tax expense:
Federal ................. $2,534 763 1,389
State ................... 429 13 270
------ ------ ------
2,963 776 1,659
Deferred tax expense (benefit) 132 (106) 34
------ ------ ------
Total income tax expense $3,095 670 1,693
====== ====== ======
Actual income tax expense for the years ended December 31, 1999, 1998 and
1997 differs from expected income tax expense, computed by applying the
Federal corporate tax rate of 34% to income before taxes, as a result of the
following items:
1999 1998 1997
------- ------- -------
(In thousands)
Expected tax expense ............. $ 2,516 578 1,514
State taxes, net of Federal income
tax benefit ............... 325 1 178
Non-deductible portion of ESOP
compensation expense ...... 95 113 89
Goodwill amortization ............ 181 23 --
Other items, net ................. (22) (45) (88)
------- ------- -------
$ 3,095 670 1,693
======= ======= =======
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998 are presented below:
1999 1998
------- -------
(In thousands)
Deferred tax assets:
Allowance for loan losses ..................... $ 2,140 1,939
Deferred compensation ......................... 315 469
Unvested RRP shares ........................... 76 76
Purchase accounting adjustments ............... 4 237
Other deductible temporary differences ........ 141 148
------- -------
Total deferred tax assets ................. 2,676 2,869
------- -------
Deferred tax liabilities:
Net deferred loan costs ....................... (842) (681)
Purchase accounting adjustments ............... (470) (626)
Prepaid pension cost .......................... (199) (245)
Property and equipment ........................ (91) (91)
Tax bad debt reserve .......................... (77) (98)
Other prepaid expenses ........................ (59) (61)
Other taxable temporary differences ........... (186) (183)
------- -------
Total deferred tax liabilities ............ (1,924) (1,985)
------- -------
Net deferred tax asset at end of year ..... 752 884
Net deferred tax asset at beginning of year 884 867
------- -------
132 (17)
Net deferred tax asset acquired ............... -- 285
Initial net deferred tax liability for purchase
accounting adjustments ...................... -- (374)
------- -------
Deferred tax expense (benefit) ............ $ 132 (106)
======= =======
In addition to the deferred tax items shown in the table above, the
Company also had a deferred tax asset of $4.2 million at December 31,
1999, and a deferred tax liability of ($247,000) at December 31, 1998,
relating to the net unrealized (gain) loss on securities available for
sale.
There was no valuation allowance for deferred tax assets at December 31,
1999 and 1998. Management believes that the realization of the
recognized net deferred tax asset at December 31, 1999 and 1998 is more
likely than not, based on historical taxable income, available tax
planning strategies and expectations as to future taxable income.
<PAGE>
As a thrift institution, the Bank is subject to special provisions in
the Federal and new York State tax laws regarding its allowable tax bad
debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on loss experience
or a percentage of taxable income. Tax bad debt reserves are maintained
equal to the excess of allowable deductions over actual bad debt losses
and other reserve reductions. These reserves consist of a defined
base-year amount, plus additional amounts ("excess reserves")
accumulated after the base year. Deferred tax liabilities are recognized
with respect to such excess reserves, as well as any portion of the
base-year amount which is expected to become taxable (or "recaptured")
in the foreseeable future.
In accordance with SFAS No. 109, the Company has not recognized deferred
tax liabilities with respect to the Bank's Federal and state base-year
reserves of approximately $5.2 million and $12.6 million, respectively,
at December 31, 1999, since the Company does not expect that these
amounts will become taxable in the foreseeable future. Under the tax
laws, as amended, events that would result in taxation of these reserves
include (i) redemptions of the Bank's stock or certain excess
distributions to the Holding Company, or (ii) failure of the Bank to
maintain a specified qualifying assets ratio or meet other thrift
definition tests for New York State tax purposes. The unrecognized
deferred tax liability at December 31, 1999 with respect to the Federal
base-year reserve was approximately $1.8 million. The unrecognized
deferred tax liability at December 31, 1999 with respect to the state
base-year reserve was approximately $750,000 (net of Federal benefit).
(12) Employee Benefit Plans
(a) Pension Plan
The Bank maintains a non-contributory pension plan with the RSI
Retirement Trust, covering substantially all employees age 21 and over
with 1 year of service, with the exception of hourly paid employees.
Benefits are computed as two percent of the highest three year average
annual earnings multiplied by credited service, up to a maximum of 35
years.
The amounts contributed to the plan are determined annually on the basis
of (a) the maximum amount that can be deducted for Federal income tax
purposes, or (b) the amount certified by a consulting actuary as
necessary to avoid an accumulated funding deficiency as defined by the
Employee Retirement Income Security Act of 1974. Contributions are
intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. Assets of the
plan are primarily invested in pooled equity and fixed income funds.
<PAGE>
The following table provides a summary of the changes in the plan's
projected benefit obligation and the fair value of the plan's assets for
the years ended December 31, and a reconciliation of the plan's funded
status at December 31:
1999 1998
------- -------
(In thousands)
Changes in the projected benefit obligation:
Projected benefit obligation at January 1 ..... $ 5,256 4,508
Service cost .............................. 251 219
Interest cost ............................. 332 318
Benefits paid ............................. (242) (224)
Plan amendments ........................... 77 --
Actuarial (gain) loss ..................... (768) 435
------- -------
Projected benefit obligation at December 31 ... 4,906 5,256
------- -------
Changes in the fair value of plan assets:
Fair value of plan assets at January 1 ........ 5,760 5,994
Actual return (loss) on plan assets ....... 1,013 (10)
Benefits paid ............................. (242) (224)
Employer contributions .................... -- --
------- -------
Fair value of plan assets at December 31 ...... 6,531 5,760
------- -------
Funded status:
Funded status at December 31 .................. 1,625 504
Unrecognized portion of net asset at transition -- (39)
Unrecognized prior service cost ............... 5 9
Unrecognized net (gain) loss .................. (1,120) 131
------- -------
Prepaid pension asset ..................... $ 510 605
======= =======
The following table provides the components of net periodic pension cost
for the years ended December 31:
1999 1998 1997
----- ----- -----
(In thousands)
Service cost .................................. $ 251 219 183
Interest cost ................................. 332 318 304
Expected return on plan assets ................ (452) (471) (398)
Amortization of unrecognized net asset at
transition ............................ (39) (46) (46)
Amortization of unrecognized prior service cost 4 3 3
Amortization of unrecognized net actuarial gain -- (22) --
----- ----- -----
Net periodic pension cost ................. $ 96 1 46
===== ===== =====
<PAGE>
Unrecognized net actuarial gains or losses in excess of 10% of the
greater of the projected benefit obligation or the fair value of the
plan assets are amortized over the average remaining service period of
active plan participants.
The assumptions used in the measurement of the Company's projected
benefit obligation are shown in the table below:
1999 1998 1997
---- ---- ----
Weighted-average assumptions at December 31:
Discount rate ................................ 7.75% 6.50% 7.25%
Rate of increase in future compensation levels 5.50 4.50 5.00
Expected return on plan assets ............... 8.00 8.00 8.00
(b) 401(k) Savings Plan
The Company maintains a defined contribution 401(k) savings plan,
covering all full-time employees who have attained age 21 and have
completed one year of employment. Prior to March 1, 1997, the Company
matched 50% of employee contributions that were less than or equal to 3%
of the employee's salary. After that date, there were no matching
contributions made by the Company. Total expense related to the 401(k)
plan matching contributions during 1997 was approximately $5,000 (none
in 1999 or 1998).
(c) Employee Stock Ownership Plan
As part of the conversion discussed in note 3, an employee stock
ownership plan (ESOP) was established to provide substantially all
employees of the Company the opportunity to become shareholders. The
ESOP borrowed $4.3 million from the Company and used the funds to
purchase 433,780 shares of Company common stock issued in the
conversion. The loan is being repaid principally from the Company's
contributions to the ESOP over a period of ten years. At December 31,
1999 and 1998, the loan had an outstanding balance of $2.6 million and
$3.0 million, respectively. The loan obligation is reduced by the amount
of loan repayments made by the ESOP. Shares are released for allocation
and unearned compensation is amortized over the loan repayment period
based on the amount of principal and interest paid on the loan as a
percentage of the total principal and interest to be paid on the loan
over its entire term. Shares purchased with the loan proceeds are held
in a suspense account for allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense
account are allocated among participants on the basis of compensation in
the year of allocation.
<PAGE>
The Company accounts for the ESOP in accordance with the American
Institute of Certified Public Accountants' Statement of Position No.
93-6, "Employers' Accounting for Employee Stock Ownership Plans."
Accordingly, the shares pledged as collateral are reported as
unallocated ESOP shares in shareholders' equity. As shares are released
from collateral, the Company reports compensation expense equal to the
average market price of the shares (during the applicable service
period), and the shares become outstanding for earnings per share
computations. Unallocated ESOP shares are not included in the earnings
per share computations. The Company recorded approximately $744,000,
$816,000 and $766,000 of compensation expense related to the ESOP during
the years ended December 31, 1999, 1998 and 1997, respectively.
The shares in the ESOP as of December 31, 1999 were as follows:
Allocated shares 113,436
Shares released for allocation 46,434
Unallocated shares 235,323
----------------
395,193
================
Market value of unallocated shares
at December 31, 1999 $ 3,471,014
================
(d) Stock Option Plan
On May 23, 1997, the Company's shareholders approved the 1997 Stock
Option and Incentive Plan ("Stock Option Plan"). The primary objective
of the Stock Option Plan is to provide officers and directors with a
proprietary interest in the Company as an incentive to encourage such
persons to remain with the Company.
The Stock Option Plan provides for awards in the form of stock options,
stock appreciation rights and limited stock appreciation rights. Under
the Stock Option Plan, 542,225 authorized but unissued shares are
reserved for issuance upon option exercises. The Company also has the
alternative to fund the Stock Option Plan with treasury stock. Options
under the plan may be either non-qualified stock options or incentive
stock options. Each option entitles the holder to purchase one share of
common stock at an exercise price equal to the fair value on the date of
grant. Options expire no later than ten years following the date of
original grant.
Upon shareholder ratification of the Stock Option Plan, options to
purchase 373,974 shares were awarded at an exercise price of $13.75 per
share. These options have a ten year term and vest at a rate of 25% per
year from the grant date. During 1998, 2,000 options were awarded at an
exercise price of $13.50. These options have a ten year term and were
immediately exercisable.
<PAGE>
In addition, under the terms of the merger agreement with AFSALA
discussed in note 2, the Company issued 154,203 fully-vested options
with an exercise price of $12.97 in exchange for 144,118 fully-vested
AFSALA options with an exercise price of $13.88. The estimated fair
value of these options was $9.95 per option. The issuance of these
options was included in the computation of goodwill, with the offsetting
credit to additional paid-in capital.
A summary of the stock option activity for the years ended December 31,
1999, 1998 and 1997 is presented below:
Weighted-Avg.
No. of Exercise
Shares Price
Granted on May 23, 1997 and outstanding
at December 31, 1997 373,974 $ 13.75
Granted 2,000 13.50
Exercised (9,489) 13.75
Forfeited (77,947) 13.75
Issued in acquisition 154,203 12.97
--------- -------
Outstanding at December 31, 1998 442,741 13.48
Exercised (10,167) 13.75
Forfeited (2,710) 13.75
--------- -------
Outstanding at December 31, 1999 429,864 $ 13.47
========= =======
The following table summarizes information about the Company's stock
options at December 31, 1999:
Weighted-Avg.
Exercise Remaining
Price Outstanding Contractual Life Exercisable
$12.97 154,203 7.4 years 154,203
13.50 2,000 8.9 years 2,000
13.75 273,661 7.4 years 136,831
--------- ---------
429,864 293,034
========= =========
All options have been granted at an exercise price equal to the fair
value of the common stock at the grant date, except the options issued
in connection with the AFSALA acquisition. Accordingly, no compensation
expense has been recognized for stock option grants. SFAS No. 123
requires companies not using a fair-value-based method of accounting for
employee stock options or similar plans, to provide pro-forma
disclosures of net income and earnings per share as if that method of
accounting had been applied. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
1998 and 1997: dividend yield of 1.32% for both years; expected
volatility of 30% in 1998 and 41% in 1997; risk-free interest rate of
4.54% in 1998 and 5.48% in 1997; and expected option life of 5 years for
both years. The estimated fair value of the options granted in 1998 and
1997 was $4.09 and $5.30 per share, respectively.
<PAGE>
Pro-forma disclosures for the Company for the years ended December 31,
1999, 1998 and 1997 are as follows:
(In thousands, except per share data)
1999 1998 1997
---- ---- ----
Net income:
As reported $ 4,303 1,031 2,760
Pro-forma 4,040 731 2,533
Basic EPS:
As reported 0.88 0.26 0.70
Pro-forma 0.83 0.19 0.64
Diluted EPS:
As reported 0.87 0.26 0.69
Pro-forma 0.82 0.18 0.64
The full impact of calculating compensation expense for stock options
under SFAS No. 123 is not reflected in the pro-forma net income amounts
presented above because compensation expense is reflected over the
options' vesting period, if any.
Because the Company's employee stock options have characteristics
significantly different from those of traded options for which the
Black-Scholes model was developed, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the
existing model, in management's opinion, does not necessarily provide a
reliable single measure of the fair value of its stock options.
(e) Recognition and Retention Plan
On May 23, 1997, the Company's shareholders also approved the Ambanc
Holding Co., Inc. Recognition and Retention Plan (RRP). The purpose of
the plan is to promote the long-term interests of the Company and its
shareholders by providing a stock-based compensation program to attract
and retain officers and directors. Under the RRP, 216,890 shares of
authorized but unissued shares are reserved for issuance under the plan.
The Company also has the alternative to fund the RRP with treasury
stock.
On May 23, 1997, 131,285 shares were awarded under the RRP. The shares
vest in four equal installments commencing one year from the date of
grant. The fair market value of the shares awarded under the plan at the
grant date was $13.75 per share and is being amortized to expense on a
straight-line basis over the four year vesting period. During 1998,
29,331 unvested RRP shares were forfeited and transferred to treasury
stock at the grant date fair market value of $13.75 per share.
<PAGE>
During 1999, 7,586 additional shares were awarded to non-employee
directors under the RRP. These shares were awarded in lieu of board fees
which would have otherwise been payable in cash. The shares vested
monthly throughout the year and were fully vested as of December 31,
1999.
(f) Postretirement Benefits
Certain postretirement health insurance benefits have been committed to
a closed group of retired employees. The Company has formally adopted
measures to not offer these benefits to any additional employees. The
annual health insurance increase and discount rate used to calculate the
transition obligation were 6.0% and 8.5%, respectively. The estimated
transition obligation at January 1, 1995 was $260,000. There are no plan
assets. The net periodic postretirement benefit cost in 1999, 1998 and
1997 was approximately $26,000 in each year.
(g) Directors' Deferred Compensation Agreements
Under the Directors' Deferred Compensation Agreements, the Company's
directors were eligible to elect to defer fees for services that were
otherwise currently payable. Fees were deferred over a period of five
years. The Company utilized the deferred fees to purchase life insurance
policies on each director with the Bank named as the beneficiary. Each
director participating in such agreements deferred their fees over a
five year period with a set amount established as an annual payout over
a ten year period after five years from the date of the agreement or
upon reaching the age of 65, whichever is later. The present value of
the remaining installments due under these agreements was approximately
$598,000 and $616,000 at December 31, 1999 and 1998, respectively, and
is included in other liabilities in the consolidated statements of
financial condition. The cash surrender value of the life insurance
policies was approximately $224,000 and $221,000 at December 31, 1999
and 1998, respectively, and is included in other assets in the
consolidated statements of financial condition.
<PAGE>
(13) Earnings Per Share
The calculation of basic EPS and diluted EPS is as follows:
Weighted
Net Average Per Share
Income Shares Amount
------ -------- ---------
(In thousands, except share and per share data)
For the year ended December 31, 1999
Basic EPS
Net income available to common shareholders $ 4,303 4,877,510 $ 0.88
======== ======
Effect of Dilutive Securities
Stock options 43,083
Unvested RRP shares 14,534
---------
Diluted EPS
Net income available to common shareholders
plus dilutive securities $ 4,303 4,935,127 $ 0.87
======== ========= ======
Weighted
Net Average Per Share
Income Shares Amount
------ -------- ---------
(In thousands, except share and per share data)
For the year ended December 31, 1998
Basic EPS
Net income available to common shareholders $ 1,031 3,916,047 $ 0.26
======== ======
Effect of Dilutive Securities
Stock options 49,043
Unvested RRP shares 24,155
---------
Diluted EPS
Net income available to common shareholders
plus dilutive securities $ 1,031 3,989,245 $ 0.26
======== ========= ======
<PAGE>
Weighted
Net Average Per Share
Income Shares Amount
------ -------- ---------
(In thousands, except share and per share data)
For the year ended December 31, 1997
Basic EPS
Net income available to common shareholders $ 2,760 3,940,867 $ 0.70
======= ======
Effect of Dilutive Securities
Stock options 24,285
Unvested RRP shares 16,374
----------
Diluted EPS
Net income available to common shareholders
plus dilutive securities $ 2,760 3,981,526 $ 0.69
======= ========== ======
(14) Commitments and Contingent Liabilities
(a) Legal Proceedings
The Company and its subsidiaries may, from time to time, be defendants
in legal proceedings relating to the conduct of their business. In the
best judgments of management, the consolidated financial position of the
Company and its subsidiaries will not be affected materially by the
outcome of any pending legal proceedings.
(b) Lease Commitments
The Company leases certain branch facilities and office space under
noncancelable operating leases. Minimum rental commitments under these
leases are as follows:
(In thousands)
Years ending December 31,
2000 $ 454
2001 434
2002 365
2003 327
2004 297
2005 and thereafter 1,397
-------------
$ 3,274
=============
<PAGE>
Amounts charged to rent expense were approximately $553,000, $385,000
and $315,000 for the years ended December 31, 1999, 1998 and 1997.
(c) Off-Balance Sheet Financial Instruments and Concentrations of Credit
The Company is a party to certain financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to
extend credit, unused lines of credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit risk
in excess of the amounts recognized on the consolidated statement of
financial condition. The contract amounts of these instruments reflect
the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the commitments to extend credit, unused lines of
credit and standby letters of credit is represented by the contractual
notional amount of these instruments. The Company uses the same credit
policies in making commitments as it does for on-balance sheet
instruments.
Unless otherwise noted, the Company does not require collateral or other
security to support off-balance sheet financial instruments with credit
risk.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being fully drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral, if any, required by the
Company upon the extension of credit is based on management's credit
evaluation of the customer. Mortgage commitments are secured by a first
lien on real estate. Collateral on extensions of credit for commercial
loans varies but may include property, plant and equipment, and income
producing commercial property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support borrowing arrangements.
The credit risk involved in issuing standby letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
<PAGE>
Contract amounts of financial instruments with off-balance-sheet credit
risk as of December 31, 1999 and 1998 at fixed and variable interest
rates are as follows:
Fixed Variable Total
------- ------- -------
(In thousands)
1999:
Commitments to extend credit $10,203 -- 10,203
Unused lines of credit ..... 1,788 5,092 6,880
Standby letters of credit .. -- 33 33
------- ------- -------
$11,991 5,125 17,116
======= ======= =======
1998:
Commitments to extend credit $12,004 514 12,518
Unused lines of credit ..... 2,665 3,375 6,040
Standby letters of credit .. -- 30 30
------- ------- -------
$14,669 3,919 18,588
======= ======= =======
(15) Fair Values of Financial Instruments
A financial instrument is defined as cash, evidence of ownership interest in
an entity, or a contract that imposes on one entity a contractual obligation
to deliver cash or another financial instrument to a second entity or to
exchange other financial instruments on potentially unfavorable terms with a
second entity and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity or to
exchange other financial instruments on potentially favorable terms with the
first entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future expected net cash flows, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. Significant assets and liabilities
that are not considered financial assets or liabilities include the deferred
tax assets and liabilities and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in the estimates of fair value. There also are significant
intangible assets that the fair value estimates do not recognize, such as
the value of "core deposits", goodwill and the Company's branch network.
<PAGE>
Financial Assets and Liabilities
The specific estimation methods and assumptions used can have a substantial
impact on the resulting fair values ascribed to financial assets and
liabilities. The following is a brief summary of the significant methods and
assumptions used:
Securities Available for Sale
The fair value of securities, except certain state and municipal securities,
is estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of certain state
and municipal securities is not readily available through market sources
other than dealer quotations, so fair value estimates are based on quoted
market prices of similar instruments, adjusted for differences between the
quoted instruments and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as one-to-four family
residential loans, consumer loans and commercial loans. Each loan category
is further segmented into fixed and adjustable rate interest terms and by
performing and non-performing categories.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the loan.
The estimate of maturity is based on the contractual term of the loans to
maturity, taking into consideration certain prepayment assumptions.
The fair value for significant non-performing loans is based on recent
external appraisals and discounted cash flow analyses. Estimated cash flows
are discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market
information and specific borrower information.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings accounts, NOW accounts and money market
accounts, is the amount payable on demand. The fair value of time deposits
is based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for deposits with
similar remaining maturities.
The fair value estimates above do not include the benefit that results from
the low-cost funding provided by the deposit liabilities compared to the
cost of borrowing funds in the market.
<PAGE>
FHLB Long-Term Advances and Securities Sold Under Agreements to Repurchase
The fair value of FHLB long-term advances and securities sold under
agreements to repurchase is estimated by discounting scheduled cash flows
based on current rates available to the Company for similar types of
borrowing arrangements.
Other Items
The following items are considered to have a fair value equal to the
carrying value due to the nature of the financial instrument and the period
within which it will be settled or repriced: cash and cash equivalents, FHLB
stock, accrued interest receivable, FHLB short-term borrowings, advances
from borrowers for taxes and insurance, accrued interest payable and due to
brokers.
The carrying values and estimated fair values of financial assets and
liabilities as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(In thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ......................... $ 29,611 29,611 42,815 42,815
Securities available for sale ..................... 212,145 212,145 244,241 244,241
FHLB of New York stock ............................ 8,748 8,748 7,215 7,215
Loans ............................................. 470,986 452,232 425,824 423,163
Less: Allowance for loan losses ................ (5,509) -- (4,891) --
--------- --------- --------- ---------
Loans receivable, net ......................... 465,477 452,232 420,933 423,163
========= ========= ========= =========
Accrued interest receivable ....................... 4,411 4,411 4,115 4,115
Financial liabilities:
Deposits:
Demand, savings, money market, and NOW accounts 229,798 229,798 233,408 233,408
Time deposits ................................. 220,336 220,336 228,005 230,399
FHLB short-term borrowings ........................ 71,200 71,200 -- --
FHLB long-term advances ........................... 20,965 20,956 21,410 21,419
Securities sold under agreements to repurchase .... 112,740 110,755 152,400 153,340
Advances from borrowers for taxes and insurance ... 3,641 3,641 2,436 2,436
Accrued interest payable .......................... 1,508 1,508 1,426 1,426
Due to brokers .................................... -- -- 6,000 6,000
</TABLE>
<PAGE>
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated based on the
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current interest rates and the committed
rates. The fair value of standby letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
The Company believes that the carrying value of these off-balance sheet
financial instruments equals fair value and the amounts are not significant.
(16) Regulatory Capital Requirements and Dividend Restrictions
Office of Thrift Supervision (OTS) capital regulations require savings
institutions to maintain minimum levels of regulatory capital. Under the
regulations in effect at December 31, 1999, the Bank was required to
maintain a minimum ratio of tangible capital to total tangible assets of
1.5%; a minimum leverage ratio of core (Tier 1) capital to total adjusted
tangible assets of 3.0% to 4.0%; and a minimum ratio of total capital (core
capital and supplementary capital) to risk-weighted assets of 8.0%, of which
4.0% must be core (Tier 1) capital.
Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on an institution's financial statements. The
regulations establish a framework for the classification of savings
institutions into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized
if it has a core (Tier 1) capital ratio of at least 5.0% (based on average
total assets); a core (Tier 1) risk-based capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors.
Management believes that, as of December 31, 1999 and 1998, the Bank met all
capital adequacy requirements to which it was subject. Further, the most
recent OTS notification categorized the Bank as a well capitalized
institution under the prompt corrective action regulations. There have been
no conditions or events since that notification that management believes
have changed the Bank's capital classification.
<PAGE>
The following is a summary of the Bank's actual capital amounts and ratios
as of December 31, 1999 and 1998. Although the OTS capital regulations apply
at the Bank level only, the Company's consolidated capital amounts and
ratios are also presented. The OTS does not have a holding company capital
requirement.
1999 1998
-------------------- --------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in thousands)
Bank
Tangible capital $67,760 9.18% $63,509 8.83%
Tier 1 (core) capital 67,760 9.18 63,509 8.83
Risk-based capital:
Tier 1 67,760 19.55 63,509 20.73
Total 72,108 20.80 67,351 21.99
Consolidated
Tangible capital 74,576 10.02 77,600 10.68
Tier 1 (core) capital 74,576 10.02 77,600 10.68
Risk-based capital:
Tier 1 74,576 21.40 77,600 25.17
Total 78,947 22.65 81,442 26.42
The Bank's ability to pay dividends to the holding Company is subject to
various regulatory restrictions. Under current OTS regulations, while the
Bank must provide written notice to the OTS prior to any dividend
declaration, an application must be approved by the OTS if the total of all
dividends declared in any year would exceed the net profit for the year
plus the retained net profits of the preceding two years. At December 31,
1999, the maximum amount that could have been paid by the Bank to the
Holding Company without prior regulatory approval was approximately $3.5
million.
<PAGE>
(17) Holding Company Financial Information
The Holding Company's statements of financial condition as of December 31,
1999 and 1998, and the related statements of income and cash flows for the
years ended December 31, 1999, 1998 and 1997, are presented below. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
Statements of Financial Condition
1999 1998
------- -------
(In thousands)
Assets
Cash and cash equivalents ......................... $ 977 3,516
Securities available for sale* .................... 5,017 6,097
Loan receivable from subsidiary ................... 2,603 3,036
Accrued interest receivable ....................... 49 64
Investment in subsidiary .......................... 68,923 71,797
Other assets ...................................... 917 1,570
------- -------
Total assets ............................. $78,486 86,080
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Security sold under agreement to repurchase** $ 2,740 --
Other liabilities ............................ 153 187
Shareholders' equity .............................. 75,593 85,893
------- -------
Total liabilities and shareholders' equity $78,486 86,080
======= =======
* The Holding Company's securities available for sale consisted of U.S.
Government agency securities and mortgage-backed securities with a
contractual weighted-average maturity of 8.7 years (none callable)
and 9.1 years (2.2 years to call date) at December 31, 1999 and 1998,
respectively.
** Weighted-average rate at December 31, 1999 was 5.96% with a maturity
date of February 15, 2000.
<PAGE>
Statements of Income
1999 1998 1997
------- ------- -------
(In thousands)
Income:
Dividends from bank subsidiary ............. $ 1,500 5,000 --
Interest income ............................ 571 649 868
Other income ............................... 28 1 --
------- ------- -------
Total income .......................... 2,099 5,650 868
------- ------- -------
Expenses:
Interest expense ........................... 58 34 170
Net losses on securities transactions ...... -- -- 153
RRP expense ................................ 433 371 272
Other expenses ............................. 380 735 221
------- ------- -------
Total expenses ........................ 871 1,140 816
------- ------- -------
Income before taxes and effect of subsidiary
earnings and distributions ................. 1,228 4,510 52
Income tax (benefit) expense ................... (99) (199) 21
------- ------- -------
Income before effect of subsidiary earnings
and distributions .......................... 1,327 4,709 31
Effect of subsidiary earnings and distributions:
Distributions in excess of earnings ...... -- (3,678) --
Equity in undistributed earnings ......... 2,976 -- 2,729
------- ------- -------
Net income ..................................... $ 4,303 1,031 2,760
======= ======= =======
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
1999 1998 1997
------- ------- -------
(In thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
<S> <C> <C> <C>
Net income .................................................... $ 4,303 1,031 2,760
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in undistributed earnings of subsidiary ......... (2,976) -- (2,729)
Distributions in excess of subsidiary earnings ......... -- 3,678 --
Net losses on securities transactions .................. -- -- 153
RRP expense ............................................ 433 371 272
Decrease (increase) in accrued interest receivable and
other assets ....................................... 788 (1,124) (274)
(Decrease) increase in other liabilities ............... (34) 157 (341)
------- ------- -------
Net cash provided by (used in)
operating activities ...................... 2,514 4,113 (159)
------- ------- -------
Cash flows from investing activities:
Purchases of securities available for sale .................... -- (7,998) (11,052)
Proceeds from principal paydowns, maturities and redemptions of
securities available for sale ............................. 833 11,338 8,159
Proceeds from sales of securities available for sale .......... -- -- 7,515
Payments received on loan receivable from subsidiary .......... 433 434 434
Net cash acquired in acquisition .............................. -- 2,297 --
------- ------- -------
Net cash provided by investing activities ...... 1,266 6,071 5,056
------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in securities sold under agreements to
repurchase ................................................ 2,740 (2,600) (400)
Purchases of treasury stock ................................... (7,438) (4,111) (3,488)
Exercises of stock options .................................... 139 130 --
Dividends paid ................................................ (1,760) (1,133) (432)
------- ------- -------
Net cash used in financing activities .......... (6,319) (7,714) (4,320)
------- ------- -------
Net (decrease) increase in cash and cash equivalents ............ (2,539) 2,470 577
Cash and cash equivalents:
Beginning of year ........................................... 3,516 1,046 469
------- ------- -------
End of year ................................................. $ 977 3,516 1,046
======= ======= =======
</TABLE>
<PAGE>
CORPORATE AND SHAREHOLDER INFORMATION
Company and Bank Address
11 Division Street
Amsterdam, New York 12010-4303
Telephone: (518) 842-7200
Fax: (518) 842-7500
Stock Price Information
The Company's stock is traded on The Nasdaq National Market System under
the symbol "AHCI". The table below shows the range of high and low bid prices of
the Company's Common Stock during 1998 and 1999. The information set forth in
the table below was provided by The Nasdaq Stock Market. Such information
reflects interdealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
Dividends
High Low Per Share
1998 First Quarter 19.3750 16.7500 $0.06
1998 Second Quarter 20.0000 16.5000 0.06
1998 Third Quarter 19.2500 11.7500 0.06
1998 Fourth Quarter 17.7500 12.0000 0.07
1999 First Quarter 17.8125 15.0625 $0.07
1999 Second Quarter 18.1250 15.1250 0.08
1999 Third Quarter 16.7500 15.3750 0.09
1999 Fourth Quarter 18.7500 14.0000 0.10
For information regarding restrictions on dividends, see Notes 3 and 16 to
the Notes to Consolidated Financial Statements.
As of March 27, 2000, the Company had approximately 1,335 shareholders of record
and 4,926,690 outstanding shares of Common Stock.
Special Counsel
Malizia, Spidi & Fisch, PC
One Franklin Square
1301 K Street, NW, Suite 700E
Washington, D.C. 20005
Telephone: (202) 434-4660
<PAGE>
Independent Auditors
KPMG LLP
515 Broadway
Albany, NY 12207
Telephone: (518) 427-4600
Investor Relations
Shareholders, investors and analysts interested in additional information may
contact:
Sandra Hammond, Assistant Vice President
Executive Asst./Investor Relations
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
Telephone: (518) 842-7200
Fax: (518) 842-1688
Annual Report on Form 10-K
Copies of Ambanc Holding Co., Inc.'s Annual Report for year ended December
31, 1999 on Form 10-K filed with the Securities and Exchange Commission are
available without charge to shareholders upon written request to:
Investor Relations
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m., New York
time, on Friday, May 26, 2000 at the Best Western, located at 10 Market Street,
Amsterdam, New York.
Stock Transfer Agent and Registrar
Ambanc Holding Co., Inc.'s transfer agent, American Stock Transfer & Trust,
maintains all shareholder records and can assist with stock transfer and
registration address changes, changes or corrections in social security or tax
identification numbers and 1099 tax reporting questions. If you have questions,
please contact the stock transfer agent at the address below:
American Stock Transfer & Trust
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (718) 921-8290
<PAGE>
Mohawk Community Bank Offices:
Corporate 11 Division Street
Amsterdam, N.Y. 12010
(518) 842-7200
Traditional Branches:
11 Division Street, Amsterdam, NY 12010
161 Church Street, Amsterdam, NY 12010
Route 30 & Maple Avenue, Amsterdam, NY 12010
Riverfront Center, Amsterdam, NY 12010
Grand Union Plaza, Route 50, Ballston Spa, NY 12020
9 Clifton Country Road, Village Plaza, Clifton Park, NY 12068
6021 State Highway 5, Palatine Bridge, NY 13428
Arterial at Fifth Avenue, Gloversville, NY 12078
5 New Karner Road, Guilderland, NY 12084
Supermarket Branches:
Price Chopper Supermarkets:
Sanford Farms Plaza, Amsterdam, NY 12010
873 New Loudon Rd., Latham, NY 12110
1640 Eastern Parkway, Schenectady, NY 12309
115 Ballston Avenue, Saratoga, NY 12866
Route 50, Saratoga, NY 12866
5631 State Highway 12, Norwich, NY 13815
W. Main Street, Cobleskill, NY 12043
Hannaford Supermarkets:
Route 28, Oneonta, NY 13850
Operations Center 35 East Main Street
Amsterdam, N.Y. 12010
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors
- ------------------
(Ambanc Holding Co., Inc. and Mohawk Community Bank)
Lauren T. Barnett, President of Barnett Agency, Inc.,
Chairman of the Board
John M. Lisicki, President & Chief Executive Officer
James J. Bettini, Vice President of Farm Family Insurance
John J. Daly, Vice President of Alpin Haus
Lionel H. Fallows, Retired, Lieutenant Colonel
Dr. Daniel J. Greco, Retired, School Superintendent
Seymour Holtzman, Chairman & CEO of Jewelcor Management and Consulting, Inc.
Marvin R. LeRoy, Jr., Alzheimers Association, Northeastern NY Chapter
Allan R. Lyons, CPA, Chairman & CEO of Piaker & Lyons, CPAs
Charles S. Pedersen, Independent Manufacturers' Representative
William L. Petrosino, Owner of wholesale beverage companies
Lawrence B. Seidman, Attorney and Manager, Seidman & Associates
Dr. Ronald S. Tecler, Dentist
John A. Tesiero, Jr., Owner of construction supply business
William A. Wilde, Jr., Amsterdam Printing and Litho Corp.
Charles E. Wright, President of WW Custom Clad
Executive Officers of Ambanc Holding Co., Inc. and Mohawk Community Bank
- ------------------------------------------------------------------------
John M. Lisicki President/Chief Executive Officer
James J. Alescio Sr.Vice President/Treasurer/Chief Financial Officer
Benjamin Ziskin Sr. Vice President/Sr. Consumer Lending Officer
Thomas Nachod Sr. Vice President/Sr. Commercial Lending Officer
Robert Kelly Vice President/General Counsel/Secretary
Subsidiary Name State of Incorporation
- ------------------------------- ----------------------
Mohawk Community Bank New York
ASB Insurance Agency, Inc. New York
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors
Ambanc Holding Co., Inc.
We consent to incorporation by reference in the following registration
statements:
File No. 333-50973 on Form S-8,
File No. 333-50975 on Form S-8,
File No. 333-59721 on Form S-8, and
File No. 333-86515 on Form S-8
of Ambanc Holding Co., Inc. of our report dated February 16, 2000, relating to
the consolidated statements of financial condition of Ambanc Holding Co., Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999, which report
appears in the December 31, 1999 Annual Report on Form 10-K of Ambanc Holding
Co., Inc.
/s/ KPMG LLP
Albany, New York
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1999 OF AMBANC HOLDING
CO., INC. AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 26,380
<INT-BEARING-DEPOSITS> 3,231
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 212,145
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 470,986
<ALLOWANCE> 5,509
<TOTAL-ASSETS> 740,672
<DEPOSITS> 450,134
<SHORT-TERM> 71,200
<LIABILITIES-OTHER> 10,040
<LONG-TERM> 133,705
0
0
<COMMON> 54
<OTHER-SE> 75,539
<TOTAL-LIABILITIES-AND-EQUITY> 740,672
<INTEREST-LOAN> 32,578
<INTEREST-INVEST> 15,245
<INTEREST-OTHER> 944
<INTEREST-TOTAL> 48,767
<INTEREST-DEPOSIT> 16,755
<INTEREST-EXPENSE> 26,319
<INTEREST-INCOME-NET> 22,448
<LOAN-LOSSES> 790
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,063
<INCOME-PRETAX> 7,398
<INCOME-PRE-EXTRAORDINARY> 7,398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,303
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 3.21
<LOANS-NON> 2,576
<LOANS-PAST> 1,068
<LOANS-TROUBLED> 566
<LOANS-PROBLEM> 2,498
<ALLOWANCE-OPEN> 4,891
<CHARGE-OFFS> 463
<RECOVERIES> 291
<ALLOWANCE-CLOSE> 5,509
<ALLOWANCE-DOMESTIC> 5,509
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
