<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the quarter ended September 30, 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 000-27399
American Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1555700
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
102 West Main Street
New Britain, Connecticut 06051
(Address of principal executive offices) (Zip code)
(860) 832-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ ] No [X]*
Common Stock Par Value $.01 Per Share
-0- Outstanding (as of November 19, 1999)
* American Financial Holdings, Inc. is the proposed holding company for American
Savings Bank which is in the process of converting from a mutual savings bank to
a capital stock savings bank. As of the filing date of this report, the
conversion has not yet been consummated.
<PAGE>
Index
-----
Part I. Item 1. Financial Information (unaudited) Page
A. Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 1
B. Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and September 30,1998 2
C. Consolidated Statements of Cash Flows of the Nine Months
Ended September 30, 1999 and September 30, 1998 3
D. Notes to Consolidated Financial Statements 4
Part I. Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part I. Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
Part II. Other Information 18
Signatures 19
Exhibit 20
<PAGE>
AMERICAN SAVINGS BANK
Consolidated Balance Sheets (unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
---------- ---------
<S> <C> <C>
Cash and due from banks:
Noninterest bearing $ 20,853 20,119
Interest bearing 5,001 5,003
---------- ---------
25,854 25,122
Federal funds sold -- 30,700
Investment securities available for sale (note 2) 374,973 417,673
Mortgagebacked securities available for sale (note 2) 263,496 172,855
Loans, less allowance for loan losses of $8,507 at September 30, 1999
and $7,626 at December 31, 1998 1,004,674 907,254
Real estate owned 341 720
Accrued interest and dividends receivable 12,799 11,260
Federal Home Loan Bank stock 11,761 9,397
Bank premises and equipment, net 13,860 12,883
Other assets 2,702 2,586
---------- ---------
$1,710,460 1,590,450
========== =========
Liabilities and Equity
<CAPTION>
<S> <C> <C>
Deposits $1,135,751 1,143,754
Mortgagors escrow deposits 4,417 10,653
Advances from Federal Home Loan Bank 234,744 120,244
Securities sold under agreements to repurchase (note 3) 20,933 ---
Deferred income tax liability 20,381 26,831
Accrued interest payable on deposits 548 661
Other liabilities 7,693 7,323
---------- ---------
1,424,467 1,309,466
Equity:
Undivided profits 256,688 241,224
Accumulated other comprehensive income 29,305 39,760
---------- ---------
285,993 280,984
---------- ---------
$1,710,460 1,590,450
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
AMERICAN SAVINGS BANK
Consolidated Statements of Income (unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
Interest and dividend income:
<S> <C> <C> <C> <C>
Real estate mortgage loans $12,448 11,890 35,685 35,015
Consumer loans 5,378 5,022 15,676 14,733
Mortgagebacked securities 3,600 2,130 9,489 6,850
Federal funds sold 70 482 957 1,121
Investment securities:
Interest 4,249 4,729 12,523 15,103
Dividends 484 461 1,648 1,387
--------- -------- ------- ------
Total interest and dividend income 26,229 24,714 75,978 74,209
--------- -------- ------- ------
Interest expense:
Deposits 11,294 12,259 34,493 36,585
Federal Home Loan Bank advances 2,517 1,282 6,144 3,803
Repurchase agreements 161 --- 161 ---
--------- -------- ------- ------
Total interest expense 13,972 13,541 40,798 40,388
--------- -------- ------- ------
Net interest income before provision for loan losses 12,257 11,173 35,180 33,821
Provision for loan losses 540 600 1,480 1,800
--------- -------- ------- ------
Net interest income after provision for loan losses 11,717 10,573 33,700 32,021
--------- -------- ------- ------
Noninterest income:
Service charges and fees 1,219 1,102 3,474 2,929
Gain on sale of investment securities
available for sale 207 371 5,431 2,514
Gain on contribution of investment securities
available for sale --- --- --- 3,547
Net gain on sale of loans 2 5 57 8
Other 120 98 326 373
--------- -------- ------- ------
Total noninterest income 1,548 1,576 9,288 9,371
--------- -------- ------- ------
Noninterest expense:
Salaries and employee benefits 3,682 2,749 10,476 8,847
Occupancy expense 588 494 1,753 1,490
Furniture and fixture expense 415 348 1,225 1,119
Charitable contributions 238 649 688 3,419
Advertising 280 505 931 1,070
Deposit insurance expense 33 33 100 101
Real estate owned expenses, net 4 (55) 75 34
Other 1,377 1,227 4,003 3,769
--------- -------- ------- ------
Total noninterest expense 6,617 5,950 19,251 19,849
--------- -------- ------- ------
Income before income taxes 6,648 6,199 23,737 21,543
Income taxes 2,642 2,351 8,273 6,876
--------- -------- ------- ------
Net income $ 4,006 3,848 15,464 14,667
========= ======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMERICAN SAVINGS BANK
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------
1999 1998
------------ -----------
Operating activities:
<S> <C> <C>
Net income $ 15,464 14,667
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 1,480 1,800
Depreciation and amortization of bank premises and equipment 1,437 1,276
Amortization of premiums 544 1,685
(Increase) decrease in accrued interest and dividends receivable (1,539) 172
Gain on sale/contribution of investment securities available for sale (5,431) (6,061)
Deferred income tax expense (benefit) 827 (1,219)
(Increase) decrease in other assets (116) 367
Increase (decrease) in other liabilities 257 (135)
Loans originated for sale (10,442) (10,106)
Sale of loans originated for sale 10,496 10,114
Increase in net deferred loan origination costs (1,560) (407)
Net gain on sale of loans (57) (8)
Net gain on disposition of real estate owned (301) (445)
------------ ------------
Net cash provided by operating activities 11,059 11,700
------------ ------------
Investing activities:
Principal paydowns on mortgagebacked securities 40,288 29,914
Investment and mortgagebacked securities available for sale:
Purchases (356,371) (225,241)
Proceeds from sales 8,069 5,598
Proceeds from maturities 247,867 266,515
Purchases of Federal Home Loan Bank stock (2,364) ---
Net increase in loans (99,627) (65,328)
Net purchases of bank premises and equipment (2,413) (3,368)
Proceeds from the sales of real estate owned 2,330 2,587
------------ ----------
Net cash (used) provided by investing activities (162,221) 10,677
------------ ----------
Financing activities:
Increase in demand deposits, regular savings, NOW and money
market accounts 13,075 11,250
Decrease in certificates of deposit, retirement accounts,
and IRA passbook accounts (21,078) (1,460)
Decrease in mortgagors' escrow deposits (6,236) (7,078)
Advances from the Federal Home Loan Bank 114,500 ---
Proceeds from securities repurchase agreements 24,753 ---
Repayments under securities repurchase agreements (3,820) ---
------------ ----------
Net cash provided by financing activities 121,194 2,712
------------ ----------
(Decrease) increase in cash and cash equivalents (29,968) 25,089
Cash and cash equivalents at beginning of period 55,822 40,070
------------ ----------
Cash and cash equivalents at end of period $ 25,854 65,159
============ ==========
Supplemental information:
Cash paid during the period:
Interest on deposits and borrowings $ 40,911 40,429
Income taxes 6,425 5,590
Transfers of loans to real estate owned 1,650 2,603
Contribution of securities to charitable foundation --- 3,632
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Financial Statement Presentation
On May 24, 1999, the Board of Directors of American Savings Bank (the Bank
or American Savings) adopted a Plan of Conversion pursuant to which the
Bank will convert from a state-chartered mutual savings bank to a state-
chartered stock bank to be held as a wholly owned subsidiary of American
Financial Holdings, Inc. (American Financial). Shares of common stock of
American Financial will be offered in a subscription offering and community
offering. As of the filing date of this quarterly report on Form 10-Q, the
conversion has not yet been consummated. (Note 5).
The consolidated unaudited financial statements have been prepared in
conformity with generally accepted accounting principles and with the
instructions to Form 10-Q. Accordingly, certain information and disclosures
required by generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be read
in conjunction with the financial statements of the bank and notes thereto
included in American Financial's registration statement filed on Form S-1.
The financial statements include the accounts of the Bank and its
subsidiaries, American Investment Services, Inc. and American Savings Bank
Mortgage Servicing Company. American Financial, which has engaged only in
organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses. All significant intercompany
transactions have been eliminated in consolidation. In preparing the
consolidated financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
as of the date of the balance sheet and revenues and expenses for the
period. Actual results could differ from those estimates.
All adjustments, consisting of only normal recurring adjustments, which in
the opinion of management are necessary for fair presentation of financial
position, results of operations and cash flows, have been made. The results
of operations for interim periods are not necessarily indicative of the
results which may be expected for another interim period or a full year.
4
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
(Unaudited)
(2) Investment and Mortgage-Backed Securities
The Bank classified all investment and mortgage-backed securities as
available for sale as of September 30, 1999 and December 31, 1998. The
amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment and mortgage-backed securities at
September 30, 1999 and December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Available for sale
- ------------------
Investments:
U.S. Treasury Notes $ 5,039 244 -- 5,283
U.S. Government Agencies 55,474 -- (480) 54,994
Corporate bonds and notes 225,325 65 (2,030) 223,360
Other bonds and notes 21,046 28 (129) 20,945
Marketable equity securities 13,145 57,544 (298) 70,391
--------------- --------------- --------------- -------------
320,029 57,881 (2,937) 374,973
--------------- --------------- --------------- -------------
Mortgage-backed securities:
Freddie Mac 188,971 338 (3,318) 185,991
Fannie Mae 78,502 151 (1,148) 77,505
--------------- --------------- --------------- -------------
267,473 489 (4,466) 263,496
--------------- --------------- --------------- -------------
Total available for sale $ 587,502 58,370 (7,403) 638,469
=============== =============== =============== =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Available for sale
- ------------------
Investments:
U.S. Treasury Notes $ 27,048 632 -- 27,680
U.S. Government Agencies 78,025 129 -- 78,154
Corporate bonds and notes 138,258 467 -- 138,725
Other bonds and notes 55,633 373 (323) 55,683
Marketable equity securities 12,027 65,599 (195) 77,431
Auction market preferred stocks 40,000 -- -- 40,000
---------------- --------------- --------------- -------------
350,991 67,200 (518) 417,673
---------------- --------------- --------------- -------------
Mortgage-backed securities:
Freddie Mac 132,294 2,129 (17) 134,406
Fannie Mae 38,096 353 -- 38,449
---------------- --------------- --------------- -------------
170,390 2,482 (17) 172,855
---------------- --------------- --------------- -------------
Total available for sale $ 521,381 69,682 (535) 590,528
================ =============== =============== =============
</TABLE>
5
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
(Unaudited)
(3) Securities Sold Under Agreements to Repurchase
In securities repurchase agreements, securities are transferred to a
counterparty under an agreement to repurchase the identical securities at a
fixed price in the future. These agreements are accounted for as secured
financing transactions provided that effective control over the transferred
securities is maintained and the transfer meets the other criteria for such
accounting as specified in Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Bank's agreements are accounted for as
secured financings; accordingly, the transaction proceeds are recorded as
borrowings and the underlying securities continue to be carried in the
securities portfolio.
Information concerning securities sold under agreements to repurchase at
and for the three months ended September 30, 1999 (the Bank did not borrow
under security repurchase agreements prior to the quarter ended September
30, 1999) is presented below (in thousands):
Balance at end of period $ 20,933
Average amount outstanding 11,852
Maximum amount outstanding at 24,753
any month-end
Carrying value of collateral 21,500
Fair value of collateral 20,933
(4) Comprehensive Income
The following table summarizes comprehensive income for the three and nine
month periods ended September 30, 1999 and 1998. Other comprehensive income
for the periods presented was attributable to unrealized gains and losses
on available for sale securities.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income $ 4,006 3,848 15,464 14,667
Other comprehensive income:
Unrealized gain (loss) on
available for sale securities, net of tax (5,838) (6,144) (10,455) (3,599)
------------ ------------ ------------- ------------
Comprehensive income (loss) $ (1,832) (2,296) 5,009 11,068
============ ============ ============= ============
</TABLE>
(5) Subsequent Event
On November 16, 1999, American Financial completed its subscription and
community offering of common stock in connection with the conversion of the
Bank to a Connecticut-chartered stock bank. Completion of the conversion,
which is subject to the receipt of all applicable regulatory approvals, is
expected to occur in the fourth quarter of 1999.
6
<PAGE>
Part I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
American Savings' consolidated results of operations depend primarily on
net interest income, or the difference between the interest income earned on the
Bank's interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowings.
The Bank also generates non-interest income primarily from service charges and
other fees earned on fee-based activities such as trust operations and insurance
sales and from investment services provided through its wholly owned subsidiary,
American Investment Services, Inc. Gains on the sale of securities is another
source of non-interest income. The Bank's non-interest expenses primarily
consist of employee compensation and benefits, occupancy expense, charitable
contributions, advertising and other operating expenses. Results of operations
are also affected by general economic and competitive conditions, notably
changes in market interest rates, government policies and regulations. The Bank
exceeded all of its regulatory capital requirements at September 30, 1999.
Forward Looking Statements
This quarterly report contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of American
Financial and American Savings Bank. These forward-looking statements are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. American
Financial's and American Savings' ability to predict results accurately or the
actual operations of American Financial and American Savings and its
subsidiaries include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in American Financial's and American Savings' market area and
accounting principles. Discussion regarding Year 2000 issues necessarily involve
uncertainties in terms of the future consequences to the Bank of failure of the
Bank's suppliers, vendors and customers to effectively manage their computer
issues regarding Year 2000. These risks and uncertainties should be considered
in evaluating forward-looking statements and undue reliance should not be placed
on these statements. American Financial 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 the statements or to reflect the occurrence of anticipated or
unanticipated events.
Financial Condition at September 30, 1999 and December 31, 1998
Total assets increased $120.0 million, or 7.5%, to $1.71 billion at
September 30, 1999 from $1.59 billion at December 31, 1998. This increase was
primarily a result of a $97.4 million net increase in loans and a $90.6 million
increase in mortgage-backed securities available for sale, partially offset by a
$30.7 million decrease in federal funds sold and a $42.7 million decrease in
investment securities available for sale. The shift in the composition of assets
reflects management's strategy to enhance the yield on its interest-earning
assets by reducing federal funds sold and using the proceeds, along with cash
flows from the securities portfolio, to invest in corporate debt obligations and
mortgage-backed securities, including collateralized mortgage obligations, with
maturities or average lives ranging from two to five years. The increase in
loans occurred primarily in one-to four-family and home equity loans and lines
of credit due to strong demand for new housing, expansion of the Bank's loan
markets in 1999 and a strong refinancing market in the first quarter of 1999.
The increase in the investment portfolio is attributable to management's
decision to take advantage of favorable market conditions purchasing securities
funded in part with short-term borrowings that will be paid off upon receipt of
proceeds from the subscription and community offering. This strategy will
continue in the fourth quarter depending on market conditions.
7
<PAGE>
Deposits were $1.14 billion at September 30, 1999 and December 31, 1998.
Loan originations and the investment strategy were funded by advances from the
Federal Home Loan Bank of Boston, which increased $114.5 million, or 95.2%, to
$234.7 million at September 30, 1999 from $120.2 million at December 31, 1998,
and by $20.9 million borrowed by selling securities under agreements to
repurchase. Mortgagors' escrow deposits decreased $6.2 million to $4.4 million
at September 30, 1999, primarily due to property tax payments made late in the
third quarter. Deferred income tax liability decreased $6.5 million primarily
due to a decrease in the net unrealized gains on securities available for sale.
Nonperforming assets totaled $3.1 million at September 30, 1999 compared to
$4.7 million at December 31, 1998, a decrease of $1.6 million, or 33.3%. This
decrease reflects an $839,000 decline in nonperforming loans to $2.8 million at
September 30, 1999 and a $379,000 decrease in real estate owned to $341,000 at
September 30, 1999. The decline in nonperforming loans was primarily
attributable to the improved financial condition of borrowers, which management
attributes to the strong economy. The decline in real estate owned was due to
the disposition of foreclosed properties and the lack of additional significant
foreclosures.
Total equity increased $5.0 million to $286.0 million at September 30, 1999
as compared to $281.0 million at December 31, 1998, due to $15.5 million of net
income offset by a $10.5 million decrease in accumulated other comprehensive
income from a decline in the after-tax net unrealized gain on available for sale
securities.
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998
Net Income. Net income increased $797,000, or 5.4%, to $15.5 million for
the nine months ended September 30, 1999 from $14.7 million for the nine months
ended September 30, 1998. The increase was attributable to increases in interest
and dividend income, service charges and fees, and gains on sale of investment
securities of $1.8 million, $545,000 and $2.9 million, respectively, and a
$320,000 decrease in the provision for loan losses. These factors were partially
offset by increases of $2.1 million in non-interest expense excluding charitable
contributions, and $1.4 million in income tax expense. Charitable contributions
declined $2.7 million, and gain on contribution of investment securities
decreased $3.5 million, primarily due to the contribution of appreciated
investment securities to American Savings Bank Foundation, Inc. in the 1998
period which did not occur in 1999.
Net Interest Income. Net interest income for the nine months ended
September 30, 1999 increased by $1.4 million, or 4.0% from the nine months ended
September 30, 1998, primarily as a result of increased interest income resulting
from an increase in the average balance of interest-earning assets offset by
lower yields due to a lower market interest rate environment.
Interest and dividend income increased $1.8 million, or 2.4%, to $76.0
million for the nine months ended September 30, 1999 from $74.2 million for the
nine months ended September 30, 1998. This increase is attributable to an $119.3
million increase in earning assets partially offset by a decrease in the yield
on interest-earning assets to 6.65% from 7.05% for the nine-month periods ended
September 30, 1999 and 1998, respectively, due primarily to the refinancing of
residential mortgage loans. Interest income on loans increased by $1.6 million,
or 3.2%, to $51.4 million for the nine months ended September 30, 1999 from
$49.7 million for the same period in 1998. The increase was attributable to an
$88.2 million increase in the average balance of loans partially offset by a
decrease in the average yield on loans from 7.62% during the first nine months
of 1998 to 7.14% during the same period in 1999 due to a lower interest rate
environment. Interest and dividend income from investment securities decreased
$2.3 million, or 14.1%, to $14.2 million for the nine months ended September 30,
1999 from $16.5 million for the nine months ended September 30, 1998. This
decrease was primarily attributable to a $33.5 million decrease in the average
balance of investment securities to $315.7 million for the nine months ended
September 30, 1999, as well as a 29 basis point decrease in the average yield
earned on investments due to a lower market interest rate environment. The
decrease in the average balance of investment securities reflects management's
strategy to invest in higher yielding mortgage-backed securities. Interest
income on mortgage-backed securities increased $2.6 million, or 38.5%, from $6.9
million for the nine months ended September 30, 1998 to $9.5 million for the
nine months ended September 30, 1999. The increase resulted from a $67.2 million
increase in the average
8
<PAGE>
balance of mortgage-backed securities due to additional purchases of such
securities, partially offset by a decrease in the average yield of 51 basis
points due to the lower market interest rate environment.
Interest expense was approximately $40.0 million for both nine month
periods ended September 30, 1999 and 1998. Interest expense on deposits was
lower in 1999 than 1998 due to a lower market interest rate environment while
interest expense on borrowings increased due to increases in the average balance
of borrowings from the Federal Home Loan Bank of Boston and securities
repurchase agreements that were used to fund loan growth.
Provision for Loan Losses. The provision for loan losses decreased $320,000
to $1.5 million for the nine months ended September 30, 1999 from $1.8 million
for the nine months ended September 30, 1998. The decrease in the provision for
loan losses reflects a decrease in nonperforming loans, which totaled $2.8
million and $4.0 million at September 30, 1999 and September 30, 1998,
respectively. At September 30, 1999 and 1998, the allowance for loan losses was
$8.5 million and $7.2 million, respectively, which represented 270.32% of
nonperforming loans and 0.84% of total loans at September 30, 1999 as compared
to 178.80% of nonperforming loans and 0.79% of total loans at September 30,
1998.
Non-interest Income. Non-interest income decreased $83,000, or 0.9%, to
$9.3 million for the nine months ended September 30, 1999 from $9.4 million in
the same period in the prior year primarily due to a decrease in the gains on
the contribution of securities of $3.5 million, partially offset by an increase
of $2.9 million, or 16.1%, in the gain on sales of securities from $2.5 million
for the nine months ended September 30, 1998 to $5.4 million for the nine months
ended September 30, 1999. The decline in the gain on contribution of securities
was due to contributions of appreciated securities to American Savings Bank
Foundation, Inc. in 1998. There was no such contribution made in 1999. Gains on
sales of securities for the 1999 period includes a $2.2 million gain recognized
in June when the Bank received cash, that exceeded the cost basis of the
underlying shares, in exchange for shares of common stock of a company that was
acquired by merger. Service charges and fees increased $545,000 for the nine
months ended September 30, 1999 compared to the same period last year due to the
implementation of a new service charge structure, increased transaction accounts
and an increase in fees following the start of operations of the Bank's
financial services subsidiary in January 1998.
Non-interest Expense. Non-interest expense for the nine months ended
September 30, 1999 was $19.3 million, a decrease of $597,000, or 3.0%, compared
to $19.8 million for the nine months ended September 30, 1998. The decrease was
due primarily to a decrease in charitable contributions, offset by increases in
salary and occupancy expenses. Charitable contributions decreased $2.7 million,
or 79.9%, to $688,000 for the nine months ended September 30, 1999 compared to
$3.4 million in the same period in 1998. This decrease was due to the Bank
funding the majority of the contribution to the American Savings Bank
Foundation, Inc. during the first nine months of 1998, while no similar
contribution was made during the nine months ended September 30, 1999. Salaries
and employee benefits increased $1.6 million, or 18.4%, to $10.5 million for the
nine months ended September 30, 1999 from $8.8 million for the same period in
1998. Occupancy expense for the nine months ended September 30, 1999 increased
$263,000 to $1.8 million from $1.5 million in the same period last year. The
salary and occupancy expense increases are primarily due to the opening of three
new branches during the latter part of 1998 and the increased depreciation
charges associated with capital improvements to the main office completed in
late 1998.
Income Tax Expense. Income taxes were $8.3 million for the nine months
ended September 30, 1999, compared to $6.9 million for the nine months ended
September 30, 1998. The effective tax rates were 34.9% and 31.9% for the nine
months ended September 30, 1999 and 1998, respectively. The increase in income
tax expense was primarily due to an increase in income before income taxes and
the absence in 1999 of a tax benefit received in 1998 due to the non-taxable
gain on the contribution of appreciated securities to American Savings Bank
Foundation, Inc.
9
<PAGE>
Comparison of Operating Results for the Three Months Ended September 30, 1999
and 1998
Net Income. Net income increased $158,000, or 4.1%, to $4.0 million for the
three months ended September 30, 1999 from $3.8 million for the three months
ended September 30, 1998. The increase was attributable to a $1.1 million
increase in net interest income, and a $60,000 decrease in the provision for
loan losses. These factors were partially offset by increases of $667,000 in
non-interest expense and $291,000 in income tax expense.
Net Interest Income. Net interest income for the three months ended
September 30, 1999 increased by $1.1 million, or 9.7%, from the three months
ended September 30, 1998, primarily as a result of increased interest income
resulting from an increase in the average balance of interest-earning assets
offset by lower yields due to a lower market interest rate environment.
Interest and dividend income increased $1.5 million, or 6.1%, to $26.2
million for the three months ended September 30, 1999 from $24.7 million for the
three months ended September 30, 1998. The yield on interest-earning assets was
6.68% and 6.95% for the three-month periods ended September 30, 1999 and 1998,
respectively, due to a lower market interest rate environment. Interest income
on loans increased by $914,000, or 5.4%, to $17.8 million for the three months
ended September 30, 1999 from $16.9 million for the same period in 1998. The
increase was attributable to a $95.2 million increase in the average balance of
loans partially offset by a decrease in the average yield on loans from 7.49%
during the third quarter of 1998 to 7.13% during the same period in 1999 due to
a lower interest rate environment. Interest and dividend income from investment
securities decreased $457,000, or 8.8%, to $4.7 million for the three months
ended September 30, 1999 from $5.2 million for the three months ended September
30, 1998. This decrease was primarily attributable to a $24.3 million decrease
in the average balance of investment securities to $306.3 million for the three
months ended September 30, 1999. The decrease in the average balance of
investment securities reflects management's strategy to invest in higher
yielding mortgage-backed securities. Interest income on mortgage-backed
securities increased $1.5 million, or 69.0%, from $2.1 million for the three
months ended September 30, 1998 to $3.6 million for the three months ended
September 30, 1999. The increase resulted from a $104.4 million increase in the
average balance of mortgage-backed securities due to additional purchases of
such securities, partially offset by a decrease in the average yield of 48 basis
points due to the lower market interest rate environment.
Interest expense was approximately $14.0 million for both three-month
periods ended September 30, 1999 and 1998. Interest expense on deposits was
lower in 1999 than 1998 primarily due to a lower market interest rate
environment while interest expense on borrowings increased due to increases in
the average balance of borrowings from the Federal Home Loan Bank of Boston and
securities repurchase agreements that were used to fund loan growth.
Provision for Loan Losses. The provision for loan losses decreased $60,000
to $540,000 for the three months ended September 30, 1999 from $600,000 for the
three months ended September 30, 1998.
Non-interest Income. Non-interest income decreased $28,000, or 1.8%, to
$1.5 million for the three months ended September 30, 1999 from $1.6 million in
the same period in the prior year primarily due to a decrease in the gain on
sale of securities of $164,000, partially offset by an increase of $117,000, or
10.6%, in service charges and fees.
Non-interest Expense. Non-interest expense for the three months ended
September 30, 1999 was $6.6 million, an increase of $66,000, or 11.2%, compared
to $5.9 million for the three months ended September 30, 1998. The increase was
due primarily to an increase in salaries and employee benefits and occupancy
expenses offset by decreases in charitable contributions and advertising. The
salary and occupancy expense increases are primarily due to the opening of three
new branches during the latter part of 1998 and the increased depreciation
charges associated with capital improvements to the main office completed in
late 1998.
10
<PAGE>
Income Tax Expense. Income taxes were $2.6 million for the three months
ended September 30, 1999, compared to $2.4 million for the three months ended
September 30, 1998. The effective tax rates were 39.7% and 37.9% for the three
months ended September 30, 1999 and 1998, respectively. The increase in income
tax expense was primarily due to an increase in income before income taxes.
Average Balances, Interest and Average Yields/Cost
The following tables present certain information for the periods indicated
regarding average balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expenses on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances were
derived from daily balances.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ---------- ---------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest earnings assets:
Loans(1) $ 948,608 $ 51,361 $ 7.14% $ 860,397 $ 49,748 7.62%
Federal funds sold 26,608 957 4.74 27,123 1,121 5.45
Investment securities (3) 315,660 13,520 5.65 349,126 15,729 5.94
Mortgage-backed securities (3) 201,575 9,489 6.21 134,370 6,850 6.72
FHLB stock 10,127 483 6.30 9,093 426 6.17
Interest-earning deposits 4,505 168 4.91 7,719 335 5.73
----------- ---------- ---------- ----------- ---------------------
Total interest-earning 1,507,083 75,978 6.65 1,387,828 74,209 7.05
assets
Non-interest-earning assets 98,065 99,428
----------- -----------
Total assets $ 1,605,148 $ 1,487,256
=========== ===========
Interest-bearing liabilities:
Deposits
Money market accounts $ 65,235 1,318 2.67 $ 60,958 1,248 2.70
NOW accounts 69,150 702 1.34 57,303 574 1.32
Savings accounts (2) 205,625 3,153 2.02 191,013 2,943 2.03
Certificates of deposit and
retirement accounts 776,117 29,320 4.98 777,183 31,820 5.40
----------- ---------- ---------- ----------- ---------------------
Total interest-bearing 1,116,127 34,493 4.08 1,086,457 36,585 4.44
deposits
FHLB advances 140,511 6,144 5.77 80,244 3,803 6.25
Repurchase agreements 3,960 161 5.36 -- -- --
----------- ---------- ---------- ----------- ---------------------
Total interest-bearing 1,260,598 40,798 4.27 1,166,701 40,388 4.56
liabilities
Non-interest bearing demand
deposits 24,351 23,322
Other non-interest-bearing
liabilities 36,804 32,192
----------- -----------
Total liabilities 1,321,753 1,222,215
Equity 283,395 265,041
----------- -----------
Total liabilities and
equity $ 1,605,148 $ 1,487,256
=========== ===========
Net interest-earning assets $ 246,485
===========
Net interest income $ 35,180 $ 221,127 $ 33,821
========== =========== ==========
Interest rate spread 2.38% 2.49%
========== ========
Net interest margin
(net interest
income as a percentage of
interest-earning assets) 3.11% 3.25%
Ratio of interest-earning assets ========== =========
to interest-bearing
liabilities 119.55% 118.95%
========== ========
</TABLE>
(1) Average balances include nonaccrual loans
(2) Includes mortgagors' escrow accounts.
(3) Yield is calculated based on amortized cost.
11
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
---------------------------------------------------------------------------
1999 1998
------------------------------------ -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ------------ -------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest earnings assets:
Loans(1) $ 978,804 $ 17,826 7.13% $ 883,570 $ 16,912 7.49%
Federal funds sold 5,632 70 4.85 34,408 482 5.49
Investment securities (3) 306,334 4,491 5.74 330,595 4,925 5.83
Mortgage-backed securities (3) 231,004 3,600 6.10 126,587 2,130 6.58
FHLB stock 10,470 176 6.56 9,397 154 6.42
Interest-earning deposits 5,129 66 5.07 7,610 111 5.73
----------- ----------- -------- ----------- ------------- ------
Total interest-earning 1,537,373 26,229 6.68 1,392,167 24,714 6.95
assets
Non-interest-earning assets 99,150 98,920
----------- -----------
Total assets $ 1,636,523 $ 1,491,087
=========== ===========
Interest-bearing liabilities:
Deposits
Money market accounts $ 66,042 449 2.66 $ 60,404 417 2.70
NOW accounts 71,251 244 1.34 60,226 203 1.32
Savings accounts (2) 208,355 1,076 2.02 192,268 998 2.03
Certificates of deposit and
retirement accounts 765,545 9,525 4.87 775,029 10,641 5.37
----------- ----------- -------- ----------- ------------- ------
Total interest-bearing
deposits 1,111,193 11,294 3.98 1,087,927 12,259 4.41
FHLB advances 172,935 2,517 5.69 80,244 1,282 6.25
Repurchase agreements 11,852 161 5.31 -- --
----------- ----------- -------- ----------- ------------- ------
Total interest-bearing
liabilities 1,295,980 13,972 4.22 1,168,171 13,541 4.54
Non-interest bearing demand
deposits 24,145 22,989
Other non-interest-bearing
liabilities 31,442 30,770
----------- -----------
Total liabilities 1,351,567 1,221,930
Equity 284,956 269,157
----------- -----------
Total liabilities and equity $ 1,636,523 $ 1,491,087
=========== ===========
Net interest-earning assets $ 241,393
===========
Net interest income $ 12,257 $ 223,996 $ 11,173
========== =========== ==========
Interest rate spread 2.46% 2.41%
============ ===========
Net interest margin (net interest
income as a percentage of
interest-earning assets) 3.19% 3.21%
============ ===========
Ratio of interest-earning
assets to interest-bearing
liabilities 118.63% 119.17%
============ ===========
</TABLE>
(1) Average balances include nonaccrual loans
(2) Includes mortgagors' escrow accounts.
(3) Yield is calculated based on amortized cost.
12
<PAGE>
Part I. Item 3. Quantitative and Qualitative Disclosure About Market Risk
Qualitative Aspects of Market Risk. The Bank's most significant form of
market risk is interest rate risk. The principal objectives of the Bank's
interest rate risk management are to evaluate the interest rate risk inherent in
certain balance sheet accounts, determine the level of risk appropriate given
the Bank's business strategy, operating environment, capital and liquidity
requirements and performance objectives, and manage the risk consistent with the
Board of Director's approved guidelines. The Bank has an Asset/Liability
Committee, responsible for reviewing its asset/liability policies and interest
rate risk position, which meets monthly and reports trends and interest rate
risk position to the Finance Committee of the Board of Directors quarterly and
the whole Board of Directors annually. The extent of the movement of interest
rates is an uncertainty that could have a negative impact on the earnings of the
Bank.
In recent years, the Bank has used the following strategies to manage
interest rate risk: (1) emphasizing the origination of adjustable-rate loans
and generally selling longer term fixed-rate loans as market interest rate
conditions dictate; (2) emphasizing shorter term consumer loans; (3) maintaining
a high quality securities portfolio that provides adequate liquidity and
flexibility to take advantage of opportunities that may arise from fluctuations
in market interest rates, the overall maturity of which is monitored in relation
to the repricing of its loan portfolio; and (4) using Federal Home Loan Bank
advances to better structure maturities of its interest rate sensitive
liabilities. The Bank currently does not participate in hedging programs,
interest rate swaps or other activities involving the use of off-balance sheet
derivative financial instruments.
The Bank's market risk also includes equity price risk. The marketable
equity securities portfolio had gross unrealized gains of $57.2 million at
September 30, 1999 which is included, net of taxes, in accumulated other
comprehensive income, a separate component of the Bank's capital. If equity
security prices decline due to unfavorable market conditions or other factors,
the Bank's capital would decrease.
Quantitative Aspects of Market Risk. A simulation model is used to measure
the potential change in net interest income, incorporating various assumptions
regarding the shape of the yield curve, the pricing characteristics of loans,
deposits and borrowings, prepayments on loans and securities and changes in
balance sheet mix. The table below sets forth, as of September 30, 1999 and
December 31, 1998, estimated net interest income and the estimated changes in
net interest income for the next twelve month period which may result given
instantaneous changes in market interest rates of 200 basis points up and down.
<TABLE>
<CAPTION>
Estimated Changes in Annual Net Interest Income
------------------------------------------------------------------------
At September 30, 1999 At December 31, 1998
--------------------------------- --------------------------------
Increase/
(Decrease)
in Market
Interest Rates
in Basis Points $ % $ %
(Rate Shock) Amount Change Change Amount Change Change
- --------------------------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
200 $ 47,693 $ (1,922) (3.87%) $ 48,472 $ 2,474 5.38%
Static 49,615 -- -- 45,998 -- --
(200) 49,494 (121) (0.24) 42,060 (3,938) (8.56)
</TABLE>
The above table indicates that in the event of a sudden and sustained
change in prevailing market interest rates, net interest income would be
expected to decrease.
Computation of prospective effects of hypothetical interest rate changes
are based on a number of assumptions including the level of market interest
rates, the degree to which certain assets and liabilities with similar
maturities or periods to repricing react to changes in market interest rates,
the expected prepayment rates on loans and investments, the degree to which
early withdrawals occur on certificates of deposit and other deposit flows. As a
result, these computations should not be relied upon as indicative of actual
results.
13
<PAGE>
Further, the computations do not reflect any actions that management
may undertake in response to changes in interest rates.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future short-term financial
obligations. The Bank further defines liquidity as the ability to respond to the
needs of depositors and borrowers as well as maintaining the flexibility to take
advantage of investment opportunities. Primary sources of funds consist of
deposit inflows, loan repayments, maturities, paydowns, and sales of investment
and mortgage-backed securities and borrowings from the Federal Home Loan Bank.
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit outflows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
The primary investing activities of the Bank are (1) the origination of
residential one- to four-family mortgage loans and, to a lesser extent, multi-
family loans, single-family construction loans, home equity loans and lines of
credit and consumer loans and (2) the investment in mortgage-backed securities,
U.S. Government and agency obligations and corporate equity securities and debt
obligations. These activities are funded primarily by principal and interest
payments on loans, maturities of securities, deposit growth and Federal Home
Loan Bank advances. Deposit flows are affected by the overall level of interest
rates, the interest rates and products offered by the Bank and its local
competitors and other factors. The Bank relies primarily on competitive rates,
customer service, and long-standing relationships with customers to retain
deposits. From time to time, the Bank will also offer special competitive
promotions to its customers to increase retention and promote deposit growth.
Based upon the Bank's historical experience with deposit retention, management
believes that, although it is not possible to predict future terms and
conditions upon renewal, a significant portion of such deposits will remain with
the Bank. The Bank closely monitors its liquidity position on a daily basis. If
the Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through Federal Home Loan Bank
advances and through repurchase agreement borrowing facilities with
broker/dealers.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies including a risk-based capital measure. The
risk-based capital guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning balance sheet assets
and off-balance sheet items to broad risk categories. At September 30, 1999, the
Bank exceeded all of its regulatory capital requirements and is considered "well
capitalized" under regulatory guidelines.
14
<PAGE>
Year 2000 Readiness
The Year 2000 issue refers to the potential failure of computer systems and
applications as a result of programs using only two digits to identify a year in
the date field. If not corrected, many computer systems and applications could
fail or create erroneous results by, at or after the Year 2000. The Bank
established a Year 2000 Team to evaluate and assess the Bank's exposure to the
Year 2000 issue and developed a plan consisting of five phases. These phases
include awareness, risk assessment, renovation, validation or testing, and
implementation.
The awareness phase consists of defining the Year 2000 problem, developing
the necessary resources to perform compliance testing, establishing a Year 2000
program team, and developing an overall strategy that encompasses in-house
systems, service bureaus, vendors, customers and suppliers. American Savings
completed the awareness phase of the Year 2000 project in July of 1998.
The assessment phase requires the Bank to evaluate the size and complexity
of the problem and detail the magnitude of the effort necessary to address Year
2000 issues. The objective of this phase is to identify all hardware, software,
networks, automated teller machines, other various processing platforms and
customer and vendor dependencies affected by the Year 2000 date change. The
assessment phase goes beyond information systems and includes environmental
systems that depend on embedded microchips, such as security systems, elevators,
sprinkler systems, alarms and vaults. The assessment phase was substantially
completed on December 31, 1998, but is continually monitored by the Bank.
The Bank maintains an internal computer system for its operating functions
and a substantial majority of the Bank's data processing is provided by a core
banking software system that is supported by a third party vendor. The Bank
recognizes that its ability to be Year 2000 compliant depends upon the
cooperation of its vendors and other third parties. The Bank is requiring its
computer systems and software vendors to represent that the products provided
are or will be Year 2000 compliant and have planned a program for testing for
compliance. The Bank utilizes these representations from its computer systems
and software vendors for the purpose of determining the vendors' Year 2000
readiness. Upon receiving such representations, the Bank then determines the
need for replacement of or remediations to each particular vendor's system.
Rather than solely relying on representations from its vendors, the Bank also
independently tests both critical and non-critical vendor applications. The Bank
has received representations from its primary third party data processing vendor
confirming the Year 2000 compliance of that vendor's internally developed
programs. Remaining internal and external programs have been converted to Year
2000 compliant version. The Bank began testing the core banking system renovated
programs in October 1998. The Bank has completed testing of its critical
vendors' computer applications and believes that all identified Year 2000 issues
were addressed by March 31, 1999. All remaining Year 2000 issues for the Bank,
including testing of non-critical systems, were completed and any problems
identified were addressed by July 31, 1999.
The renovation phase includes the remediation of any systems identified in
the awareness phase as not Year 2000 compliant. For institutions relying on
outside services or third-party software providers, ongoing discussion and
monitoring of vendor progress is necessary. The Bank completed activities
related to the renovation phase on July 31, 1999. Most of the Bank's systems are
vendor supplied or supported and are being remediated by the vendors. The Bank's
primary software vendor has provided the Bank with a Year 2000 ready release
that has been installed. This release has been tested and validated by the Bank
as of July 31, 1999.
The Bank has completed its validation or testing phase with primary focus
on core software that operates basic banking applications. Testing of mission
critical systems was substantially competed as of December 31, 1998. Further
testing with mission critical vendors and other significant third party vendors
was completed by July 31, 1999. To date, the Bank has not identified any Year
2000 problems with any of its systems that would have a material adverse impact
upon its operations. Testing will continue as needed on newly acquired
applications and vendor upgrades. In addition, the Bank has designated an
internal independent group to validate the test plan and test results and has
retained an outside independent party to
15
<PAGE>
validate the business resumption contingency plan. Both validations were
completed by June 30, 1999 without any material exceptions.
The implementation phase is in the final Year 2000 activity. Only after
passing the validation phase where the hardware and software have been tested
and where the tests have been validated will the hardware and software be
certified as implemented and placed in service for the year 2000. If any system
fails the certification test, the Bank will assess the impact and implement the
contingency plan developed for that application. The Bank primary internal
technological systems, including the core processing system, teller equipment,
and local area network have already been placed in service. All critical systems
were implemented by June 30, 1999.
The potential impact of Year 2000 on the Bank's borrowers has been
evaluated. Because the Bank has only a limited number of borrowers with a
commercial lending relationship, management believes that Year 2000 issues will
not materially impair the ability of the Bank's borrowers to repay their debts.
In connection with the Bank's plans to enter commercial lending, the Bank will
assess the Year 2000 readiness of its potential commercial borrowers.
The Bank has budgeted approximately $200,000 for costs associated with Year
2000 compliance. As of September 30, 1999, the Bank expended approximately
$120,000 on Year 2000 issues. The Bank does not separately track the internal
costs associated with its Year 2000 readiness project, and such costs are
primarily the portion of an employee's time spent on Year 2000 related issues.
The impact of Year 2000 on the Bank will depend not only on corrective
actions taken by the Bank, but also on the way in which Year 2000 issues are
addressed by parties over which the Bank has no control, such as governmental
agencies, businesses and other third parties that provide services or data to,
or receive services or data from, the Bank, or whose financial condition or
operational capability is important to the Bank. To reduce this exposure, the
Bank has an ongoing process of identifying and contacting mission critical third
party vendors and other significant third party vendors to determine their Year
2000 plans and target dates. Notwithstanding the Bank's efforts, there can be no
assurance that mission critical third party vendors or other significant third
party vendors will adequately address their Year 2000 issues.
The Bank has developed and tested contingency plans for implementation in
the event that mission critical third party vendors fail to adequately address
Year 2000 issues. The contingency plans involve identifying alternate vendors or
internal remediation. There can be no assurance that these plans will eliminate
any failures or problems. Furthermore, there may be certain mission critical
third parties, such as utilities and telecommunications companies, where
alternate arrangements or sources are limited or unavailable.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this
report have been prepared in conformity 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 many
industrial companies, substantially all of the assets and liabilities of the
Bank are monetary in nature. As a result, interest rates have a more significant
impact on the Bank's performance than the general level of inflation. Over short
periods of time, interest rates may not necessarily move in the same direction
or in the same magnitude as inflation.
16
<PAGE>
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities. As recently amended, the statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. On that date, hedging relationships shall be designed in accordance with
the statement. Earlier application is encouraged but is permitted only at the
beginning of any fiscal quarter that begins after issuance of the statement.
Earlier application of selected provisions of the statement is not permitted.
The statement shall not be applied retroactively to financial statements of
prior periods. The statement is not expected to affect the Bank because it does
not currently purchase derivative instruments or enter into hedging activities.
17
<PAGE>
Part II. Item 1. Legal Proceedings
American Financial is not a party to any pending legal proceedings.
Periodically, there are various claims and lawsuits involving the Bank, such as
claims to enforce liens, condemnation proceedings on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans and other issues incident to the Bank's business. The Bank is
not a party to any pending legal proceedings that it believes would have a
material adverse effect on the financial condition or operations of the Bank.
Part II. Item 2. Changes in Securities and Use of Proceeds
none
Part II. Item 3. Defaults Upon Senior Securities
none
Part II. Item 4. Submission of Matters to a Vote of Security Holders
none
Part II. Item 5. Other Information
none
Part II. Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
The following exhibit is included herein:
27 - Financial Data Schedule
b) Reports on Form 8-K:
none.
18
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
American Financial Holdings, Inc.
Date: 11/26/99 /s/ Robert T. Kenney
-------- -----------------------------------------------
Robert T. Kenney
Chairman, President and Chief Executive Officer
Date: 11/26/99 /s/ Charles J. Boulier,III
-------- -----------------------------------------------
Charles J. Boulier, III
Executive Vice President and Chief Financial
Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-10-1999
<CASH> 25853
<INT-BEARING-DEPOSITS> 5001
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 638469
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1013181
<ALLOWANCE> (8507)
<TOTAL-ASSETS> 1710460
<DEPOSITS> 1135751
<SHORT-TERM> 27733
<LIABILITIES-OTHER> 12106
<LONG-TERM> 227944
0
0
<COMMON> 0
<OTHER-SE> 285993
<TOTAL-LIABILITIES-AND-EQUITY> 1710460
<INTEREST-LOAN> 51361
<INTEREST-INVEST> 23660
<INTEREST-OTHER> 957
<INTEREST-TOTAL> 75978
<INTEREST-DEPOSIT> 34493
<INTEREST-EXPENSE> 40798
<INTEREST-INCOME-NET> 35180
<LOAN-LOSSES> 1480
<SECURITIES-GAINS> 5431
<EXPENSE-OTHER> 19251
<INCOME-PRETAX> 23737
<INCOME-PRE-EXTRAORDINARY> 23737
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15464
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.11
<LOANS-NON> 3147
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7626
<CHARGE-OFFS> 672
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 8507
<ALLOWANCE-DOMESTIC> 8507
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
