-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hb3+YEXhVSAHUx8KMJN+OmzgUt6zRsodlAFhDrwKsnqJmU5JScDICMeirqh3OJdw ABMEDefBjN8d/Gr79kh9Ww== 0001000301-00-000008.txt : 20000411 0001000301-00-000008.hdr.sgml : 20000411 ACCESSION NUMBER: 0001000301-00-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMBANC HOLDING CO INC CENTRAL INDEX KEY: 0001000301 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 141783770 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27036 FILM NUMBER: 583689 BUSINESS ADDRESS: STREET 1: 11 DIVISION ST CITY: AMSTERDAM STATE: NY ZIP: 12010 BUSINESS PHONE: 5188427200 MAIL ADDRESS: STREET 1: PO BOX 669 CITY: AMSTERDAM STATE: NY ZIP: 12010 10-K 1 12/31/99 FORM 10-K 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. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 14-1783770 - ------------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 11 Division Street, Amsterdam, New York 12010-4303 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (518)842-7200 --------------------------- Securities Registered Pursuant to Section 12(b) of the Act: None ----------------------------------------------------------- Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ----------------------------------------------------------- (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. 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. 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. 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.
December 31, --------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent -------- ------ -------- ------ -------- ------ -------- ------ ------- ------- (Dollars in thousands) 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 ======== ======== ======== ======== ========
The following table shows the composition of the Company's loan portfolio by fixed- and adjustable-rate at the dates indicated.
December 31, ------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------ Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- (Dollars in thousands) 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 ======== ======== ======== ======== ========
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.
Real Estate -------------------------------------------------- One- to Multi- Four-Family Family and Commercial and Home Equity Commercial Construction Consumer Business Total -------------- -------------- -------------- -------------- -------------- -------------- (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 ======= ======= ====== ======= ======= ======= - --------------------- (1) Includes demand loans, loans having no stated maturity and overdraft loans.
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.
December 31, 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- (Dollars in thousands) 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% - -------------------------------------- (1) Includes home equity loans
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. The following table sets forth an analysis of the activity in the Company's allowance for loan losses.
For the year ended December 31, 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- --------- (Dollars in thousands) 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% ====== ====== ====== ====== ====== - ------------------------------------- (1) Includes home equity loans.
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:
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) 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% ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= - ------------------------------- (1) Includes home equity loans.
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. The following table sets forth the composition of the Company's securities portfolio and FHLB stock at the dates indicated.
December 31, --------------------------------------------------------------------------------- 1999 1998 1997 ------------------------------------------------------------------------------- Carrying Carrying Carrying Value (1) %of Total Value (1) %of Total Value (1) %of Total ----------- -------- ----------- -------- ------------ -------- (Dollars in Thousands) 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% ========= ======= ========= ======= ========== ======= ------------------------------------- (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.
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.
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) 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% ======= ======= ======= ======= =======
Sources of Funds General The Company's primary sources of funds are deposits, borrowings, amortization and prepayment of loan and mortgage-backed security principal, maturities of securities, short-term investments, and funds provided from operations. Deposits The Company offers a variety of deposit products having a range of interest rates and terms. The Company's deposits consist of savings accounts, money market accounts, transaction accounts, and certificate accounts currently ranging in terms from 91 days to 60 months. The Company primarily solicits deposits from its primary market area and at December 31, 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.) 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. 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. 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 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. 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 (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. 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) 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 EX-10.8 2 STANDSTILL AGREEMENT - LAWRENCE B. SEIDMAN 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 EX-13 3 ANNUAL REPORT TO SECURITY HOLDERS 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.
December 31, 1999 1998 1997 1996 1995 --------- --------- --------- --------- -------- Selected Consolidated (In thousands) Financial Condition Data: 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 ======= ======= ========= ========= =========
*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.
At or for the years ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Selected Consolidated Financial Ratios and Other Data: 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 (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).
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 $4.3 million for the year ended December 31, 1999. Other significant items impacting shareholders' equity during 1999 were the release of ESOP shares, and the continued amortization of the unearned RRP shares. Average Balances, Interest Rates and Yields The following table presents for the periods indicated the total dollar amount of interest and dividend income earned on average earning assets and the resultant yields, as well as the total dollar amount of interest expense incurred on average interest-bearing liabilities and the resultant rates. No tax equivalent adjustments were made. All average balances are daily average balances. Non-accruing loans have been included in the table as loans with interest earned on a cash basis only. Securities available for sale are included at amortized cost.
1999 1998 1997 --------------------------- --------------------------- ------------------------- Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Balance Inc./Exp. Rate Balance Inc./Exp. Rate Balance Inc./Exp. Rate ------- --------- ------ ------- --------- ------ ------- --------- ------ Earning assets (Dollars in Thousands) Loans receivable (1) .......................$ 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% ========== ========== ========== (1) Calculated net of deferred loan fees and costs, loan discounts and loans in process. (2) Securities available for sale exclude securities pending settlement.
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.
---------------------------------------------------------------------- 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) 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 ======= ======== ======= ======= ======= =======
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. 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.
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) 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
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
AMBANC HOLDING CO., INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition December 31, 1999 1998 --------- --------- (In thousands) Assets 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.
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: 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.
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 ------- ---------- -------- -------- 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.
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) ----------- ---------- ------------ -------- ------------- 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.
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: 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) ------- ------- -------
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) 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.
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. (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. 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. 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. (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. (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. (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. (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. (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 ======== ======= ======== ======== 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. (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 ======= ======= ======= 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. (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. (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. 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. 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 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). (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 ======= ======= ======= 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. 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. 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 ===== ===== ===== 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. 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. 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. 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. 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. (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 ======== ========= ====== 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 ============= 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. 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. 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. 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:
1999 1998 ---------------------------- ----------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value ----- ----- ----- ----- (In thousands) Financial assets: 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
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. 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. (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. 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 ======= ======= =======
Statements of Cash Flows 1999 1998 1997 ------- ------- ------- (In thousands) Increase (decrease) in cash and cash equivalents: Cash flows from operating activities: 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 ======= ======= =======
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 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 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 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 EX-21 4 SUBSIDIARIES OF THE REGISTRANT Subsidiary Name State of Incorporation - ------------------------------- ---------------------- Mohawk Community Bank New York ASB Insurance Agency, Inc. New York EX-23 5 CONSENT-INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 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 EX-27 6 FDS -- 12/31/99
9 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. 1000 12-mos DEC-31-1999 DEC-31-1999 26,380 3,231 0 0 212,145 0 0 470,986 5,509 740,672 450,134 71,200 10,040 133,705 0 0 54 75,539 740,672 32,578 15,245 944 48,767 16,755 26,319 22,448 790 0 16,063 7,398 7,398 0 0 4,303 0.88 0.87 3.21 2,576 1,068 566 2,498 4,891 463 291 5,509 5,509 0 0
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