-----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, DmvM+pG9x3c4wbamu43KvVpbPEBJ+xYtqtSP3PjnxuIYkS7ht5uU9FHjjLgL2zpU 5qj2ouoWa8gdLCg15Gz/Kg== 0001000301-01-000001.txt : 20010328 0001000301-01-000001.hdr.sgml : 20010328 ACCESSION NUMBER: 0001000301-01-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 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: 1580727 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 0001.txt 12/31/00 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, 2000 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 21, 2001, was $81,867,071. (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 21, 2001, there were issued and outstanding 4,532,433 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, 2000. Part III of Form 10-K - Portions of the Proxy Statement for the Annual Meeting of Shareholders for the year ended December 31, 2000. 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". At December 31, 2000, the Company had $706.6 million of assets and shareholders' equity of $77.1 million or 10.9% 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. Recently, the Bank has also been focusing on the origination of commercial-type loans,including entering into participation agreements with other financial institutions 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, 2000, the Company's net loan portfolio totaled $460.0 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, 2000, the maximum amount which the Bank could have loaned to any one borrower and the borrower's related entities was approximately $ 9.6 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, --------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ (Dollars in thousands) Real Estate Loans: One- to four-family $291,682 62.91% $306,665 65.43% $273,523 64.53% $189,666 66.88% 158,182 63.15% Home Equity 89,767 19.36 92,605 19.76 83,949 19.80 30,246 10.67 22,817 9.11 Multi-family 3,738 0.81 3,881 0.83 4,165 0.98 4,152 1.46 4,724 1.88 Commercial 40,727 8.78 27,910 5.96 23,506 5.55 26,585 9.38 29,947 11.96 Construction 2,435 0.53 4,924 1.05 3,600 0.85 2,081 0.73 2,234 0.89 -------- ----- -------- ----- -------- ----- -------- ------ -------- ------ Total Real Estate 428,349 92.39 435,985 93.03 388,743 91.71 252,730 89.12 217,904 86.99 -------- ----- -------- ----- -------- ----- -------- ------ -------- ------ Other Loans: Consumer Loans: Auto Loans 8,023 1.73 11,641 2.48 14,146 3.34 16,237 5.73 12,417 4.96 Recreational Vehicles 2,713 0.59 3,551 0.76 4,990 1.18 6,775 2.39 9,416 3.76 Manufactured Homes 180 0.04 249 0.05 385 0.09 494 0.17 620 0.25 Other Secured 4,473 0.96 4,697 1.00 6,289 1.48 1,781 0.63 1,866 0.74 Unsecured 5,905 1.27 5,918 1.26 3,712 0.88 1,847 0.65 1,445 0.58 -------- ----- -------- ----- -------- ----- ------- ------ -------- ------ Total Consumer Loans 21,294 4.59 26,056 5.56 29,522 6.96 27,134 9.57 25,764 10.29 -------- ----- -------- ----- -------- ----- ------- ------ -------- ------ Commercial Business Loans: Secured 12,784 2.76 5,562 1.19 5,101 1.20 3,233 1.14 6,199 2.47 Unsecured 1,192 0.26 1,063 0.23 508 0.12 471 0.17 620 0.25 -------- ----- -------- ----- -------- ----- ------- ------ -------- ------ Total Commercial Business Loans 13,976 3.02 6,625 1.41 5,609 1.32 3,704 1.31 6,819 2.72 -------- ----- -------- ----- -------- ----- ------- ------ -------- ------ Total Loan Portfolio, Gross 463,619 100.00% 468,666 100.00% 423,874 100.00% 283,568 100.00% 250,487 100.00% ====== ====== ====== ====== ====== Deferred costs, net of deferred fees and discounts Allowance for Loan Losses 2,084 2,320 1,950 1,362 1,045 (5,745) (5,509) (4,891) (3,807) (3,438) Total Loans Receivable, Net -------- -------- -------- -------- -------- $459,958 $465,477 $420,933 $281,123 $248,094 ======== ======== ======== ======== ========
The following table shows the composition of the Company's loan portfolio by fixed- and adjustable-rate at the dates indicated.
December 31, ------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- (Dollars in thousands) Fixed Rate Loans: Real Estate: One- to four-family $243,081 52.43% $254,438 54.29% $204,184 48.17% $124,457 43.89% $111,841 44.65% Home Equity 82,934 17.89 86,596 18.48 77,553 18.30 23,099 8.14 15,234 6.08 Commercial and Multi-family 27,520 5.94 12,212 2.60 6,201 1.46 2,723 0.96 2,590 1.03 Construction 2,435 0.52 4,924 1.05 2,867 0.68 2,081 0.73 1,840 0.73 -------- ------ -------- ------ -------- ------ -------- ------- -------- ------- Total Real Estate 355,970 76.78 358,170 76.42 290,805 68.61 152,360 53.72 131,505 52.49 Consumer 20,834 4.49 26,009 5.55 28,771 6.79 26,260 9.26 25,110 10.03 Commercial Business 4,525 0.98 4,579 0.98 3,501 0.83 1,415 0.50 3,124 1.24 -------- ------ -------- ------ -------- ------ -------- ------- -------- ------- Total fixed-rate loans 381,329 82.25 388,758 82.95 323,077 76.22 180,035 63.48 159,739 63.76 -------- ------ -------- ------ -------- ------ -------- ------- -------- ------- Adjustable Rate Loans: Real Estate: One- to four-family 48,601 10.48 52,227 11.14 69,339 16.36 65,209 23.00 46,341 18.50 Home Equity 6,833 1.47 6,009 1.28 6,396 1.51 7,147 2.52 7,583 3.03 Commercial and Multi-family 16,945 3.66 19,579 4.18 21,470 5.07 28,014 9.88 32,081 12.81 Construction -- 0.00 -- -- 733 0.17 --- ---- 394 0.16 -------- ------ -------- ------ -------- ------ -------- ------- -------- ------- Total Real Estate 72,379 15.61 77,815 16.60 97,938 23.10 100,370 35.40 86,399 34.50 Consumer 460 0.10 47 0.01 751 0.18 874 0.31 654 0.26 Commercial Business 9,451 2.04 2,046 0.44 2,108 0.17 2,289 0.81 3,695 1.48 -------- ------ -------- ------ -------- ------ -------- ------- -------- ------- Total adjustable-rate loans 82,290 17.75 79,908 17.05 100,797 23.78 103,533 36.52 90,748 36.24 -------- ------ -------- ------ -------- ------ -------- ------- -------- ------- Total Loan Portfolio, Gross 463,619 100.00% 468,666 100.00% 423,874 100.00% 283,568 100.00% 250,487 100.00% ====== ====== ====== ====== ====== Deferred costs, net of deferred fees and discounts 2,084 2,320 1,950 1,362 1,045 Allowance for Loan Losses (5,745) (5,509) (4,891) (3,807) (3,438) -------- -------- -------- -------- -------- Total Loans Receivable, Net $459,958 $465,477 $420,933 $281,123 $248,094 ======== ======== ======== ======== ========
The following table illustrates the maturity of the Company's loan portfolio at December 31, 2000. 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, 2001 (1) $38,543 $ 5,986 $----- $ 2,234 $ 7,188 $ 53,951 2002 to 2005 38,025 23,518 ----- 15,320 4,780 81,643 2006 and beyond 304,881 14,961 2,435 3,740 2,008 328,025 ------- ------- ------ ------- ------- ------- Totals $381,449 $44,465 $2,435 $21,294 $13,976 $463,619 ======= ======= ====== ======= ======== ======= - --------------------- (1) Includes demand loans, loans having no stated maturity and overdraft loans.
As of December 31, 2000, the total amount of loans due after December 31, 2001 which have fixed interest rates was $354.4 million, while the total amount of loans due after such date which have floating or adjustable interest rates was $55.3 million. One- to Four-Family Residential Real Estate Lending The Company's residential mortgage loans consist primarily of first lien one-to four-family, owner-occupied mortgage loans. At December 31, 2000, $291.7 million, or 62.9%,of the Company's gross loans consisted of one- to four-family residential first mortgage loans. Approximately 83.3% of the Company's one- to four-family residential 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 adjustable rate mortgage ("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 for loan underwriting purposes at a rate 2.0% above the initial interest rate. 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, 2000, the Company's construction loan portfolio totaled $2.4 million, or 0.5% 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, 2000, 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 with 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 ten 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, 2000, the Company had $89.8 million in home equity loans and lines of credit outstanding, with an additional $4.0 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, 2000, the Company had $40.7 million and $3.7 million of commercial real estate and multi-family real estate loans, respectively, which represented 8.8% 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 or reprice in five years or less. Terms to maturity generally 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 75%. 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 and the effect of general economic conditions on income producing properties. 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. At December 31, 2000, $502,000 or 1.1% 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, 2000 the Company's consumer loan portfolio totaled $21.3 million, or 4.6% of the gross loan portfolio. At December 31, 2000, 97.8% of the Company's consumer loans were fixed-rate loans and 2.2% 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 at rates 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 the 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, 2000, automobile loans and RV loans (such as motor homes, boats, motorcycles, snowmobiles and other types of recreational vehicles) totaled $ 8.0 million and $2.7 million or 37.7% and 12.7% of the Company's total consumer loan portfolio, and 1.7% and 0.6% 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, 2000 totaled $34,000 or 0.2% of the Company's consumer loan portfolio. Of the RV loan balance, approximately $2.0 million and $673,000 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, 2000, RV loans totaling $175,000 or 6.5% 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, 2000, a total of $428,000, or 2.0%, 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 and during the past two years has been focusing on the origination of commercial loans, with a particular emphasis on small business lending. At December 31, 2000, commercial business loans comprised $14.0 million, or 3.0% 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 and equipment. Commercial business 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.The repayment of lines of credit is normally dervied from the conversion of trading assets (account receivables and inventory) to cash. 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 and the purchase of $14.0 million of commercial real estate loans and commercial business loans in 2000 through participation agreements with another financial institution, 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, 2000, the Company originated $ 66.0 million of loans compared to $138.7 million and $120.9 million in 1999 and 1998, respectively. The Company purchased $14.0 million of commercial real estate and commercial business loans during 2000 through participation agreements with another financial institution. These loans were located within the Company's primary market area and surrounding areas. 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 $15.5 million. During 1999, 1998 and 1997 the Company increased its originations of one- to four-family mortgages through the referrals of several local brokers. The Company de-emphasized the use of brokers during 2000. 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, 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (Dollars in thousands) Non-accruing loans: One- to four-family (1) $1,471 $1,570 $1,018 $843 $ 259 Multi-family --- --- --- 28 --- Commercial real estate 44 274 20 265 339 Consumer 418 434 342 293 256 Commercial business 515 298 230 447 2,269 ------- ------- -------- ------- ------- Total 2,448 2,576 1,610 1,876 3,123 ------- ------- -------- ------- ------- Accruing loans delinquent more than 90 days: One- to four-family (1) 247 372 358 280 151 Commercial real estate --- 685 215 13 568 Consumer 10 11 7 2 6 Commercial business --- --- --- 156 --- ------- ------- -------- ------- ------- Total 257 1,068 580 451 725 ------- ------- -------- ------- ------- Troubled debt restructured loans: One- to four-family (1) 82 84 85 86 88 Multi-family --- --- --- 34 38 Commercial real estate 458 475 537 761 781 Consumer --- --- --- -- 56 Commercial business 1 7 92 50 68 ------- ------- -------- ------- ------- Total 541 566 714 931 1,031 ------- ------- -------- ------- ------- Total non-performing loans 3,246 4,210 2,904 3,258 4,879 ------- ------- -------- ------- ------- Foreclosed assets: One- to four-family (1) 232 126 313 69 194 Multi-family --- --- --- --- 282 Commercial real estate 112 142 30 --- --- Consumer 29 54 56 74 239 ------- ------- -------- ------- ------- Total 373 322 399 143 715 ------- ------- -------- ------- ------- Total non-performing assets $3,619 $4,532 $3,303 $3,401 $5,594 ======= ======= ======== ======= ======= Total non-preforming assets as a percentage of total assets 0.51% 0.61% 0.45% 0.67% 1.18% Total non-performing loans as a percentage of total loans 0.70% 0.89% 0.68% 1.16% 1.94% - -------------------------------------- (1) Includes home equity loans
For the year ended December 31, 2000, 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 $372,000 ($291,000 from non-accruing loans and $81,000 from restructured loans). The amount that was included in interest income on such loans was $216,000 ($166,000 from non-accruing loans and $50,000 from restructured loans), which represented actual receipts. Consequently, $156,000 ($125,000 from non-accruing loans and $31,000 from restructured loans) was not recognized in gross interest income for the period. Non-Accruing Loans At December 31, 2000, the Company had $2.4 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, 2000, the Company had $257,000 of accruing loans delinquent more than 90 days. Of these loans, $247,000 were FHA insured or VA guaranteed one-to four-family residential loans. The remaining $10,000 represented nine (9) consumer loans for which management believes that all contractual payments are collectible. Restructured Loans As of December 31, 2000, the Company had restructured loans of $541,000. 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 loan. Foreclosed and Reposessed Assets As of December 31, 2000, the Company had $373,000 in carrying value of foreclosed and repossessed assets. One-to four-family real estate represented 62.2% of the Company's foreclosed and repossessed property, consisting of five (5) properties. Commercial real estate represented 30.0% of the Company's foreclosed and repossessed assets and consisted of one (1) property. Repossessed consumer assets represented 7.8% of the Company's foreclosed and repossessed properties, consisting of four (4) automobiles. Other Loans of Concern As of December 31, 2000, there were $926,000 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.There were no other loans of concern in excess of $500,000.Other loans of concern with balances less than $500,000 at December 31, 2000 consisted of 8 commercial and multi-family real estate loans totaling $580,000, 2 commercial business loans totaling $178,000, 5 one-to four-family mortgage loans totaling $153,000, and 2 consumer loans totaling $15,000. 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. 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, 2000, the Company had a total allowance for loan losses of $5.7 million, representing 177.0% of non-performing loans at that date. 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. The following table sets forth an analysis of the activity in the Company's allowance for loan losses.
For the year ended December 31, 2000 1999 1998 1997 1996 ---------------------- ----------- ----------- ----------- (Dollars in thousands) Balance at beginning of period $5,509 $4,891 $3,807 $3,438 $2,647 Charge-offs: One- to four-family (1) ( 76) (103) (69) (15) (530) Multi-family -- -- (129) (51) (1,174) Commercial real estate -- -- (437) (372) (2,564) Consumer (247) (311) (275) (316) (1,834) Commercial business (31) (49) (316) (460) (2,616) ----------- ---------- ----------- ----------- ----------- Total charge-offs (354) (463) (1,226) (1,214) (8,718) ----------- ---------- ----------- ----------- ----------- Recoveries: One- to four-family (1) 4 10 6 1 10 Commercial real estate 13 147 59 26 -- Consumer 54 88 56 76 49 Commercial business 39 46 174 392 -- ----------- ---------- ----------- ----------- ----------- Total recoveries 110 291 295 495 59 ----------- ---------- ----------- ----------------------- Net charge-offs (244) (172) (931) (719) (8,659) Allowance acquired from AFSALA Bancorp. Inc. -- -- 1,115 -- -- Provisions charged to operations 480 790 900 1,088 9,450 ----------- --------- ---------- ----------- ---------- Balance at end of period $5,745 $5,509 $4,891 $3,807 $3,438 =========== ========= ========== =========== ========== Ratio of allowance for loan losses to total loans (at period end) 1.23% 1.17% 1.15% 1.34% 1.37% ====== ====== ====== ====== ====== Ratio of allowance for loan losses to non-performing loans (at period end) 176.99% 130.86% 168.42% 116.85% 70.47% ====== ====== ====== ====== ====== Ratio of net charge-offs during the period to average loans outstanding during period 0.05% 0.04% 0.29% 0.27% 3.30% ====== ====== ====== ====== ====== - ------------------------------------- (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, ------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 -------------------- -------------------- -------------------- ------------------- -------------------- 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) $2,697 82.17% $2,205 85.19% $1,661 84.33% $897 77.55% $ 157 72.26% Multi-family and commercial real estate 1,211 9.69 1,153 6.79 1,383 6.53 1,818 10.84 1,599 13.84 Construction --- 0.53 --- 1.05 --- 0.85 --- 0.73 --- 0.89 Consumer 376 4.59 466 5.56 397 6.96 449 9.57 355 10.29 Commercial business 575 3.02 488 1.41 666 1.32 483 1.31 1,327 2.72 Unallocated 886 ---- 1,197 ---- 784 ---- 160 ---- --- ---- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------- Total $5,745 100.00% $5,509 100.00% $4,891 100.00% $3,807 100.00% $3,438 100.00% ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= - ------------------------------ (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, 2000, the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable savings deposits and current borrowings) was 31.3%. 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, 2000, 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, 2000 were $139.0 million and $141.3 million, respectively. For additional information on the Company's securities, see Note 4 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, 2000, the fair value and amortized cost of the Company's collaterized mortgage obligations ("CMOs") were $25.8 million and $26.1 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. At December 31,2000, the fair value and amortized cost of the Company's mortgage-backed securities were $57.3 million and $58.0 million, respectively. All mortgage-backed securitied are 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, 2000, $22.1 million or 26.7% 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 are 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, 2000, the final contractual maturity of 95.5% 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, ------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------------------- Carrying Carrying Carrying Value (1) %of Total Value (1) %of Total Value (1) %of Total ----------- -------- ----------- -------- ----------- -------- (Dollars in Thousands) C> C> Securities: U.S. Government and agency $ 52,865 35.75% $ 85,033 38.50% $ 84,000 33.41% State and political subdivisions 303 0.20% 907 0.41% 1,837 0.73% Corporate bonds 2,203 1.49% 2,240 1.01% -- -- Mortgage-backed securities 57,295 38.75% 81,941 37.10% 96,256 38.28% Collateralized mortgage obligations 25,762 17.42% 42,024 19.02% 62,148 24.71% --------- ------- --------- ------- --------- ------- Total debt securities 138,428 93.62% 212,145 96.04% 244,241 97.13% Marketable equity securities & mutual funds 562 0.38% ---- ---- ---- ---- FHLB stock 8,870 6.00% 8,748 3.96% 7,215 2.87% --------- ------- --------- ------- --------- ------- Total securities and FHLB stock $ 147,860 100.00% $ 220,893 100.00% $ 251,456 100.00% ========= ======= ========= ======= ========= ======= ------------------------------------- (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, 2000, 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, 2000 --------------------------------------------------------------------------------------- Over One Over Five Year through Years through Over Five Years Ten Years Ten Years Total Securities -------------- -------------- -------------- --------------------------- Amortized Cost Amortized Cost Amortized Cost Amortized Cost Fair Value -------------- -------------- -------------- -------------- ------------ (Dollars in thousands) U.S. Government and agency $ 2,000 $ 32,175 $ 19,529 $ 53,704 $ 52,865 State and political subdivisions 305 --- --- $ 305 $ 303 Corporate bonds --- --- 2,538 2,538 2,203 Mortgage-backed securities 1,856 444 55,732 58,032 57,295 Collateralized mortgage obligations --- 1,460 24,642 26,102 25,762 ------- ------- ------- ------- ------- Total debt securities $ 4,161 $ 34,079 $102,441 $140,681 $138,428 ======= ======= ======= ======= ======= Weighted average yield 6.66% 6.55% 7.07% 6.93% ======= ======= ======= =======
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, 2000, 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 8 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, 2000, the Company's certificates of deposit totaled $248.9 million. These certificates of deposit were issued at interest rates ranging from 3.21% to 7.14%. For additional information regarding certificate of deposit interest rates, see Note 8 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, 2000. 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 $47,850 $29,666 $81,808 $56,907 $216,231 Certificates of deposit of $100,000 or more 4,468 3,369 15,905 8,901 32,643 --------- -------- -------- -------- -------- Total certificates of deposit $52,318 $33,035 $97,713 $65,808 $248,874 ========= ======== ======== ======== ======== 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, 2000, the Company had $71.4 million in FHLB advances. The Company also borrows funds through the use of securities repurchase agreements. At December 31, 2000, securities repurchase agreements totaled $ 72.5 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 that earned on other types of assets and liabilities. For further information regarding the Company's borrowings, see Note 9 of the Notes to Consolidated Financial Statements contained in the Annual Report. Subsidiary and Other Activities During 2000, Mohawk Valley Realty Corp. ("MVRC"), was incorporated as a special purpose real estate investment trust under New York State law. The Bank funded MVRC with approximately $104.5 million in residential real estate loans. The net income of MVRC is passed through to the Bank in the form of dividends. As a federally chartered savings association, the Bank is permitted by OTS regulations to invest up to 2% of its assets, or $14.0 million at December 31, 2000, in the stock of, or in loans to, 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 $122,000 and $122,800 for the years ended December 31, 2000 and 1999, 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 June 30, 2000. 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, 2000, was $135,300. 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, 2000, the Bank's lending limit was $ 9.6 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 and SAIF, which are 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 2000 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 FICO Premium rates for SAIF members were higher than those for BIF members. However, begining in 2000, the FICO Premium rates are the same for BIF and SAIF-insured deposits. SAIF members were also required to pay a special assessment to the SAIF in 1996. 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, possibly 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, 2000, the Bank was in compliance with its regulatory capital requirements. See Note 15 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 Note 15 to the Notes to 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, 2000, 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, 2000, the Company had a total of 218 employees, including 34 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 42, 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 39, 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 59, 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 53, 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, 2000 was $5.3 million. See Note 7 of the 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, 2000. 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 listed in response to Item 14 of this report are herein incorporated by reference. Supplementary data included under the caption "Unaudited Consolidated Quarterly Financial Information" in the Annual Report is 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 18, 2001, 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, 2000, 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 18, 2001, 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 18, 2001, 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 18, 2001, 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, 2000 and 1999 - Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 - Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 - Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 (a) (2) Financial Statement Schedules: All financial statement schedules have been omitted as the information is not required under the related instructions, is inapplicable, or is included in the consolidated financial statements and notes thereto. (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 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 Standstill agreement with L. Seidman, filed as Ex-10.8 to Registrant's December 31,1999 Form 10-K 10.7 Registrant's 2001 Stock Option and Incentive Plan. 10.8 Amended Employment Agreement between the Registrant and John M. Lisicki. 11 Statement re: computation of per share earnings (see Notes 1(n) and 12 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 (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 26, 2001 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 26, 2001: /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/ Dr. Daniel J. Greco - ----------------------------------- -------------------------------------- John J. Daly, Director Dr. Daniel J. Greco, Director /s/ Seymour Holtzman /s/ Marvin R. LeRoy, Jr. - ----------------------------------- ------------------------------------- Seymour Holtzman, Director Marvin R. LeRoy, Jr., Director /s/ Allan R. Lyons /s/ Charles S. Pedersen - ----------------------------------- ------------------------------------- Allan R. Lyons, Director Charles S. Pedersen, Director /s/ William L. Petrosino /s/ Lawrence B. Seidman - ----------------------------------- ------------------------------------- William L. Petrosino, Director Lawrence B. Seidman /s/ Dr. Ronald S. Tecler /s/ John A. Tesiero - ----------------------------------- ------------------------------------- Dr. Ronald S. Tecler, Director John A. Tesiero, Jr., Director /s/ Charles E. Wright - ----------------------------------- Charles E. Wright, Director EX-10.7 2 0002.txt 2001 STOCK OPTION PLAN AMBANC HOLDING CO., INC. 2001 STOCK OPTION PLAN 1. Purpose of the Plan. The Plan shall be known as the AMBANC HOLDING CO., INC. 2001 Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and retain qualified personnel for positions of substantial responsibility and to provide additional incentive to officers, directors, employees and other persons providing services to the Company, the Bank or any present or future Parent or Subsidiary of the Company, the Bank to promote the success of the business. The Plan is intended to provide for the grant of "Incentive Stock Options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and NonIncentive Stock Options, options that do not so qualify. The provisions of the Plan relating to Incentive Stock Options shall be interpreted to conform to the requirements of Section 422 of the Code. 2. Definitions. The following words and phrases when used in this Plan with an initial capital letter, unless the context clearly indicates otherwise, shall have the meaning as set forth below. Wherever appropriate, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural. "Award" means the grant by the Committee of an Incentive Stock Option or a NonIncentive Stock Option, or any combination thereof, or grants of Stock Options made in accordance with Section 9(a) of the Plan. "Bank" or "Savings Bank" shall mean Mohawk Community Bank, or any successor corporation thereto. "Board" shall mean the Board of Directors of the Company, or any successors thereto. "Change in Control" shall mean: (i) the sale of all, or a material portion, of the assets of the Company or the Bank; (ii) the merger or recapitalization of the Company whereby the Company is not the surviving entity; (iii) a change in control of the Company, as otherwise defined or determined by the Office of Thrift Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twentyfive percent (25%) or more of the outstanding voting securities of the Company by any person, trust, entity or group. This limitation shall not apply to the purchase of shares by underwriters in connection with a public offering of Company stock, or the purchase of shares of up to 25% of any class of securities of the Company by a tax-qualified employee stock benefit plan. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. "Code" shall mean the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. "Committee" shall mean the Board or the Stock Option Committee appointed by the Board in accordance with Section 5(a) of the Plan. "Common Stock" shall mean the common stock of the Company, or any successor or parent corporation thereto. "Company" shall mean AMBANC HOLDING CO., INC. "Continuous Employment" or "Continuous Status as an Employee" shall mean the absence of any interruption or termination of employment with the Company or any present or future Parent or Subsidiary of the Company. Employment shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company or in the case of transfers between payroll locations, of the Company or between the Bank, its Parent, its Subsidiaries or a successor. "Director" shall mean a member of the Board of the Company, or any successor or Parent thereto. "Director Emeritus" shall mean a person serving as a director emeritus, advisory director, consulting director, or other similar position as may be appointed by the Board of Directors of the Bank or the Company from time to time. "Disability" means (a) with respect to Incentive Stock Options, the "permanent and total disability" of the Employee as such term is defined at Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive Stock Options, any physical or mental impairment which renders the Participant incapable of continuing in the employment or service of the Company, the Bank or any present or future Parent or Subsidiary of the Company in his then current capacity as determined by the Committee. "Effective Date" shall mean February 23, 2001. "Employee" shall mean any person employed by the Company, the Bank, or any present or future Parent or Subsidiary of the Company. "Fair Market Value" shall mean: (i) if the Common Stock is traded otherwise than on a national securities exchange, then the Fair Market Value per Share shall be equal to the mean between the last bid and ask price of such Common Stock on such date or, if there is no bid and ask price on said date, then on the immediately prior business day on which there was a bid and ask price. If no such bid and ask price is available, then the Fair Market Value shall be determined by the Committee in good faith; or (ii) if the Common Stock is listed on a national securities exchange, then the Fair Market Value per Share shall be not less than the average of the highest and lowest selling price of such Common Stock on such exchange on such date, or if there were no sales on said date, then the Fair Market Value shall be not less than the mean between the last bid and ask price on such date. "Incentive Stock Option" or "ISO" shall mean an option to purchase Shares granted by the Committee pursuant to Section 8 hereof which is subject to the limitations and restrictions of Section 8 hereof and is intended to qualify as an incentive stock option under Section 422 of the Code. "NonIncentive Stock Option" or "NonISO" shall mean an option to purchase Shares granted pursuant to Section 9 hereof, which option is not intended to qualify under Section 422 of the Code. "Option" shall mean an Incentive Stock Option or NonIncentive Stock Option granted pursuant to this Plan providing the holder of such Option with the right to purchase Common Stock. "Optioned Stock" shall mean stock subject to an Option granted pursuant to the Plan. "Optionee" shall mean any person who receives an Option or Award pursuant to the Plan. "Parent" shall mean any present or future corporation which would be a "parent corporation" as defined in Sections 424(e) and (g) of the Code. "Participant" means any director, officer or employee of the Company, the Bank, or any Parent or Subsidiary of the Company or any other person providing a service to the Company who is selected by the Committee to receive an Award, or who by the express terms of the Plan is granted an Award. "Plan" shall mean the AMBANC HOLDING CO., INC. 2001 Stock Option Plan. "Retirement" shall mean termination of service in all capacities as an Employee, Director and Director Emeritus following attainment of not less than age 55 and completion of not less than ten years of Service to the Company. Service to the Company rendered prior to the Effective Date shall be recognized in determining eligibility to meet the requirements of Retirement under the Plan. "Share" shall mean one share of the Common Stock. "Subsidiary" shall mean any present or future corporation which constitutes a "subsidiary corporation" as defined in Sections 424(f) and (g) of the Code. 3. Shares Subject to the Plan. Except as otherwise required by the provisions of Section 13 hereof, the aggregate number of Shares with respect to which Awards may be made pursuant to the Plan shall not exceed 434,000 Shares. Such Shares may either be from authorized but unissued shares or shares purchased in the market for Plan purposes. If an Award shall expire, become unexercisable, or be forfeited for any reason prior to its exercise, new Awards may be granted under the Plan with respect to the number of Shares as to which such expiration has occurred. 4. Six Month Holding Period. Subject to vesting requirements, if applicable, except in the event of death or Disability of the Optionee or a Change in Control of the Company, a minimum of six months must elapse between the date of the grant of an Option and the date of the sale of the Common Stock received through the exercise of such Option. 5. Administration of the Plan. (a) Composition of the Committee. The Plan shall be administered by the Board of Directors of the Company or a Committee which shall consist of not less than two Directors of the Company appointed by the Board and serving at the pleasure of the Board. All persons designated as members of the Committee shall meet the requirements of a "Non-Employee Director" within the meaning of Rule 16b3 under the Securities Exchange Act of 1934, as amended, as found at 17 CFR '240.16b-3. (b) Powers of the Committee. The Committee is authorized (but only to the extent not contrary to the express provisions of the Plan or to resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the form and content of Awards to be issued under the Plan and to make other determinations necessary or advisable for the administration of the Plan, and shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. In no event may the Committee revoke outstanding Awards without the consent of the Participant. The President of the Company and such other officers as shall be designated by the Committee are hereby authorized to execute written agreements evidencing Awards on behalf of the Company and to cause them to be delivered to the Participants. Such agreements shall set forth the Option exercise price, the number of shares of Common Stock subject to such Option, the expiration date of such Options, and such other terms and restrictions applicable to such Award as are determined in accordance with the Plan or the actions of the Committee. (c) Effect of Committee's Decision. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby. 6. Eligibility for Awards and Limitations. (a) The Committee shall from time to time determine the officers, Directors, employees and other persons who shall be granted Awards under the Plan, the number of Awards to be granted to each such persons, and whether Awards granted to each such Participant under the Plan shall be Incentive Stock Options and/or NonIncentive Stock Options. In selecting Participants and in determining the number of Shares of Common Stock to be granted to each such Participant, the Committee may consider the nature of the prior and anticipated future services rendered by each such Participant, each such Participant's current and potential contribution to the Company and such other factors as the Committee may, in its sole discretion, deem relevant. Participants who have been granted an Award may, if otherwise eligible, be granted additional Awards. (b) The aggregate Fair Market Value (determined as of the date the Option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by each Employee during any calendar year (under all Incentive Stock Option plans, as defined in Section 422 of the Code, of the Company or any present or future Parent or Subsidiary of the Company) shall not exceed $100,000. Notwithstanding the prior provisions of this Section 6, the Committee may grant Options in excess of the foregoing limitations, provided said Options shall be clearly and specifically designated as not being Incentive Stock Options. (c) In no event shall Shares subject to Options granted to non-employee Directors in the aggregate under this Plan exceed more than 30% of the total number of Shares authorized for delivery under this Plan pursuant to Section 3 herein or more than 5% to any individual non-employee Director; provided, however, no such Options are specifically reserved for award to non-employee Directors. In no event shall Shares subject to Options granted to any Employee exceed more than 35% of the total number of Shares authorized for delivery under the Plan. 7. Term of the Plan. The Plan shall continue in effect for a term of ten (10) years from the Effective Date, unless sooner terminated pursuant to Section 18 hereof. No Option shall be granted under the Plan after ten (10) years from the Effective Date. 8. Terms and Conditions of Incentive Stock Options. Incentive Stock Options may be granted only to Participants who are Employees. Each Incentive Stock Option granted pursuant to the Plan shall be evidenced by an instrument in such form as the Committee shall from time to time approve. Each Incentive Stock Option granted pursuant to the Plan shall comply with, and be subject to, the following terms and conditions: (a) Option Price. (i) The price per Share at which each Incentive Stock Option granted by the Committee under the Plan may be exercised shall not, as to any particular Incentive Stock Option, be less than the Fair Market Value of the Common Stock on the date that such Incentive Stock Option is granted. (ii) In the case of an Employee who owns Common Stock representing more than ten percent (10%) of the outstanding Common Stock at the time the Incentive Stock Option is granted, the Incentive Stock Option exercise price shall not be less than one hundred and ten percent (110%) of the Fair Market Value of the Common Stock on the date that the Incentive Stock Option is granted. (b) Payment. Full payment for each Share of Common Stock purchased upon the exercise of any Incentive Stock Option granted under the Plan shall be made at the time of exercise of each such Incentive Stock Option and shall be paid in cash (in United States Dollars), Common Stock or a combination of cash and Common Stock. Common Stock utilized in full or partial payment of the exercise price shall be valued at the Fair Market Value at the date of exercise. The Company shall accept full or partial payment in Common Stock only to the extent permitted by applicable law. No Shares of Common Stock shall be issued until full payment has been received by the Company, and no Optionee shall have any of the rights of a stockholder of the Company until Shares of Common Stock are issued to the Optionee. (c) Term of Incentive Stock Option. The term of exercisability of each Incentive Stock Option granted pursuant to the Plan shall be not more than ten (10) years from the date each such Incentive Stock Option is granted, provided that in the case of an Employee who owns stock representing more than ten percent (10%) of the Common Stock outstanding at the time the Incentive Stock Option is granted, the term of exercisability of the Incentive Stock Option shall not exceed five (5) years. (d) Exercise Generally. Except as otherwise provided in Section 10 hereof, no Incentive Stock Option may be exercised unless the Optionee shall have been in the employ of the Company, the Bank, or any present or future Parent or Subsidiary of the Company at all times during the period beginning with the date of grant of any such Incentive Stock Option and ending on the date three (3) months prior to the date of exercise of any such Incentive Stock Option. The Committee may impose additional conditions upon the right of an Optionee to exercise any Incentive Stock Option granted hereunder which are not inconsistent with the terms of the Plan or the requirements for qualification as an Incentive Stock Option. Except as otherwise provided by the terms of the Plan or by action of the Committee at the time of the grant of the Options, the Options will be first exercisable at the rate of 25% on the one year anniversary of the date of grant and 25% annually thereafter during such periods of service as an Employee, Director or Director Emeritus. (e) Cashless Exercise. Subject to vesting requirements, if applicable, an Optionee who has held an Incentive Stock Option for at least six months may engage in the "cashless exercise" of the Option. Upon a cashless exercise, an Optionee shall give the Company written notice of the exercise of the Option together with an order to a registered brokerdealer or equivalent third party, to sell part or all of the Optioned Stock and to deliver enough of the proceeds to the Company to pay the Option exercise price and any applicable withholding taxes. If the Optionee does not sell the Optioned Stock through a registered brokerdealer or equivalent third party, the Optionee can give the Company written notice of the exercise of the Option and the third party purchaser of the Optioned Stock shall pay the Option exercise price plus any applicable withholding taxes to the Company. (f) Transferability. An Incentive Stock Option granted pursuant to the Plan shall be exercised during an Optionee's lifetime only by the Optionee to whom it was granted and shall not be assignable or transferable otherwise than by will or by the laws of descent and distribution. 9. Terms and Conditions of NonIncentive Stock Options. Each NonIncentive Stock Option granted pursuant to the Plan shall be evidenced by an instrument in such form as the Committee shall from time to time approve. Each NonIncentive Stock Option granted pursuant to the Plan shall comply with and be subject to the following terms and conditions. (a) Option Price. The exercise price per Share of Common Stock for each NonIncentive Stock Option granted pursuant to the Plan shall be at such price as the Committee may determine in its sole discretion, but in no event less than the Fair Market Value of such Common Stock on the date of grant as determined by the Committee in good faith. (b) Payment. Full payment for each Share of Common Stock purchased upon the exercise of any NonIncentive Stock Option granted under the Plan shall be made at the time of exercise of each such NonIncentive Stock Option and shall be paid in cash (in United States Dollars), Common Stock or a combination of cash and Common Stock. Common Stock utilized in full or partial payment of the exercise price shall be valued at its Fair Market Value at the date of exercise. The Company shall accept full or partial payment in Common Stock only to the extent permitted by applicable law. No Shares of Common Stock shall be issued until full payment has been received by the Company and no Optionee shall have any of the rights of a stockholder of the Company until the Shares of Common Stock are issued to the Optionee. (c) Term. The term of exercisability of each NonIncentive Stock Option granted pursuant to the Plan shall be not more than ten (10) years from the date each such NonIncentive Stock Option is granted. (d) Exercise Generally. The Committee may impose additional conditions upon the right of any Participant to exercise any NonIncentive Stock Option granted hereunder which is not inconsistent with the terms of the Plan. Except as otherwise provided by the terms of the Plan or by action of the Committee at the time of the grant of the Options, the Options will be first exercisable at the rate of one-third on the date of grant and one-third annually thereafter during such periods of service as an Employee, Director or Director Emeritus. (e) Cashless Exercise. Subject to vesting requirements, if applicable, an Optionee who has held a NonIncentive Stock Option for at least six months may engage in the "cashless exercise" of the Option. Upon a cashless exercise, an Optionee shall give the Company written notice of the exercise of the Option together with an order to a registered brokerdealer or equivalent third party, to sell part or all of the Optioned Stock and to deliver enough of the proceeds to the Company to pay the Option exercise price and any applicable withholding taxes. If the Optionee does not sell the Optioned Stock through a registered brokerdealer or equivalent third party, the Optionee can give the Company written notice of the exercise of the Option and the third party purchaser of the Optioned Stock shall pay the Option exercise price plus any applicable withholding taxes to the Company. (f) Transferability. Unless otherwise determined by the Committee in accordance with this Section, any NonIncentive Stock Option granted pursuant to the Plan shall be exercised during an Optionee's lifetime only by the Optionee to whom it was granted and shall not be assignable or transferable otherwise than by will or by the laws of descent and distribution. The Committee may, however, in its sole discretion, permit transferability or assignment of a NonIncentive Stock Option by a Participant if such transfer or assignment is, in its sole determination, for valid estate planning purposes and such transfer or assignment is permitted under the Code. For purposes of this Section, a transfer for valid estate planning purposes includes, but is not limited to: (a) a transfer to a revocable intervivos trust as to which the Participant is both the settlor and trustee, or (b) a transfer for no consideration to: (i) any member of the Participant's Immediate Family, (ii) any trust solely for the benefit of members of the Participant's Immediate Family, (iii) any partnership whose only partners are members of the Participant's Immediate Family, and (iv) any limited liability corporation or corporate entity whose only members or equity owners are members of the Participant's Immediate Family. For purposes of this Section, "Immediate Family" includes, but is not necessarily limited to, a Participant's parents, grandparents, spouse, children, grandchildren, siblings (including half bothers and sisters), and individuals who are family members by adoption. Nothing contained in this Section shall be construed to require the Committee to give its approval to any transfer or assignment of any NonIncentive Stock Option or portion thereof, and approval to transfer or assign any NonIncentive Stock Option or portion thereof does not mean that such approval will be given with respect to any other NonIncentive Stock Option or portion thereof. The transferee or assignee of any NonIncentive Stock Option shall be subject to all of the terms and conditions applicable to such NonIncentive Stock Option immediately prior to the transfer or assignment and shall be subject to any other conditions proscribed by the Committee with respect to such NonIncentive Stock Option. 10. Effect of Termination of Employment, Disability, Death and Retirement on Incentive Stock Options. (a) Termination of Employment. In the event that any Optionee's employment with the Company, the Bank, or other present or future Parent or Subsidiaries shall terminate for any reason, other than Disability, death or Retirement, all of any such Optionee's Incentive Stock Options, and all of any such Optionee's rights to purchase or receive Shares of Common Stock pursuant thereto, shall automatically terminate on (A) the earlier of (i) or (ii): (i) the respective expiration dates of any such Incentive Stock Options, or (ii) the expiration of not more than three (3) months after the date of such termination of employment; or (B) at such later date as is determined by the Committee at the time of the grant of such Award based upon the Optionee's continuing status as a Director or Director Emeritus of the Bank or the Company, but only if, and to the extent that, the Optionee was entitled to exercise any such Incentive Stock Options at the date of such termination of employment, and further that such Award shall thereafter be deemed a Non-Incentive Stock Option. In the event that a Subsidiary ceases to be a Subsidiary of the Company, the employment of all of its employees who are not immediately thereafter employees of the Company shall be deemed to terminate upon the date such Subsidiary so ceases to be a Subsidiary of the Company. (b) Disability. In the event that any Optionee's employment with the Bank, the Company, or any present or future Parent or Subsidiaries of the Company shall terminate as the result of the Disability of such Optionee, such Optionee may exercise any Incentive Stock Options granted to the Optionee pursuant to the Plan at any time prior to the earlier of (i) the respective expiration dates of any such Incentive Stock Options or (ii) the date which is one (1) year after the date of such termination of employment, but only if, and to the extent that, the Optionee was entitled to exercise any such Incentive Stock Options at the date of such termination of employment. (c) Death. In the event of the death of an Optionee, any Incentive Stock Options granted to such Optionee may be exercised by the person or persons to whom the Optionee's rights under any such Incentive Stock Options pass by will or by the laws of descent and distribution (including the Optionee's estate during the period of administration) at any time prior to the earlier of (i) the respective expiration dates of any such Incentive Stock Options or (ii) the date which is two (2) years after the date of death of such Optionee but only if, and to the extent that, the Optionee was entitled to exercise any such Incentive Stock Options at the date of death. For purposes of this Section 10(c), any Incentive Stock Option held by an Optionee shall be considered exercisable at the date of his death if the only unsatisfied condition precedent to the exercisability of such Incentive Stock Option at the date of death is the passage of a specified period of time. At the discretion of the Committee, upon exercise of such Options the Optionee may receive Shares or cash or a combination thereof. If cash shall be paid in lieu of Shares, such cash shall be equal to the difference between the Fair Market Value of such Shares and the exercise price of such Options on the exercise date. (d) Incentive Stock Options Deemed Exercisable. For purposes of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any Optionee shall be considered exercisable at the date of termination of employment if any such Incentive Stock Option would have been exercisable at such date of termination of employment without regard to the Disability or death of the Participant. (e) Termination of Incentive Stock Options; Vesting Upon Retirement. Except as may be specified by the Committee at the time of grant of an Option, to the extent that any Incentive Stock Option granted under the Plan to any Optionee whose employment with the Company or the Bank terminates shall not have been exercised within the applicable period set forth in this Section 10, any such Incentive Stock Option, and all rights to purchase or receive Shares of Common Stock pursuant thereto, as the case may be, shall terminate on the last day of the applicable period. Notwithstanding the foregoing, the Committee may authorize at the time of the grant of an Option that such Award shall be immediately 100% exercisable upon the Retirement of the Optionee. 11. Effect of Termination of Employment, Disability, Death or Retirement on NonIncentive Stock Options. The terms and conditions of NonIncentive Stock Options relating to the effect of the Retirement or other termination of an Optionee's employment or service, Disability of an Optionee or his death shall be such terms and conditions as the Committee shall, in its sole discretion, determine at the time of termination of service, unless specifically provided for by the terms of the Agreement at the time of grant of the Award. 12. Withholding Tax. The Company shall have the right to deduct from all amounts paid in cash with respect to the cashless exercise of Options under the Plan any taxes required by law to be withheld with respect to such cash payments. Where a Participant or other person is entitled to receive Shares pursuant to the exercise of an Option, the Company shall have the right to require the Participant or such other person to pay the Company the amount of any taxes which the Company is required to withhold with respect to such Shares, or, in lieu thereof, to retain, or to sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. 13. Recapitalization, Merger, Consolidation, Change in Control and Other Transactions. (a) Adjustment. Subject to any required action by the stockholders of the Company, within the sole discretion of the Committee, the aggregate number of Shares of Common Stock for which Options may be granted hereunder, the number of Shares of Common Stock covered by each outstanding Option, and the exercise price per Share of Common Stock of each such Option, shall all be proportionately adjusted for any increase or decrease in the number of issued and outstanding Shares of Common Stock resulting from a subdivision or consolidation of Shares (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise) or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such Shares of Common Stock effected without the receipt or payment of consideration by the Company (other than Shares held by dissenting stockholders). (b) Change in Control. All outstanding Awards shall become immediately exercisable in the event of a Change in Control of the Company. In the event of such a Change in Control, the Committee and the Board of Directors will take one or more of the following actions to be effective as of the date of such Change in Control: (i) provide that such Options shall be assumed, or equivalent options shall be substituted, ("Substitute Options") by the acquiring or succeeding corporation (or an affiliate thereof), provided that: (A) any such Substitute Options exchanged for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, and (B) the shares of stock issuable upon the exercise of such Substitute Options shall constitute securities registered in accordance with the Securities Act of 1933, as amended, ("1933 Act") or such securities shall be exempt from such registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or in the alternative, if the securities issuable upon the exercise of such Substitute Options shall not constitute Registered Securities, then the Optionee will receive upon consummation of the Change in Control transaction a cash payment for each Option surrendered equal to the difference between (1) the Fair Market Value of the consideration to be received for each share of Common Stock in the Change in Control transaction times the number of shares of Common Stock subject to such surrendered Options, and (2) the aggregate exercise price of all such surrendered Options, or (ii) in the event of a transaction under the terms of which the holders of the Common Stock of the Company will receive upon consummation thereof a cash payment (the "Merger Price") for each share of Common Stock exchanged in the Change in Control transaction, to make or to provide for a cash payment to the Optionees equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such Options held by each Optionee (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such surrendered Options in exchange for such surrendered Options. (c) Extraordinary Corporate Action. Notwithstanding any provisions of the Plan to the contrary, subject to any required action by the stockholders of the Company, in the event of any Change in Control, recapitalization, merger, consolidation, exchange of Shares, spinoff, reorganization, tender offer, partial or complete liquidation or other extraordinary corporate action or event, the Committee, in its sole discretion, shall have the power, prior or subsequent to such action or event to: (i) appropriately adjust the number of Shares of Common Stock subject to each Option, the Option exercise price per Share of Common Stock, and the consideration to be given or received by the Company upon the exercise of any outstanding Option; (ii) cancel any or all previously granted Options, provided that appropriate consideration is paid to the Optionee in connection therewith; and/or (iii) make such other adjustments in connection with the Plan as the Committee, in its sole discretion, deems necessary, desirable, appropriate or advisable; provided, however, that no action shall be taken by the Committee which would cause Incentive Stock Options granted pursuant to the Plan to fail to meet the requirements of Section 422 of the Code without the consent of the Optionee. (d) Acceleration. The Committee shall at all times have the power to accelerate the exercise date of Options previously granted under the Plan. (e) Non-recurring Dividends. Upon the payment of a special or non-recurring cash dividend that has the effect of a return of capital to the stockholders, the Option exercise price per share shall be adjusted proportionately and in an equitable manner. Except as expressly provided in Sections 13(a), 13(b) and 13(e) hereof, no Optionee shall have any rights by reason of the occurrence of any of the events described in this Section 13. 14. Time of Granting Options. The date of grant of an Option under the Plan shall, for all purposes, be the date on which the Committee makes the determination of granting such Option. Notice of the grant of an Option shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant in a form determined by the Committee. 15. Effective Date. The Plan shall became effective upon the date of approval of the Plan by the Board of the Company (February 23 , 2001). 16. Ratification by Stockholders. The Plan shall be ratified by stockholders of the Company within twelve (12) months before or after the date the Plan is approved by the Board. 17. Modification of Options. At any time and from time to time, the Board may authorize the Committee to direct the execution of an instrument providing for the modification of any outstanding Option, provided no such modification, extension or renewal shall confer on the holder of said Option any right or benefit which could not be conferred on the Optionee by the grant of a new Option at such time, or shall not materially decrease the Optionee's benefits under the Option without the consent of the holder of the Option, except as otherwise permitted under Section 18 hereof. 18. Amendment and Termination of the Plan. (a) Action by the Board. The Board may alter, suspend or discontinue the Plan, except that no action of the Board may increase (other than as provided in Section 13 hereof) the maximum number of Shares permitted to be optioned under the Plan, materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for eligibility for participation in the Plan unless such action of the Board shall be subject to approval or ratification by the stockholders of the Company. (b) Change in Applicable Law. Notwithstanding any other provision contained in the Plan, in the event of a change in any federal or state law, rule or regulation which would make the exercise of all or part of any previously granted Option unlawful or subject the Company to any penalty, the Committee may restrict any such exercise without the consent of the Optionee or other holder thereof in order to comply with any such law, rule or regulation or to avoid any such penalty. 19. Conditions Upon Issuance of Shares; Limitations on Option Exercise; Cancellation of Option Rights. (a) Shares shall not be issued with respect to any Option granted under the Plan unless the issuance and delivery of such Shares shall comply with all relevant provisions of applicable law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed. (b) The inability of the Company to obtain any necessary authorizations, approvals or letters of non-objection from any regulatory body or authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares issuable hereunder shall relieve the Company of any liability with respect to the nonissuance or sale of such Shares. (c) As a condition to the exercise of an Option, the Company may require the person exercising the Option to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law. (d) Notwithstanding anything herein to the contrary, upon the termination of employment or service of an Optionee by the Company or its Subsidiaries for "cause" as determined by the Board of Directors, all Options held by such Participant shall cease to be exercisable as of the date of such termination of employment or service. (e) Upon the exercise of an Option by an Optionee (or the Optionee's personal representative), the Committee, in its sole and absolute discretion, may make a cash payment to the Optionee, in whole or in part, in lieu of the delivery of shares of Common Stock. Such cash payment to be paid in lieu of delivery of Common Stock shall be equal to the difference between the Fair Market Value of the Common Stock on the date of the Option exercise and the exercise price per share of the Option. Such cash payment shall be in exchange for the cancellation of such Option. Such cash payment shall not be made in the event that such transaction would result in liability to the Optionee or the Company under Section 16(b) of the Securities Exchange Act of 1934, as amended, and regulations promulgated thereunder. 20. Reservation of Shares. During the term of the Plan, the Company will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan. 21. Unsecured Obligation. No Participant under the Plan shall have any interest in any fund or special asset of the Company by reason of the Plan or the grant of any Option under the Plan. No trust fund shall be created in connection with the Plan or any grant of any Option hereunder and there shall be no required funding of amounts which may become payable to any Participant. 22. No Employment Rights. No Director, Employee or other person shall have a right to be selected as a Participant under the Plan. Neither the Plan nor any action taken by the Committee in administration of the Plan shall be construed as giving any person any rights of employment or retention as an Employee, Director or in any other capacity with the Company, the Bank, or any present or future Parent or Subsidiary. 23. Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that federal law shall be deemed to apply. EX-10.8 3 0003.txt AMEMDED EMPLOYMENT AGREEMENT 1 AMENDMENT TO EMPLOYMENT AGREEMENT WHEREAS, Mohawk Community Bank (the "Bank") and John M. Lisicki (the "Employee") previously entered into an Employment Agreement (the "Agreement") dated November 16, 1998, and WHEREAS, Section 13 of this Agreement provides that amendments to this Agreement may be made in writing and signed by both parties, NOW THEREFORE, BE IT RESOLVED that this Agreement be amended by adoption and execution of this Amendment to the Agreement as follows. A. Amendment to Section 17 of the Agreement by inclusion of the following at the end of such section, as follows: In the event that the Employee incurs reasonable legal fees and expenses necessary to enforce his rights under the Agreement or the Employee otherwise incurs legal fees and expenses necessary to protect his individual rights and interests based upon his actions as an officer, employee and/or director of the Bank, the Bank shall indemnify and reimburse the Employee for such fees and expenses to the maximum extent permitted under applicable law. B. Amendment to the Agreement by the addition of a new Section 18 of the Agreement , as follows: 18. Ambanc Guaranty. The Company shall guaranty the payment of the Termination Payment referred to in Section 7(j) of the Agreement and the indemnification and reimbursement to the Employee for such fees and expenses referenced at Section 17 of the Agreement in the event that the Bank fails for any reason to make such payments to the Employee in a timely manner (the "Guaranty"). The Employee in his reasonable discretion may make written demand to the Company for immediate payment in accordance with such Guaranty following the failure by the Bank to make such payments in a timely manner, and the Company shall thereafter make such payment to the Employee within three business days of such demand. C. Revision to Section 2 of the Agreement by inclusion of the following sentence at the end of such Section, as follows: "Notwithstanding anything herein to the contrary, the expiration term of the Agreement shall be November 16, 2003, or such other later date as shall be hereafter authorized by the Board." D. All other provisions of the Agreement and of prior amendments shall remain in full force and effect, except as amended in accordance with this Amendment. 2 As Secretary to the Bank, I hereby certify that the foregoing Amendment was adopted and ratified by a majority vote of a meeting of the Board of Directors of the Bank, held on November 29, 2000, a quorum being present. /s/ Robert Kelly ------------------------- Robert Kelly, Secretary SEAL IN WITNESS WHEREOF, the parties to the Agreement dated November 16, 1998, as amended, do hereby execute this Amendment to the Agreement on this 21st day of December, 2000. Mohawk Community Bank By: /s/ Lauren T. Barnett ------------------------- Lauren T. Barnett, Chairman of the Board /s/ John M. Lisicki ------------------------- John M. Lisicki, Employee ATTEST: /s/ Robert Kelly - ----------------------- Robert Kelly, Secretary SEAL 3 As Secretary to Ambanc Holding Co., Inc. ("Company"), I hereby certify that the foregoing Amendment and related Agreement was adopted and ratified by a majority vote of a meeting of the Board of Directors of the Company, held on November 29, 2000, a quorum being present. /s/ Robert Kelly ------------------------ Robert Kelly, Secretary SEAL IN WITNESS WHEREOF, Ambanc Holding Co., Inc. does hereby execute this Amendment as a party to the Amendment and a guarantor of payments that may be required to be made to the Employee under the Agreement and the Amendment this 21st day of December, 2000. Ambanc Holding Co., Inc. By: /s/ Lauren T. Barnett ------------------------- Lauren T. Barnett, Chairman of the Board ATTEST: /s/ Robert Kelly - ----------------------- Robert Kelly, Secretary SEAL EX-13 4 0004.txt 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.
December 31, 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Selected Consolidated (In thousands) Financial Condition Data: Total assets ..................... $ 706,636 $ 740,672 $ 735,472 $ 510,444 $ 472,421 Securities available for sale .... 138,990 212,145 244,241 205,808 200,539 Loans receivable, net ............ 459,958 465,477 420,933 281,123 248,094 Deposits ......................... 478,592 450,134 461,413 333,265 298,082 Borrowed funds ................... 143,935 204,905 173,810 111,550 108,780 Shareholders' equity ............. 77,122 75,593 85,893 61,202 61,518 Years Ended December 31, 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Selected Consolidated (Dollars in thousands, except per share data) Operations Data: Total interest and dividend income $49,745 $48,767 $38,973 $ 35,566 $ 32,348 Total interest expense ........... 28,551 26,319 22,441 19,654 16,435 ------- ------- ------- --------- --------- Net interest income .............. 21,194 22,448 16,532 15,912 15,913 Provision for loan losses ........ 480 790 900 1,088 9,450 ------- ------- ------- --------- --------- Net interest income after provision for loan losses ....... 20,714 21,658 15,632 14,824 6,463 Non-interest income .............. 2,041 1,803 1,144 1,819 908 Non-interest expenses............. 16,793 16,063 15,075 12,190 13,136 ------- ------- ------- --------- --------- Income (loss) before taxes ....... 5,962 7,398 1,701 4,453 (5,765) Income tax expense (benefit) ..... 2,420 3,095 670 1,693 (1,929) ------- ------- ------- --------- --------- Net income (loss) ................ $ 3,542 $ 4,303 $ 1,031 $ 2,760 ($ 3,836) ======= ======= ======= ========= ========= Basic earnings (loss) per share... $ 0.77 $ 0.88 $ 0.26 $ 0.70 ($ 0.81) ======= ======= ======= ========= ========= Diluted earnings (loss) per share $ 0.76 $ 0.87 $ 0.26 $ 0.69 ($ 0.81) ======= ======= ======= ========= ========= Dividend payout ratio ............ 64.9% 38.6% 96.1% 14.3% N/A ======= ======= ======= ========= =========
At or for the years ended December 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Selected Consolidated Financial Ratios and Other Data: Performance Ratios: Return (loss) on average assets (1) ....... 0.50% 0.59% 0.18% 0.56% (0.84)% Return (loss) on average equity (1) ....... 4.66 5.26 1.64 4.52 (5.24) Interest rate information: Interest rate spread during year ....... 2.37 2.57 2.32 2.58 2.74 Net interest margin during year (2) .... 3.06 3.21 3.04 3.36 3.66 Efficiency ratio (3) ...................... 68.96 63.79 74.44 69.81 62.50 Ratio of average earning assets to average interest-bearing liabilities ... 116.82 117.24 117.28 118.93 124.26 Asset Quality Ratios: Non-performing assets to total assets (1) . 0.51 0.61 0.45 0.67 1.18 Non-performing loans to total loans ....... 0.70 0.89 0.68 1.16 1.94 Allowance for loan losses to non-performing loans .................... 176.99 130.86 168.42 117.07 70.47 Allowance for loan losses to total loans .. 1.23 1.17 1.15 1.34 1.37 Capital Ratios: Equity to total assets at end of period (1) 10.91 10.21 11.68 11.99 13.02 Average equity to average assets (1) ...... 10.67 11.29 11.18 12.42 15.95 Other Data: Number of full-service offices ............ 17 17 18 12 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 significant non-recurring expenses) 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. Mohawk Community Bank's (the "Bank's") results of operations are primarily dependent on its net interest income, which is the difference between the interest and dividend income earned on its assets, primarily loans and securities, and the interest expense on its liabilities, primarily deposits and borrowings. Net interest income may be affected significantly by general economic and competitive conditions and policies of regulatory agencies, particularly those with respect to market interest rates. The results of operations are also significantly influenced by the level of non-interest expenses, such as employee salaries and benefits, non-interest income, such as fees on deposit-related services, the provision for loan losses, and income taxes. The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. Management's strategy has been to try to achieve a high loan to asset ratio with emphasis on originating traditional one- to four-family residential mortgage and home equity loans in its primary market area. Recently, the Company has also been focusing on the origination of commercial-type loans, including entering into participation agreements with other financial institutions. At December 31, 2000, the Company's loans receivable, net, to assets ratio was 65.1%, up from 62.8% at December 31, 1999. The Company's portfolio of one- to four-family residential mortgage and home equity loans was 82.3% of total loans at December 31, 2000, as compared with 85.2% at December 31, 1999. Total commercial-type loans were 11.8% of total loans at December 31, 2000, up from 7.4% at December 31, 1999. 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. Financial Condition Comparison of Financial Condition at December 31, 2000 and 1999. Total assets decreased $34.0 million, or 4.6%, to $706.6 million at December 31, 2000, primarily due to decreases in securities available for sale, loans receivable, net, and other assets of $73.2 million, $5.5 million, and $3.2 million, respectively, partially offset by an increase in cash and cash equivalents of $48.9 million. Securities available for sale decreased $73.2 million, or 34.5%, to $139.0 million at December 31, 2000 from $212.1 million at December 31, 1999 resulting primarily from the sale of securities, and to a lesser extent the maturities, pay downs and calls of securities. During the fourth quarter of 2000, the Company completed a significant restructuring of its balance sheet by selling approximately $65.5 million in debt securities, resulting in a loss of $1.5 million. Also during the fourth quarter of 2000, the Company recognized a gain on sale of equity securities of $1.7 million. The proceeds from the sale of securities in the fourth quarter of 2000 were not reinvested in the securities available for sale portfolio, but were rather invested in term deposits with the Federal Home Loan Bank and federal funds sold. The Company reinvested the proceeds received in these short-term instruments in anticipation of redeploying the funds into the loan portfolio as market conditions permit. If the Company is unable to redeploy the funds into the loan portfolio, management anticipates that some of the funds will be reinvested in securities available for sale or used to paydown borrowings as they mature. Cash and cash equivalents increased by $48.9 million, or 165.1%, to $78.5 million at December 31, 2000 from $29.6 million at December 31, 1999 primarily due to an increase in interest-bearing deposits from $3.2 million at December 31, 1999 to $51.6 million at December 31, 2000. Likewise, federal funds sold increased from $0 at December 31, 1999 to $11.6 million at December 31, 2000. As noted above, the proceeds from the sale of securities in the fourth quarter of 2000 were invested in term deposits with the Federal Home Loan Bank and in federal funds sold. The Company anticipates redeploying the funds into the loan portfolio as market conditions permit. Offsetting these increases was a decrease in cash and due from banks from $26.4 million at December 31, 1999 to $15.3 million at December 31, 2000. The decrease in cash and due from banks is the result of the Company's decision to temporarily increase vault cash in preparation for potential year 2000 liquidity needs of depositors at year end 1999. However, early in the first quarter of 2000, vault cash returned to more normal levels. Loans receivable, net decreased $5.5 million from $465.5 million at December 31, 1999, to $460.0 million at December 31, 2000. During the second half of 2000, the Company purchased $14.0 million of commercial real estate and commercial business loan participations from an unrelated financial institution in its market area. The Company anticipates entering into additional commercial loan participation agreements with this unrelated financial institution. This strategy is consistent with management's focus on the growth of the commercial loan portfolio. In addition to the $14.0 million of commercial loan participations entered into during 2000, the Company experienced internal growth of $6.2 million in the commercial loan portfolios (commercial real estate and commercial business loans). The increases in the commercial loan portfolios were more than offset by decreases in most other loan categories, primarily one-to-four family mortgage loans (down $15.0 million), home equity loans (down $2.8 million), and consumer loans (down $4.8 million). Other assets decreased $3.2 million, or 46.6%, to $3.7 million at December 31, 2000 due primarily to the deferred tax consequences related to the adjustment of securities available for sale to fair value. Deposits increased by $28.5 million, or 6.3%, to $478.6 million at December 31, 2000 from $450.1 million at December 31, 1999 due primarily to various marketing promotions offered during the first half of 2000. The growth from December 31, 1999 to December 31, 2000 was primarily in time deposits, which increased 13.0% from $220.3 million to $248.9 million; NOW accounts, which increased 29.1% from $35.9 million to $46.3 million; and non-interest-bearing demand deposits, which increased 8.5% from $35.5 million to $38.6 million. These increases were partially offset by decreases in savings accounts, which decreased 6.1% from $129.4 million to $121.4 million, and money market accounts, which decreased 19.3% from $29.0 million to $23.4 million. Securities repurchase agreements decreased $40.2 million, or 35.7%, to $72.5 million at December 31, 2000 from $112.7 million at December 31, 1999, due primarily to the maturity and subsequent repayment of the repurchase agreements. Short-term borrowings with the FHLB decreased by $66.2 million, or 93.0%, to $5.0 million at December 31, 2000. These funding reductions were replaced in part with a combination of long-term advances from the FHLB and increased deposits. Long-term advances from the FHLB increased $45.5 million, to $66.4 million at December 31, 2000 from $21.0 million at December 31, 1999. The shift to longer-term borrowings is part of the Company's effort to improve its interest rate risk position by more closely matching the maturities of its assets and liabilities. See Note 9 to the consolidated financial statements for further information regarding the Company's borrowings. Shareholders' equity increased $1.5 million, or 2.0%, from $75.6 million at December 31, 1999 to $77.1 million at December 31, 2000, primarily due to net income of $3.5 million and the decrease in net unrealized losses on securities available for sale, net of tax, of $5.0 million, partially offset by the treasury stock purchases totaling $5.7 million and the payment of cash dividends of $2.4 million for the year. Other items impacting shareholders' equity during 2000 were the release of ESOP shares, which increased shareholders' equity $661 thousand, as well as the continued amortization of the unearned RRP shares, which increased shareholders' equity $484 thousand. Average Balances, Interest Rates and Yields The following table presents for the periods indicated the total dollar amount of interest and dividend income earned on average earning assets and the resultant yields, as well as the total dollar amount of interest expense incurred on average interest-bearing liabilities and the resultant rates. No tax equivalent adjustments were made. All average balances are daily average balances. Non-accruing loans have been included in the table as loans with interest earned on a cash basis only. Securities available for sale are included at amortized cost.
2000 1999 1998 --------------------------- --------------------------- -------------------------- Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Balance Inc./Exp. Rate Balance Inc./Exp. Rate Balance Inc./Exp. Rate ------- --------- ------ ------- --------- ------ ------- --------- ----- Earning assets (Dollars in Thousands) Loans receivable (1) ......................$ 466,644 $ 34,872 7.47% $ 442,802 $ 32,578 7.36% $ 322,335 $ 24,623 7.64% Securities available for sale (AFS) (2).... 209,359 13,800 6.59% 239,439 15,245 6.37% 205,995 13,479 6.54% Federal Home Loan Bank stock .............. 8,832 610 6.91% 7,402 503 6.80% 5,048 364 7.21% Federal funds sold and interest- bearing deposits ........................ 7,331 463 6.32% 9,319 441 4.73% 10,632 507 4.77% ------- ------ ------- ------ ------- ------ Total earning assets .................. 692,166 49,745 7.19% 698,962 48,767 6.98% 544,010 38,973 7.16% ------- ------ ------- ------ ------- ------ Allowance for loan losses ................... (5,571) (5,314) (4,220) Unrealized (loss) gain on AFS securities .... (9,176) (3,176) 225 Other assets ................................ 34,260 33,970 21,191 ------- ------- ------- Total average assets ........................$ 711,679 $ 724,442 $ 561,206 ========= ========= ========= Interest-bearing liabilities Savings deposits ..........................$ 126,829 3,473 2.74% $ 137,506 4,001 2.91% $ 103,513 3,119 3.01% NOW deposits ............................. 40,117 685 1.71% 36,703 567 1.54% 25,410 549 2.16% Certificates of deposit ................... 240,777 13,620 5.66% 223,551 11,242 5.03% 176,136 9,882 5.61% Money market accounts ..................... 25,794 994 3.85% 24,628 945 3.84% 8,481 272 3.21% Borrowed funds ............................ 159,000 9,779 6.15% 173,803 9,564 5.50% 150,335 8,619 5.73% ------- ------ ------- ------ ------- ------ Total interest-bearing liabilities .... 592,517 28,551 4.82% 596,191 26,319 4.41% 463,875 22,441 4.84% Demand deposits ............................. 36,850 ------ 35,051 ------ 24,466 ------ Other liabilities ........................... 6,382 11,407 10,124 ------- ------- ------- Total liabilities ........................... 635,749 642,649 498,465 Shareholders' equity ........................ 75,930 81,793 62,741 ------- ------- ------- Total average liabilities & equity ..........$ 711,679 $ 724,442 $ 561,206 ========= ========= ========= Net interest income ..................... $ 21,194 $ 22,448 $ 16,532 ======= ======= ======= Interest rate spread .................... 2.37% 2.57% 2.32% ====== ====== ====== Net earning assets ...................... $ 99,649 $$ 102,771 $ 80,135 ========= ========= ========= Net interest margin ..................... 3.06% 3.21% 3.04% ====== ====== ====== Average earning assets/Average interest-bearing liabilities .......... 116.82% 117.24% 117.28% ========== =========== ========== (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.
----------------------------------------------------------------------- 2000 vs. 1999 1999 vs. 1998 --------------------------------- --------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total ----------------- Increase ----------------- Increase Volume Rate (Decrease) Volume Rate (Decrease) ---------- ------- --------- ----------- ------- --------- Earning assets (In thousands) Loans receivable ..................... $ 1,775 $ 519 $ 2,294 $ 8,826 $ (871) $ 7,955 Securities available for sale ........ (1,982) 537 (1,445) 2,118 (352) 1,766 Federal Home Loan Bank stock ......... 100 7 107 159 (20) 139 Federal funds sold and interest- bearing deposits ................... (107) 129 22 (61) (5) (66) ------- ------- ------- ------- ------- ------- Total earning assets ............. (214) 1,192 978 11,042 (1,248) 9,794 ------- ------- ------- ------- ------- ------- Interest-bearing liabilities Savings deposits ..................... (300) (228) (528) 985 (103) 882 NOW deposits ........................ 55 63 118 50 (32) 18 Certificates of deposit .............. 908 1,470 2,378 2,212 (852) 1,360 Money market accounts ................ 45 4 49 610 63 673 Borrowed funds ....................... (855) 1,070 215 1,273 (328) 945 ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities (147) 2,379 2,232 5,130 (1,252) 3,878 ------- ------- ------- ------- ------- ------- Net interest income ................ $ (67) $(1,187) $(1,254) $ 5,912 $ 4 $ 5,916 ======= ======== ======= ======= ======== =======
Comparison of Operating Results for the Years Ended December 31, 2000 and 1999. Net Income. Net income for the year ended December 31, 2000 was $3.5 million compared to $4.3 million for the year ended December 31, 1999. Net income for the year ended December 31, 2000 was reduced primarily as a result of decreased net interest income and increased non-interest expenses, offset in part by an increase in non-interest income (primarily net gains on securities transactions) and decreases in the provision for loan losses and income tax expense. These and other changes are discussed in more detail below. Net Interest Income. Net interest income decreased $1.3 million, or 5.6%, to $21.2 million for the year ended December 31, 2000 from $22.4 million for the year ended December 31, 1999. The decrease in net interest income was primarily due to a decrease in the interest rate spread from 2.57% for the year ended December 31, 1999 to 2.37% for the year ended December 31, 2000, as well as a decrease in the net interest margin from 3.21% to 3.06%. Earning assets consist of loans receivable, securities available for sale, federal funds sold and interest-bearing deposits, and FHLB of New York stock. Interest-bearing liabilities consist of interest-bearing deposits, FHLB advances and securities repurchase agreements. The interest rate spread, which is the difference between the yield on average earning assets and the cost of average interest-bearing liabilities, decreased to 2.37% for the year ended December 31, 2000, from 2.57% for the year ended December 31, 1999. The decrease in the interest rate spread is due to the increase in the average cost of interest-bearing liabilities exceeding the increase in the average yield on earning assets during the period. During 2000, the Company re-deployed assets from lower-yielding securities available for sale to the higher-yielding loan portfolio and, on an interim basis, to term deposits and federal funds sold. Primarily due to the shift to loans receivable, the average yield on earning assets increased from 6.98% for the year ended December 31, 1999 to 7.19% for the year ended December 31, 2000. The impact of this increase was more than offset by increases in the average rate paid on time deposits and borrowings of 63 basis points, to 5.66%, and 65 basis points, to 6.15%, respectively. Thus, the average cost of interest-bearing liabilities increased to 4.82% for the year ended December 31, 2000 from 4.41% for the previous year. The experience of the Company has been that net interest income declines with increases in market interest rates and that net interest income increases with decreases in market interest rates. Generally, during periods of increasing market interest rates, the Company's interest rate sensitive liabilities re-price faster than its interest rate sensitive assets causing a decline in the Company's interest rate spread and net interest margin. This would result from an increase in the Company's cost of funds that would not be immediately and fully offset by an increase in its yield on earning assets. An increase in the cost of funds without an equivalent increase in the yield on earning assets would tend to reduce net interest income. This trend was evident in 1999 and 2000 when market interest rates generally began to increase during the second half of 1999 and continued into the first half of the year 2000. This increase in interest rates caused a decline in the net interest margin from 3.21% for the year ended December 31, 1999, to 3.06% for the year ended December 31, 2000. The Company operates in an environment of intense competition for deposits and loans. The competition in today's environment is not limited to other local banks and thrifts, but also includes a myriad of financial services providers that are located both within and outside the Company's local market area. Due to this heightened level of competition to attract and retain customers, the Company must continue to offer competitive interest rates on loans and deposits. As a consequence of these competitive pressures, from time-to-time, the relative spreads between interest rates earned and interest rates paid will tighten, exerting downward pressure on net interest income, the interest rate spread and the net interest margin. This is especially true during periods when the growth in earning assets lags behind the growth in interest-bearing liabilities. However, management does not want to discourage, by offering noncompetitive interest rates, the creation of new customer relationships or jeopardize existing relationships thereby curtailing the Company's customer base and loan growth and the attendant benefits to be derived from them. Management believes that the longer-term benefits to be derived from this position will outweigh the shorter-term costs associated with attracting, cross-selling and retaining an expanding customer base. The growing customer base provides the Company with the potential for future, profitable customer relationships, which should in turn increase the value of the franchise. Interest and Dividend Income. Interest and dividend income increased by $978 thousand, or 2.0%, to $49.7 million for year ended December 31, 2000 from $48.8 million for year ended December 31, 1999. The increase was largely the result of the shift in the average balance of earning assets from securities available for sale to loans receivable (and, to a much lesser extent, FHLB stock), offset in part by a decrease in the average balance of total earning assets. The average balance of loans receivable increased $23.8 million, or 5.4%, and the average balance of FHLB stock increased $1.4 million, or 19.3%. These increases were more than offset by a decrease in the average balance of securities available for sale of $30.1 million, or 12.6%. In addition to the decrease and shift in the average balance of earning assets was a 21 basis point increase in the average yield on total earning assets. The yield on the average balance of earning assets was 7.19% and 6.98% for the year ended December 31, 2000 and 1999, respectively. Interest and fees on loans increased $2.3 million, or 7.0%, to $34.9 million for year ended December 31, 2000. This increase was primarily the result of an increase in the average balance of net loans receivable of $23.8 million, or 5.4%, to $466.6 million for the year ended December 31, 2000 from $442.8 million for the year ended December 31, 1999, in addition to an 11 basis point increase in the average yield. The increase in the average yield is the result of the increase in market interest rates during the second half of 1999 and the first half of 2000, and the change in the mix of the loan portfolio to a higher percentage of commercial-type loans, which generally have higher yields than residential real estate and home equity loans. For further information regarding changes in market interest rates and the impact on interest rate spread and net interest margin, please refer to "Market Risk". Interest income on securities available for sale decreased $1.4 million, or 9.5%, to $13.8 million for the year ended December 31, 2000 from $15.2 million for the previous year. This decrease is primarily the result of a decrease of $30.1 million in the average balance of securities available for sale offset in part by a 22 basis point increase in the average yield on these securities. The increase in the average yield is the result of the increase in market interest rates during the second half of 1999 and the first half of 2000. Interest income on FHLB stock increased $107 thousand, or 21.3%, to $610 thousand for the year ended December 31, 2000 from $503 thousand for the previous year primarily due to a increase in the average balance of FHLB stock of $1.4 million, or 19.3%, coupled with an 11 basis point increase in the average yield. Interest Expense. Total interest expense increased by $2.2 million, or 8.5%, to $28.6 million for the year ended December 31, 2000 from $26.3 million for the year ended December 31, 1999. Total average interest-bearing liabilities decreased by $3.7 million, or 0.6%, to $592.5 million in 2000 compared to $596.2 million in 1999 primarily due to the pay down of borrowed funds, partially offset by an increase in average interest-bearing deposits. The average balance of borrowed funds decreased $14.8 million, or 8.5%, from $173.8 million for the year ended December 31, 1999 to $159.0 million for the year ended December 31, 2000. During the same periods, the average rate paid on interest-bearing liabilities increased by 41 basis points to 4.82% from 4.41%. Total interest expense for the year ended December 31, 2000 increased primarily due to an increase of 63 basis points, to 5.66%, in the average rate paid on certificates of deposit during the period. In addition, the average balance of these deposit accounts increased to $240.8 million for the year ended December 31, 2000, from $223.6 million for the previous year. Likewise, interest expense relative to borrowed funds and NOW accounts increased during the period. The increase in interest on borrowed funds was primarily due to an increase in the average cost of these funds from 5.50% for the year ended December 31, 1999 to 6.15% for the year ended December 31, 2000, which more than offset the decrease in the average balance. Provision for Loan Losses. The Company's provision for loan losses is based upon management's analysis of the adequacy of the allowance for loan losses. The allowance is increased by a charge to the provision for loan losses, the amount of which depends upon an analysis of the changing risks inherent in the loan portfolio. Management determines the adequacy of the allowance for loan losses based upon its analysis of risk factors in the loan portfolio. This analysis includes evaluation of credit risk for specifically reserved loans, historical loss experience, economic conditions, estimated fair value of underlying collateral, delinquencies, and other factors. The provision for loan losses for the year ended December 31, 2000 decreased $310 thousand to $480 thousand from $790 thousand for the year ended December 31, 1999. The provision was reduced primarily due to improved asset quality, as evidenced by the decrease in the ratio of non-performing loans to total loans from 0.89% at December 31, 1999 to 0.70% at December 31, 2000, partially offset by an increase in net loan charge-offs and a change in the mix of the loan portfolio, which now has a higher concentration of commercial-type loans. Non-Interest Income. Total non-interest income increased by $238 thousand to $2.0 million for the year ended December 31, 2000 from $1.8 million for the year ended December 31, 1999, an increase of 13.2%. The increase was due almost entirely to net gains on securities transactions of $222 thousand in 2000 resulting from the recognition of a gain on sale of equity securities of $1.7 million during the fourth quarter of 2000, partially offset by losses of $1.5 million on the sale of approximately $65.5 million of debt securities (primarily during the fourth quarter), as the Company completed a significant restructuring of its balance sheet. In addition to the increase in net gains on securities transactions, the Company experienced a $77 thousand increase in other income, from $427 thousand in 1999 to $504 thousand in 2000. During the first quarter of 2000, the Company increased its fees charged for cashing non-customer tax refund checks, in addition to increasing the fees associated with the purchase of bank checks and money orders. Moreover, the Company now charges an ATM fee for non-customer transactions made at the Company's ATM machines. Partially offsetting the increase in net gains on securities transactions and other income was a decrease in service charges on deposits of $61 thousand, primarily due to the reduction in volume of NSF charges to customers experienced by the Company during 2000 as compared to 1999. Non-Interest Expenses. Non-interest expenses increased $730 thousand, or 4.5%, to $16.8 million for the year ended December 31, 2000 from $16.1 million for the previous year primarily due to increased data processing costs and increased professional fees. These and other changes are discussed in more detail below. Salaries, wages and benefits expense increased by $29 thousand, or 0.4%, in 2000. This nominal increase was the result of increased salaries and wages associated with the increase in staff in the commercial loan department due to the Company's decision to increase emphasis in growing commercial lending, coupled with the general cost of living and merit raises given to employees at the beginning of 2000. These increases were offset in part by the elimination of temporary outside services relative to work performed during the second half of 1999 and the reduction in ESOP expense. The expense related to the ESOP for 2000 was $83 thousand lower than the previous year due to the lower stock price in 2000 relative to 1999, as well as the lower number of shares released for allocation in 2000 compared to 1999. In addition, during the first quarter of 1999, salaries, wages and benefits expense was reduced due to the reversal of an accrual associated with severance offered to an employee terminated at the time of the merger with AFSALA Bancorp, Inc. in November 1998, which was not accepted. Management believes that salaries, wages and benefits expenses may fluctuate in future periods as costs related to the Company's ESOP are dependent on the Company's average stock price. Effective November 30, 2000, the Company froze all pension accruals under its defined benefit pension plan and also froze participation in the plan. Since the Company's prior contributions to the plan were intended to fund both benefits earned and those expected to be earned in the future, the freezing of benefits generated a curtailment gain of $1.0 million. The Company uses a measurement date of October 1 for the purposes of accounting for the plan. Accordingly, the curtailment gain was not recognized in the Company's 2000 consolidated statement of income. The curtailment gain will be recognized in other income in the Company's consolidated statement of income in the first quarter of 2001. In addition to the curtailment gain, the Company anticipates recognizing a net periodic pension credit as a component of salaries, wages and benefits of approximately $256 thousand for the year ending December 31, 2001, primarily as a result of reducing the service cost component of net periodic pension cost. This compares to net periodic pension expense of approximately $78 thousand recognized for the year ended December 31, 2000. However, the Company expects an increase in expense in 2001 related to matching contributions to be made under the Company's 401(k) plan. No matching contributions were made in 2000, 1999 or 1998. Occupancy and equipment increased $6 thousand to $2.4 million for the year ended December 31, 2000 when compared to the previous year, primarily due to an increase in depreciation of furniture, fixtures and equipment resulting from computer hardware and software upgrades related to year 2000 compliance subsequent to the first quarter of 1999. Likewise, depreciation of buildings increased due primarily to renovations completed at the Main Office and a branch office during the third quarter of 1999. Offsetting these increases was the acceleration of depreciation and amortization of equipment and leasehold improvements, during the first quarter of 1999, on a branch being closed as a result of the acquisition of AFSALA Bancorp, Inc. Data processing increased $234 thousand, or 17.2%, from $1.4 million in 1999 to $1.6 million for the year ended December 31, 2000 due primarily to the increase in volume of deposit and loan accounts serviced by the Company. In addition, during the first quarter of 1999, at the time of the initial conversion of the core application data system, the Company received credits from the new data center totaling approximately $92 thousand to be applied against data processing fees in the first quarter of 1999. No such credits were received in 2000. Real estate owned and repossessed assets expense increased $13 thousand to $73 thousand for the year ended December 31, 2000 primarily due to the increase in real estate owned and repossessed assets during the year. Professional fees increased $378 thousand, or 70.5%, to $914 thousand for the year ended December 31, 2000, from $536 thousand for the previous year. The increased professional fees were due primarily to expenses of $318 thousand associated with the attempted acquisition of and tender offer for Cohoes Bancorp, Inc. Also impacting professional fees during 2000 were costs associated with certain tax planning strategies being implemented by the Company during the year. Other non-interest expense increased $71 thousand, or 2.2%, to $3.3 million for the year ended December 31, 2000 when compared to the previous year. This increase was primarily due to expenses associated with the promotion and advertising of time deposit and lending products offered during the first half of 2000. Income Tax Expense. Income tax expense decreased by $675 thousand, or 21.8%, to $2.4 million for the year ended December 31, 2000 from $3.1 million for the year ended December 31, 1999. The decrease was primarily the result of the decrease in income before taxes, as well as certain tax planning strategies implemented by the Company. 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%. The interest rate spread increased to 2.57% for the year ended December 31, 1999 from 2.32% for the year ended December 31, 1998. The increase in the interest rate spread was primarily the result of the decrease in the average cost of interest-bearing liabilities being greater than the decrease in the average yield on earning assets. 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. 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 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. 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. 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. Asset Quality The Company's loan portfolio consists primarily of one-to-four family residential mortgage and home equity loans, which as a percentage of the Company's total loan portfolio were 82.3% at December 31, 2000. During 1999 and into 2000, the Company also began to re-emphasize commercial real estate and commercial business lending. Those loans, by nature, tend to be of a shorter term than one-to-four family residential mortgages. In addition, the interest rate charged on commrcial real estate and commercial business loans generally adjusts within a period of five years or less. The growth in these loans should improve the interest rate risk position of the Company. The commercial and multi-family real estate portfolios increased $12.7 million to $44.5 million at December 31, 2000 from $31.8 million at December 31, 1999, an increase of 39.9%. Likewise, commercial business loans increased $7.4 million, or 111.0%, to $14.0 million at December 31, 2000. The Company'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, 2000 were $3.6 million, or 0.51% of total assets, compared with $4.5 million and $3.3 million at December 31, 1999 and 1998, respectively. The decrease in total non-performing assets from year-end 1999 to year-end 2000 was due to a $964 thousand decrease in total non-performing loans. Total non-performing loans decreased from $4.2 million at December 31, 1999 to $3.2 million at December 31, 2000. This decrease was due primarily to a decrease in accruing loans delinquent more than 90 days, of $811 thousand from December 31, 1999 to December 31, 2000. This decrease in accruing loans delinquent more than 90 days was due primarily to several commercial real estate loans which were 90 days or more past their contractual maturity dates at December 31, 1999, which were refinanced during 2000. These loans, although past their contractual maturity or balloon dates, were making regularly scheduled payments. The Company's ratio of non-performing loans to total loans and allowance for loan losses to non-performing loans were 0.70% and 177.0%, respectively, at December 31, 2000, compared to 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 Company'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 Company 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 Company's needs for funds and on a review of rates offered by other financial institutions in the Company's market areas. Interest rates on loans are primarily based on the interest rates offered by other financial institutions in the Company's primary market areas, as well as the Company's cost of funds. The committee manages the interest rate sensitivity of the Company 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 Company's liquidity needs, growth, and capital adequacy. The Company'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 Company 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 Company believes it is important to manage the effect interest rates have on the Company'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, 2000, 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 36,109 (39,220) (52)% 5.44% -512 bp +200 bp 48,882 (26,447) (35) 7.19 -337 bp +100 bp 62,067 (13,262) (18) 8.91 -165 bp 0 bp 75,329 10.56 -100 bp 83,341 8,012 11 11.49 93 bp -200 bp 90,531 15,202 20 12.29 173 bp -300 bp 100,992 25,663 34 13.44 288 bp - ------------------------------------------------------------------------------- (1) Represents the excess (deficiency) of the estimated NPV assuming the indicated change in interest rates compared to 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 Company has been that net interest income declines with increases in market interest rates and that net interest income increases with decreases in market interest rates. Generally, during periods of increasing interest rates, the Company's interest rate sensitive liabilities would re-price faster than its interest rate sensitive assets causing a decline in the Company's interest rate spread and net interest margin. This would result from an increase in the Company's cost of funds that would not be immediately and fully offset by an increase in its yield on earning assets. An increase in the cost of funds without an equivalent increase in the yield on earning assets would tend to reduce net interest income. This trend was evident in 1999 and 2000 when market interest rates generally began to increase during the second half of 1999 and continued into the first half of 2000. This increase in interest rates caused a decline in the net interest margin and net interest rate spread from 3.21% and 2.57%, respectively, for the year ended December 31, 1999, to 3.06% and 2.37%, respectively, for the year ended December 31, 2000. In January 2001, the Federal Reserve Board took actions to reduce short-term interest rates by 100 basis points, in two separate 50 basis point cuts. These market interest rate reductions (in addition to actions taken by the Company during 2000 to reduce borrowings, lengthen the maturities of its remaining borrowings, increase deposits, and increase commercial-type loans) should help reduce the pressure on the Company's net interest margin and interest rate spread in 2001. Liquidity and Capital Resources The Bank is required by OTS regulations to maintain, for each calendar month, a daily average balance of cash and eligible liquid investments of not less than 4% of the average daily balance of its net withdrawable savings and borrowings (due in one year or less) during the preceding calendar month. This liquidity requirement may be changed from time to time by the OTS to any amount within the range of 4% to 10%. The Bank's average liquidity ratio was 31.25% and 28.36% at December 31, 2000 and 1999, respectively. The Company's sources of liquidity include cash flows from operations, principal and interest payments on loans, mortgage-backed securities and collateralized mortgage obligations, maturities of securities, deposit inflows, borrowings from the FHLB of New York and proceeds from the sale of securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and securities are, in general, a predictable source of funds, deposit flows and prepayments on loans and securities are greatly influenced by general interest rates, economic conditions and competition. In addition, the Company invests excess funds in overnight and short-term 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, 2000 and 1999, the Company had $71.4 and $92.2 million, respectively, in outstanding borrowings from the FHLB and $72.5 million and $112.7 million, respectively, in securities repurchase agreements, the vast majority of which are also with the FHLB. See note 9 to the consolidated financial statements for further information regarding the Company's borrowings. As of December 31, 2000 and 1999, the Company had $139.0 million and $212.1 million, respectively, of securities classified as available for sale. As of December 31, 2000, the Company also had $51.6 million of interest-bearing deposits, as well as $11.6 million of federal funds sold. The liquidity of the securities available for sale portfolio, interest-bearing deposits and federal funds sold 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, 2000, the Bank's capital exceeded each of the regulatory capital requirements of the OTS. The Bank is "well capitalized" at December 31, 2000 according to regulatory definition. At December 31, 2000, the Bank's tangible and core capital levels were both $64.0 million (9.1% of total adjusted assets) and its total risk-based capital level was $68.3 million (19.7% 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 15 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 477,000 shares. During 2000, the Company repurchased 374,906 shares of the Company's common stock in open-market transactions at a total cost of $5.7 million. Effect of Inflation and Changing Prices The Company's consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, 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 Financial Accounting Standards Board 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. The Company adopted Statement No. 133 on January 1, 2001. As of January 1, 2001, the Company did not have any derivative instruments or derivative instruments embedded in other contracts, and therefore the adoption of Statement No. 133 did not have a material impact on the Company's consolidated financial statements.
Unaudited Consolidated Quarterly Financial Information 2000 1999 ----------------------------------------- ----------------------------------------- 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 ....... $12,544 $12,436 $12,373 $12,392 $11,964 $11,957 $12,334 $12,512 Net interest income ................ 5,516 5,446 5,203 5,029 5,393 5,506 5,892 5,657 Provision for loan losses .......... 120 120 120 120 255 240 175 120 Income before taxes ............... 1,707 1,567 1,488 1,200 1,816 1,868 2,200 1,514 Net income ......................... 984 929 904 725 1,035 1,092 1,257 919 Basic earnings per share ........... 0.21 0.20 0.19 0.16 0.21 0.22 0.26 0.20 Diluted earnings per share ......... 0.21 0.20 0.19 0.16 0.20 0.22 0.26 0.19 Average Shares Outstanding - Basic . 4,669,625 4,627,006 4,653,495 4,515,314 5,009,031 4,993,494 4,838,482 4,673,154 Average Shares Outstanding - Diluted 4,691,976 4,666,262 4,692,862 4,572,865 5,060,835 5,058,050 4,894,297 4,731,445
Independent Auditors' Report The Shareholders and 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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/KPMG LLP Albany, New York February 9, 2001
AMBANC HOLDING CO., INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition December 31, 2000 1999 ---------- ---------- (In thousands) Assets Cash and due from banks .................................... $ 15,306 26,380 Federal funds sold ......................................... 11,600 -- Interest-bearing deposits .................................. 51,591 3,231 --------- --------- Cash and cash equivalents ............................... 78,497 29,611 Securities available for sale, at fair value ............... 138,990 212,145 Federal Home Loan Bank of New York stock, at cost .......... 8,870 8,748 Loans receivable, net ...................................... 459,958 465,477 Accrued interest receivable ................................ 4,103 4,411 Premises and equipment, net ................................ 5,288 5,646 Real estate owned and repossessed assets ................... 373 322 Goodwill, net .............................................. 6,858 7,390 Other assets ............................................... 3,699 6,922 --------- --------- Total assets ............................................ $ 706,636 740,672 ========= ========= Liabilities and Shareholders' Equity Liabilities: Deposits .................................................. 478,592 450,134 Federal Home Loan Bank short-term borrowings .............. 5,000 71,200 Federal Home Loan Bank long-term advances ................. 66,435 20,965 Securities sold under agreements to repurchase ............ 72,500 112,740 Advances from borrowers for taxes and insurance ........... 3,402 3,641 Accrued interest payable .................................. 1,108 1,508 Accrued expenses and other liabilities .................... 2,477 4,891 --------- --------- Total liabilities ....................................... 629,514 665,079 --------- --------- Commitments and contingent liabilities (note 13) Shareholders' equity: Preferred stock $.01 par value. Authorized 5,000,000 shares; none issued at December 31, 2000 and 1999 ........ -- -- Common stock $.01 par value. Authorized 15,000,000 shares; 5,432,245 shares issued at December 31, 2000 and 1999 .... 54 54 Additional paid-in capital ................................ 63,529 63,314 Retained earnings, substantially restricted ............... 29,994 28,879 Treasury stock, at cost (829,279 shares at December 31, 2000 and 465,155 shares at December 31, 1999) ........ (13,032) (7,486) Unallocated common stock held by ESOP ..................... (1,909) (2,353) Unearned RRP shares ....................................... (126) (443) Accumulated other comprehensive loss ...................... (1,388) (6,372) --------- --------- Total shareholders' equity .............................. 77,122 75,593 --------- --------- Total liabilities and shareholders' equity .............. $ 706,636 740,672 ========= ========= See accompanying notes to consolidated financial statements
AMBANC HOLDING CO., INC. AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 2000 1999 1998 ------- ------- ------- (In thousands, except per share amounts) Interest and dividend income: Loans receivable ..................................... $34,872 32,578 24,623 Securities available for sale ........................ 13,800 15,245 13,479 Federal funds sold and interest-bearing deposits ..... 463 441 507 Federal Home Loan Bank stock ......................... 610 503 364 ------- ------- ------- Total interest and dividend income ................. 49,745 48,767 38,973 ------- ------- ------- Interest expense: Deposits ............................................. 18,772 16,755 13,822 Borrowings ........................................... 9,779 9,564 8,619 ------- ------- ------- Total interest expense ............................. 28,551 26,319 22,441 ------- ------- ------- Net interest income ................................ 21,194 22,448 16,532 Provision for loan losses ............................. 480 790 900 ------- ------- ------- Net interest income after provision for loan losses 20,714 21,658 15,632 ------- ------- ------- Non-interest income: Service charges on deposit accounts .................. 1,315 1,376 1,012 Net gains (losses) on securities transactions ........ 222 -- (165) Other ................................................ 504 427 297 ------- ------- ------- Total non-interest income .......................... 2,041 1,803 1,144 ------- ------- ------- Non-interest expenses: Salaries, wages and benefits ......................... 8,056 8,027 6,423 Non-recurring termination benefits ................... -- -- 608 Occupancy and equipment .............................. 2,355 2,349 1,932 Data processing ...................................... 1,594 1,360 1,688 Real estate owned and repossessed assets expenses, net 73 60 61 Professional fees .................................... 914 536 735 Amortization of goodwill ............................. 532 533 67 Other ................................................ 3,269 3,198 3,561 ------- ------- ------- Total non-interest expenses ........................ 16,793 16,063 15,075 ------- ------- ------- Income before taxes ................................... 5,962 7,398 1,701 Income tax expense .................................... 2,420 3,095 670 ------- ------- ------- Net income ......................................... $ 3,542 4,303 1,031 ======= ======= ======= Basic earnings per share .............................. $ 0.77 0.88 0.26 ======= ======= ======= Diluted earnings per share ............................ $ 0.76 0.87 0.26 ======= ======= ======= See accompanying notes to consolidated financial statements.
AMBANC HOLDING CO., INC. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity Years ended December 31, 2000, 1999 and 1998 (In thousands, except share and per share data) Additional Common paid-in Retained Treasury stock capital earnings stock ------- ---------- -------- -------- Balance at December 31, 1997 .......................... 54 52,385 26,458 (12,585) Comprehensive income: Net income ........................................... -- -- 1,031 -- Other comprehensive income, net of tax: Unrealized net holding gains on securities available for sale arising during the year (pre-tax $908) Reclassification adjustment for net losses on securities transactions 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 vested .............. -- 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 vested .............. -- 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) Comprehensive income: Net income ........................................... -- -- 3,542 -- Other comprehensive income, net of tax: Unrealized net holding losses on securities available for sale arising during the year (pre-tax $ 8,528) Reclassification adjustment for net gains on securities transactions realized in net income during the year (pre-tax $222) Other comprehensive income ........................... -- -- -- -- Comprehensive income Purchase of treasury shares (374,906 shares) .......... -- -- -- (5,717) Release of ESOP shares (44,405 shares) ................ -- 217 -- -- Issuance of RRP shares(10,782 shares) ................. -- -- (4) 171 RRP shares vested ..................................... -- -- -- -- Tax benefit related to RRP shares vested .............. -- (2) -- -- Cash dividends - $0.50 per share ...................... -- -- (2,423) -- ------- ---------- -------- -------- Balance at December 31, 2000 .......................... $ 54 63,529 29,994 (13,032) ======= ========== ======== ======== 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, 2000, 1999 and 1998 (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, 1997 .......................... (3,303) (1,533) (274) 61,202 Comprehensive income: Net income ........................................... -- -- -- 1,031 $1,031 Other comprehensive income, net of tax: Unrealized net holding gains on securities available for sale arising during the year (pre-tax $908) .. 545 Reclassification adjustment for net losses on securities transactions 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 vested .............. -- -- -- 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 vested .............. -- -- -- 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 Comprehensive income: Net income ........................................... -- -- -- 3,542 $3,542 Other comprehensive income, net of tax: Unrealized net holding losses on securities available for sale arising during the year (pre-tax $ 8,528) 5,177 Reclassification adjustment for net gains on securities transactions realized in net income during the year (pre-tax $222) (133) ------- Other comprehensive income ........................... -- -- 4,984 4,984 4,984 ------- Comprehensive income ............................ $ 8,526 ======= Purchase of treasury shares (374,906 shares) .......... -- -- -- (5,717) Release of ESOP shares (44,405 shares) ................ 444 -- -- 661 Issuance of RRP shares(10,782 shares) ................. -- (167) -- -- RRP shares vested ..................................... -- 484 -- 484 Tax benefit related to RRP shares vested.............. -- -- -- (2) Cash dividends - $0.50 per share ...................... -- -- -- (2,423) ----------- ---------- ------------ -------- Balance at December 31, 2000 .......................... $(1,909) (126) (1,388) 77,122 =========== ========== ============ ======== See accompanying notes to consolidated financial statements.
AMBANC HOLDING CO., INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31,2000 2000 1999 1998 ------- ------- ------- (In thousands) Increase (decrease) in cash and cash equivalents: Cash flows from operating activities: C> Net income .......................................... $ 3,542 4,303 1,031 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment .................................... 924 888 735 Amoritization of goodwill ....................... 532 533 67 Net amortization of purchase accounting adjustments .................................. 368 (204) (36) Net amortization of premiums on securities ...... 250 734 1,094 Provision for loan losses ....................... 480 790 900 Provision for losses and writedowns on real estate owned and repossessed assets .......... 14 6 7 Net losses (gains) on sales of real estate owned and repossessed assets ................. 28 -- (7) ESOP compensation expense ....................... 661 744 816 RRP expense ..................................... 484 433 371 Net (gains) losses on securities transactions ... (222) -- 165 Decrease in accrued interest receivable and other assets .................. 207 539 65 (Decrease)increase in accrued interest payable and accrued expenses and other liabilities ... (2,814) 479 1,423 ------- ------- ------- Net cash provided by operating activities 4,454 9,245 6,631 ------- ------- ------- Cash flows from investing activities: Proceeds from sales of securities available for sale. 69,810 --- 79,101 Purchases of securities available for sale .......... (4,834) (60,296) (157,188) Proceeds from principal paydowns, maturities and calls of securities available for sale ....... 16,421 74,385 101,488 Purchases of FHLB stock ............................. (122) (1,533) (3,359) Net loans repaid by (made to) customers ............. 18,412 (46,025) (26,391) Purchases of loans .................................. (14,000) --- (31,888) Purchases of premises and equipment ................. ( 566) (1,944) (422) Proceeds from sales of real estate owned and repossessed assets ................................ 191 419 270 Net cash acquired in acquisition .................... -- -- 24,996 ------- ------- ------- Net cash provided by (used in) investing activities. 85,312 (34,994) (13,393) ------- ------- ------- (continued)
AMBANC HOLDING CO., INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued Years ended December 31,2000 2000 1999 1998 ------- ------- ------- Cash flows from financing activities: (In thousands) > Net increase (decrease) in deposits ............... $ 28,458 (10,709) (16,533) Net (decrease) increase in FHLB short-term borrowings ...................................... (66,200) 71,200 (12,300) Proceeds from FHLB long-term advances ............. 50,000 -- 20,000 Repayments of FHLB long-term advances ............. (4,519) (432) (35) Proceeds from repurchase agreements ............... 25,391 15,550 142,575 Repayments of repurchase agreements ............... (65,631) (55,210) (89,425) (Decrease) increase in advances from borrowers for taxes and insurance ............................ (239) 1,205 150 Purchases of treasury stock ....................... (5,717) (7,438) (4,111) Exercises of stock options ........................ --- 139 130 Dividends paid .................................... (2,423) (1,760) (1,133) ------- ------- ------- Net cash(used in)provided by financing activities. (40,880) 12,545 39,318 ------- ------- ------- Net increase (decrease) in cash and cash equivalents . 48,886 (13,204) 32,556 Cash and cash equivalents at beginning of year ....... 29,611 42,815 10,259 ------- ------- ------- Cash and cash equivalents at end of year ............. $ 78,497 29,611 42,815 ======= ======= ======= Supplemental disclosures of cash flow information - cash paid during the year for: Interest .......................................... $ 28,951 26,237 21,834 ======= ======= ======= Income taxes ...................................... $ 2,524 2,866 1,429 ======= ======= ======= Noncash investing and financing activities: Net transfer of loans to real estate owned and repossessed assets ................................ $ 284 348 386 ======= ======= ======= (Decrease) increase in amounts due to brokers for purchases of securities available for sale ........ $ -- (6,000) 6,000 ======= ======= ======= Adjustment of securities available for sale to fair value,net of tax................................... $ 4,984 (6,742) 644 ======= ======== ======= Fair value of non-cash assets acquired in acquisition $ -- -- 142,820 ======= ======= ======= Fair value of liabilities assumed in acquisition .... $ -- -- 148,565 ======= ======= ======= Issuance of RRP shares .............................. $ 171 121 -- ======= ======= ======= Tax impact related to RRP shares vested ............. $ (2) 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, 2000, 1999 and 1998 (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 accounting principles generally accepted in the United States of America and to general practice within the banking industry. (b) Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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. A material estimate that is particularly susceptible to significant change in the near-term relates to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. In connection with the determination of the allowance for loan losses, management obtains appraisals for significant loans. 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 Company's allowance for loan losses. Such agencies may require the Company 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, cash and cash equivalents consist of cash on hand, due from banks, federal funds sold and interest-bearing deposits. (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, 2000 and 1999, the Company had no securities classified as held to maturity. Non-marketable equity securities, such as Federal Home Loan Bank of New York (FHLB) stock, are stated at cost. The investment in FHLB stock is required for membership and is pledged to secure FHLB borrowings. Gains and losses on the sale or call of securities available for sale are based on the amortized cost of the specific security sold or called. 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. 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. (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 certain 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 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, management excludes large groups of smaller-balance homogeneous loans such as residential mortgages and consumer loans, which are collectively evaluated for impairment. (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 the recorded investment in the loan. When a property is acquired or identified as an in-substance foreclosure, the excess, if any, of the recorded investment in the loan over the fair value of the asset acquired is charged to the allowance for loan losses. Subsequent writedowns to carry the property at fair value less costs to sell are included in non-interest expenses. Costs incurred to develop or improve properties are capitalized, while holding costs are charged to expense. At December 31, 2000 and 1999, real estate owned and repossessed assets consisted primarily of one-to-four family residential properties, commercial properties and automobiles. The Company had no in-substance foreclosures at December 31, 2000 or 1999. (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 shorter of the term of the original lease (without regard to lease renewal options) or the estimated useful lives of the assets. (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 $1.1 million and $600,000 at December 31, 2000 and 1999, 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 receives cash from a counterparty in exchange for the transfer of securities to a third party custodian's account that explicitly recognizes the Company's interest in the securities. These agreements are accounted for by the Company as secured financing transactions since it 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. Accordingly, the cash 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 realized 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 realized. 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, estimates of future taxable income and available tax-planning strategies. (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," and related Interpretations. 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 of 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 and related Interpretations. 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 common 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 or otherwise resulted in the issuance of common stock. Dilution is measured by the number of incremental shares that would be issued, computed using the treasury stock method. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for either the basic or diluted EPS calculations. (o) Official Bank Checks The Company has certain official bank checks which are drawn upon the Bank and ultimately paid through the Bank's Federal Reserve Bank of New York correspondent account. These outstanding checks 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 11(d). The acquisition was accounted for using purchase accounting in accordance with APB Opinion No. 16, "Business Combinations." 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 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 estimated 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 year ended December 31, 2000, the impact of the net amortization of the premiums was to decrease net income by approximately $221,000. For the year ended December 31, 1999, the impact of the net amortization of the premiums was to increase net income by approximately $122,000. The impact of the net amortization of the premiums for the year ended December 31, 1998 was not significant. (3) Reserves and Investments Required by Law The Company is required to maintain certain reserves of cash and/or deposits with the Federal Reserve Bank (FRB). The amount of this reserve requirement, satisfied by vault cash and deposits with the FRB, was approximately $7.0 million and $4.4 million at December 31, 2000 and 1999, respectively. The Company is required to maintain certain levels of stock in the FHLB. 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 with the FHLB. (4) Securities Available for Sale The amortized cost, gross unrealized gains and losses, and estimated fair value of securities available for sale at December 31, 2000 and 1999 are as follows:
2000 ------------------------------------------ Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value -------- -------- -------- -------- (In thousands) U.S. Government and agency securities ....... $ 53,704 -- (839) 52,865 Mortgage-backed securities .................. 58,032 3 (740) 57,295 Collateralized mortgage obligations ......... 26,102 5 (345) 25,762 Corporate debt securities ................... 2,538 -- (335) 2,203 States and political subdivisions ........... 305 -- (2) 303 -------- -------- -------- -------- Total debt securities ............... 140,681 8 (2,261) 138,428 Marketable equity securities and mutual funds 623 -- (61) 562 -------- -------- -------- -------- Total ............................... $141,304 8 (2,322) 138,990 ======== ======== ======== ======== 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 ======== ======== ======== ========
The amortized cost and estimated fair value of debt securities available for sale at December 31, 2000, 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 $ - - Due after one year through five years 4,161 4,121 Due after five years through ten years 34,079 33,612 Due after ten years 102,441 100,695 ------------- ------------ Totals $ 140,681 138,428 ============= ============ The following table sets forth information with regard to sales of securities available for sale for the years ended December 31: 2000 1999 1998 ------ ------- ------- (In thousands) Proceeds from sale $ 69,810 - 79,101 Gross realized gains 1,689 - 154 Gross realized losses 1,467 - 319 Securities available for sale with an estimated fair value of approximately $77.1 million and $122.3 million at December 31, 2000 and 1999, respectively, were pledged to secure securities repurchase agreements. See also note 9. (5) Loans Receivable, Net Loans receivable consisted of the following at December 31, 2000 and 1999: 2000 1999 -------- ------- (In thousands) Loans secured by real estate: One-to-four family $ 291,682 306,665 Home equity 89,767 92,605 Commercial 40,727 27,910 Multi-family 3,738 3,881 Construction 2,435 4,924 -------- ------- Total loans secured by real estate 428,349 435,985 -------- ------- Other loans: Consumer loans: Auto loans 8,023 11,641 Recreational vehicles 2,713 3,551 Other secured 4,473 4,697 Unsecured 5,905 5,918 Manufactured homes 180 249 -------- ------- Total consumer loans 21,294 26,056 -------- ------- Commercial loans: Secured 12,784 5,562 Unsecured 1,192 1,063 -------- ------- Total commercial loans 13,976 6,625 -------- ------- Total loans receivable 463,619 468,666 Deferred costs, net of deferred fees and discounts 2,084 2,320 Allowance for loan losses (5,745) (5,509) -------- ------- Loans receivable, net $ 459,958 465,477 ======== ======= Qualifying one-to-four family loans have been pledged under a blanket collateral agreement to secure the Company's borrowings with the FHLB. A summary of activity in the allowance for loan losses for the years ended December 31 is as follows: 2000 1999 1998 --------- --------- --------- (In thousands) Balance at beginning of year $ 5,509 4,891 3,807 Provision charged to operations 480 790 900 Charge-offs (354) (463) (1,226) Recoveries 110 291 295 Allowance acquired - - 1,115 --------- --------- --------- Balance at end of year $ 5,745 5,509 4,891 ========= ========= ========= The following table sets forth information with regard to non-performing loans at December 31: 2000 1999 1998 ------ ------ ------ (In thousands) Non-accrual loans $2,448 2,576 1,610 Loans contractually past due 90 days or more and still accruing interest 257 1,068 580 Restructured loans 541 566 714 ------ ------ ------ Total non-performing loans $3,246 4,210 2,904 ====== ====== ====== 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 $156,000, $194,000 and $118,000 in 2000, 1999 and 1998, respectively. Approximately $216,000, $304,000 and $238,000 of interest on the above non-performing loans was collected and recognized as income in 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, the recorded investment in loans that are considered to be impaired totaled approximately $560,000 and $572,000, respectively, for which the related allowance for loan losses was approximately $169,000 and $61,000, respectively. As of December 31, 2000 and 1999, 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, 2000, 1999 and 1998, was approximately $523,000, $481,000 and $688,000, respectively. For the years ended December 31, 2000, 1999 and 1998, the Company recognized interest income on those impaired loans of approximately $29,000, $52,000 and $78,000, respectively, which included $21,000, $26,000 and $50,000, 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, 2000 and 1999. (6) Accrued Interest Receivable Accrued interest receivable consisted of the following at December 31: 2000 1999 ------ ------ (In thousands) Loans $2,451 2,204 Securities available for sale 1,427 2,207 Interest-bearing deposits 225 -- ------ ------ $4,103 4,411 ====== ====== (7) Premises and Equipment A summary of premises and equipment is as follows at December 31: 2000 1999 -------- -------- (In thousands) Land and buildings $ 4,015 3,520 Furniture, fixtures and equipment 5,821 5,565 Leasehold improvements 2,040 2,071 Construction in progress 17 486 -------- -------- 11,893 11,642 Accumulated depreciation and amortization (6,605) (5,996) -------- -------- $ 5,288 5,646 ======== ======== Amounts charged to depreciation and amortization expense were approximately $924,000, $888,000 and $735,000 for the years ended December 31, 2000, 1999 and 1998, respectively. (8) Deposits Deposits are summarized as follows at December 31: 2000 1999 -------- -------- (In thousands) Savings accounts (2.63% at December 31, 2000 and 2.73%-3.00% at December31, 1999) $ 121,411 129,359 -------- -------- Time deposits: 3.01 to 4.00% 453 1,042 4.01 to 5.00% 39,464 120,458 5.01 to 6.00% 104,900 76,084 6.01 to 7.00% 103,411 9,452 7.01 to 8.00% 646 13,300 -------- -------- 248,874 220,336 -------- -------- NOW accounts (1.23%-4.19% at December 31, 2000 and 1.23% at December 31, 1999) 46,330 35,884 Money market accounts (2.19%-5.28% at December 31, 2000 and 2.19%-4.34% at December 31, 1999) 23,416 29,009 Demand accounts (non-interest-bearing) 38,561 35,546 -------- -------- Total deposits $ 478,592 450,134 ======== ======== The approximate amount of contractual maturities of time deposits for the years subsequent to December 31, 2000 are as follows: (In thousands) Years ending December 31, 2001 $ 183,066 2002 40,080 2003 16,564 2004 3,259 2005 5,905 ---------- $ 248,874 ========== The aggregate amount of time deposits with a balance of $100,000 or more was approximately $32.6 million and $30.4 million at December 31, 2000 and 1999, respectively. Interest expense on deposits for the years ended December 31, 2000, 1999 and 1998, is summarized as follows: 2000 1999 1998 ------- ------- ------- (In thousands) Savings accounts $ 3,473 4,001 3,119 Time deposits 13,620 11,242 9,882 NOW accounts 685 567 549 Money market accounts 994 945 272 ------- ------- ------- Total $18,772 16,755 13,822 ======= ======= ======= (9) Borrowed Funds At December 31, 2000, the Company had short-term borrowings with the FHLB totaling $5.0 million which mature on February 26, 2001. The Company had a $35.6 million overnight line of credit and a $35.6 million one-month line of credit with the FHLB at December 31, 2000. As of December 31, 2000, the Company had no amounts outstanding on these lines of credit. 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). The Company also had long-term advances with the FHLB totaling $66.4 million at December 31, 2000. These advances consisted of the following: (i) $20.0 million of interest-only, 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; (ii) $30.0 million of interest-only, fixed rate advances with a weighted-average rate and maturity of 6.78% and 2.3 years, respectively; (iii) $15.9 million of fixed rate, amortizing advances with a weighted-average rate and final contractual maturity of 7.01% and 4.0 years, respectively; and (iv) $576,000 of adjustable rate, amortizing advances with interest rates ranging from 6.08% to 8.03%; final maturities on these advances range from February 2001 to September 2004. Information concerning outstanding securities repurchase agreements as of December 31, 2000 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 $ -- -- -- % $ -- After 90 days but within one year 20,000 138 6.96 20,446 After one year but within five years -- -- -- -- After five years but within ten years 52,500 437 5.48 57,371 ------- ------- ---- ------- Total $72,500 575 5.89% $77,817 ======= ======= ==== ======= (1) The weighted-average remaining term to final maturity was approximately 5.6 years at December 31, 2000. At December 31, 2000, $52.5 million of the securities repurchase agreements contained call provisions. The weighted-average rate at December 31, 2000 on the callable securities repurchase agreements was 5.48%, with a weighted-average remaining period of 1.7 years to the call date. At December 31, 2000, $20.0 million of the securities repurchase agreements did not contain call provisions. The weighted-average rate at December 31, 2000 on the non-callable securities repurchase agreements was 6.96%, with a weighted-average term to maturity of approximately six months. (2) Represents the fair value of the securities subject to the repurchase agreements, including accrued interest receivable of approximately $754,000 at December 31, 2000. The following table presents the detail of the Company's borrowings and weighted-average interest rates thereon for the years ended December 31, 2000, 1999 and 1998: Securities FHLB FHLB Sold Under Short-Term Long-Term Agreements Borrowings Advances to Repurchase ----------- --------- -------------- (Dollars in thousands) 2000: Balance at December 31 $ 5,000 $ 66,435 $ 72,500 Average balance during the year 31,180 45,108 82,712 Maximum month-end balance 63,600 67,461 112,740 Weighted-average interest rate: At December 31 6.77% 6.82% 5.89% During the year 6.30% 6.79% 5.74% 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 (10) Income Taxes The components of income tax expense are as follows for the years ended December 31: 2000 1999 1998 ------- ------- ------- (In thousands) Current tax expense: Federal $ 2,483 2,534 763 State 276 429 13 ------- ------- ------- 2,759 2,963 776 Deferred tax (benefit) expense (339) 132 (106) ------- ------- ------- Total income tax expense $ 2,420 3,095 670 ======= ======= ======= Actual income tax expense for the years ended December 31, 2000, 1999 and 1998, 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: 2000 1999 1998 ------ ------ ------ (In thousands) Expected tax expense $2,027 2,516 578 State taxes, net of Federal income tax benefit 134 325 1 Non-deductible portion of ESOP compensation expense 74 95 113 Non-deductible goodwill amortization 181 181 23 Other items, net 4 (22) (45) ------ ------ ------ $2,420 3,095 670 ====== ====== ====== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 and 1999 are presented below: 2000 1999 ---------- --------- (In thousands) Deferred tax assets: Allowance for loan losses $ 2,231 2,140 Deferred compensation 261 315 Unvested RRP shares 76 76 Other deductible temporary differences 95 145 ---------- --------- Total deferred tax assets 2,663 2,676 ---------- --------- Deferred tax liabilities: Net deferred loan costs (769) (842) Purchase accounting adjustments (319) (470) Prepaid pension cost (168) (199) Property and equipment (59) (91) Tax bad debt reserve (51) (77) Other prepaid expenses (49) (59) Other taxable temporary differences (157) (186) ---------- --------- Total deferred tax liabilities (1,572) (1,924) ---------- --------- Net deferred tax asset at end of year 1,091 752 Net deferred tax asset at beginning of year 752 884 ---------- --------- Deferred tax (benefit) expense $ (339) 132 ========== ========= The Company also had a deferred tax asset of $926,000 and $4.2 million at December 31, 2000 and 1999, respectively, related to the net unrealized loss on securities available for sale. There was no valuation allowance for deferred tax assets at December 31, 2000 and 1999. Management believes that the realization of the recognized deferred tax assets at December 31, 2000 and 1999 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 $13.7 million, respectively, at December 31, 2000, 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, 2000 with respect to the Federal base-year reserve was approximately $1.8 million. The unrecognized deferred tax liability at December 31, 2000 with respect to the state base-year reserve was approximately $766,000 (net of Federal benefit). (11) Employee Benefit Plans (a) Pension Plan The Company maintains a non-contributory, defined benefit pension plan with RSI Retirement Trust, covering substantially all employees age 21 and over with 1 year of service as of November 30, 2000. Benefits are computed as two percent of the highest three year average annual earnings multiplied by credited service (as defined in the plan), 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. Assets of the plan are primarily invested in pooled equity and fixed income funds. Effective November 30, 2000, the Company froze all pension benefit accruals and participation in the plan. Since the Company's prior contributions to the plan were intended to fund both benefits earned and those expected to be earned in the future, the freezing of benefits generated a curtailment gain of $1.0 million. The Company uses a measurement date of October 1 for purposes of accounting for the plan. Accordingly, the curtailment gain was not recognized in the Company's 2000 consolidated statement of income or reflected in the calculation of the projected benefit obligation as of October 1, 2000. The curtailment gain will be recognized in the Company's consolidated statement of income in the first quarter of 2001. 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 (using a measurement date of October 1), and a reconciliation of the plan's funded status: 2000 1999 ------- ------- (In thousands) Changes in the projected benefit obligation: Projected benefit obligation at beginning of year $ 4,906 5,256 Service cost 270 251 Interest cost 366 332 Benefits paid (289) (242) Plan amendments -- 77 Actuarial gain (118) (768) ------- ------- Projected benefit obligation at end of year 5,135 4,906 ------- ------- Changes in the fair value of plan assets: Fair value of plan assets at beginning of year 6,531 5,760 Actual return on plan assets 1,086 1,013 Benefits paid (289) (242) Employer contributions -- -- ------- ------- Fair value of plan assets at end of year 7,328 6,531 ------- ------- Funded status: Funded status 2,193 1,625 Unrecognized prior service cost 2 5 Unrecognized net gain (1,763) (1,120) ------- ------- Prepaid pension cost $ 432 510 ======= ======= The following table provides the components of net periodic pension cost for the years ended December 31: 2000 1999 1998 ----- ----- ----- (In thousands) Service cost $ 270 251 219 Interest cost 366 332 318 Expected return on plan assets (512) (452) (471) Amortization of unrecognized net asset at transition -- (39) (46) Amortization of unrecognized prior service cost 3 4 3 Amortization of unrecognized net actuarial gain (49) -- (22) ----- ----- ----- Net periodic pension cost $ 78 96 1 ===== ===== ===== 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 significant assumptions used in accounting for the plan are shown in the table below: 2000 1999 1998 ---- ---- ---- Weighted-average assumptions at October 1: Discount rate 8.00% 7.75% 6.50% Rate of increase in future compensation levels 5.50 5.50 4.50 Expected return on plan assets 9.00 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. For the years ended December 31, 2000, 1999 and 1998, there were no matching contributions made by the Company. Effective January 1, 2001, the Company will make matching contributions equal to 50% of the first 6% of salary contributed by an employee. (c) Employee Stock Ownership Plan The Company sponsors an employee stock ownership plan (ESOP) to provide substantially all employees of the Company the opportunity to also become shareholders. The ESOP borrowed $4.3 million from the Company in December 1995 and used the funds to purchase 433,780 shares of Company common stock. The loan is being repaid principally from the Company's contributions to the ESOP over a period of ten years. At December 31, 2000 and 1999, the loan had an outstanding balance of $2.2 million and $2.6 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 $661,000, $744,000 and $816,000 of compensation expense related to the ESOP during the years ended December 31, 2000, 1999 and 1998, respectively. The shares in the ESOP as of December 31, 2000 were as follows: Shares allocated for periods through December 31, 1999 149,386 Shares released for allocation during 2000 44,405 Unallocated shares at December 31, 2000 190,918 ---------- Total ESOP shares 384,709 ========== Market value of unallocated shares at December 31, 2000 $3,126,282 ========== (d) Stock Option Plan The Company has a Stock Option and Incentive Plan (Stock Option Plan), the primary objective of which 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, as amended, 696,428 authorized but unissued shares are reserved for issuance upon option exercises. As of December 31, 2000, 691,914 options have been awarded. The Company also has the alternative to use treasury shares to satisfy option exercises. 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 generally vest ratably over a four year period, although a limited number of options have been granted with no vesting requirement. Options expire no later than ten years following the date of original grant. 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, 2000, 1999 and 1998 is presented below:
2000 1999 1998 ----------------------- ----------------------- ----------------------- Weighted- Weighted- Weighted- Average Average Average No. of Exercise No. of Exercise No. of Exercise Options Price Options Price Options Price ------- ----- ------- ----- ------- ----- Outstanding at January 1 429,864 $ 13.47 442,741 13.48 373,974 13.75 Granted 246,908 15.71 - - 2,000 13.50 Exercised - - (10,167) 13.75 (9,489) 13.75 Forfeited (4,514) 13.75 (2,710) 13.75 (77,947) 13.75 Issued in acquisition - - - - 154,203 12.97 ---------- ---------- ------- Outstanding at December 31 672,258 14.29 429,864 13.47 442,741 13.48 ========== ========== ========== Exercisable at December 31 361,449 13.42 293,034 13.34 227,838 13.22 ========== ========== ==========
The following table summarizes information about the Company's stock options at December 31, 2000: Weighted-Avg. Exercise Remaining Price Outstanding Contractual Life Exercisable ------- ------------- ----------------- ------------- $12.97 154,203 6.4 years 154,203 13.50 2,000 7.9 2,000 13.75 269,147 6.4 205,246 15.53 146,000 9.8 - 15.97 100,908 9.9 - ---------- --------- 672,258 7.7 361,449 ========== ========= All options have been granted at an exercise price equal to the fair value of the common stock at the grant date, except for 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 2000 and 1998, respectively: dividend yield of 3.72% and 1.32%; expected volatility of 15% and 30%; risk-free interest rate of 6.72% and 4.54%; and expected option life of 7 years and 5 years. The estimated fair value of the options granted in 2000 and 1998 was $2.94 and $4.09 per share, respectively. Pro-forma disclosures for the Company for the years ended December 31, 2000, 1999 and 1998 are as follows: 2000 1999 1998 ---- ---- ---- Net income (in thousands): As reported $ 3,542 4,303 1,031 Pro-forma 3,284 4,040 731 Basic EPS: As reported 0.77 0.88 0.26 Pro-forma 0.71 0.83 0.19 Diluted EPS: As reported 0.76 0.87 0.26 Pro-forma 0.71 0.82 0.18 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 The Company also has a Recognition and Retention Plan (RRP). The purpose of the RRP 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 use treasury shares to fund RRP awards. On May 23, 1997, a total of 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. As of December 31, 2000, there were 23,045 unvested RRP shares remaining. During 2000 and 1999, 10,782 and 7,586 shares, respectively, 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 during each year. The shares vested monthly throughout each year and were fully vested as of each respective year-end. (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. There are no plan assets. The net periodic postretirement benefit cost in 2000, 1999 and 1998 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 Company 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 beginning 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 $578,000 and $598,000 at December 31, 2000 and 1999, 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 $222,000 and $224,000 at December 31, 2000 and 1999, respectively, and is included in other assets in the consolidated statements of financial condition. (12) Earnings Per Share The calculation of basic and diluted EPS for the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998 ---------- ---------- ---------- (In thousands, except share and per share data) Basic EPS Net income available to common shareholders $ 3,542 $ 4,303 $ 1,031 ========== ========== ========== Weighted-average common shares outstanding 4,616,186 4,877,510 3,916,047 ========== ========== ========== Basic earnings per share $ 0.77 $ 0.88 $ 0.26 ========== ========== ========== Diluted EPS Net income available to common shareholders $ 3,542 $ 4,303 $ 1,031 ========== ========== ========== Weighted-average common shares outstanding 4,616,186 4,877,510 3,916,047 Effect of dilutive securities: Stock options 27,760 43,083 49,043 Unvested RRP shares 11,871 14,534 24,155 ---------- ---------- ---------- Weighted-average common shares (diluted) 4,655,817 4,935,127 3,989,245 ========== ========== ========== Diluted earnings per share $ 0.76 $ 0.87 $ 0.26 ========== ========== ==========
The weighted-average number of options excluded from the computation of diluted EPS during 2000 because the options' exercise price was greater than the average market price of the common stock for certain quarters during 2000 (anti-dilutive) was 77,190, with a weighted-average exercise price of $14.00. At December 31, 2000, there were no outstanding options which were anti-dilutive. (13) 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. Based on consultation with outside counsel, management believes that the outcome of any pending legal proceedings will not have a material impact on the Company's consolidated financial statements. (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, 2001 $ 575 2002 514 2003 476 2004 446 2005 378 2006 and thereafter 3,166 ------------- $ 5,555 ============= Amounts charged to rent expense were approximately $574,000, $553,000 and $385,000 for the years ended December 31, 2000, 1999 and 1998, respectively. (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, 2000 and 1999 at fixed and variable interest rates are as follows: Fixed Variable Total ------- ------- ------- (In thousands) 2000: Commitments to extend credit $ 6,254 725 6,979 Unused lines of credit 1,592 7,182 8,774 Standby letters of credit -- 107 107 ------- ------- ------- $ 7,846 8,014 15,860 ======= ======= ======= 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 ======= ======= ======= (14) Fair Values of Financial Instruments Fair value estimates for financial instruments 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 significant 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, taking into consideration any early withdrawal penalties. 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, and accrued interest payable. The carrying values and estimated fair values of financial assets and liabilities as of December 31, 2000 and 1999 were as follows:
2000 1999 ---------------------------- ---------------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value ----- ----- ----- ----- (In thousands) Financial assets: Cash and cash equivalents $ 78,497 78,497 29,611 29,611 Securities available for sale 138,990 138,990 212,145 212,145 FHLB stock 8,870 8,870 8,748 8,748 Loans 465,703 456,603 470,986 452,232 Less: Allowance for loan losses (5,745) - (5,509) - ----------- ----------- ----------- ----------- Loans receivable, net 459,958 456,603 465,477 452,232 =========== =========== =========== =========== Accrued interest receivable 4,103 4,103 4,411 4,411 Financial liabilities: Deposits: Demand, savings, money market, and NOW accounts 229,718 229,718 229,798 229,798 Time deposits 248,874 250,126 220,336 220,336 FHLB short-term borrowings 5,000 5,000 71,200 71,200 FHLB long-term advances 66,435 66,682 20,965 20,956 Securities sold under agreements to repurchase 72,500 72,885 112,740 110,755 Advances from borrowers for taxes and insurance 3,402 3,402 3,641 3,641 Accrued interest payable 1,108 1,108 1,508 1,508
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. (15) Regulatory Matters 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, 2000, 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, 2000 and 1999, 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, 2000 and 1999. 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. 2000 1999 ------------------ --------------------- Amount Ratio Amount Ratio ------ ----- ------ ----- (Dollars in thousands) Bank Tangible capital $63,964 9.12% $67,760 9.18% Tier 1 (core) capital 63,964 9.12 67,760 9.18 Risk-based capital: Tier 1 63,964 18.48 67,760 19.55 Total 68,309 19.73 72,108 20.80 Consolidated Tangible capital 71,652 10.19 74,576 10.02 Tier 1 (core) capital 71,652 10.19 74,576 10.02 Risk-based capital: Tier 1 71,652 20.80 74,576 21.40 Total 75,974 22.06 78,947 22.65 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. Based on the level of dividends paid from the Bank to the Holding Company in recent years, as of December 31, 2000, the Bank must obtain approval from the OTS prior to the payment of any dividends to the Holding Company. As part of the conversion of the former Amsterdam Savings Bank, FSB, and the former Amsterdam Federal Bank from mutual institutions to stock institutions, 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. (16) Holding Company Financial Information The Holding Company's statements of financial condition as of December 31, 2000 and 1999, and the related statements of income and cash flows for the years ended December 31, 2000, 1999 and 1998, 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 2000 1999 ------- ------- (In thousands) Assets Cash and cash equivalents $ 3,734 977 Securities available for sale* 5,264 5,017 Loan receivable from subsidiary 2,169 2,603 Accrued interest receivable 56 49 Investment in subsidiary 69,502 68,923 Other assets 637 917 ------- ------- Total assets $81,362 78,486 ======= ======= Liabilities and Shareholders' Equity Liabilities: Securities sold under agreements to repurchase** $ -- 2,740 Loan payable to subsidiary 3,978 -- Other liabilities 262 153 Shareholders' equity 77,122 75,593 ------- ------- Total liabilities and shareholders' equity $81,362 78,486 ======= ======= * As of December 31, 2000, consisted of U.S. Government agency securities, mortgage-backed securities and marketable equity securities. As of December 31, 1999, consisted of U.S. Government agency securities and mortgage-backed securities. the debt securities had a contractual weighted-average maturity of 8.5 years and 8.9 years at December 31, 2000 and 1999, respectively (none callable at either date). ** Weighted-average rate at December 31, 1999 was 5.96% with a maturity date of February 15, 2000.
Statements of Income 2000 1999 1998 -------- -------- -------- (In thousands) Income: Dividends from bank subsidiary $ 8,000 1,500 5,000 Interest and dividend income 573 571 649 Gains on securities transactions 1,689 -- -- Other income 1 28 1 -------- -------- -------- Total income 10,263 2,099 5,650 -------- -------- -------- Expenses: Interest expense 303 58 34 RRP expense 317 317 371 Other expenses 764 496 735 -------- -------- -------- Total expenses 1,384 871 1,140 -------- -------- -------- Income before taxes and effect of subsidiary earnings and distributions 8,879 1,228 4,510 Income tax expense (benefit) 352 (99) (199) -------- -------- -------- Income before effect of subsidiary earnings and distributions 8,527 1,327 4,709 Effect of subsidiary earnings and distributions: Distributions in excess of earnings (4,985) -- (3,678) Equity in undistributed earnings -- 2,976 -- -------- -------- -------- Net income $ 3,543 4,303 1,031 ======== ======== ========
Statements of Cash Flows 2000 1999 1998 ------- ------- ------- (In thousands) Increase (decrease) in cash and cash equivalents: Cash flows from operating activities: Net income $ 3,542 4,303 1,031 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiary -- (2,976) -- Distributions in excess of subsidiary earnings 4,985 -- 3,678 Gains on securities transactions (1,689) -- -- RRP expense 317 317 371 Decrease (increase) in accrued interest receivable and other assets 226 788 (1,124) increase (decrease) in other liabilities 109 (34) 157 ------- ------- ------- Net cash provided by operating activities 7,490 2,398 4,113 ------- ------- ------- Cash flows from investing activities: Purchases of securities available for sale (4,291) -- (7,998) Proceeds from principal paydowns, maturities and calls of securities available for sale 487 833 11,338 Proceeds from sales of securities available for sale 5,372 -- -- Payments received on loan receivable from subsidiary 434 433 434 Net cash acquired in acquisition -- -- 2,297 ------- ------- ------- Net cash provided by investing activities 2,002 1,266 6,071 ------- ------- ------- Cash flows from financing activities: Net (decrease) increase in securities sold under agreements to repurchase (2,740) 2,740 (2,600) Proceeds from loan payable to subsidiary 4,331 -- -- Repayments of loan payable to subsidiary (353) -- -- Purchases of treasury stock (5,717) (7,438) (4,111) Issuance of treasury stock to subsidiary related to RRP 167 116 -- Exercises of stock options -- 139 130 Dividends paid (2,423) (1,760) (1,133) ------- ------- ------- Net cash used in financing activities (6,735) (6,203) (7,714) ------- ------- ------- Net increase (decrease) in cash and cash equivalents 2,757 (2,539) 2,470 Cash and cash equivalents: Beginning of year 977 3,516 1,046 ------- ------- ------- End of year $ 3,734 977 3,516 ======= ======= =======
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 1999 and 2000. 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 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 2000 First Quarter 14.8651 11.9408 $0.11 2000 Second Quarter 16.8263 12.7937 0.12 2000 Third Quarter 17.0979 14.3085 0.13 2000 Fourth Quarter 16.8750 14.8677 0.14 For information regarding restrictions on dividends, see Note 15 to the Notes to Consolidated Financial Statements. As of March 21, 2000, the Company had approximately 1,260 shareholders of record and 4,532,433 outstanding shares of Common Stock. Special Counsel Malizia, Spidi & Fisch, PC 1100 New York Avenue,Suite 340 West 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, 2000 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 18, 2001 at the Mohawk Community Bank located at 11 Division 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 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 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 W. 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 5 0005.txt SUBSIDIARIES OF THE REGISTRANT Subsidiary Name State of Incorporation - ------------------------------- ---------------------- Mohawk Community Bank New York ASB Insurance Agency, Inc. New York Mohawk Valley Realty Corp.(a subsidiary of Mohawk Community Bank) New York EX-23 6 0006.txt CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS 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 9, 2001, relating to the consolidated statements of financial condition of Ambanc Holding Co., Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000, which report appears in the December 31, 2000 Annual Report on Form 10-K of Ambanc Holding Co., Inc. /s/ KPMG LLP Albany, New York March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----