UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1997 Commission File No. 0-21113
AFSALA BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 14-1793890
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
161 CHURCH STREET, AMSTERDAM, NY 12010
--------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 842-5700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
Indicate the number of shares of outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of shares outstanding
Class of Common Stock as of May 7, 1997
--------------------- -------------------------
Common Stock, Par $.10 1,454,750
Transitional Small Business Disclosure Format (Check One): Yes No X
----- -------
AFSALA BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
MARCH 31, 1997
INDEX
- -----
Part I CONSOLIDATED FINANCIAL INFORMATION Page
Item 1. Financial Statements......................................................... 1
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and September 30, 1996........................................... 1
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 (Unaudited) ............................ 2
Consolidated Statements of Income for the six
months ended March 31, 1997 and 1996 (Unaudited) ............................ 3
Consolidated Statements of Cash Flows for the six
months ended March 31, 1997 and 1996 (Unaudited)............................. 4
Notes to unaudited consolidated interim financial statements................. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................. 7
Part II OTHER INFORMATION
- -------
Item 1. Legal Proceedings.......................................................... 21
Item 2. Changes in Securities...................................................... 21
Item 3. Defaults Upon Senior Securities............................................ 21
Item 4. Submission of Matters to a Vote of Security Holders........................ 21
Item 5. Other Information.......................................................... 21
Item 6. Exhibits and Reports on Form 8-K. ....................................... 21
Signatures........................................................................... 22
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, September 30,
1997 1996
------------- --------------
Assets
- ------
Cash and due from banks $ 4,620,640 $ 4,816,392
Federal funds sold 6,125,000 19,200,000
Term deposits with the Federal Home Loan Bank -- 3,000,000
------------- -------------
Total cash and cash equivalents 10,745,640 27,016,392
------------- -------------
Securities available for sale, at approximate fair value 23,366,666 17,131,802
Investment securities held to maturity 41,911,889 34,999,930
Federal Home Loan Bank of New York stock,
at cost 565,300 565,300
Loans receivable, net 72,419,756 70,677,291
Accrued interest receivable 1,364,287 1,156,466
Premises and equipment, net 1,658,487 1,703,491
Other assets 221,954 426,015
------------- -------------
Total assets $ 152,253,979 $ 153,676,687
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits 128,356,450 126,460,081
Federal Home Loan Bank of New York long term
borrowings 1,621,875 1,815,625
Escrow accounts 206,498 365,187
Accrued expenses and other liabilities 982,266 4,444,922
------------- -------------
Total liabilities 131,167,089 133,085,815
------------- -------------
Commitments and contingent liabilities
Stockholders' Equity:
Preferred stock, $0.10 par value; authorized 500,000 shares; none issued -- --
Common stock, $0.10 par value; authorized 1,454,750 shares
issued and outstanding 145,475 145,475
Additional paid-in capital 13,465,092 13,460,381
Retained earnings, substantially restricted 8,673,316 8,120,864
Common stock acquired by ESOP (1,080,105) (1,107,800)
Net unrealized loss on securities available for sale, net of tax (116,888) (28,048)
------------- -------------
Total stockholders' equity 21,086,890 20,590,872
------------- -------------
Total liabilities and stockholders' equity $ 152,253,979 $ 153,676,687
============= =============
See accompanying notes to unaudited consolidated interim financial statements.
-1-
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the three months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
----------- ------------
Interest and dividend income:
Interest and fees on loans $1,518,471 $1,414,375
Interest on Federal funds sold 87,595 82,705
Interest on FHLB term deposits 35,149 21,535
Interest on securities available for sale 269,149 248,776
Interest on investment securities 704,153 460,527
Dividends on Federal Home Loan Bank of NY stock 8,851 9,151
---------- ----------
Total interest and dividend income 2,623,368 2,237,069
---------- ----------
Interest expense:
Deposits and escrow accounts 1,294,221 1,290,658
Federal Home Loan Bank of New York long term
borrowings 28,678 36,740
---------- ----------
Total interest expense 1,322,899 1,327,398
---------- ----------
Net interest income 1,300,469 909,671
Provision for loan losses 70,000 50,000
---------- ----------
Net interest income after provision for loan losses 1,230,469 859,671
---------- ----------
Non-interest income:
Service charges on deposit accounts 88,698 91,810
Other 16,409 13,985
---------- ----------
Total non-interest income 105,107 105,795
---------- ----------
Non-interest expense:
Compensation and benefits 365,270 301,564
Occupancy and equipment 139,355 121,140
FDIC deposit insurance premium 20,696 65,853
Data processing fees 72,107 67,178
Professional services fees 72,874 25,692
Advertising 10,101 7,618
Supplies 23,803 25,885
Other 191,018 101,992
---------- ----------
Total non-interest expense 895,224 716,922
---------- ----------
Income before income tax expense 440,352 248,544
Income tax expense 157,500 80,500
---------- ----------
Net income $ 282,852 $ 168,044
========== ==========
Net income per share $ 0.21 $ N/A
========== ==========
See accompanying notes to unaudited consolidated interim financial statements
- 2 -
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the six months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
----------- ------------
Interest and dividend income:
Interest and fees on loans $3,037,125 $ 2,811,188
Interest on Federal funds sold 197,647 162,933
Interest on FHLB term deposits 142,037 44,773
Interest on securities available for sale 503,904 280,648
Interest on investment securities 1,339,911 1,124,778
Dividends on Federal Home Loan Bank of NY stock 18,244 18,927
---------- -----------
Total interest and dividend income 5,238,868 4,443,247
---------- -----------
Interest expense:
Deposits and escrow accounts 2,596,727 2,574,091
Federal Home Loan Bank of New York long term
borrowings 59,575 76,056
---------- -----------
Total interest expense 2,656,302 2,650,147
---------- -----------
Net interest income 2,582,566 1,793,100
Provision for loan losses 150,000 80,000
---------- -----------
Net interest income after provision for loan
losses 2,432,566 1,713,100
---------- -----------
Non-interest income:
Service charges on deposit accounts 199,036 180,241
Other 29,420 16,892
---------- -----------
Total non-interest income 228,456 197,133
---------- -----------
Non-interest expense:
Compensation and benefits 737,073 627,288
Occupancy and equipment 272,793 232,471
FDIC deposit insurance premium 76,013 128,904
Data processing fees 142,074 132,966
Professional service fees 131,624 58,541
Advertising 24,490 17,972
Supplies 49,641 38,864
Other 370,131 216,255
---------- -----------
Total non-interest expense 1,803,839 1,453,261
---------- -----------
Income before income tax expense 857,183 456,972
Income tax expense 304,731 138,600
---------- -----------
Net income $ 552,452 $ 318,372
========== ===========
Net income per share $ 0.41 $ N/A
========== ===========
See accompanying notes to unaudited consolidated interim financial statements.
- 3 -
AFSALA BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
------------ ------------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 552,452 $ 318,372
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation 91,273 81,871
Provision for loan losses 150,000 80,000
ESOP compensation expense 32,406 --
(Increase) decrease in accrued interest receivable (207,821) 1,874
Decrease in other assets 204,061 18,514
Decrease in accrued expenses and other liabilities (3,416,891) (125,991)
------------ ------------
Total adjustments (3,146,972) 56,268
------------ ------------
Net cash (used in) provided by operating activities (2,594,520) 374,640
------------ ------------
Cash flows from investing activities:
Proceeds from the maturity and call of securities
available for sale 4,180,531 924,819
Purchase of securities available for sale (10,550,000) --
Proceeds from the maturity and call of investment securities 4,089,885 6,538,108
Purchase of investment securities (11,001,844) (7,426,899)
Net loans made to customers (1,892,465) (2,361,980)
Capital expenditures (46,269) (55,053)
------------ ------------
Net cash used in investing activities (15,220,162) (2,381,005)
------------ ------------
Cash flows from financing activities:
Increase in deposits 1,896,369 5,370,422
Decrease in escrow accounts (158,689) (191,298)
Repayments on long term borrowings from the
Federal Home Loan Bank (193,750) (231,250)
------------ ------------
Net cash provided by financing activities 1,543,930 4,947,874
------------ ------------
Net (decrease) increase in cash and cash equivalents (16,270,752) 2,941,509
Cash and cash equivalents at beginning of period 27,016,392 9,673,328
------------ ------------
Cash and cash equivalents at end of period $ 10,745,640 $ 12,614,837
============ ============
Additional Disclosures Relative to Cash Flows:
Interest paid $ 2,664,664 $ 2,647,905
============ ============
Taxes paid $ 135,228 $ 40,000
============ ============
Supplemental schedule of non-cash investing and financing activities:
Investment securities held to maturity transferred to
securities available for sale $ -- $ 16,602,489
============ ============
Change in unrealized gain (loss) on securities available for sale, net of tax $ 88,840 $ (37,153)
============ ============
See accompanying notes to unaudited consolidated interim financial statements.
-4-
AFSALA BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements include the
accounts of AFSALA Bancorp, Inc. and its subsidiary (the Company) Amsterdam
Federal Bank. The accompanying unaudited consolidated interim financial
statements have been prepared in accordance with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The accounting and reporting policies of the Company conform in all
material respects to generally accepted accounting principles and to general
practice within the savings bank industry. It is the opinion of management that
the accompanying unaudited consolidated interim financial statements reflect all
adjustments which are considered necessary to report fairly the financial
position as of March 31, 1997, the Consolidated Statements of Income for the
three months and six months ended March 31, 1997 and 1996, and the Consolidated
Statements of Cash Flows for the six months ended March 31, 1997 and 1996. The
results of operations for the six months ended March 31, 1997, are not
necessarily indicative of results that may be expected for the entire year
ending September 30, 1997. The accompanying unaudited consolidated interim
financial statements should be read in conjunction with AFSALA Bancorp, Inc.'s
September 30, 1996 consolidated financial statements, including the notes
thereto, which are included in AFSALA Bancorp, Inc's 1996 Annual Report on Form
10-KSB.
NOTE 2. Net Income Per Share
Net income per share for the three months and six months ended March 31, 1997
has been determined by dividing net income by the weighted average number of
shares of common stock outstanding for the period. Shares of common stock
outstanding are reduced by the Company's Employee Stock Ownership Plan (ESOP)
shares that have not been committed to be released in accordance with SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". The weighted average
number of shares of common stock outstanding for the three months and six months
ended March 31, 1997 was 1,347,000 and 1,345,000, respectively. Net income per
share for the the three months and six months ended March 31, 1996 is not
applicable as there were no shares outstanding during these time periods.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (Statement 128),
which establishes standards for computing and presenting earnings per share
(EPS). This Statement simplifies the standards for computing EPS making them
comparable to international EPS standards and supersedes Accounting Principals
Board Opinion No. 15, "Earnings per Share" and related interpretations.
Statement 128 replaces the presentation of primary EPS with the presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
-5 -
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. Management does not
anticipate that the adoption of this statement will have a material effect on
the Company's consolidated financial statements.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
AFSALA Bancorp, Inc. (the Company) is a Delaware corporation organized in June
1996 at the direction of Amsterdam Federal Bank (the Bank) to aquire all of the
capital stock that the Bank issued upon the Bank's conversion from the mutual to
stock form of ownership. On September 30, 1996, the Company completed its
initial public stock offering, issuing 1,454,750 shares of $.10 par value common
stock at $10.00 per share. Net proceeds to the Company were $13.6 million after
conversion costs. Approximately $1.1 million of the proceeds were utilized to
fund a loan by the Company to the Company's Employee Stock Ownership Plan (ESOP)
which purchased 110,780 shares of the Company's common stock during the
offering. The Company is not an operating company and has not engaged in any
significant business to date. As such, references herein to the Bank subsequent
to September 30, 1996 include the Company unless the context otherwise
indicates.
The Bank's results of operations are primarily dependent on its net interest
income, which is the difference between the interest income earned on its
assets, primarily loans and investments, 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,
other income, such as fees on deposit-related services, and the Bank's provision
for loan losses.
The Bank has been, and intends to continue to be, a community-oriented financial
institution offering a variety of financial services. Management's strategy has
been to try to achieve a high loans to assets ratio and a high proportion of
lower-costing, non-time deposit accounts in the deposit portfolio. At March 31,
1997, the Bank's loans receivable, net, to assets ratio was 47.6% up from 46.0%
at September 30, 1996. At March 31, 1997 and September 30, 1996, $63.8 million
or 49.7% and $62.6 million or 49.5%, respectively of total deposits were in
non-time deposits accounts.
- 7 -
Consolidated Financial Condition
Total assets decreased by $1.4 million or 0.9% to $152.2 million at March 31,
1997 from $153.7 million at September 30, 1996, primarily due to the payment of
cashier checks which were issued and outstanding on September 30, 1996 to refund
the over-subscriptions related to the Company's initial public offering. Cashier
checks are drawn upon deposit accounts at the Bank and are classified as accrued
expenses and other liabilities until ultimately paid through the Bank's Federal
Reserve correspondent account. The payment of these cashier checks resulted in a
decrease in accrued expenses and other liabilities of $3.5 million or 77.9% to
$982 thousand at March 31, 1997 from $4.4 million at September 30, 1996.
Offsetting this decrease in accrued expenses and other liabilities was an
increase in deposits as deposits grew $1.9 million or 1.5% to $128.4 million at
March 31, 1997 from $126.5 million at September 30, 1996.
The Company's securities available for sale increased $6.2 million or 36.4% to
$23.4 million at March 31, 1997 from $17.1 million at September 30, 1996.
Likewise, investment securities held to maturity increased by $6.9 million or
19.7% to $41.9 million at March 31,1997, up from $35.0 million at September 30,
1996. These increases are primarily the result of the investment of the proceeds
from the offering into higher yielding instruments.
The Company's net loans receivable increased by $1.7 million or 2.5% to $72.4
million at March 31, 1997 up from $70.7 million at September 30, 1996 due to
increased loan activity primarily in residential mortgage and home equity loans.
Stockholders' equity increased by $496 thousand or 2.4% to $21.1 million at
March 31, 1997 from $20.6 million at September 30, 1996. The increase was
primarily the result of net income for the six month period ended March 31,
1997. Equity during the period was also effected by 2,770 shares of common stock
committed to be released by the Company's ESOP as of December 31, 1996.
- 8 -
Asset /Liability Management
The Bank's net interest income is sensitive to changes in interest rates, as the
rates paid on its interest-bearing liabilities generally change faster than the
rates earned on its interest-earning assets. As a result, net interest income
will frequently decline in periods of rising interest rates and increase in
periods of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest income,
the Bank manages its interest rate sensitivity and asset/liability products
through its asset/liability management committee. The asset/liability management
committee meets weekly to determine the rates of interest for loans and deposits
and consists of the President and Chief Executive Officer, the Vice President
and Chief Lending Officer, and the Treasurer and Chief Financial Officer. Rates
on deposits are primarily based on the Bank's needs for funds and on a review of
rates offered by other financial institutions in the Bank's market areas.
Interest rates on loans are primarily based on the interest rates offered by
other financial institutions in the Bank's primary market areas as well as the
Bank's cost of funds.
In an effort to reduce interest rate risk and protect itself from the negative
effects of rapid or prolonged changes in interest rates, the Bank has instituted
certain asset and liability management measures, including (i) originating, for
its portfolio, a large base of adjustable-rate residential mortgage loans, and
(ii) maintaining substantial levels of interest-bearing term deposits, federal
funds, and securities with one to five year terms to maturity.
The committee manages the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The committee then monitors the impact of the interest rate risk and
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to reduce the interest rate sensitivity of its interest-earning assets and to
match, as closely as possible, the maturities of interest-earning assets with
interest-bearing liabilities.
The experience of the Bank has been that net interest income declines with
increases in interest rates and that net interest income increases with
decreases in interest rates. Generally, during periods of increasing interest
rates, the Bank's interest rate sensitive liabilities would reprice faster than
its interest rate sensitive assets causing a decline in the Bank's interest rate
spread and margin. This would result from an increase in the Bank's cost of
funds that would not be immediately offset by an increase in its yield on
earning assets. An increase in the cost of funds without an equivalent increase
in the yield on earning assets would tend to reduce net interest income. The
Bank's interest rate spread increased for the three months ended March 31,1997
and 1996 from 2.60% to 2.97% and for the six months ended March 31, 1997 and
1996 from 2.55% to 2.89%.
In times of decreasing interest rates, fixed rate assets could increase in value
and the lag in repricing of interest rate sensitive assets could be expected to
have a positive effect on the Bank's net interest income.
-9-
AFSALA BANCORP, INC. AND SUBSIDIARY
Average Balance Sheet, Interest Rates and Yield
(Unaudited)
For the Three Months Ended March 31,
-----------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Cost(1) Balance Paid Cost(1)
----------- ---------- -------- ----------- --------- ---------
(Dollars in Thousands)
Interest-earning assets:
Federal funds sold $ 6,974 88 5.12 $ 6,473 83 5.16
Term deposits with Federal
Home Loan Bank of NY 2,581 35 5.50 1,602 22 5.52
Securities available for sale (3) 18,286 269 5.97 18,474 249 5.42
Investment securities held to maturity 42,988 704 6.64 30,134 460 6.14
FHLB of NY stock 565 9 6.46 566 9 6.40
Loans receivable, net(2) 72,292 1,518 8.52 67,388 1,414 8.44
-------- -------- ------ -------- -------- ------
Total interest-earning assets 143,686 2,623 7.40 124,637 2,237 7.22
-------- ------ -------- ------
Non-interest earning assets 6,679 6,454
-------- --------
Total assets $150,365 $131,091
======== ========
Interest-bearing liabilities:
Savings accounts $ 35,696 264 3.00 $ 34,461 257 3.00
NOW accounts 10,781 61 2.29 9,462 54 2.30
Money market accounts 8,818 88 4.05 6,214 55 3.56
Time deposit accounts 63,997 879 5.57 62,889 922 5.90
Escrow accounts 261 2 3.11 435 2 1.85
FHLB of NY
long term borrowings 1,651 29 7.12 2,107 37 7.06
-------- -------- ------ -------- -------- ------
Total interest-bearing liabilities 121,204 1,323 4.43 115,568 1,327 4.62
-------- ------ -------- ------
Non-interest bearing deposits 7,403 6,278
Other non-interest bearing liabilities 756 1,084
Equity 21,002 8,161
-------- --------
Total liabilities and equity $150,365 $131,091
======== ========
Net interest income $ 1,300 $ 910
======== ========
Interest rate spread 2.97% 2.60%
===== =====
Net interest margin 3.67% 2.94%
===== =====
Ratio of average interest-earning
assets to average
interest-bearing liabilities 118.55% 107.85%
====== ======
(1) Annualized
(2) Calculated net of allowance for loan losses. Includes non-accrual loans.
(3) Average securities available for sale are included at approximate fair
value. The adjustment to approximate fair value is not considered
significant.
- 10 -
AFSALA BANCORP, INC. AND SUBSIDIARY
Average Balance Sheet, Interest Rates and Yields
(Unaudited)
For the Six Months Ended March 31,
------------------------------------------------------------------------
1997 1996
------------------------------------- --------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(1) Balance Paid Rate(1)
------------ -------- -------- ----------- --------- ---------
(Dollars in Thousands)
Interest-earning assets:
Federal funds sold $ 7,630 198 5.20 $6,258 163 5.21
Term deposits with Federal
Home Loan Bank of NY 5,220 142 5.46 1,601 45 5.62
Securities available for sale (3) 17,536 504 5.76 10,349 281 5.43
Investment securities held to maturity 40,856 1,340 6.58 38,022 1,124 5.91
FHLB of NY stock 565 18 6.39 566 19 6.71
Loans receivable, net(2) 71,871 3,037 8.47 66,920 2,811 8.40
-------- ------- ------ -------- ------- ------
Total interest-earning assets 143,678 5,239 7.31 123,716 4,443 7.18
-------- ------- --------- -------- ------
Non-interest earning assets 6,631 6,132
-------- --------
Total assets $150,309 $129,848
======== ========
Interest-bearing liabilities:
Savings accounts $ 35,685 533 3.00 $ 34,198 514 3.00
NOW accounts 10,822 124 2.30 9,305 106 2.28
Money market accounts 8,485 168 3.97 6,012 106 3.53
Time deposit accounts 63,641 1,767 5.57 62,408 1,843 5.91
Escrow accounts 299 4 2.68 474 5 2.11
FHLB of NY
long term borrowings 1,701 60 7.07 2,170 76 7.00
-------- -------- ------- --------- -------- ------
Total interest-bearing liabilities 120,633 2,656 4.42 114,567 2,650 4.63
-------- ------- --------- -------- ------
Non-interest bearing deposits 7,569 6,245
Other non-interest bearing liabilities 1,239 962
Equity 20,868 8,074
-------- --------
Total liabilities and equity $150,309 $129,848
======== ========
Net interest income $ 2,583 $ 1,793
======== ========
Interest rate spread 2.89% 2.55%
====== ======
Net interest margin 3.61% 2.90%
====== ======
Ratio of average interest-earning
assets to average
interest-bearing liabilities 119.10% 107.99%
======== ========
(1) Annualized
(2) Calculated net of allowance for loan losses. Includes non-accrual loans.
(3) Average securities available for sale are included at approximate fair
value. The adjustment to approximate fair value is not considered
significant.
- 11 -
AFSALA BANCORP, INC. AND SUBSIDIARY
RATE/ VOLUME ANALYSIS
(Unaudited)
THREE MONTHS ENDED MARCH 31,1997
COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------
INCREASE (DECREASE)
-----------------------------------
DUE TO
----------------------
VOLUME RATE NET
---------- ---------- --------
Interest and dividend income:
Federal funds sold $ 6,252 (1,362) 4,890
Term deposits with FHLB of NY 13,867 (253) 13,614
Securities available for sale (2,546) 22,919 20,373
Investment securities held to maturity 208,244 35,382 243,626
FHLB of NY stock (194) (106) (300)
Loans receivable, net 102,517 1,579 104,096
--------- --------- ---------
Total interest and dividend income 328,140 58,159 386,299
--------- --------- ---------
Interest expense:
Savings accounts 9,239 (2,122) 7,117
NOW accounts 7,539 (682) 6,857
Money market accounts 25,214 7,716 32,930
Time deposit accounts 16,179 (59,092) (42,913)
Escrow accounts (1,162) 732 (430)
FHLB of NY long term borrowings (8,067) 5 (8,062)
--------- --------- ---------
Total interest expense 48,942 (53,443) (4,501)
--------- --------- ---------
Net change in net interest income $ 279,198 $ 111,602 $ 390,800
========= ========= =========
SIX MONTHS ENDED MARCH 31,1997
COMPARED WITH
SIX MONTHS ENDED MARCH 31, 1996
-------------------------------
INCREASE (DECREASE)
-----------------------------------
DUE TO
------------------------
VOLUME RATE NET
---------- ---------- ---------
Interest and dividend income:
Federal funds sold $ 35,478 (764) 34,714
Term deposits with FHLB of NY 98,706 (1,442) 97,264
Securities available for sale 206,083 17,173 223,256
Investment securities held to maturity 86,746 128,387 215,133
FHLB of NY stock (21) (662) (683)
Loans receivable, net 210,116 15,821 225,937
--------- --------- ---------
Total interest and dividend income 637,108 158,513 795,621
--------- --------- ---------
Interest expense:
Savings accounts 21,151 (1,478) 19,673
NOW accounts 16,954 625 17,579
Money market accounts 47,538 14,051 61,589
Time deposit accounts 36,191 (111,568) (75,377)
Escrow accounts (2,033) 1,205 (828)
FHLB of NY long term borrowings (17,011) 530 (16,481)
--------- --------- ---------
Total interest expense 102,790 (96,635) 6,155
--------- --------- ---------
Net change in net interest income $ 534,318 $ 255,148 $ 789,466
========= ========= =========
- 12 -
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
1996.
Net Income. Net income increased by $115 thousand or 68.3% for the three months
ended March 31, 1997 to $283 thousand from $168 thousand for the three months
ended March 31, 1996. Net income for the three months ended March 31, 1997
increased primarily as a result of increased net interest income offset in part
by an increase in non-interest expense and provision for loan losses. Net
interest income increased by $391 thousand or 43.0% to $1.3 million for the
three months ended March 31, 1997 as compared to $910 thousand for the three
months ended March 31, 1996. Non- interest expense increased $178 thousand or
24.9% to $895 thousand for the three months ended March 31, 1997 from $717
thousand for the three months ended March 31, 1996. This increase was primarily
due to increased compensation and benefit expenses as a result of costs related
to the Company's new ESOP, in addition to increased professional fees as a
result of being a public company, as well as additional expenses associated with
the opening of a new Operations Center. The provision for loan losses increased
$20 thousand to $70 thousand for the three months ended March 31, 1997,
primarily due to the loan growth noted above, and local economic trends.
Net Interest Income. Net interest income increased by approximately $391
thousand or 43.0% to $1.3 million for the three months ended March 31, 1997. The
increase was primarily due to an increase of $19.0 million or 15.3% in the
average balance of interest earning assets, in addition to an increase in the
interest rate spread from 2.60% for the three months ended March 31, 1996 to
2.97% for the three months ended March 31, 1997, offset by an increase in the
average balance of total interest-bearing liabilities of $5.6 million or 4.9%.
Interest earning assets primarily consist of loans receivable, federal funds
sold, securities (securities available for sale combined with investment
securities held to maturity), and interest bearing deposits with the FHLB of New
York. Interest bearing liabilities primarily consist of interest bearing
deposits and long term borrowings from the FHLB of New York.
The interest rate spread, which is the difference between the yield on average
interest earning assets and the percentage cost of average interest bearing
liabilities, increased to 2.97% for the three months ended March 31, 1997 from
2.60% for the three months ended March 31, 1996. The increase in the interest
rate spread is primarily the result of increases in the yields of interest
earning assets coupled with decreases in the cost of interest bearing
liabilities during this period.
Interest and Dividend Income. Interest and dividend income increased by
approximately $386 thousand or 17.3% to $2.6 million for the three months ended
March 31, 1997 from $2.2 million for the three months ended March 31, 1996. The
increase was largely the result of an increase of $19.0 million or 15.3% in the
average balance of interest earning assets to $144 million for the three months
ended March 31, 1997 as compared to $125 million for the three months ended
March 31, 1996. This increase was primarily due to the Company's initial public
offering on September 30, 1996, which generated approximately $13.6 million in
net proceeds which have been redeployed by management into various earning asset
categories. The increase in the average balance of interest earning assets
consisted primarily of an increase in the average balance of net loans
outstanding of approximately $4.9 million or 7.3%, and an increase in the
average balance of total securities (both securities available for sale and
investment securities held to maturity) of $12.7 million or 26.1%. Also adding
to the increase in interest and dividend income was a 18 basis point increase in
the average yield on all interest earning assets.
- 13 -
Interest income on investment securities held to maturity increased $244
thousand to $704 thousand for the three months ended March 31, 1997 from $460
thousand for three months ended March 31, 1996. This increase is primarily the
result of an increase in the average balance of investment securities held to
maturity of $12.9 million combined with a 50 basis point increase in the average
yield on these securities. Interest income on securities available for sale
increased $20 thousand or 8.2% to $269 thousand for the three months ended March
31, 1997 from $249 thousand for the same period of the previous year. The
increase in interest income on securities available for sale was primarily the
result of a 55 basis point increase in the average yield on these securities.
Interest and fees on loans increased $104 thousand or 7.4% to $1.5 million for
the three months ended March 31, 1997 from $1.4 million for the three months
ended March 31, 1996. This increase was primarily the result of an increase in
the average balance of net loans receivable of $4.9 million combined with a 8
basis point increase in the average yield on net loans receivable.
The yield on the average balance of interest earning assets was 7.40% and 7.22%
for the three months ended March 31, 1997 and 1996, respectively.
Interest Expense. Interest on deposits and escrow accounts increased by $4
thousand for the three months ended March 31, 1997 compared to the three months
ended March 31, 1996. This nominal increase in interest on deposits and escrow
accounts was substantially due to the increase in interest expense related to
savings, NOW, and money market accounts offset by the decrease in interest
expense related to time deposit accounts. The interest expense on savings
accounts was $264 thousand for the three months ended March 31, 1997, compared
to $257 thousand for the three months March 31, 1996. The interest expense on
NOW accounts was $61 thousand for the three months ended March 31, 1997,
compared to $54 thousand for the three months March 31, 1996. Likewise, interest
expense on money market accounts was $88 thousand for the three months ended
March 31, 1997, compared to $55 thousand for the three months March 31, 1996.
However, interest expense on time deposits was $879 thousand for the months
ended March 31, 1997, compared to $922 thousand for the three months March 31,
1996. This decrease was due primarily to a decrease in the average cost for the
current period of 5.57% as compared to the average cost for the prior period of
5.90%.
Interest on FHLB of NY long term borrowings, which is a less significant portion
of interest expense, decreased by $8 thousand or 21.9% to $29 thousand for the
three months ended March 31, 1997 when compared to the three months ended March
31, 1996, as the average amount of borrowing outstanding decreased by $456
thousand or 21.6% partially offset by an increase in the rate paid by the
Company of 6 basis points. The Company uses FHLB advances as a funding source
and generally uses long term borrowings to supplement deposits, which are the
Company's primary source of funds.
Provision for Loan Losses. The Company's management monitors and adjusts its
allowance for loan losses based upon its analysis of the loan portfolio. 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 Bank's
loan portfolio. The Bank has historically experienced a limited amount of loan
charge-offs. However, there can be no assurance that additions to the allowance
for loan losses will not be required in future periods or that actual losses
will not exceed estimated amounts. The Company's ratio of non-performing loans
to total assets was 0.38% and
- 14 -
0.51% at March 31, 1997 and September 30, 1996, respectively. The provision for
loan losses for the three months ended March 31, 1997 increased $20 thousand to
$70 thousand from $50 thousand for the three months ended March 31, 1996. The
increase was primarily due to the growth in the loan portfolio discussed above,
as well as local economic trends.
Non-Interest Income. Non-interest income remained fairly constant for the three
months ended March 31, 1997 and 1996.
Non-Interest Expenses. Non-interest expenses increased $178 thousand or 24.9% to
$895 thousand for the three months ended March 31, 1997 from $717 thousand for
the three months ended March 31, 1996. The increase in compensation and benefits
expense of $64 thousand or 21.1% was primarily the result of costs related to
the Company's new ESOP, as well as general cost of living and merit raises to
employees. Occupancy and equipment expenses increased by $18 thousand or 15.0%
due primarily to the new operations center opened in July 1996.
FDIC deposit insurance premiums decreased by $45 thousand or 68.6% due primarily
to reduced deposit insurance premium rates for the quarter ended March 31, 1997.
The reduced rates are the result of the capitalization of the SAIF through a
one-time special assessment during September 1996.
Professional service fees increased by $47 thousand or 183.6% to $73 thousand
from $27 thousand due primarily to increased legal and accounting fees as a
result of being a public company.
Other expenses increased $89 thousand to $191 thousand for the quarter ended
March 31, 1997 when compared to the same quarter of 1996. The increase is
primarily attributed to general expenses related to being a public company,
Delaware franchise taxes, and the write off of certain items deemed by
management to be uncollectible.
Management believes that compensation and benefits expenses will increase in
future periods as a result of the costs related to the Company's new ESOP.
Furthermore, the Company expects that certain operating expenses will increase
as a result of the costs associated with being a public company, as noted above.
Income Tax Expense. Income tax expense increased by $77 thousand or 95.7% to
$158 thousand for the three months ended March 31, 1997 from $81 thousand for
the three months ended March 31, 1996. The increase was primarily the result of
the increase in income before income tax expense.
- 15-
Comparison of Operating Results for the Six Months Ended March 31, 1997 and
1996.
Net Income. Net income increased by $234 thousand or 73.5% for the six months
ended March 31, 1997 to $552 thousand from $318 thousand for the six months
ended March 31, 1996. Net income for the six months ended March 31, 1997
increased primarily as a result of increases in net interest income and
non-interest income of $789 thousand and $31 thousand, respectively, offset by
increases in non-interest expense and the provision for loan losses of $351
thousand and $70 thousand, respectively.
Net Interest Income. Net interest income increased by approximately $789
thousand or 44.0% to $2.6 million from $1.8 million for the six months ended
March 31, 1996. The increase in net interest income was primarily the result of
the increase in the amount of average interest earning assets exceeding the
increase in average interest bearing liabilities. Likewise, the interest rate
spread increased to 2.89% for the six months ended March 31, 1997 from 2.55% for
the same period of the previous year. This increase in the interest rate spread
is primarily due to the increase in the average yield of interest earning assets
offset by a decrease in the average cost of interest bearing liabilities.
Interest and Dividend Income. Interest and dividend income increased by
approximately $796 thousand or 17.9% to $5.2 million for the six months ended
March 31, 1997 from $4.4 million for the six months ended March 31, 1996. The
increase in interest and dividend income was largely the result of an increase
of $20.0 million or 16.1% in the average balance of interest earning assets to
$144 million for the six months ended March 31, 1997 as compared to $124 million
for the six months ended March 31, 1996. This increase was primarily due to the
Company's initial public offering on September 30, 1996, which generated
approximately $13.6 million in net proceeds which have been redeployed by
management into various earning asset categories. Also adding to the increase in
interest and dividend income was a 13 basis point increase in the average yields
on all interest earning assets. The increase in the average balance of interest
earning assets consisted primarily of an increase in the average balance of net
loans outstanding of approximately $5.0 million or 7.4%, an increase in the
average balance of total securities (both securities available for sale and
investment securities held to maturity) of $10.0 million or 20.7%, an increase
in the average balance of term deposits with the FHLB of NY of $3.6 million or
226.0%, and an increase in the average balance of federal funds sold of $1.4
million or 21.9%.
Interest income on investment securities held to maturity increased $216
thousand or 19.2% to $1.3 million for the six months ended March 31, 1997 from
$1.1 million for the six months ended March 31, 1996. This increase is primarily
the result of a 67 basis point increase in the average yield on these securities
combined with an increase in the average balance of $2.8 million. Interest
income on securities available for sale increased $223 thousand or 79.4% to $504
thousand for the six months ended March 31, 1997 from $281 thousand for the same
period of the previous year. The increase in interest income on securities
available for sale is primarily due to a increase of $7.2 million in the average
balance as well as a 33 basis point increase in the average yield on these
securities.
-16-
Interest and fees on loans increased $226 thousand or 8.0% to $3.0 million for
the six months ended March 31, 1997 from $2.8 million for the six months ended
March 31, 1996. This increase was primarily the result of an increase in the
average balance of net loans receivable of $5.0 million combined with a 7 basis
point increase in the average yield on net loans receivable.
Interest Expense. Interest on deposits and escrow accounts amounted to $2.6
million for the six months ended March 31, 1997 and 1996. The nominal increase
over the prior year's period of $23 thousand or 0.9% is a result of increased
average balances in savings, NOW, money market, and time deposit accounts
coupled with increased average costs on NOW and money market accounts, offset by
decreased average cost of time deposit accounts.
Interest on FHLB of NY long term borrowings, which is a less significant portion
of interest expense, decreased by $16 thousand or 21.7 % to $60 thousand for the
six months ended March 31, 1997 when compared to the six months ended March 31,
1996, as the average amount of borrowing outstanding decreased by $469 thousand
or 21.6% partially offset by an increase in the rate paid by the Company of 7
basis points.
Provision for Loan Losses. The provision for loan losses increased $70 thousand
to $150 thousand for the six months ended March 31, 1997 from $80 thousand for
the six months ended March 31, 1996. The Company's ratio of non-performing loans
to total assets was 0.38% and 0.51% at March 31, 1997 and September 30, 1996,
respectively. The increase in the amount of the provision was based on
management's evaluation of the inherent risks associated with the growth in the
loan portfolio, as well as local economic trends.
Non-Interest Income. Non-interest income increased for the six months ended
March 31, 1997 to $228 thousand compared with $197 thousand for the
corresponding period in the previous year. Increases in service charges on
deposit accounts and other non-interest income comprised the majority of the
increase from the same period last year.
Non-Interest Expenses. Non-interest expenses increased $351 thousand or 24.1% to
$1.8 million for the six months ended March 31, 1997 from $1.5 million for the
six months ended March 31, 1996. Compensation and benefits expenses, the largest
component of non-interest expense, increased by $110 thousand or 17.5% from the
previous period as a result of costs related to the Company's new ESOP, coupled
with general cost of living and merit raises to employees. The increased
cccupancy and equipment expenses of $40 thousand or 17.3% for the six months
ended March 31, 1997 was due primarily to the new operations center opened in
July 1996. FDIC deposit insurance premiums decreased by $53 thousand or 41.0%
due primarily to reduced deposit insurance premium rates during the six month
period ended March 31, 1997. Professional service fees and other non-interest
expenses for the six months ended March 31, 1997, increased $73 thousand or
124.8% and $154 thousand or 71.2%, respectively, as a result of additional
legal, accounting and other fees related to being a publicly traded company,
Delaware franchise taxes, and the write off of certain items deemed
uncollectible by management.
-17-
Income Tax expense. Income tax expense increased to $305 thousand for the six
months ended March 31, 1997 from $139 thousand for the six months ended March
31, 1996. The increase was primarily the result of the increase in income before
income tax expense during the period.
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
5% 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 45.91% and 47.02% at
March 31, 1997 and September 30, 1996, respectively.
The Company's sources of liquidity include cash flows from operations, principal
and interest payments on loans, maturities of securities, deposit inflows, and
borrowings from the FHLB of New York. During the six months ended March 31, 1997
and 1996, the primary source of funds was cash flows from deposit growth. On
September 30, 1996, the company also had significant cash flows from its initial
public offering on that date which provided investable cash flows for the six
months ended March 31, 1997.
While maturities and scheduled amortization of loans and securities are, in
general, a predictable source of funds, deposit flows and prepayments on loans
and securities are greatly influenced by general interest rates, economic
conditions and competition. In addition, the Bank invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
In addition to deposit growth, from time to time the Company borrows funds from
the FHLB of New York to supplement its cash flows. At March 31, 1997 and
September 30, 1996, the Company had outstanding borrowings from the FHLB of $1.6
million and $1.8 million, respectively.
As of March 31, 1997 and September 30, 1996, the Company had $23.4 million and
$17.1 million of securities, respectively, classified as available for sale and
$41.9 million and $35.0 million of investment securities, respectively,
classified as held to maturity. The liquidity of the securities available for
sale portfolio provides the Bank 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 saving and
loan industry, and similar matters. Management monitors projected liquidity
needs and determines the level desirable, based in part on the Company's
commitments to make loans and management's assessment of the Company's ability
to generate funds.
-18-
The Bank is subject to federal regulations that impose certain minimum capital
requirements. At March 31, 1997, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
March 31, 1997 according to regulatory definition. At March 31, 1997, the
Company's consolidated tangible and core capital levels were both $21.2 million
(13.91% of total adjusted assets) and its total risk-based capital level was
$22.0 million (33.88% of total risk- weighted assets). The minimum regulatory
capital ratio requirements of the Bank are 1.5% for tangible capital, 3.0% for
core capital, and 8.0% for total risk-based capital.
Effect of Inflation and Changing Prices
The Company's consolidated interim financial statements and related data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or with the same magnitude as the prices of goods and services.
- 19 -
AFSALA BANCORP, INC. AND SUBSIDIARY
Key Operating Ratios
(unaudited)
The table below sets forth certain performance and financial ratios of the
Company for the periods indicated:
At or for the six At or for the
months ended year ended
March 31, 1997 September 30, 1996
Performance Ratios (1):
Net income per share $ 0.41 N/A
Return on average assets (annualized) 0.74% 0.16%
Return on average stockholders' equity (annualized) 5.31% 2.55%
Interest rate spread 2.89% 2.69%
Net interest margin 3.61% 3.02%
Efficiency ratio (2) 64.14% 88.03%
Expense ratio (annualized) (3) 2.41% 2.79%
Asset Quality Ratios:
Non-performing loans to total assets 0.38% 0.51%
Non-performing loans to total loans 0.79% 1.09%
Allowance for loan losses to non-performing loans 174.35% 112.40%
Allowance for loan losses to total loans receivable 1.38% 1.23%
Non-performing assets to total assets 0.38% 0.51%
Capital Ratios (4):
Stockholders' equity to total assets at period end 13.85% 13.40%
Average stockholders' equity to average total assets 13.88% 6.21%
Tangible capital 13.91% 13.41%
Core (Tier I) capital 13.91% 13.41%
Total risk-based capital 33.88% 33.54%
Book value per share (5) $ 15.66 $ 15.32
(1) Performance ratios for the year ended September 30, 1996 were significantly
effected by the SAIF one-time special assessment which amounted to approximately
$702 thousand before applicable taxes.
(2) Total non-interest expense, excluding other real estate owned expense, as a
percentage of net interest income and total non-interest income, excluding net
securities transactions.
(3) Total non-interest expense, excluding other real estate expense, as a
percentage of average total assets.
(4) Capital ratios are presented for the consolidated Company.
(5) Does not include the effect of 108,010 ESOP shares and 110,780 ESOP shares
at March 31, 1997 and September 30,1996, respectively.
- 20 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 21 -
SIGNATURES
- ----------
Pursuant to the requirements 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.
AFSALA BANCORP, INC.
--------------------
DATE: May 8, 1997 BY: /s/ John M. Lisicki
-------------------
John M. Lisicki
President (principal executive officer)
DATE: May 8, 1997 BY: /s/ James J. Alescio
--------------------
James J Alescio
Treasurer (principal financial officer)
- 22 -