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
<FN>
(1) Period end and average asset and equity amounts reflect securities available
for sale at fair value, with net unrealized gains/losses, net of tax, included
as a component of equity.
(2) Net interest income divided by average earning assets.
(3) The efficiency ratio represents other expenses (excluding real estate owned
and repossessed assets expenses, net, the amortization of goodwill, and
significant non-recurring expenses) divided by the sum of net interest income
and non-interest income (excluding net gains (losses) on securities
transactions).
</FN>
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
======= =======
<FN>
* 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.
</FN>
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
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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