UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934. For the quarterly period ended June 30, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the transition period from to .
----------- -----------
Commission File Number: 0-27036
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Ambanc Holding Co., Inc.
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(Exact name of registrant as specified in its charter)
Delaware 14-1783770
- ------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Division Street, Amsterdam, New York 12010-4303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)842-7200
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 2001
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,445,122
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
June 30, 2001
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Statements of Financial Condition at
June 30, 2001 and December 31, 2000 ........................... 3
Consolidated Statements of Income for the six months
and three months ended June 30, 2001 and 2000 ................. 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2001 and 2000 ........................... 5
Notes to Unaudited Interim Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....27
Part II. OTHER INFORMATION..................................................27
Item 4. Submission of Matters to a Vote of Security Holders ...............27
Item 6. Exhibits and Reports on Form 8-K...................................27
SIGNATURES....................................................................28
2
Part I. Financial Information
Item 1. Financial Statements
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (unaudited)
(dollars in thousands, except per share amounts) June 30, December 31,
2001 2000
--------- ---------
Assets
Cash and due from banks ............................... $ 17,848 $ 15,306
Federal funds sold .................................... 11,400 11,600
Interest-bearing deposits ............................. 79 51,591
--------- ---------
Cash and cash equivalents ........................ 29,327 78,497
--------- ---------
Securities available for sale, at fair value .......... 177,032 138,990
Federal Home Loan Bank of New York stock, at cost ..... 8,870 8,870
Loans receivable ...................................... 470,331 465,703
Allowance for loan losses ........................ (5,697) (5,745)
--------- ---------
Loans receivable, net ............................ 464,634 459,958
--------- ---------
Accrued interest receivable ........................... 4,047 4,103
Premises and equipment, net ........................... 5,292 5,288
Real estate owned and repossessed assets .............. 340 373
Goodwill, net ......................................... 6,592 6,858
Bank-owned life insurance ............................. 10,354 222
Other assets .......................................... 4,607 3,477
--------- ---------
Total assets ..................................... $ 711,095 $ 706,636
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ........................................... $ 493,043 $ 478,592
Federal Home Loan Bank short-term borrowings ....... -- 5,000
Federal Home Loan Bank long-term advances .......... 68,284 66,435
Securities sold under agreements to repurchase ..... 62,500 72,500
Advances from borrowers for taxes and insurance .... 3,960 3,402
Accrued interest payable ........................... 978 1,108
Accrued expenses and other liabilities ............. 5,096 2,477
--------- ---------
Total liabilities ................................ 633,861 629,514
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at June 30, 2001 and
December 31, 2000 ................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,245 outstanding at June 30, 2001
and December 31, 2000 ............................. 54 54
Additional paid-in capital ......................... 63,760 63,529
Retained earnings,substantially restricted ......... 30,760 29,994
Treasury stock, at cost (924,965 shares at June 30,
2001 and 829,279 shares at December 31, 2000) ... (14,807) (13,032)
Unallocated common stock held by ESOP .............. (1,695) (1,909)
Unearned RRP shares ................................ (65) (126)
Accumulated other comprehensive loss ............... (773) (1,388)
--------- ---------
Total shareholders' equity ....................... 77,234 77,122
--------- ---------
Total liabilities and shareholders' equity ....... $ 711,095 $ 706,636
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
3
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
Six months Three months
ended June 30, ended June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Interest and dividend income:
Loans receivable ..................................... $ 17,387 $ 17,389 $ 8,678 $ 8,692
Securities available for sale ........................ 5,026 7,225 2,652 3,558
Federal funds sold and interest-bearing deposits ..... 1,350 72 450 39
Federal Home Loan Bank stock ......................... 311 294 148 147
-------- -------- -------- --------
Total interest and dividend income ................. 24,074 24,980 11,928 12,436
-------- -------- -------- --------
Interest expense:
Deposits ............................................. 9,845 8,834 4,943 4,470
Borrowings ........................................... 4,358 5,184 2,124 2,520
-------- -------- -------- --------
Total interest expense ............................. 14,203 14,018 7,067 6,990
-------- -------- -------- --------
Net interest income ................................ 9,871 10,962 4,861 5,446
Provision for loan losses ............................... 240 240 120 120
-------- -------- -------- --------
Net interest income after provision
for loan losses .................................. 9,631 10,722 4,741 5,326
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 685 641 366 306
Net gains (losses) on securities transactions ........ 72 (46) 47 (46)
Gain on curtailment of pension plan .................. 1,020 -- -- --
Other ................................................ 481 270 286 116
-------- -------- -------- --------
Total non-interest income .......................... 2,258 865 699 376
-------- -------- -------- --------
Non-interest expenses:
Salaries, wages and benefits ......................... 4,043 4,125 2,045 2,023
Occupancy and equipment .............................. 1,263 1,195 600 584
Data processing ...................................... 824 781 414 394
Real estate owned and repossessed assets expenses, net 28 47 19 44
Professional fees .................................... 397 239 282 149
Amortization of goodwill ............................. 266 266 133 133
Other ................................................ 1,502 1,660 782 808
-------- -------- -------- --------
Total non-interest expenses ........................ 8,323 8,313 4,275 4,135
-------- -------- -------- --------
Income before taxes .................................... 3,566 3,274 1,165 1,567
Income tax expense ...................................... 1,382 1,361 397 638
-------- -------- -------- --------
Net income ......................................... $ 2,184 $ 1,913 $ 768 $ 929
======== ======== ======== ========
Basic earnings per share ................................ $ 0.50 $ 0.41 $ 0.18 $ 0.20
Diluted earnings per share .............................. $ 0.49 $ 0.41 $ 0.17 $ 0.20
See accompanying notes to unaudited interim consolidated financial statements.
4
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands) Six months
ended June 30,
2001 2000
-------- -------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income ........................................ $ 2,184 $ 1,913
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises
and equipment .............................. 484 451
Amortization of goodwill ........................ 266 266
Net amortization of premium on securities ....... 154 141
Increase in cash surrender value of
bank-owned life insurance .................. (132) --
Net (gains) losses on securities transactions ... (72) 46
Provision for loan losses ....................... 240 240
Provision for losses and writedowns on real
estate owned and repossessed assets ........ -- 3
Net losses on sales of real estate owned
and repossessed assets ..................... 1 27
ESOP compensation expense ....................... 388 320
RRP expense ..................................... 191 242
Gain on curtailment of pension plan ............. 1,020 --
(Increase) decrease in accrued interest
receivable and other assets ................ (2,167) 126
Increase (decrease) in accrued interest
payable, accrued expenses and
and other liabilities ...................... 2,489 (2,954)
-------- --------
Net cash provided by
operating activities ........... 5,046 821
-------- --------
Cash flows from investing activities:
Proceeds from sale of securities
available for sale ......................... 30,641 2,893
Purchases of securities available for sale ...... (89,795) (3,277)
Proceeds from principal paydowns, maturities and
calls of securities available for sale .... 22,056 8,153
Purchase of Federal Home Loan Bank of New
York stock ................................ -- (122)
Net loans repaid by customers ................... 8,709 4,562
Purchase of loans ............................... (13,830) --
Purchase of bank-owned life insurance ........... (10,000) --
Purchases of premises and equipment ............. (711) (284)
Proceeds from sales of real estate owned and
repossessed assets ......................... 237 174
-------- --------
Net cash (used in) provided by
investing activities ........... (52,693) 12,099
-------- --------
(continued)
5
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited) (continued)
(dollars in thousands) Six months
ended June 30,
2001 2000
-------- --------
Cash flows from financing activities:
Net increase in deposits ........................ $ 14,451 $ 24,887
Net decrease in FHLB short-term borrowings ....... (5,000) (41,200)
Proceeds from FHLB long-term advances ............ 5,000 25,000
Repayments of FHLB long-term advances ............ (3,151) (1,527)
Proceeds from repurchase agreements .............. -- 12,651
Repayments of repurchase agreements .............. (10,000) (42,740)
Increase in advances from borrowers
for taxes and insurance .................... 558 744
Purchases of treasury stock ...................... (2,337) (1,142)
Excercises of stock options ...................... 362 --
Dividends paid ................................... (1,406) (1,132)
-------- --------
Net cash used in financing activities ...... (1,523) (24,459)
-------- --------
Net decrease in cash and cash equivalents ............ (49,170) (11,539)
Cash and cash equivalents at beginning of period ..... 78,497 29,611
-------- --------
Cash and cash equivalents at end of period ........... $ 29,327 $ 18,072
======== ========
Supplemental disclosures of cash flow information -
cash paid during the period for:
Interest ............................................. $ 14,333 $ 14,120
======== ========
Income taxes ......................................... $ 1,365 $ 1,380
======== ========
Noncash investing and financing activities:
Net transfer of loans to real estate owned
and repossessed assets .......................... $ 205 $ 124
======== ========
Adjustment of securities available for sale to
fair value, net of tax .......................... $ 615 $ 526
======== ========
Net book value of premises and equipment
transferred to assets held for sale ............. $ 223 --
======== ========
Issuance of RRP shares ............................... $ 130 $ 171
======== ========
Tax benefit related to vesting of RRP shares
and exercises of stock options .................. $ 115 $ 1
======== ========
See accompanying notes to unaudited interim consolidated financial statements.
6
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) In management's opinion, the financial information included herein, which is
unaudited, reflects all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial information as
of and for the three and six month periods ended June 30, 2001 and 2000, in
conformity with generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with Ambanc Holding Co.,
Inc.'s ("the Company" herein) 2000 Annual Report on Form 10-K. The results of
operations for the 2001 interim periods are not necessarily indicative of the
results of operations to be expected for the full fiscal year ended December 31,
2001, or any other interim periods.
(2) Amounts in the prior periods' unaudited interim consolidated financial
statements are reclassified whenever necessary to conform to current period's
presentation.
(3) Earnings per Share
Basic earnings per share (EPS) excludes dilution and is calculated by
dividing net income available to common shareholders by the weighted average
number of shares outstanding during the period. Unallocated ESOP shares are not
considered outstanding for purposes of computing EPS. Shares of restricted stock
(RRP shares) are considered outstanding common shares and included in the
computation of basic EPS when they become fully vested. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (such as the Company's stock options and unvested RRP shares) were
exercised into common stock or resulted in the issuance or vesting of common
stock using the treasury stock method.
The calculation of basic EPS and diluted EPS is as follows:
Net Weighted
Income Average Per Share
(in thousands) Shares Amount
For the six months ended June 30, 2001 ------------ ---------- ---------
Basic EPS
Net income $2,184 4,330,111 $0.50
====== =====
Effect of dilutive securities:
Stock options 97,752
Unvested RRP shares 13,603
---------
Diluted EPS
Net income $2,184 4,441,466 $0.49
====== ========= =====
For the six months ended June 30, 2000
Basic EPS
Net income $1,913 4,648,316 $0.41
====== =====
Effect of dilutive securities:
Stock options 15,800
Unvested RRP shares 15,003
---------
Diluted EPS
Net income $1,913 4,679,119 $0.41
====== ========= =====
7
For the quarter ended June 30, 2001
Basic EPS
Net income $ 768 4,309,903 $0.18
====== =====
Effect of dilutive securities:
Stock options 109,783
Unvested RRP shares 11,039
---------
Diluted EPS
Net income $ 768 4,430,725 $0.17
====== ========= =====
For the quarter ended June 30, 2000
Basic EPS
Net income $ 929 4,627,006 $0.20
====== =====
Effect of dilutive securities:
Stock options 25,950
Unvested RRP shares 13,306
---------
Diluted EPS
Net income $ 929 4,666,262 $0.20
====== ========= =====
(4) Comprehensive Income
Comprehensive income 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.
Comprehensive income for the six-month periods ended June, 30, 2001 and
2000 was $2.8 million and $2.4 million, respectively. Comprehensive income for
the three-month periods ended June 30, 2001 and 2000 was $108,000 and $1.4
million, respectively.
(5) Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company adopted Statement No. 133, as
amended, on January 1, 2001. As of January 1, 2001, and during the six months
ended June 30, 2001, the Company did not have any derivative instruments or
derivative instruments embedded in other contracts. Therefore, the adoption of
Statement No. 133 did not have a material impact on the Company's consolidated
financial statements.
(6) Business Combinations and Goodwill and Other Intangible Assets
In July 2001, the FASB issued Statement No. 141, "Business Combinations,"
and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as for all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
8
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 will
also require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS NO. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately, and Statement 142 effective January 1, 2002. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized prior to the adoption of Statement 142.
Upon adoption of Statement 142, Statement 141 will require that the Company
evaluate its existing intangible assets and goodwill that were acquired in prior
purchase business combinations, and to make any necessary reclassifications in
order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as a cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption, based on
criteria specified in the Statement. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principal in the
Company's statement of earnings.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $6.3 million, which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to goodwill
was $532 thousand and $266 thousand for the year ended December 31, 2000 and the
six months ended June 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting Statements 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on the Company's
consolidated financial statements at the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
ITEM 2.
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.
9
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 Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services. Management's
strategy has been to try to achieve a high loan to asset ratio with emphasis on
originating traditional one- to four-family residential mortgage and home equity
loans in its primary market area. The Company has also increased emphasis on the
origination of commercial-type loans, including entering into participation
agreements with other financial institutions. In addition, the Company has
initiated the necessary steps to create a lending production office in northern
New Jersey, primarily to create commercial real estate lending opportunities. At
June 30, 2001, the Company's loans receivable, net, to assets ratio was 65.3%,
as compared with 65.1% at December 31, 2000. The Company's portfolio of one- to
four-family residential mortgage and home equity loans was 78.7% of total loans
at June 30, 2001. Total commercial-type loans were 16.9% of total loans at June
30, 2001, up from 11.8% at December 31, 2000. Management anticipates that the
ratio of commercial-type loans to total loans will continue to increase in
future periods.
Forward-Looking Statements
When used in this Form 10-Q, 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.
10
Financial Condition
Comparison of Financial Condition at June 30, 2001 and December 31, 2000.
Total assets increased by $4.5 million to $711.1 million at June 30, 2001 from
$706.6 million at December 31, 2000, primarily due to increases in securities
available for sale and bank-owned life insurance of $38.0 million and $10.1
million, respectively, in addition to an increase in loans receivable, net of
$4.7 million. These increases were partially offset by a decrease in cash and
cash equivalents of $49.2 million.
Cash and cash equivalents decreased by $49.2 million, or 62.6%, to $29.3
million at June 30, 2001 from $78.5 million at December 31, 2000. This decrease
was primarily due to a decrease in interest-bearing deposits of $51.5 million
from $51.6 million at December 31, 2000 to $79 thousand at June 30, 2001. The
vast majority of these funds were re-deployed into securities available for
sale.
Securities available for sale increased $38.0 million, or 27.4%, to $177.0
million at June 30, 2001 from $139.0 million at December 31, 2000. This increase
was primarily due to the shift of funds from interest-bearing deposits into
higher yielding securities available for sale. The Company anticipates
redeploying the funds invested in securities available for sale and federal
funds sold into the loan portfolio as market conditions permit.
Loans receivable, net increased $4.7 million to $464.6 million at June 30,
2001, from $460.0 million at December 31, 2000. During the second half of 2000
and the first half of 2001, the Company entered into commercial real estate and
commercial business loan participations with an unrelated financial institution
in its market area. Also, as noted previously, the Company has initiated the
necessary steps to create a lending production office in northern New Jersey,
primarily to create commercial real estate lending opportunities. This strategy
is consistent with management's focus on the growth of the commercial loan
portfolio. During the first half of 2001, the Company purchased $13.8 million of
commercial real estate and commercial business loan participations. Moreover,
commercial real estate and commercial loans increased $15.4 million and $5.2
million, respectively, during the first six months of 2001. Likewise, during the
first half of the year home equity loans increased $4.1 million. Partially
offsetting these increases were decreases in one-to-four family mortgage loans
of $17.4 million and consumer loans of $352 thousand.
Bank-owned life insurance increased $10.1 million due to the Company's
purchase of additional bank-owned life insurance at the end of the first quarter
of 2001, as well as an increase in the cash surrender value of $132 thousand
during the second quarter.
Other assets increased $1.1 million, or 32.5%, to $4.6 million at June 30,
2001 due primarily to the gain on the curtailment of the Company's pension plan,
which increased prepaid pension cost, as well as the deferred tax consequences
related to the adjustment of securities available for sale to fair value.
11
Deposits increased by $14.5 million, or 3.0%, to $493.0 million at June 30,
2001 from $478.6 million at December 31, 2000. The growth for the first half of
2001 was primarily in time deposits, which increased $8.2 million from $248.9
million to $257.1 million; savings accounts, which increased $1.2 million from
$121.4 million to $122.6 million; money market accounts, which increased $282
thousand from $23.4 million to $23.7 million; and non-interest-bearing demand
deposits, which increased $3.5 million from $38.6 million to $42.1 million.
These increases were partially offset by a decrease in NOW accounts, which
decreased $375 thousand from $46.3 million to $46.0 million.
Short-term borrowings from the Federal Home Loan Bank ("FHLB") decreased by
$5.0 million, to $0 at June 30, 2001. This funding reduction was replaced with a
$5.0 million long-term advance from the FHLB during the first quarter of 2001.
Long-term advances from the FHLB increased $1.8 million, or 2.8%, to $68.3
million at June 30, 2001 from $66.4 million at December 31, 2000. Securities
repurchase agreements decreased $10.0 million, or 13.8%, to $62.5 million at
June 30, 2001 from $72.5 million at December 31, 2000, due primarily to the
maturity and subsequent repayment of the repurchase agreements. The shift to
longer-term borrowings coupled with the repayment of the repurchase agreements
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.
Accrued expenses and other liabilities increased $2.6 million, or 105.7%,
to $5.1 million at June 30, 2001 from $2.5 million at December 31, 2000. This
increase was the result of a change in processing whereby teller drafts and
money orders are now drawn upon the Bank and ultimately paid through the Bank's
Federal Reserve Bank correspondent account and are included in accrued expenses
and other liabilities. Previously, these items were drawn directly against a
correspondent bank account.
Shareholders' equity increased $112 thousand from $77.1 million at December
31, 2000 to $77.2 million at June 30, 2001, primarily due to net income of $2.2
million and the decrease in net unrealized losses on securities available for
sale, net of tax, of $615 thousand, partially offset by the treasury stock
purchases totaling $2.3 million and the payment of cash dividends of $1.4
million for the first six months of the year. Other items impacting
shareholders' equity during the first half of 2001 were the release of ESOP
shares, the continued amortization of unearned RRP shares, and the excercise of
stock options.
Consolidated Average Balances, Interest Rates & 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.
12
Three months ended June 30,
2001 2000
------------------------------------ -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
Earning assets (Dollars in thousands)
Loans receivable (1) $465,690 $8,678 7.47% $469,311 $8,692 7.45%
Securities available for sale (AFS)(2) 163,965 2,652 6.49% 216,673 3,558 6.60%
Federal Home Loan Bank stock 8,870 148 6.69% 8,838 147 6.69%
Federal funds sold &
interest-bearing deposits 40,063 450 4.51% 2,472 39 6.35%
-------------- --------- -------- ------------ --------- --------
Total earning assets 678,588 11,928 7.05% 697,294 12,436 7.17%
-------------- --------- -------- ------------ --------- --------
Allowance for loan losses (5,735) (5,536)
Unrealized loss on AFS securities (494) (10,508)
Other assets 43,045 33,932
--------------- ------------
Total assets $715,404 $715,182
=============== ============
Interest-bearing liabilities
Savings deposits 125,064 821 2.63% 129,788 887 2.75%
NOW deposits 47,348 160 1.36% 38,356 135 1.42%
Certificates of deposit 256,894 3,754 5.86% 233,128 3,187 5.50%
Money market accounts 23,144 208 3.60% 27,286 261 3.85%
Borrowed funds 140,872 2,124 6.05% 168,030 2,520 6.03%
-------------- --------- -------- ------------ --------- --------
Total interest-bearing liabilities 593,322 7,067 4.78% 596,588 6,990 4.71%
-------------- --------- -------- ------------ --------- --------
Demand deposits 38,155 36,637
Other liabilities 6,999 6,776
--------------- ------------
Total liabilities 638,476 640,001
--------------- ------------
Stockholders' equity 76,928 75,181
--------------- ------------
Total average liabilities & equity $715,404 $715,182
=============== ============
Net interest income $4,861 $5,446
Interest rate spread 2.27% 2.46%
Net earning assets $85,266 $100,706
Net interest margin 2.87% 3.14%
Average earning assets/Average
interest-bearing liabilities 114.37% 116.88%
(1) Calculated net of deferred loan fees and costs, loan discounts and loans in process.
(2) Securities available for sale exclude securities pending settlement.
13
Consolidated 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.
Three months ended June 30,
2001 vs. 2000
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (Dollars in thousands)
Loans receivable .......................... $ (51) $ 37 $ (14)
Securities available for sale ............. (836) (70) (906)
Federal Home Loan Bank stock .............. 1 -- 1
Federal funds sold and interest-bearing
deposits ............................... 426 (15) 411
--------- -------- --------
Total earning assets .................. (460) (48) (508)
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (31) (35) (66)
NOW deposits ............................. 31 (6) 25
Certificates of deposit ................... 344 223 567
Money market accounts ..................... (37) (16) (53)
Borrowed funds ............................ (403) 7 (396)
--------- -------- --------
Total interest-bearing liabilities .... (96) 173 77
--------- -------- --------
Net interest income ..................... $ (364) $ (221) $ (585)
========= ======== ========
14
Comparison of Operating Results for the Three Months Ended June 30, 2001 and
2000.
Net Income. Net income for the three months ended June 30, 2001 was $768
thousand compared to $929 thousand for the three months ended June 30, 2000.
Diluted earnings per share were $0.17 for the three months ended June 30, 2001,
as compared to $0.20 for the three months ended June 30, 2000. Net income for
the three months ended June 30, 2001 was adversely impacted by professional fees
in the amount of $157 thousand incurred in the 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 in the second quarter without reaching any agreements. Also
impacting net income during the quarter ended June 30, 2001 were costs
associated with the change to a new computer system amounting to $57 thousand,
primarily due to the disposal of equipment. Excluding the impact of these
non-recurring expenses, diluted earnings per share would have been $0.20 for the
three months ended June 30, 2001.
Net Interest Income. Net interest income decreased $585 thousand, or 10.7%,
to $4.9 million for the three months ended June 30, 2001 from $5.4 million for
the three months ended June 30, 2000. The decrease in net interest income was
primarily due to a decrease in the interest rate spread from 2.46% for the three
months ended June 30, 2000 to 2.27% for the three months ended June 30, 2001, a
decrease in the net interest margin from 3.14% to 2.87%, in addition to a
decrease in average earning assets of $18.7 million, a portion of which is
attributable to the Company's treasury stock purchases.
Earning assets consist of loans receivable, securities available for sale,
federal funds sold, 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 2.27% for the three months ended June 30, 2001, from 2.46% for the
three months ended June 30, 2000. The decrease in the interest rate spread is
due to the decrease in the average yield on earning assets coupled with an
increase in the average cost of interest-bearing liabilities during the period.
The average yield on earning assets decreased from 7.17% for the three months
ended June 30, 2000 to 7.05% for the three months ended June 30, 2001. In
addition, the average cost of interest-bearing liabilities increased to 4.78%
for the three months ended June 30, 2001 from 4.71% for the previous period.
This increase was largely impacted by an increase in the average rate paid on
certificates of deposit of 36 basis points, to 5.86%.
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. 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
15
Company's customer base and the attendant benefits to be derived. 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 decreased by
$508 thousand, or 4.1%, to $11.9 million for the three months ended June 30,
2001 from $12.4 million for the three months ended June 30, 2000. The decrease
was largely the result of the decrease in the average balance of earning assets
from $697.3 million for the three months ended June 30, 2000 to $678.6 million
for the three months ended June 30, 2001. In addition to the decrease in the
average balance of earning assets was a 12 basis point decrease in the average
yield on total earning assets. The yield on the average balance of earning
assets was 7.05% and 7.17% for the three months ended June 30, 2001 and 2000,
respectively.
Interest and fees on loans decreased $14 thousand to $8.7 million for the
three months ended June 30, 2001. This decrease was primarily the result of a
decrease in the average balance of net loans receivable from $469.3 million for
the three months ended June 30, 2000 to $465.7 million for the three months
ended June 30, 2001, offset almost entirely by an increase in the average yield
on net loans receivable of 2 basis points, to 7.47%.
Interest and dividend income on securities available for sale decreased
$906 thousand, or 25.5%, to $2.7 million for the three months ended June 30,
2001 from $3.6 million for the previous period. This decrease is primarily the
result of a decrease in the average balance of securities available for sale of
$52.7 million, or 24.3%.
Interest income on federal funds sold and interest-bearing deposits
increased $411 thousand to $450 thousand for the three months ended June 30,
2001 from $39 thousand for the previous quarter, primarily due to a increase in
the average balance of $37.6 million, offset somewhat by a decrease in the
average yield from 6.35% to 4.51%.
Interest Expense. Total interest expense increased by $77 thousand, or
1.1%, to $7.1 million for the three months ended June 30, 2001 from $7.0 million
for the three months ended June 30, 2000. Total average interest-bearing
liabilities decreased by $3.3 million to $593.3 million for the first quarter of
2001 compared to $596.6 million for the same period of the previous year,
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 $27.2 million, or 16.2%, from $168.0 million for the three months
ended June 30, 2000 to $140.9 million for the three months ended June 30, 2001.
This decrease in borrowed funds reflects management's continued efforts to
de-leverage the balance sheet and improve the Company's interest rate risk
position. During the same periods, the average rate paid on interest-bearing
liabilities increased by 7 basis points to 4.78% from 4.71%.
16
Total interest expense for the three months ended June 30, 2001 increased
primarily due to an increase in the average balance on certificates of deposit
("CD") accounts to $256.9 million for the three months ended June 30, 2001, from
$233.1 million for the previous period. In addition, the average rate paid on
these deposit accounts increased 36 basis points to 5.86% during the period.
Based on current CD rates and the prospective run-off in CDs, it is anticipated
that the average rate paid on these deposits will trend downward in subsequent
periods. Likewise, interest expense relative to NOW accounts increased as a
result of increases in the average balance of $9.0 million, or 23.4%, offset by
a decrease in the average rate paid on NOW accounts of 6 basis points.
Provision for Loan Losses. The Company's provision for loan losses is based
upon management's analysis of the adequacy of the allowance for loan losses. The
allowance is increased by a charge to the provision for loan losses, the amount
of which depends upon an analysis of the changing risks inherent in the loan
portfolio. Management determines the adequacy of the allowance for loan losses
based upon its analysis of risk factors in the loan portfolio. This analysis
includes evaluation of credit risk, historical loss experience, current economic
conditions, estimated fair value of underlying collateral, delinquencies, and
other factors. The provision for loan losses for the three months ended June 30,
2001 and 2000 was $120 thousand, reflecting the relative consistency of
non-performing loans and net charge-offs, as well as the increase in the
percentage of commercial-type loans in the portfolio. The Company's ratio of
non-performing loans to total loans was 0.64% and 0.70% at June 30, 2001 and
December 31, 2000, respectively.
Non-Interest Income. Total non-interest income increased by $323 thousand,
or 85.9%, to $699 thousand for the three months ended June 30, 2001 from $376
thousand for the three months ended June 30, 2000. This increase is primarily
due to the increase in the cash surrender value of bank-owned life insurance of
$132 thousand for the three months ended June 30, 2001. During the quarter ended
June 30, 2000 approximately $3.0 million in investments of mortgaged-related
securities were sold resulting in a net loss of $46 thousand. However, for the
three months ended June 30, 2001, the sale of securities transactions resulted
in a gain of $47 thousand. Service charges on deposit accounts increased $60
thousand to $366 thousand for the quarter ended June 30, 2001, primarily from
increased fees charged on deposit accounts.
Non-Interest Expenses. Non-interest expenses increased $140 thousand, or
3.4%, to $4.3 million for the three months ended June 30, 2001 from $4.1 million
for the three months ended June 30, 2000 due primarily to professional fees
incurred in connection with the Company's response to inquires from, and
preliminary discussions with, third parties regarding possible business
combinations with the Company. Also impacting non-interest expenses during the
second quarter of 2001 were the costs associated with the change to a new
computer system. These and other changes are discussed in more detail below.
Salaries, wages and benefits expense increased by $22 thousand, or 1.1%,
for the three months ended June 30, 2001. During the second quarter of 2001, the
Company recognized $33 thousand in expense related to matching contributions
under the Company's 401(k) plan. No matching contributions were made during the
second quarter of 2000. In addition, the expense related to the ESOP for the
second quarter of 2001 was $35 thousand higher than the comparable quarter in
2000 due to the increased stock price in 2001 relative to 2000. 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. Offsetting these increases was the recognition of a net
periodic pension credit of $64 thousand in the second quarter of 2001, as
compared to a net periodic pension expense of approximately $34 thousand
recognized during the second quarter of 2000.
17
Occupancy and equipment increased $16 thousand, or 2.7%, to $600 thousand
for the three months ended June 30, 2001, from $584 thousand in 2000 primarily
due to costs related to the change to a new computer system amounting to $57
thousand resulting from the disposal of equipment. This increase was partially
offset by the impact of a branch office that closed in June 2001.
Data processing increased $20 thousand, or 5.1%, from $394 thousand in the
2000 period to $414 thousand for the three months ended June 30, 2001 due
primarily to the increase in volume of deposit and loan accounts serviced by the
Company.
Real estate owned and repossessed assets expense decreased $25 thousand to
$19 thousand for the three months ended June 30, 2001 due primarily to larger
losses recognized on the sale of real estate owned and repossessed assets during
the 2000 period as compared to the 2001 period.
Professional fees increased $133 thousand, or 89.3%, to $282 thousand for
the three months ended June 30, 2001, from $149 thousand for the comparable
period of the previous year. Professional fees in the amount of $157 thousand
were incurred in the 2001 quarter 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 in the second quarter without reaching any agreements.
Other non-interest expenses decreased $26 thousand, or 3.2%, to $782
thousand for the three months ended June 30, 2001 when compared to the previous
period. This decrease was primarily due to expenses associated with the
promotion and advertising of time deposit and lending products offered during
the quarter ended June 30, 2000. No such special promotion was offered during
the second quarter of 2001.
Income Tax Expense. Income tax expense decreased by $241 thousand, or
37.8%, to $397 thousand for the three months ended June 30, 2001 from $638
thousand for the three months ended June 30, 2000. The decrease was primarily
the result of the decrease in income before taxes, as well as certain tax
planning strategies implemented by the Company, which decreased the effective
tax rate.
Consolidated Average Balances, Interest Rates & 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.
18
Six months ended June 30,
2001 2000
------------------------------------ -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
Earning assets (Dollars in thousands)
Loans receivable (1) $466,160 $17,387 7.52% $470,173 $17,389 7.44%
Securities available for sale (AFS)(2) 152,817 5,026 6.63% 218,775 7,225 6.64%
Federal Home Loan Bank stock 8,870 311 7.07% 8,793 294 6.72%
Federal funds sold &
interest-bearing deposits 51,181 1,350 5.32% 2,648 72 5.47%
-------------- --------- -------- ------------ --------- --------
Total earning assets 679,028 24,074 7.15% 700,389 24,980 7.17%
-------------- --------- -------- ------------ --------- --------
Allowance for loan losses (5,756) (5,533)
Unrealized loss on AFS securities (1,053) (10,563)
Other assets 37,281 34,902
--------------- ------------
Total assets $709,500 $719,195
=============== ============
Interest-bearing liabilities
Savings deposits 123,705 1,608 2.62% 129,156 1,762 2.74%
NOW deposits 46,959 381 1.64% 37,159 247 1.34%
Certificates of deposit 253,235 7,424 5.91% 232,525 6,290 5.44%
Money market accounts 23,019 432 3.78% 27,952 535 3.85%
Borrowed funds 142,571 4,358 6.16% 174,987 5,184 5.96%
-------------- --------- -------- ------------ --------- --------
Total interest-bearing liabilities 589,489 14,203 4.86% 601,779 14,018 4.68%
-------------- --------- -------- ------------ --------- --------
Demand deposits 37,037 35,998
Other liabilities 5,983 6,026
--------------- ------------
Total liabilities 632,509 643,803
--------------- ------------
Stockholders' equity 76,991 75,392
--------------- ------------
Total average liabilities & equity $709,500 $719,195
=============== ============
Net interest income $9,871 $10,962
Interest rate spread 2.29% 2.49%
Net earning assets $ 89,539 $ 98,610
Net interest margin 2.93% 3.15%
Average earning assets/Average
interest-bearing liabilities 115.19% 116.39%
(1) Calculated net of deferred loan fees and costs, loan discounts and loans in process.
(2) Securities available for sale exclude securities pending settlement.
19
Consolidated 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.
Six months ended June 30,
2001 vs. 2000
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (Dollars in thousands)
Loans receivable .......................... $ (169) $ 167 $ (2)
Securities available for sale ............. (2,189) (10) (2,199)
Federal Home Loan Bank stock .............. 3 14 17
Federal funds sold and interest-bearing
deposits ............................... 1,280 (2) 1,278
--------- -------- --------
Total earning assets .................. (1,075) 169 (906)
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (75) (79) (154)
NOW deposits ............................. 72 62 134
Certificates of deposit ................... 574 560 1,134
Money market accounts ..................... (94) (9) (103)
Borrowed funds ............................ (998) 172 (826)
--------- -------- --------
Total interest-bearing liabilities .... (521) 706 185
--------- -------- --------
Net interest income ..................... $ (554) $ (537) $(1,091)
========= ======== ========
20
Comparison of Operating Results for the Six Months Ended June 30, 2001 and 2000.
Net Income. Net income increased by $271 thousand, or 14.2%, for the six
months ended June 30, 2001 to $2.2 million from $1.9 million for the six months
ended June 30, 2000. Net income for the six months ended June 30, 2001 was
significantly impacted by a $1.0 million ($634 thousand after-tax) curtailment
gain related to the freezing of benefit accruals and participation in the
Company's defined benefit pension plan. This and other changes are discussed in
more detail below.
Net Interest Income. Net interest income decreased $1.1 million, or 10.0%,
from $11.0 million for the six months ended June 30, 2000 to $9.9 million for
the six months ended June 30, 2001. The decrease in net interest income was
primarily due to a decrease in the interest rate spread from 2.49% for the first
six months of 2000 to 2.29% for the first six months of 2001, a decrease in the
net interest margin from 3.15% to 2.93%, in addition to a decrease in average
earning assets of $24.4 million, a portion of which is attributable to the
Company's treasury stock purchases.
Interest and Dividend Income. Interest and dividend income decreased by
$906 thousand or 3.6%, from $25.0 million for the six months ended June 30, 2000
to $24.1 million for the six months ended June 30, 2001. The decrease was
largely the result of the decrease in the average balance of earning assets from
$700.4 million for the six months ended June 30, 2000 to $679.0 million for the
six months ended June 30, 2001.
Interest and fees on loans was $17.4 million for the six months ended June
30, 2001 and 2000. The average yield on loans receivable increased from 7.44%
for the six months ended June 30, 2000 to 7.52% for the six months ended June
30, 2001, offset almost entirely by a decrease in the average balance of loans
receivable of $4.0 million.
Interest and dividend income on securities available for sale decreased
$2.2 million, or 30.4%, to $5.0 million for the six months ended June 30, 2001
from $7.2 million for the previous period. This decrease is primarily the result
of a decrease in the average balance of securities available for sale of $66.0
million, or 30.1%.
Interest income on federal funds sold and interest-bearing deposits
increased $1.3 million to $1.4 million for the six months ended June 30, 2001
from $72 thousand for the previous period primarily due to a increase in the
average balance of $48.5 million.
Interest Expense. Total interest expense increased by $185 thousand, or
1.3%, to $14.2 million for the six months ended June 30, 2001 from $14.0 million
for the six months ended June 30, 2000. Total average interest-bearing
liabilities decreased by $12.3 million, or 2.0%, to $589.5 million for the first
half of 2001 compared to $601.8 million for the same period of the previous year
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 $32.4 million, or 18.5%, from $175.0 million for the six months ended
June 30, 2000 to $142.6 million for the six months ended June 30, 2001. As noted
in the three month discussion, the decrease in borrowed funds reflects
management's continued efforts to de-leverage the balance sheet and improve the
Company's interest rate risk position. During the same periods, the average rate
paid on interest-bearing liabilities increased by 18 basis points to 4.86% from
4.68%.
21
Total interest expense for the six months ended June 30, 2001 increased due
to an increase of 47 basis points, to 5.91%, in the average rate paid on
certificates of deposit during the period. Based on current CD rates and the
prospective run-off in CDs, it is anticipated that the average rate paid on
these deposits will trend downward in subsequent periods. In addition, the
average balance on these deposit accounts increased to $253.2 million for the
six months ended June 30, 2001, from $232.5 million for the previous period.
Likewise, interest expense relative to NOW accounts increased as a result of
increases in the average rate paid on NOW accounts coupled with an increase in
the average balance of $9.8 million, or 26.4%. The average rate paid on NOW
accounts increased from 1.34% for the six months ended June 30, 2000 to 1.64%
for the six months ended June 30, 2001.
Provision for Loan Losses. The provision for loan losses for the six months
ended June 30, 2001 and 2000 was $240 thousand, reflecting the relative
consistency of non-performing loans and net charge-offs, as well as the increase
in the percentage of commercial type loans in the portfolio. The Company's ratio
of non-performing loans to total loans was 0.64% and 0.70% at June 30, 2001 and
December 31, 2000, respectively.
Non-Interest Income. Total non-interest income increased by $1.4 million,
or 161.0%, to $2.3 million for the six months ended June 30, 2001 from $865
thousand for the six months ended June 30, 2000. As previously mentioned,
significantly impacting non-interest income during the first half of 2001 was a
$1.0 million curtailment gain related to the freezing of benefit accruals and
participation in the Company's defined benefit pension plan. In addition, the
Company recognized $132 thousand of non-interest income due to the increase in
the cash surrender value of bank-owned life insurance for the six months ended
June 30, 2001. For the six months ended June 30, 2000, the Company sold
mortgage-related securities recognizing a net loss of $46 thousand. However, for
the six months ended June 30, 2001, a $72 thousand net gain was recognized on
securities transactions. Service charges on deposit accounts increased $44
thousand to $685 thousand for the six months ended June 30, 2001 primarily from
increased fees charged on deposit accounts.
Non-Interest Expenses. Non-interest expenses had a nominal increase of $10
thousand to $8.3 million for the six months ended June 30, 2001. The various
changes are discussed in more detail below.
Salaries, wages and benefits decreased by $82 thousand, or 2.0%, for the
first six months of 2001 primarily due to a decrease in benefits associated with
the curtailment of the Company's pension plan, which reduced the service cost
component of net periodic pension cost/credit. During the first six months of
2001, the Company recognized a net periodic pension credit of $128 thousand
compared to a net periodic pension expense of $68 thousand for the same period
of the previous year. However, during the first six months of 2001, the Company
recognized $70 thousand in expense related to matching contributions under the
Company's 401(k) plan. No matching contributions were made for the previous
year. In addition, the expense related to the ESOP for the first half of 2001
was $69 thousand higher than the comparable period in 2000 due to the increased
stock price in 2001 relative to 2000. 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.
22
Occupancy and equipment increased $68 thousand, or 5.7%, to $1.3 million
for the six months ended June 30, 2001 when compared to the previous period
primarily due to costs related to the change to a new computer system amounting
to $57 thousand resulting from the disposal of equipment. Also contributing to
the increase is the acceleration of lease expense and the amortization of
leasehold improvements during the first quarter of 2001, on a branch office that
closed June 2001.
Data processing increased $43 thousand, or 5.5%, from $781 thousand in the
2000 period to $824 thousand for the six months ended June 30, 2001 due
primarily to the increase in volume of deposit and loan accounts serviced by the
Company.
Real estate owned and repossessed assets expense decreased $19 thousand to
$28 thousand for the six months ended June 30, 2001 due primarily to larger
losses recognized on the sale of real estate owned and repossessed assets during
the 2000 period as compared to the 2001 period.
Professional fees increased $158 thousand, or 66.1%, to $397 thousand for
the six months ended June 30, 2001 primarily due to professional fees incurred
in the amount of $157 thousand during the second quarter in connection with the
Company's response to inquires from, and preliminary discussions with, third
parties regarding possible business combinations with the Company.
Other non-interest expenses decreased $158 thousand, or 9.5%, to $1.5
million for the six months ended June 30, 2001 when compared to the previous
period. This decrease was primarily due to expenses associated with the
promotion and advertising of time deposit and lending products offered during
the first half of 2000. No such promotion was offered during the first half of
2001. In addition, the Company reduced the costs associated with armored car and
courier service by implementing a change in both the carrier and in the number
of runs made.
Income Tax Expense. Income tax expense increased by $21 thousand, or 1.5%,
to $1.4 million for the six months ended June 30, 2001. The increase was
primarily the result of the increase in income before taxes, partially offset by
the impact of certain tax planning strategies implemented by the Company, which
decreased the effective tax rate.
23
ASSET QUALITY
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated.
June 30, Dec.31,
2001 2000
------ ------
(In thousands)
Non-accruing loans:
One-to four-family (1)............ $1,515 $1,471
Commercial real estate ........... -- 44
Consumer ......................... 415 418
Commercial business .............. 370 515
------ ------
Total .......................... 2,300 2,448
------ ------
Accruing loans delinquent
more than 90 days:
One-to four-family (1)............ 183 247
Consumer ......................... -- 10
------ ------
Total .......................... 183 257
------ ------
Troubled debt restructured loans:
One-to four-family (1)............ 82 82
Commercial real estate ........... 448 458
Commercial business .............. -- 1
------ ------
Total .......................... 530 541
------ ------
Total non-performing loans .......... 3,013 3,246
------ ------
Foreclosed assets:
One-to four-family (1)............ 245 232
Commercial real estate ........... -- 112
Consumer ......................... 95 29
------ ------
Total .......................... 340 373
------ ------
Total non-performing assets ......... $3,353 $3,619
====== ======
Non-performing loans as a percentage
of total loans ...................... 0.64% 0.70%
Non-performing assets as a percentage
of total assets ..................... 0.47% 0.51%
(1) Includes home equity loans.
24
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risks inherent in the Bank's loan
portfolio and changes in the nature and volume of its loan activity, including
those loans that are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectibility may
not be reasonably assured, considers, among other matters, the estimated fair
value of the underlying collateral for collateral dependent loans, the net
present value of estimated future cash flows if the loan is not collateral
dependent, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. The following table sets forth an analysis of the Company's allowance
for loan losses.
For the six months
ended June 30,
2001 2000
------- -------
(In thousands)
Balance at beginning of period ........ $ 5,745 $ 5,509
Charge-offs:
One- to four-family (1) .......... (25) (1)
Consumer ......................... (127) (186)
Commercial business .............. (169) (6)
------- -------
Total charge-offs ............. (321) (193)
------- -------
Recoveries:
One- to four-family (1) .......... 2 1
Consumer ......................... 10 11
Commercial business .............. 21 6
------- -------
Total Recoveries .............. 33 18
------- -------
Net charge-offs ....................... (288) (175)
Provisions charged to operations ...... 240 240
------- -------
Balance at end of period .............. $ 5,697 $ 5,574
======= =======
Ratio of allowance for loan
losses to total loans (period end) .... 1.21% 1.20%
Ratio of allowance for loan losses
to non-performing loans (at period end) 189.08% 201.37%
Ratio of net charge-offs during the
period to average loans outstanding
during period (annualized) ............ 0.12% 0.07%
(1) Includes home equity loans.
25
Liquidity and Capital Resources
The Bank is required by OTS regulations to maintain sufficient liquidity to
ensure its safe and sound operation. 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 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 June 30, 2001 and December 31, 2000, the Company had $68.3 million and
$71.4 million, respectively, in outstanding borrowings from the FHLB and $62.5
million and $72.5 million, respectively, in securities repurchase agreements,
the vast majority of which are also with the FHLB.
As of June 30, 2001 and December 31, 2000, the Company had $177.0 million
and $139.0 million, respectively, of securities classified as available for
sale. The liquidity of the securities available for sale portfolio provides the
Company with additional potential cash flows to meet loan growth and deposit
flows.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry, and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on the
Company's commitment to make loans and management's assessment of the Company's
ability to generate funds.
The Bank is subject to federal regulations that impose certain minimum
capital requirements. At June 30, 2001, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. The Bank is "well capitalized" at
June 30, 2001 according to regulatory definition. At June 30, 2001, the Bank's
tangible and core capital levels were both $62.1 million (8.79% of total
adjusted assets) and its total risk-based capital level was $66.8 million
(17.85% 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.
During the first six months of 2001, the Company repurchased 130,033 shares
of its common stock in open-market transactions at a total cost of $2.3 million.
26
Item 3. Quantitative and Qualitative Disclosures About market Risk
There have been no material changes in the Company's interest rate risk
position since December 31, 2000. Other types of market risk, such as foreign
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Ambanc Holding Co., Inc.'s Annual Meeting of Shareholders was convened on
June 1, 2001.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to management's nominees as listed in the proxy statement, and all
such nominees were elected.
With respect to management's nominees, voting was as follows: Daniel J.
Greco, For - 3,689,048, Withheld - 606,444, John M. Lisicki, For - 3,633,122,
Withheld - 662,370, Charles S. Pedersen, For - 3,688,511, Withheld - 606,981,
John A. Tesiero, Jr., For - 3,688,719, Withheld - 606,773.
Proxies were also solicited at the annual meeting for the ratification of
the Ambanc Holding Co., Inc. 2001 Stock Option Plan. The plan was adopted, with
2,227,309 shares voting For, 927,435 shares voting Against, and 31,581 shares
Abstaining.
Proxies were also solicited at the annual meeting for the ratification of
the appointment of KPMG LLP as independent auditors of the Company. The proposal
was adopted, with 4,251,120 shares voting For, 33,250 shares voting Against, and
11,122 shares Abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
None
(b) Reports on Form 8-K
During the quarter under report, a Form 8-K was filed on
May 16, 2001 and on May 30, 2001.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
/s/ John M. Lisicki
John M. Lisicki
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2001
/s/ James J. Alescio
James J. Alescio
Executive Vice President & CFO
(Principal Financial and Accounting Officer)
Date: August 13, 2001
28