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 September 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 .
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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 November 14, 2001
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,496,178
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 2001
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (unaudited):
Consolidated Statements of Financial Condition at
September 30, 2001 and December 31, 2000 ...................... 3
Consolidated Statements of Income for the nine months
and three months ended September 30, 2001 and 2000 ............ 4
Consolidated Statements of Cash Flows for the nine
months ended September 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..................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....28
Part II. OTHER INFORMATION..................................................28
Item 1. Legal Proceedings .............................................28
Item 2. Changes in Securities .........................................28
Item 3. Defaults Upon Senior Securities ...............................28
Item 4. Submission of Matters to a Vote of Security Holders ...........28
Item 5. Other Information .............................................28
Item 6. Exhibits and Reports on Form 8-K...................................28
SIGNATURES....................................................................29
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) Sept 30, December 31,
2001 2000
Assets --------- ---------
Cash and due from banks ............................... $ 15,729 $ 15,306
Federal funds sold .................................... 15,000 11,600
Interest-bearing deposits ............................. 44,666 51,591
--------- ---------
Cash and cash equivalents ........................ 75,395 78,497
--------- ---------
Securities available for sale, at fair value .......... 92,545 138,990
Federal Home Loan Bank of New York stock, at cost ..... 6,039 8,870
Loans receivable ...................................... 474,964 465,703
Allowance for loan losses ........................ (5,760) (5,745)
--------- ---------
Loans receivable, net ............................ 469,204 459,958
--------- ---------
Accrued interest receivable ........................... 3,148 4,103
Premises and equipment, net ........................... 5,331 5,288
Real estate owned and repossessed assets .............. 245 373
Goodwill, net ........................................ 6,458 6,858
Bank-owned life insurance ............................. 10,501 222
Other assets .......................................... 3,763 3,477
--------- ---------
Total assets ..................................... $ 672,629 $ 706,636
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ........................................... $ 473,392 $ 478,592
Federal Home Loan Bank short-term borrowings ....... -- 5,000
Federal Home Loan Bank long-term advances .......... 56,676 66,435
Securities sold under agreements to repurchase ..... 52,500 72,500
Advances from borrowers for taxes and insurance .... 1,030 3,402
Accrued interest payable ........................... 861 1,108
Accrued expenses and other liabilities ............. 10,016 2,477
--------- ---------
Total liabilities ................................ 594,475 629,514
--------- ---------
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at September 30, 2001 and
December 31, 2000 ................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,432,245 outstanding at September 30, 2001
and December 31, 2000 ............................. 54 54
Additional paid in capital ......................... 63,901 63,529
Retained earnings,substantially restricted ......... 31,023 29,994
Treasury Stock, at cost (936,067 shares at September
30, 2001 and 829,279 shares at December 31, 2000) (15,400) (13,032)
Unallocated common stock held by ESOP .............. (1,590) (1,909)
Unearned RRP shares ................................ (108) (126)
Accumulated other comprehensive income (loss) ...... 274 (1,388)
--------- ---------
Total shareholders' equity ....................... 78,154 77,122
--------- ---------
Total liabilities and shareholders' equity ....... $ 672,629 $ 706,636
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
3
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
Nine months Three months
ended Sept 30, ended Sept 30,
2001 2000 2001 2000
-------- -------- -------- --------
Interest and dividend income:
Loans receivable ..................................... $ 26,165 $ 26,070 $ 8,778 $ 8,681
Securities available for sale ........................ 7,147 10,718 2,121 3,493
Federal funds sold and interest-bearing deposits ..... 1,646 117 296 45
Federal Home Loan Bank stock ......................... 441 448 130 154
-------- -------- -------- --------
Total interest and dividend income ................. 35,399 37,353 11,325 12,373
-------- -------- -------- --------
Interest expense:
Deposits ............................................. 14,437 13,762 4,592 4,928
Borrowings ........................................... 6,072 7,426 1,714 2,242
-------- -------- -------- --------
Total interest expense ............................. 20,509 21,188 6,306 7,170
-------- -------- -------- --------
Net interest income ................................ 14,890 16,165 5,019 5,203
Provision for loan losses ............................... 390 360 150 120
-------- -------- -------- --------
Net interest income after provision
for loan losses .................................. 14,500 15,805 4,869 5,083
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 1,074 987 389 346
Net gains (losses) on securities transactions ........ 208 (102) 136 (56)
Gain on curtailment of pension plan .................. 1,020 -- -- --
Other ................................................ 1,284 381 803 111
-------- -------- -------- --------
Total non-interest income .......................... 3,586 1,266 1,328 401
-------- -------- -------- --------
Non-interest expenses:
Salaries, wages and benefits ......................... 6,039 6,085 1,996 1,960
Occupancy and equipment .............................. 1,863 1,781 600 586
Data processing ...................................... 1,287 1,189 463 408
Real estate owned and repossessed assets expenses, net 45 62 17 15
Professional fees .................................... 778 379 381 140
Amortization of goodwill ............................. 399 399 133 133
Other ................................................ 2,360 2,414 858 754
-------- -------- -------- --------
Total non-interest expenses ........................ 12,771 12,309 4,448 3,996
-------- -------- -------- --------
Income before taxes .................................... 5,315 4,762 1,749 1,488
Income tax expense ...................................... 2,135 1,945 753 584
-------- -------- -------- --------
Net income ......................................... $ 3,180 $ 2,817 $ 996 $ 904
======== ======== ======== ========
Basic earnings per share ................................ $ 0.74 $ 0.61 $ 0.23 $ 0.19
Diluted earnings per share .............................. $ 0.72 $ 0.60 $ 0.23 $ 0.19
See accompanying notes to unaudited interim consolidated financial statements.
4
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited)
(dollars in thousands) Nine months
ended September 30,
2001 2000
-------- -------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income ........................................ $ 3,180 $ 2,817
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises
and equipment .............................. 814 676
Amortization of goodwill ........................ 399 399
Net amortization of premium on securities ....... 248 212
Net (gains) losses on securities transactions ... (208) 102
Provision for loan losses ....................... 390 360
Provision for losses and writedowns on real
estate owned and repossessed assets ........ -- 14
Net losses on sale of real estate owned
and repossessed assets ..................... 3 26
ESOP compensation expense ....................... 599 488
RRP expense ..................................... 251 363
Gain on curtailment of pension plan ............. (1,020) --
Net gain on closing of branch and sale of
related deposits ........................... (422) --
Decrease (increase) in accrued interest
receivable and other assets ................ 981 (393)
Increase (decrease) in accrued interest
payable, accrued expenses and
and other liabilities ...................... 7,292 (1,329)
-------- --------
Net cash provided by
operating activities ........... 12,507 3,735
-------- --------
Cash flows from investing activities:
Proceeds from sales of
securities available for sale .............. 79,826 5,446
Purchases of securities available for sale ...... (89,911) (4,227)
Proceeds from principal paydowns, maturities, and
calls of securities available for sale ..... 59,260 12,102
Redemption (purchase) of Federal Home Loan Bank
of New York stock .......................... 2,831 (122)
Net loans repaid by customers ................... 3,908 13,489
Purchase of loans ............................... (13,830) (10,000)
Purchase of bank-owned life insurance ........... (10,000) --
Purchases of premises and equipment ............. (1,080) (451)
Proceeds from sales of real estate owned and
repossessed assets ......................... 411 190
-------- --------
Net cash provided by
investing activities ........... 31,415 16,427
-------- --------
(continued)
5
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited) (continued)
(dollars in thousands) Nine months
ended September 30,
2001 2000
-------- -------
Cash flows from financing activities:
Net increase in deposits, exclusive of
deposits sold ................................. $ 8,805 $ 26,505
Payment for deposits sold, net ................... (13,583) --
Net decrease in FHLB short-term
borrowings ................................... (5,000) (52,600)
Proceeds from FHLB long-term advances ............ 5,000 40,000
Repayments of FHLB long-term advances ............ (14,759) (2,984)
Proceeds from repurchase agreements .............. -- 22,651
Repayments of repurchase agreements .............. (20,000) (62,891)
Decrease in advances from borrowers
for taxes and insurance .................... (2,372) (2,152)
Purchases of treasury stock ...................... (4,929) (1,142)
Excercises of stock options ...................... 1,972 --
Dividends paid ................................... (2,158) (1,769)
-------- --------
Net cash used in financing activities ...... (47,024) (34,382)
-------- --------
Net decrease in cash and cash equivalents ............ (3,102) (14,220)
Cash and cash equivalents at beginning of period ..... 78,497 29,611
-------- --------
Cash and cash equivalents at end of period ........... $ 75,395 $ 15,391
======== ========
Supplemental disclosures of cash flow information -
cash paid during the period for:
Interest ............................................. $ 20,756 $ 21,689
======== ========
Income taxes ......................................... $ 1,525 $ 1,715
======== ========
Noncash investing and financing activities:
Net transfer of loans to real estate owned
and repossessed assets .......................... $ 286 $ 162
======== ========
Adjustment of securities available for sale to
fair value, net of tax $ 1,662 $ 2,959
======== ========
Net book value of premises and equipment transferred
to assets held for sale ...................... $ 223 --
======== ========
Issuance of RRP shares ............................... $ 233 --
======== ========
Tax benefit related to vesting of RRP shares
and exercises of stock options ............... $ 455 $ 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 nine month periods ended September 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 nine months ended Sept. 30, 2001------------ ---------- ---------
Basic EPS
Net income $3,180 4,317,661 $0.74
====== =====
Effect of dilutive securities:
Stock options 103,933
Unvested RRP shares 9,068
---------
Diluted EPS
Net income $3,180 4,430,662 $0.72
====== ========= =====
For the nine months ended Sept. 30, 2000------------ ---------- ---------
Basic EPS
Net income $2,817 4,650,055 $0.61
====== =====
Effect of dilutive securities:
Stock options 21,624
Unvested RRP shares 12,033
---------
Diluted EPS
Net income $2,817 4,683,712 $0.60
====== ========= =====
7
For the quarter ended Sept. 30, 2001
Basic EPS
Net income $ 996 4,293,167 $0.23
====== =====
Effect of dilutive securities:
Stock options 116,294
Unvested RRP shares ---
---------
Diluted EPS
Net income $ 996 4,409,461 $0.23
====== ========= =====
For the quarter ended Sept. 30, 2000
Basic EPS
Net income $ 904 4,653,495 $0.19
====== =====
Effect of dilutive securities:
Stock options 33,274
Unvested RRP shares 6,093
---------
Diluted EPS
Net income $ 904 4,692,862 $0.19
====== ========= =====
(4) Comprehensive Income (Loss)
Comprehensive income (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
Comprehensive income for the nine-month periods ended September, 30, 2001
and 2000 was $4.8 million and $5.8 million, respectively. Comprehensive income
for the three-month periods ended September 30, 2001 and 2000 was $2.0 million
and $3.3 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 after adoption. 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 after adoption.
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 $399 thousand for the year ended December 31, 2000 and the
nine months ended September 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.
9
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.
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.
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. At
September 30, 2001, the Company's loans receivable, net, to assets ratio was
69.8%, 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 78.1% of
total loans at September 30, 2001. Total commercial-type loans were 17.7% of
total loans at September 30, 2001, up from 11.8% at December 31, 2000.
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.
10
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.
Merger and Acquisitions
On September 4, 2001, Ambanc Holding Co., Inc. ("Ambanc") jointly announced
that it had entered into an Agreement and Plan of Merger (the "Agreement") with
Hudson River Bank & Trust Company, Hudson, New York ("Hudson") for the merger of
Ambanc with and into Hudson and the merger of Ambanc's wholly-owned subsidiary,
Mohawk Community Bank, with and into Hudson (collectively, the "Merger"). In
consideration of the Merger, each outstanding share of common stock of Ambanc
will be exchanged for $21.50 in cash. Consummation of the Merger is subject to
several conditions precedent including, among other things, the approval of
Ambanc's stockholders, and regulatory approval.
The parties to the Agreement desire to consummate the merger during the
first quarter of 2002. The Agreement will expire, however, if the transactions
contemplated thereby have not occurred by June 30, 2002, unless the parties
agree to extend this date..
Financial Condition
Comparison of Financial Condition at September 30, 2001 and December 31,
2000. Total assets decreased by $34.0 million, or 4.8%, to $672.6 million at
September 30, 2001 from $706.6 million at December 31, 2000, primarily due to
decreases in securities available for sale and cash and cash equivalents of
$46.4 million and $3.1 million, respectively, in addition to a decrease in
Federal Home Loan Bank of New York stock of $2.8 million. These decreases were
partially offset by increases in bank-owned life insurance of $10.3 million, in
addition to an increase in loans receivable, net of $9.2 million.
Cash and cash equivalents decreased by $3.1 million, or 4.0%, to $75.4
million at September 30, 2001 from $78.5 million at December 31, 2000. This
decrease was primarily due to a decrease in interest-bearing deposits of $6.9
million from $51.6 million at December 31, 2000 to $44.7 million at September
30, 2001, which in part were re-deployed into federal funds sold.
Federal Home Loan Bank of New York (FHLB) stock decreased $2.8 million, or
31.9%, to $6.0 million at September 30, 2001 from $8.9 million at December 31,
2000 due to the redemption of stock, as the Company's borrowings with the FHLB
have decreased since December 31, 2000.
Securities available for sale decreased $46.4 million, or 33.4%, to $92.5
million at September 30, 2001 from $139.0 million at December 31, 2000 resulting
primarily from the sales, maturities, and calls of securities and the
reinvestment of the proceeds in the loan portfolio, the pay down of
borrowings, and repurchases of the Company's stock.
11
Loans receivable, net increased $9.2 million, or 2.0%, to $469.2 million at
September 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. 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. Commercial real estate and
commercial business loans increased $18.3 million and $6.0 million,
respectively, during the nine months ended September 30, 2001. Likewise, during
the nine months ended September 30, 2001 home equity loans increased $16.6
million. Partially offsetting these increases were decreases in one-to-four
family mortgage loans of $28.3 million and consumer loans of $639 thousand.
Bank-owned life insurance increased $10.3 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 $279 thousand for
the nine months ended September 30, 2001.
Other assets increased $286 thousand, or 8.2%, to $3.8 million at September
30, 2001 due primarily to the gain on the curtailment of the Company's pension
plan, which increased prepaid pension cost, offset in part by the deferred tax
consequences related to the adjustment of securities available for sale to fair
value.
Deposits decreased by $5.2 million, or 1.1%, to $473.4 million at September
30, 2001 from $478.6 million at December 31, 2000 due primarily to the sale of
deposits at the Company's Oneonta branch totaling $14.4 million during the third
quarter of 2001. This significantly impacted money market accounts, which
decreased $5.3 million from $23.4 million to $18.1 million; time deposits, which
decreased $4.2 million from $248.9 million to $244.7 million; and NOW accounts,
which decreased $974 thousand from $46.3 million to $45.4 million. These
decreases were partially offset by increases in non-interest-bearing demand
deposits, which increased $3.6 million from $38.6 million to $42.2 million and
savings accounts, which increased $1.6 million from $121.4 million to $123.0
million.
Short-term borrowings from the FHLB decreased by $5.0 million, to $0 at
September 30, 2001. Likewise, long-term advances from the FHLB decreased $9.8
million, or 14.7%, to $56.7 million at September 30, 2001 from $66.4 million at
December 31, 2000. Securities repurchase agreements decreased $20.0 million, or
27.6%, to $52.5 million at September 30, 2001 from $72.5 million at December 31,
2000, due primarily to the maturity and subsequent repayment of the repurchase
agreements. The payoff of short-term borrowings and pay down of long-term
advances 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 $7.5 million to $10.0
million at September 30, 2001 from $2.5 million at December 31, 2000. This
increase was primarily 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.
12
Shareholders' equity increased $1.0 million from $77.1 million at December
31, 2000 to $78.2 million at September 30, 2001, primarily due to net income of
$3.2 million, the decrease in net unrealized losses on securities available for
sale, net of tax, of $1.7 million, and the excercise of stock options, which
increased shareholders' equity by $2.0 million, partially offset by treasury
stock purchases totaling $4.9 million and the payment of cash dividends of $2.2
million for the nine months ended September 30, 2001. Other items impacting
shareholders' equity were the release of ESOP shares and the continued
amortization of unearned RRP shares.
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.
13
Three months ended September 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) $472,906 $8,778 7.36% $461,575 $8,681 7.48%
Securities available for sale (AFS)(2) 138,277 2,121 6.09% 213,319 3,493 6.51%
Federal Home Loan Bank stock 6,070 130 8.50% 8,870 154 6.91%
Federal funds sold &
interest-bearing deposits 34,766 296 3.38% 2,709 45 6.61%
-------------- --------- -------- -------------- --------- --------
Total earning assets 652,019 11,325 6.89% 686,473 12,373 7.17%
-------------- --------- -------- -------------- --------- --------
Allowance for loan losses (5,692) (5,587)
Unrealized loss on AFS securities (335) (9,698)
Other assets 44,648 33,830
--------------- ---------------
Total assets $690,640 $705,018
=============== ===============
Interest-bearing liabilities:
Savings deposits 129,215 827 2.54% 126,598 873 2.74%
NOW deposits 46,364 138 1.18% 41,443 194 1.86%
Certificates of deposit 249,546 3,427 5.45% 249,613 3,627 5.78%
Money market accounts 23,137 200 3.43% 24,228 234 3.84%
Borrowed funds 116,041 1,714 5.86% 141,162 2,242 6.32%
-------------- --------- -------- -------------- --------- --------
Total interest-bearing liabilities 564,303 6,306 4.43% 583,044 7,170 4.89%
-------------- --------- -------- -------------- --------- --------
Demand deposits 36,817 37,887
Other liabilities 13,160 7,634
--------------- ---------------
Total liabilities 614,280 628,565
--------------- ---------------
Stockholders' equity 76,360 76,453
--------------- ---------------
Total liabilities & equity $690,640 $705,018
=============== ===============
Net interest income $5,019 $5,203
Interest rate spread 2.46% 2.28%
Net earning assets $ 87,716 $103,429
Net interest margin 3.05% 3.02%
Average earning assets/Average
interest-bearing liabilities 115.54% 117.74%
(1) Calculated net of deferred loan fees and costs, loan discounts and loans in process.
(2) Securities available for sale exclude securities pending settlement.
14
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 September 30,
2001 vs. 2000
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (In thousands)
Loans receivable .......................... $ 226 $ (129) $ 97
Securities available for sale ............. (1,179) (193) (1,372)
Federal Home Loan Bank stock .............. (55) 31 (24)
Federal funds sold and interest-bearing
deposits ............................... 284 (33) 251
--------- -------- --------
Total earning assets .................. (724) (324) (1,048)
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... 18 (64) (46)
NOW deposits ............................. 21 (77) (56)
Certificates of deposit ................... (1) (199) (200)
Money market accounts ..................... (10) (24) (34)
Borrowed funds ............................ (374) (154) (528)
--------- -------- --------
Total interest-bearing liabilities .... (346) (518) (864)
--------- -------- --------
Net interest income ..................... $ (378) $ 194 $ (184)
========= ======== ========
15
Comparison of Operating Results for the Three Months Ended September 30, 2001
and 2000.
Net Income. Net income increased by $92 thousand, or 10.2%, for the three
months ended September 30, 2001 to $996 thousand from $904 thousand for the
three months ended September 30, 2000. Net income for the three months ended
September 30, 2001 was significantly impacted by a $422 thousand (pre-tax) net
gain related to the closing of the Company's Oneonta branch and the sale of the
related deposits, as well as $255 thousand of non-tax-deductible expenses
incurred to date related to the Company's merger agreement with Hudson River
Bancorp, Inc. These and other changes are discussed in more detail below.
Net Interest Income. Net interest income decreased $184 thousand, or 3.5%,
to $5.0 million for the three months ended September 30, 2001 from $5.2 million
for the three months ended September 30, 2000. During the period, average
interest-bearing liabilities decreased $18.7 million, or 3.2%, to $564.3
million. However, the decrease in the average balance of earning assets of $34.5
million, or 5.0%, to $652.0 million exceeded the decrease in average
interest-bearing liabilities. A portion of the decrease in the average earning
assets is attributable to the Company's stock repurchases, as well as the
purchase of bank owned life insurance.
Earning assets consist of loans receivable, securities available for sale,
federal funds sold, interest-bearing deposits, and FHLB 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,
increased to 2.46% for the three months ended September 30, 2001, from 2.28% for
the three months ended September 30, 2000. The increase in the interest rate
spread is due primarily to the decrease in the average cost of interest-bearing
liabilities being greater than the decrease in the yield on interest earning
assets. The average yield on interest earning assets decreased 28 basis points
to 6.89% for the three months ended September 30, 2001. The average cost of
interest-bearing liabilities decreased from 4.89% for the three months ended
September 30, 2000 to 4.43% for the three months ended September 30, 2001. This
decrease was largely impacted by a decrease in the average rate paid on
certificates of deposit and borrowed funds of 33 basis points, to 5.45%, and 46
basis points, to 5.86%, respectively.
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
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.
16
Interest and Dividend Income. Interest and dividend income decreased by
$1.0 million or 8.5%, to $11.3 million for the three months ended September 30,
2001 from $12.4 million for the three months ended September 30, 2000. The
decrease was largely the result of the decrease in the average balance of
earning assets from $686.5 million for the three months ended September 30, 2000
to $652.0 million for the three months ended September 30, 2001. In addition to
the decrease in the average balance of earning assets the Company experienced a
28 basis point decrease in the average yield on total earning assets. The yield
on the average balance of earning assets was 6.89% and 7.17% for the three
months ended September 30, 2001 and 2000, respectively.
Interest and fees on loans increased $97 thousand to $8.8 million for the
three months ended September 30, 2001. This increase was primarily the result of
an increase in the average balance of net loans receivable from $461.6 million
for the three months ended September 30, 2000 to $472.9 million for the three
months ended September 30, 2001, offset in part by a decrease in the average
yield on net loans receivable of 12 basis points, to 7.36%.
Interest and dividend income on securities available for sale decreased
$1.4 million, or 39.3%, to $2.1 million for the three months ended September 30,
2001 from $3.5 million for the previous period. This decrease is primarily the
result of a decrease in the average balance of securities available for sale of
$75.0 million, or 35.2%.
Interest income on federal funds sold and interest-bearing deposits
increased $251 thousand to $296 thousand for the three months ended September
30, 2001 from $45 thousand for the previous quarter, primarily due to an
increase in the average balance of $32.1 million, offset somewhat by a decrease
in the average yield from 6.61% to 3.38%.
Interest Expense. Total interest expense decreased by $864 thousand, or
12.1%, to $6.3 million for the three months ended September 30, 2001 from $7.2
million for the three months ended September 30, 2000. Total average
interest-bearing liabilities decreased by $18.7 million to $564.3 million for
the third quarter of 2001 compared to $583.0 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 $25.1 million, or 17.8%, from $141.2 million for the
three months ended September 30, 2000 to $116.0 million for the three months
ended September 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 decreased by 46 basis points to 4.43% from 4.89%.
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
September 30, 2001 increased $30 thousand to $150 thousand from $120 thousand
for the three months ended September 30, 2000. The increase in the provision was
due primarily to the increase in net charge-offs as well as the increase in
commercial loans.
17
Non-Interest Income. Total non-interest income increased by $927 thousand
to $1.3 million for the three months ended September 30, 2001 from $401 thousand
for the three months ended September 30, 2000. This increase is primarily due to
a $422 thousand (pre-tax) net gain related to the closing of the Company's
Oneonta branch and the sale of the related deposits, in addition to the increase
in the cash surrender value of bank-owned life insurance of $147 thousand for
the three months ended September 30, 2001. During the quarter ended September
30, 2000 approximately $1.5 million in investments of mortgaged-related
securities were sold resulting in a net loss of $56 thousand. However, for the
three months ended September 30, 2001, the sale of securities transactions
resulted in a net gain of $136 thousand. Service charges on deposit accounts
increased $43 thousand to $389 thousand for the quarter ended September 30,
2001, primarily from increased fees charged on deposit accounts.
Non-Interest Expenses. Non-interest expenses increased $452 thousand, or
11.3%, to $4.4 million for the three months ended September 30, 2001 from $4.0
million for the three months ended September 30, 2000 primarily due to $255
thousand non-tax-deductible expenses related to the Company's proposed merger
with Hudson River Bank and Trust Company. These and other changes are discussed
in more detail below.
Salaries, wages and benefits expense increased by $36 thousand, or 1.8%,
for the three months ended September 30, 2001. During the third quarter of 2001,
the Company recognized $36 thousand in expense related to matching contributions
under the Company's 401(k) plan. No matching contributions were made during the
third quarter of 2000. In addition, the expense related to the ESOP for the
third quarter of 2001 was $42 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. Partially offsetting these increases was the recognition of
a net periodic pension credit of $64 thousand in the third quarter of 2001, as
compared to a net periodic pension expense of approximately $10 thousand
recognized during the third quarter of 2000.
Occupancy and equipment increased $14 thousand, or 2.4%, to $600 thousand
for the three months ended September 30, 2001, from $586 thousand in 2000
primarily due to an increase in amortization and depreciation of software and
equipment related to the change to a new computer system in June 2001.
Data processing increased $55 thousand, or 13.5%, from $408 thousand in the
2000 period to $463 thousand for the three months ended September 30, 2001 due
primarily to the increase in volume of deposit and loan accounts serviced by the
Company.
18
Excluding the $255 thousand of merger-related expenses noted above,
professional fees decreased $14 thousand to $126 thousand for the three months
ended September 30, 2001, from $140 thousand for the comparable period of the
previous year. Impacting professional fees during the third quarter of 2000 were
costs associated with certain tax planning strategies implemented by the
Company. Management expects to incur additional merger-related expenses in
future periods, which will increase non-interest expenses.
Other non-interest expenses increased $104 thousand, or 13.8%, to $858
thousand for the three months ended September 30, 2001 when compared to the
previous period. This increase was primarily due to expenses associated with the
promotion of bank products and services utilizing television and billboard
advertisements during the quarter ended September 30, 2001. No such special
advertising was conducted during the third quarter of 2000.
Income Tax Expense. Income tax expense increased by $169 thousand, or
28.9%, to $753 thousand for the three months ended September 30, 2001 from $584
thousand for the three months ended September 30, 2000. Moreover, the effective
tax rate increased from 39.2% for the three months ended September 30, 2000 to
43.1% for the three months ended September 30, 2001. The increase in the
effective tax rate was due primarily to the non-tax-deductible merger-related
expenses mentioned above.
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.
19
Nine months ended September 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) $468,433 $26,165 7.47% $467,286 $26,070 7.45%
Securities available for sale (AFS)(2) 147,917 7,147 6.46% 216,943 10,718 6.60%
Federal Home Loan Bank stock 7,927 441 7.44% 8,819 448 6.79%
Federal funds sold &
interest-bearing deposits 45,649 1,646 4.82% 2,668 117 5.86%
-------------- --------- -------- -------------- --------- --------
Total earning assets 669,926 35,399 7.06% 695,716 37,353 7.17%
-------------- --------- -------- -------------- --------- --------
Allowance for loan losses (5,735) (5,551)
Unrealized loss on AFS securities (811) (10,272)
Other assets 39,764 34,541
--------------- ---------------
Total assets $703,144 $714,434
=============== ===============
Interest-bearing liabilities:
Savings deposits 125,562 2,434 2.59% 128,297 2,635 2.74%
NOW deposits 46,758 519 1.48% 38,598 441 1.53%
Certificates of deposit 251,992 10,851 5.76% 238,263 9,917 5.56%
Money market accounts 23,059 633 3.67% 26,701 769 3.85%
Borrowed funds 133,630 6,072 6.08% 163,630 7,426 6.06%
-------------- --------- -------- -------------- --------- --------
Total interest-bearing liabilities 581,001 20,509 4.72% 595,489 21,188 4.75%
-------------- --------- -------- -------------- --------- --------
Demand deposits 36,963 36,632
Other liabilities 8,401 6,565
--------------- ---------------
Total liabilities 626,365 638,686
--------------- ---------------
Stockholders' equity 76,779 75,748
--------------- ---------------
Total liabilities & equity $703,144 $714,434
=============== ===============
Net interest income $14,890 $16,165
Interest rate spread 2.34% 2.42%
Net earning assets $ 88,925 $100,227
Net interest margin 2.97% 3.10%
Average earning assets/Average
interest-bearing liabilities 115.31% 116.83%
(1) Calculated net of deferred loan fees and costs, loan discounts and loans in process.
(2) Securities available for sale exclude securities pending settlement.
20
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.
Nine months ended September 30,
2001 vs. 2000
-------------------------------
Increase
(Decrease)
Due to Total
--------------------- Increase
Volume Rate (Decrease)
--------- -------- --------
Earning assets (In thousands)
Loans receivable .......................... $ 47 $ 48 $ 95
Securities available for sale ............. (3,355) (216) (3,571)
Federal Home Loan Bank stock .............. (47) 40 (7)
Federal funds sold and interest-bearing
deposits ............................... 1,554 (25) 1,529
--------- -------- --------
Total earning assets .................. (1,801) (153) (1,954)
--------- -------- --------
Interest-bearing liabilities
Savings deposits .......................... (55) (146) (201)
NOW deposits ............................. 88 (10) 78
Certificates of deposit ................... 584 350 934
Money market accounts ..................... (103) (33) (136)
Borrowed funds ............................ (1,375) 21 (1,354)
--------- -------- --------
Total interest-bearing liabilities .... (861) 182 (679)
--------- -------- --------
Net interest income ..................... $ (940) $ (335) $(1,275)
========= ======== ========
21
Comparison of Operating Results for the Nine Months Ended September 30, 2001 and
2000.
Net Income. Net income increased by $363 thousand, or 12.9%, for the nine
months ended September 30, 2001 to $3.2 million from $2.8 million for the nine
months ended September 30, 2000. Net income for the nine months ended September
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, in addition to a $422 thousand
(pre-tax) net gain related to the closing of the Company's Oneonta branch and
the sale of the related deposits, as well as $255 thousand of non-tax-deductible
expenses incurred to date related to the Company's proposed merger with Hudson
River Bank and Trust Company. These and other changes are discussed in more
detail below.
Net Interest Income. Net interest income decreased $1.3 million, or 7.9%,
from $16.2 million for the nine months ended September 30, 2000 to $14.9 million
for the nine months ended September 30, 2001. The decrease in net interest
income was primarily due to a decrease in the interest rate spread from 2.42%
for the nine months of 2000 to 2.34% for the nine months of 2001, a decrease in
the net interest margin from 3.10% to 2.97%, and a decrease in average earning
assets of $25.8 million, a portion of which is attributable to the Company's
treasury stock purchases, as well as the purchase of bank owned life insurance.
Interest and Dividend Income. Interest and dividend income decreased by
$2.0 million, or 5.2%, from $37.4 million for the nine months ended September
30, 2000 to $35.4 million for the nine months ended September 30, 2001. The
decrease was largely the result of a decrease in the average balance of earning
assets from $695.7 million for the nine months ended September 30, 2000 to
$669.9 million for the nine months ended September 30, 2001.
Interest and fees on loans increased $95 thousand to $26.2 million for the
nine months ended September 30, 2001 due to an increase in the average balance
of loans receivable of $1.1 million to $468.4 million for the nine months ended
September 30, 2001 from $467.3 million for the comparable period of the previous
year, in addition to a 2 basis point increase in the average yield.
Interest and dividend income on securities available for sale decreased
$3.6 million, or 33.3%, to $7.1 million for the nine months ended September 30,
2001 from $10.7 million for the previous period. This decrease is primarily the
result of a decrease in the average balance of securities available for sale of
$69.0 million, or 31.8%.
Interest income on federal funds sold and interest-bearing deposits
increased $1.5 million to $1.6 million for the nine months ended September 30,
2001 from $117 thousand for the previous period primarily due to an increase in
the average balance of $43.0 million.
22
Interest Expense. Total interest expense decreased by $679 thousand, or
3.2%, to $20.5 million for the nine months ended September 30, 2001 from $21.2
million for the nine months ended September 30, 2000. This decrease is primarily
due to a decrease in the average balance of borrowed funds, offset in part by an
increase in the average balance and the rate paid on certificates of deposit
during the period. The average balance of borrowed funds decreased $30.0
million, or 18.3%, from $163.6 million for the nine months ended September 30,
2000 to $133.6 million for the nine months ended September 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. The average balance on certificates of deposits
increased to $252.0 million for the nine months ended September 30, 2001, from
$238.3 million for the comparable period of the previous year. Likewise, the
average rate paid on certificates of deposit increased 20 basis points to 5.76%.
Based on current market interest rates and the prospective run-off in CD's, it
is anticipated that the average rate paid on these deposits will trend downward
in subsequent periods.
Provision for Loan Losses. The provision for loan losses for the nine
months ended September 30, 2001 increased $30 thousand to $390 thousand from
$360 thousand for the nine months ended September 30, 2000. The increase in the
provision was due primarily to the increase in net charge-offs as well as the
increase in commercial loans.
Non-Interest Income. Total non-interest income increased by $2.3 million to
$3.6 million for the nine months ended September 30, 2001 from $1.3 million for
the nine months ended September 30, 2000. As previously mentioned, significantly
impacting non-interest income during the first nine months 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 to a
$422 thousand (pre-tax) net gain related to the closing of the Company's Oneonta
branch and the sale of the related deposits. The Company recognized $279
thousand of non-interest income due to the increase in the cash surrender value
of bank-owned life insurance for the nine months ended September 30, 2001. For
the nine months ended September 30, 2000, the Company sold mortgage-related
securities recognizing a net loss of $102 thousand. However, for the nine months
ended September 30, 2001, a $208 thousand net gain was recognized on securities
transactions. Service charges on deposit accounts increased $87 thousand to $1.1
million for the nine months ended September 30, 2001 primarily from increased
fees charged on deposit accounts.
Non-Interest Expenses. Non-interest expenses increased $462 thousand, or
3.8%, to $12.8 million for the nine months ended September 30, 2001. The various
changes are discussed in more detail below.
Salaries, wages and benefits decreased by $46 thousand for the first nine
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 nine months of
2001, the Company recognized a net periodic pension credit of $192 thousand
compared to a net periodic pension expense of $78 thousand for the same period
of the previous year. However, during the first nine months of 2001, the Company
recognized $105 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 nine months of
2001 was $111 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.
23
Occupancy and equipment increased $82 thousand, or 4.6%, to $1.9 million
for the nine months ended September 30, 2001 when compared to the previous
period primarily due to costs related to the change to a new computer system
which resulted in a $57 thousand loss from the disposal of the old equipment.
Also contributing to the increase is the acceleration of lease expense and the
amortization of leasehold improvements totaling $57 thousand during the first
quarter of 2001, related to a branch office that closed in June 2001.
Data processing increased $98 thousand, or 8.2%, from $1.2 million in the
2000 period to $1.3 million for the nine months ended September 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 $17 thousand to
$45 thousand for the nine months ended September 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 $399 thousand to $778 thousand for the nine
months ended September 30, 2001 primarily due to the $255 thousand of expenses
related to the proposed merger with Hudson River Bank and Trust Company, as well
as professional fees incurred in the amount of $157 thousand during the second
quarter of 2001 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 $54 thousand, or 2.2%, to $2.4
million for the nine months ended September 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 $190 thousand, or 9.8%,
to $2.1 million for the nine months ended September 30, 2001. The increase was
primarily the result of the increase in income before taxes, as well as the
impact of the non-tax-deductible merger-related expenses mentioned above,
partially offset by the impact of certain tax planning strategies implemented by
the Company, which decreased the effective tax rate.
24
ASSET QUALITY
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated.
Sept. 30, Dec. 31,
2001 2000
------ ------
(In thousands)
Non-accruing loans:
One-to four-family (1)........ $1,432 $1,471
Commercial real estate ....... -- 44
Consumer ..................... 473 418
Commercial business .......... 554 515
------ ------
Total ...................... 2,459 2,448
------ ------
Accruing loans delinquent
more than 90 days:
One-to four-family (1) ....... 267 247
Consumer ..................... -- 10
------ ------
Total ...................... 267 257
------ ------
Troubled debt restructured loans:
One-to four-family (1)........ 81 82
Commercial real estate ....... 446 458
Commercial business .......... -- 1
------ ------
Total ...................... 527 541
------ ------
Total non-performing loans ...... 3,253 3,246
------ ------
Foreclosed and repossessed assets:
One-to four-family (1)........ 179 232
Commercial real estate ....... -- 112
Consumer ..................... 66 29
------ ------
Total ...................... 245 373
------ ------
Total non-performing assets ..... $3,498 $3,619
====== ======
Non-performing loans as a
percentage of total loans ..... 0.68% 0.70%
====== ======
Non-performing assets as a
percentage of total assets .... 0.52% 0.51%
====== ======
(1) Includes home equity loans.
25
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 nine months
ended September 30,
2001 2000
------- -------
(In thousands)
Balance at beginning of period ........ $ 5,745 $ 5,509
Charge-offs:
One- to four-family (1) .......... (33) (14)
Consumer ......................... (166) (217)
Commercial business .............. (215) (21)
------- -------
Total charge-offs ............. (414) (252)
------- -------
Recoveries:
One- to four-family (1) .......... 3 3
Commercial real estate ........... -- 13
Consumer ......................... 15 44
Commercial business .............. 21 12
------- -------
Total recoveries .............. 39 72
------- -------
Net charge-offs ....................... (375) (180)
Provisions charged to operations ...... 390 360
------- -------
Balance at end of period .............. 5,760 5,689
======= =======
Ratio of allowance for loan
losses to total loans (period end) .... 1.21% 1.22%
Ratio of allowance for loan losses
to non-performing loans (period end) .. 177.07% 180.49%
Ratio of net charge-offs during the
period to average loans outstanding
during period (annualized) ............ 0.11% 0.05%
(1) Includes home equity loans.
26
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 September 30, 2001 and December 31, 2000, the Company had $56.7
million and $71.4 million, respectively, in outstanding borrowings from the FHLB
and $52.5 million and $72.5 million, respectively, in securities repurchase
agreements, the vast majority of which are also with the FHLB.
As of September 30, 2001 and December 31, 2000, the Company had $92.5
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 September 30, 2001, the Bank's capital exceeded each of
the regulatory capital requirements of the OTS. The Bank was "well capitalized"
at September 30, 2001 according to regulatory definition. At September 30, 2001,
the Bank's tangible and core capital levels were both $61.2 million (9.23% of
total adjusted assets) and its total risk-based capital level was $65.9 million
(17.76% 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 nine months of 2001, the Company repurchased 263,477
shares of its common stock in open-market transactions at a total cost of $4.9
million.
27
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 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Registrant filed proxy material concerning its proposed merger
with Hudson River Bank and Trust Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
Not applicable.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K with the SEC on
September 6, 2001, to report the entering into of the merger
agreement dated September 4, 2001, with Hudson River Bank and
Trust Company.
28
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: November 14, 2001
/s/ James J. Alescio
James J. Alescio
Executive Vice President, and CFO
(Principal Financial and Accounting Officer)
Date: November 14, 2001
29