UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from_______ to __________.
Commission file number: 0-27036
AMBANC HOLDING CO., INC.
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(Exact name of registrant as specified in its charter)
Delaware 14-1783770
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(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
---------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES [X]. NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the average of the closing bid and
asked prices of such stock on the Nasdaq National Market as of March 27, 1998,
was $78,061,715. (The exclusion from such amount of the market value of the
shares owned by any person shall not be deemed an admission by the registrant
that such person is an affiliate of the registrant.)
As of March 27, 1998, there were issued and outstanding 4,258,418 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to
Shareholders for the year ended December 31, 1997.
Part III of Form 10-K - Portions of the Proxy Statement for the Annual
Meeting of Shareholders for the year ended December 31, 1997.
PART I
Item 1. Description of Business
General
Ambanc Holding Co., Inc. (the "Company") was formed as a Delaware
corporation in June 1995 to act as the holding company for Amsterdam Savings
Bank, FSB (the "Bank") upon the completion of the Bank's conversion from mutual
to stock form (the "Conversion"). The Company received approval from the Office
of Thrift Supervision (the "OTS") to acquire all of the common stock of the Bank
to be outstanding upon completion of the Conversion. The Conversion was
completed on December 26, 1995. The Company's Common Stock trades on The Nasdaq
National Market under the symbol "AHCI". All references to the Company, unless
otherwise indicated, at or before December 26, 1995 refer to the Bank.
At December 31, 1997, the Company had $510.4 million of assets and
shareholders' equity of $61.2 million or 12% of total assets.
The Bank, organized in 1886, is a federally chartered savings bank
headquartered in Amsterdam, New York. The principal business of the Bank
consists of attracting retail deposits from the general public and using those
funds, together with borrowings and other funds, to originate primarily one- to
four-family residential mortgage loans, home equity loans and consumer loans,
and to a lesser extent, commercial and multi-family real estate, and commercial
business loans in the Bank's primary market area. See "Market Area." The Bank
also invests in mortgage-backed securities, U.S. Government and agency
obligations and other permissible investments. Revenues are derived primarily
from interest on loans, mortgage-backed and related securities and investments.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank is a member of the Bank Insurance Fund (the
"BIF"), which is administered by the Federal Deposit Insurance Corporation (the
"FDIC"). Its deposits are insured up to applicable limits by the FDIC, which
insurance is backed by the full faith and credit of the United States
Government. The Bank primarily solicits deposits in its primary market area and
currently does not have brokered deposits. The Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
The Company's and the Bank's executive office is located at 11 Division
Street, Amsterdam, New York, 12010-4303, and its telephone number is (518)
842-7200.
2
When used in this annual Report on Form 10-K, 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 - including, 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,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company does not undertake - and specifically disclaims any obligation
- - to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Market Area
The Company's primary market area is comprised of Albany, Schenectady,
Saratoga, Montgomery, and Fulton Counties in New York, which are serviced
through the Bank's main office, eleven other banking offices and its operations
center. The Bank also operates two offsite automated teller machines.
The Company's primary market area consists principally of suburban and
rural communities but also includes the capital of New York State, Albany. The
economy of the Company's primary market area is highly dependent on
manufacturing, state government services (including the State University of New
York at Albany), and private higher education services. These three sectors
provide the basis for the region's economy and the principal support for its
remaining sectors, such as retail trade, finance, and medical services.
Significant reductions in two of the region's main sectors, manufacturing and
state government, from completed, announced, and anticipated layoffs and
relocations will continue to have a negative effect on the economy in the
Company's primary market area.
Saratoga County, where the Bank operates two (2) traditional and two (2)
supermarket branches, is the fastest growing county in the Company's market
area. From 1980 to 1990 the population in Saratoga County grew by 27,517 or
17.9% to 181,276. For the same period, the number of households increased by
14,490, or 27.9% to 66,425.
Montgomery County, where the main office of the Company is located, is the
least populated county in the Company's primary market area with a 1990
population of approximately 51,981. Albany County, where the Bank operates one
traditional branch (Guilderland) and one supermarket branch (Latham) is the most
populated county in the Company's market area with a 1990 population of
approximately 292,594.
3
The Capital District Regional Planning Commission (CDRPC) in its most
recent population and household projections (1997) has projected the population
in the Capital District to increase by 97,331 persons or 12.5% between 1990 and
2030. Saratoga County is projected to experience the greatest amount and rate of
growth rising from 181,276 persons in 1990 to 234,085 persons in 2030, a 29.1%
increase.
The most significant population growth is expected to occur in suburban and
rural communities, while population in many of the cities and villages is
projected to remain the same or slightly decline. The communities expected to
experience the largest net increase in population between 1990 and 2030 include
Clifton Park (Saratoga County), up 12,862 or 42.7%; Guilderland (Albany County),
up 8,211 or 27.4%; Colonie (Albany County), up 6,805 or 24.7%; and Halfmoon
(Saratoga County), up 6,618 or 47.7%.
Lending Activities
General
The Company primarily originates fixed- and adjustable rate, one- to
four-family mortgage loans. The Company's general policy is to originate
mortgages with terms between 15 and 30 years for retention in its portfolio. The
Company also originates fixed and adjustable rate consumer loans. Adjustable
rate mortgage ("ARM"), home equity and consumer loans are originated in order to
maintain loans with more frequent terms to repricing or shorter maturities than
fixed-rate, one- to four-family mortgage loans. See "- Loan Portfolio
Composition" and "- One- to Four-Family Residential Real Estate Lending." In
addition, the Company originates commercial and multi-family real estate,
construction and commercial business loans in its primary market area; although,
the originations of these types of loans has recently been de-emphasized. In
1997 the Company initiated an FHA loan program primarily directed at
low-to-moderate income borrowers with terms up to 30 years. Loan originations
are generated by the Company's marketing efforts, which include print and radio
advertising, lobby displays and direct contact with local civic and religious
organizations, as well as by the Company's present customers, walk-in customers
and referrals from real estate agents, brokers and builders. At December 31,
1997, the Company's net loan portfolio totaled $281.1 million.
Loan applications are initially considered and approved at various levels
of authority, depending on the type, amount and loan-to-value ratio of the loan.
Bank employees with lending authority are designated, and their lending limit
authority defined, by the Board of Directors of the Bank. The approval of the
Bank's Board of Directors is required for any commercial real estate or
commercial business loan whose aggregate borrowings are in excess of $250,000,
and for all other loans in excess of $500,000. The Bank also has an
Officer/Director Loan Committee which has authority to approve loans between
$250,000 and $2,000,000 and meets as needed to approve loans between Board
meetings.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At
December 31, 1997, the maximum amount which the Bank could have loaned to any
one borrower and the borrower's related entities was approximately $7.4 million.
At such date, the Bank did not have any loans or series of loans to related
borrowers with an outstanding balance in excess of this amount.
4
At December 31, 1997, the Company's largest lending relationship consisted
of a $1.4 million loan secured by a strip shopping center. The next three
largest lending relationships at December 31, 1997 consisted of a $1.2 million
loan secured by a motel, a $1.1 million loan secured by a day treatment center
for the mentally retarded and developmentally disabled individuals, and a $1.0
million lending relationship consisting of 20 loans secured by 20 one-to
four-family properties. At December 31, 1997, there were no other loans or
lending relationships equal to or in excess of $1.0 million. All of the
foregoing loans were current at December 31, 1997.
Loan Portfolio Composition.
The following table presents information concerning the composition of the
Company's loan portfolio in dollar amounts and in percentages (before deferred
costs net of deferred fees and discounts and allowances for losses) as of the
dates indicated.
December 31,
--------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
(Dollars in Thousands)
Real Estate Loans:
One- to four-family $189,666 66.88% 158,182 63.15% $133,468 53.20% $140,418 53.63% $116,441 52.18%
Home Equity 30,246 10.67 22,817 9.11 17,519 6.98 16,715 6.39 16,135 7.23
Multi-family 4,152 1.46 4,724 1.88 8,176 3.26 8,718 3.33 10,978 4.92
Commercial 26,585 9.38 29,947 11.96 41,929 16.71 46,736 17.85 51,528 23.09
Construction 2,081 0.73 2,234 0.89 1,073 0.43 4,809 1.84 812 0.36
-------- ------ -------- ------ -------- ------ -------- ------- ------- ------
Total Real Estate 252,730 89.12 217,904 86.99 202,165 80.58 217,396 83.04 195,894 87.78
-------- ------ -------- ------ -------- ------ -------- ------- ------- ------
Other Loans:
Consumer Loans
Auto Loans 16,237 5.73 12,417 4.96 9,337 3.72 4,765 1.82 1,147 0.52
Recreational Vehicles 6,775 2.39 9,416 3.76 12,881 5.13 12,352 4.72 7,908 3.54
Manufactured Homes 494 0.17 620 0.25 13,484 5.37 15,161 5.79 5,751 2.58
Other Secured 1,781 0.63 1,866 0.74 2,020 0.81 2,065 0.79 3,867 1.73
Unsecured 1,847 0.65 1,445 0.58 1,299 0.52 1,398 0.53 1,499 0.67
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Consumer Loans 27,134 9.57 25,764 10.29 39,021 15.55 35,741 13.65 20,172 9.04
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Commercial Business Loans:
Secured 3,233 1.14 6,199 2.47 9,346 3.73 8,332 3.18 6,810 3.05
Unsecured 471 0.17 620 0.25 350 0.14 339 0.13 279 0.13
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Commercial
Business Loans 3,704 1.31 6,819 2.72 9,696 3.87 8,671 3.31 7,089 3.18
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Loan Portfolio, Gross 283,568 100.00% 250,487 100.00% 250,882 100.00% 261,808 100.00% 223,155 100.00%
====== ====== ====== ====== ======
Deferred costs, net of deferred
fees and discounts 1,362 1,045 1,756 2,008 741
Allowance for Loan Losses (3,807) (3,438) (2,647) (2,235) (3,249)
-------- -------- -------- -------- --------
Total Loans Receivable, Net $281,123 $248,094 $249,991 $261,581 $220,647
======== ======== ======== ======== ========
5
The following table shows the composition of the Company's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
December 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
Fixed Rate Loans:
Real Estate:
One- to four-family $124,457 43.89% $111,841 44.65% $ 91,528 36.48% $ 91,299 34.87% $ 68,377 30.64%
Home Equity 23,099 8.14% 15,234 6.08% 8,405 3.35% 6,689 2.56% 5,586 2.50%
Commercial and Multi-family 2,723 0.96% 2,590 1.03% 2,633 1.05% 13,144 5.02% 17,918 8.03%
Construction 2,081 0.73% 1,840 0.73% 633 0.25% 4,809 1.84% 812 0.36%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate 152,360 53.72% 131,505 52.49% 103,199 41.13% 115,941 44.29% 92,693 41.53%
Consumer 26,260 9.26% 25,110 10.03% 33,343 13.29% 28,027 10.70% 15,644 7.01%
Commercial Business 1,415 0.50% 3,124 1.24% 4,476 1.79% 3,480 1.33% 2,387 1.07%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total fixed-rate loans 180,035 63.48% 159,739 63.76% 141,018 56.21% 147,448 56.32% 110,724 49.61%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Adjustable Rate Loans:
Real Estate:
One- to four-family 65,209 23.00% 46,341 18.50% 41,940 16.72% 49,119 18.76% 48,064 21.54%
Home Equity 7,147 2.52% 7,583 3.03% 9,114 3.63% 10,026 3.83% 10,549 4.73%
Commercial and Multi-family 28,014 9.88% 32,081 12.81% 47,472 18.92% 42,310 16.16% 44,588 19.98%
Construction --- ----% 394 0.16% 440 0.18% --- ----% --- ----%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate 100,370 35.40% 86,399 34.50% 98,966 39.45% 101,455 38.75% 103,201 46.25%
Consumer 874 0.31% 654 0.26% 5,678 2.26% 7,714 2.95% 4,528 2.03%
Commercial Business 2,289 0.81% 3,695 1.48% 5,220 2.08% 5,191 1.98% 4,702 2.11%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total adjustable-rate loans 103,533 36.52% 90,748 36.24% 109,864 43.79% 114,360 43.68% 112,431 50.39%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Loan Portfolio, Gross 283,568 100.00% 250,487 100.00% 250,882 100.00% 261,808 100.00% 223,155 100.00%
====== ====== ====== ====== ======
Deferred costs, net of deferred
fees and discounts 1,362 1,045 1,756 2,008 741
Allowance for Loan Losses (3,807) (3,438) (2,647) (2,235) (3,249)
-------- -------- -------- -------- --------
Total Loans Receivable, Net $281,123 $248,094 $249,991 $261,581 $220,647
======== ======== ======== ======== ========
6
The following table illustrates the contractual maturity of the Company's
loan portfolio at December 31, 1997. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
Real Estate
--------------------------------------------------
One- to Multi-
Four-Family Family and Commercial
and Home Equity Commercial Construction(2) Consumer Business Total
-------------- -------------- -------------- -------------- -------------- --------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
Due During ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Periods Ending
December 31,
1998 (1) $ 985 8.92% $2,149 8.76% $----- -----% $1,637 10.06% $2,018 9.13% $6,789 8.49%
1999 to 2002 11,345 8.44 14,840 9.33 ----- ----- 19,026 8.14 1,382 7.16 46,593 8.56
2003 and beyond 207,582 7.66 13,748 9.03 2,081 7.04 6,471 10.84 304 10.71 230,186 7.77
<FN>
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(1) Includes demand loans, loans having no stated maturity and overdraft loans.
(2) Construction loan terms are generally less than one year, however, upon
completion of the construction phase, the loans are generally converted to a
permanent mortgage with a term not to exceed thirty years, thereby extending the
contractual maturity. Accordingly, the maturity on these loans are shown at the
final expected maturity of the permanent financing.
</FN>
As of December 31, 1997, the total amount of loans due after December 31,
1998 which have fixed interest rates was $179.1 million, while the total amount
of loans due after such date which have floating or adjustable interest rates
was $97.7 million.
7
One- to Four-Family Residential Real Estate Lending
The Company's residential first mortgage loans consist primarily of one- to
four-family, owner-occupied mortgage loans. At December 31, 1997, $189.7
million, or 66.9%,of the Company's gross loans consisted of one- to four-family
residential first mortgage loans. Approximately 65.6% of the Company's one- to
four-family residential first mortgage loans provide for fixed rates of interest
and for repayment of principal over a fixed period not to exceed 30 years. The
Company's fixed-rate one- to four-family residential mortgage loans are priced
competitively with the market. Accordingly, the Company attempts to distinguish
itself from its competitors based on quality of service.
The Company generally underwrites its fixed-rate, one- to four-family,
residential, first mortgage loans using Federal National Mortgage Association
("FNMA") secondary market standards. The Company generally holds for investment
all one- to four-family residential first mortgage loans it originates. In
underwriting one- to four-family residential first mortgage loans, the Company
evaluates both the borrower's ability to make monthly payments and the value of
the property securing the loan. Properties securing real estate loans made by
the Company are appraised by independent fee appraisers approved by the Board of
Directors. The Company requires borrowers to obtain title insurance, and fire
and property insurance (including flood insurance, if necessary) in an amount
not less than the amount of the loan.
The Company currently offers one, three, five and seven year residential
ARM loans with an interest rate that adjusts annually in the case of a one-year
ARM loan, and every three, five or seven years in the case of a three, five or
seven year ARM loan, respectively, based on the change in the relevant Treasury
constant maturity index. These loans provide for up to a 2.0% periodic cap and a
lifetime cap of 6.0% over the initial rate. As a consequence of using caps, the
interest rates on these loans may not be as rate sensitive as is the Company's
cost of funds. Borrowers of one-year residential ARM loans are generally
qualified at a rate 2.0% above the initial interest rate. The Company's
residential ARM loans may be modified into fixed-rate loans. ARM loans generally
pose greater credit risks than fixed-rate loans, primarily because as interest
rates rise, the required periodic payment by the borrower rises, increasing the
potential for default.
At December 31, 1997, the largest one- to four-family aggregate lending
relationship consisted of 20 loans totaling $1.0 million secured by 20
townhouses located in Webster, New York. All of these loans were current as of
December 31, 1997.
The Company's one- to four-family mortgage loans do not contain prepayment
penalties and do not permit negative amortization of principal. Real estate
loans originated by the Company generally contain a "due on sale" clause
allowing the Company to declare the unpaid principal balance due and payable
upon the sale of the security property. The Company has waived the due on sale
clause on loans held in its portfolio from time to time to permit assumptions of
the loans by qualified borrowers.
The Company does not currently originate residential mortgage loans if the
ratio of the loan amount to the value of the property securing the loan (i.e.,
the "loan-to-value" ratio) exceeds 95%, with the exception of FHA loans, which
are fully insured by the Federal Government. If the loan-to-value ratio exceeds
80%, the Company requires that borrowers obtain private mortgage insurance in
amounts intended to reduce the Company's exposure to 80% or less of the lower of
the appraised value or the purchase price of the real estate security. See "Loan
Originations and Sales."
8
The Company makes construction loans to individuals for the construction of
their residences. The Company has occasionally made loans to builders for the
construction of residential homes, provided the builder has a sales contract to
sell the home upon completion. No construction loan is approved unless there is
evidence of a commitment for permanent financing upon completion of the
residence, whether through the Company or another financial institution.
Construction loans generally will require construction stage inspections before
funds may be released to the borrower. Such inspections are generally performed
by outside fee appraisers.
At December 31, 1997, the Company's construction loan portfolio totaled
$2.1 million, or 0.7% of its gross loan portfolio. Substantially all of these
construction loans were to individuals intending to occupy such residences and
were secured by property located within the Company's primary market area.
Although no construction loans were classified as non-performing as of December
31, 1997, these loans do involve a higher level of risk than conventional one-
to four-family residential mortgage loans. For example, if a project is not
completed and the borrower defaults, the Company may have to hire another
contractor to complete the project at a higher cost.
Home Equity Lending
The Company's home equity loans and lines of credit are secured by a lien
on the borrower's residence and generally do not exceed $300,000. The Company
uses the same underwriting standards for home equity loans as it uses for one-
to four-family residential mortgage loans. Home equity loans are generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 90% of the appraised value of the property securing the loan. The
interest rates for home equity loans and lines of credit adjust at a stated
margin over the prime rate or, in the case of loans (but not lines of credit),
have fixed interest rates. Home equity lines of credit generally require
interest only payments on the outstanding balance for the first five years of
the loan, after which the outstanding balance is converted into a fully
amortizing, adjustable-rate loan with a term not in excess of 15 years. As of
December 31, 1997, the Company had $30.2 million in home equity loans and lines
of credit outstanding, with an additional $4.3 million of unused home equity
lines of credit.
Commercial and Multi-Family Real Estate Lending
The Company has engaged in commercial and multi-family real estate lending
secured primarily by apartment buildings, small office buildings, motels,
warehouses, nursing homes, strip shopping centers and churches located in the
Company's primary market area, although the origination of these types of loans
has recently been de-emphasized by the Bank. At December 31, 1997, the Company
had $26.6 million and $4.2 million of commercial real estate and multi-family
real estate loans, respectively, which represented 9.4% and 1.5%, respectively,
of the Company's gross loan portfolio at that date. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Management
Strategy - Asset Quality" and "Provision for Loan Losses" in the Annual Report
for a discussion of the Bank's 1996 bulk sale of certain multi-family and
commercial real estate loans.
9
The Bank's commercial and multi-family real estate loans generally have
adjustable rates and terms to maturity that do not exceed 20 years. The
Company's current lending guidelines generally require that the multi-family or
commercial income-producing property securing a loan generate net cash flows of
at least 125% of debt service after the payment of all operating expenses,
excluding depreciation, and a loan-to-value ratio not exceeding 65%. Prior to
September 1990, the Company originated commercial and multi-family loans with
loan-to-value ratios of up to 75%. Due to declines in the value of some
properties as a result of the economic conditions in the Company's primary
market area, however, the current loan-to-value ratio of some commercial and
multi-family real estate loans in the Company's portfolio may exceed the initial
loan-to-value ratio. Adjustable rate commercial and multi-family real estate
loans provide for interest at a margin over a designated index, with periodic
adjustments at frequencies of up to five-years. The Company generally analyzes
the financial condition of the borrower, the borrower's credit history, the
reliability and predictability of the cash flows generated by the property
securing the loan and the value of the property itself. The Company generally
requires personal guarantees of the borrowers in addition to the security
property as collateral for such loans. Appraisals on properties securing
commercial and multi-family real estate loans originated by the Company are
performed by independent fee appraisers approved by the Board of Directors.
At December 31, 1997, the Company's largest multi-family or commercial real
estate lending relationship consisted of a $1.4 million loan secured by a strip
shopping center. The next largest multi-family or commercial lending
relationships at December 31, 1997 were a $1.2 million loan secured by a motel,
and a $1.1 million loan secured by a day treatment center for the mentally
retarded and developmentally disabled individuals, all of which were current as
of December 31, 1997. At December 31, 1997, $1.1 million , or 3.4% of the
Company's multi-family and commercial real estate loan portfolio was
non-performing. See "Asset Quality - Non-Performing Assets".
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed, or a
bankruptcy court modifies a lease term, or a major tenant is unable to fulfill
its lease obligations), the borrower's ability to repay the loan may be impaired
and the value of the property may be reduced. The balances of these types of
loans have declined over the past five years with a significant decrease from
$50.1 million at December 31, 1995 to $30.7 million at December 31, 1997, due
primarily to the bulk sale of certain performing and non-performing loans in
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management Strategy -- Asset Quality" in the Annual
Report. The Company currently plans to continue to de-emphasize the origination
of commercial and multi-family real estate loans, thereby reducing its credit
risk exposure associated with these types of loans.
10
Consumer Lending
The Company offers a variety of secured consumer loans, including loans
secured by automobiles and recreational vehicles ("RV's"). In addition, the
Company offers other secured and unsecured consumer loans. The Company no longer
originates manufactured home loans. The Company currently originates
substantially all of its consumer loans in its primary market area. The Company
originates consumer loans on a direct basis only, where the Company extends
credit directly to the borrower. At December 31, 1997 the Company's consumer
loan portfolio totaled $27.1 million, or 9.6% of the gross loan portfolio. At
December 31, 1997, 96.8% of the Company's consumer loans were fixed-rate loans
and 3.2% were adjustable-rate loans.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. Terms to maturity range
up to 15 years for manufactured homes and certain RV's and up to 60 months for
other secured and unsecured consumer loans. The Company offers both open- and
closed-end credit. Open-end credit is extended through lines of credit that are
generally tied to a checking account. These credit lines currently bear interest
up to 18% and are generally limited to $10,000.
The underwriting standards employed by the Company for consumer loans
include, a determination of the applicant's payment history on other debts and
an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
At December 31, 1997, automobile loans and RV loans (such as motor homes,
boats, motorcycles, snowmobiles and other types of recreational vehicles)
totaled $16.2 million and $6.8 million or 59.8% and 25.0% of the Company's total
consumer loan portfolio, and 5.7% and 2.4% of its gross loan portfolio,
respectively.
During 1997 and 1996, the Company placed more emphasis on originating
automobile loans secured by both new and used automobiles, thereby experiencing
approximately $3.8 million and $3.1 million in net growth in 1997 and 1996,
respectively. In the past, originations were generated primarily through
advertising and lobby displays. In 1996, the Company increased the number of
relationships with local automobile dealerships in order to further enhance
automobile originations through their referrals. The Company's maximum
loan-to-value ratio on new automobiles is 100% of the borrower's cost including
sales tax, and on used automobiles up to 5 years old, 100% of the vehicle
average retail value, based on NADA (National Auto Dealers Association)
valuation. Non-performing automobile loans as of December 31, 1997 totaled
$36,000 or 0.1% of the Company's consumer loan portfolio.
Of the RV loan balance, approximately $4.8 and $2.0 million were secured by
new and used RVs, respectively. Approximately 75% of the RV portfolio consists
of loans that were originated through the Company's relationship with Alpin
Haus, Inc., a retail RV dealer formerly owned by one of the Company's directors.
The Company's maximum loan-to-value ratio on new and used RV loans is the lesser
of (i) 85% of the borrower's cost, which includes such items as sales tax and
dealer options or (ii) 115% of either the factory invoice for a new RV or the
wholesale value, plus sales tax, for a used RV. In the case of used RV's, the
wholesale value is determined using published guide books. At December 31, 1997,
RV loans totaling $195,000 or 2.9% of the total RV portfolio were
non-performing.
11
Consumer loans may entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, e.g. RVs and automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of high
initial loan-to-value ratios, repossession, rehabilitation and carrying costs,
and the greater likelihood of damage, loss or depreciation of the underlying
collateral. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on these loans. In the case of RV loans,
which tend to have loan balances in excess of the resale value of the
collateral, borrowers may abandon the collateral property making repossession by
the Company and subsequent losses more likely.
During 1996, the Company sold certain performing and non-performing loans
as part of a bulk sale, including a majority of its manufactured home loan
portfolio, as well as certain RV loans, thereby significantly reducing its
credit risk exposure on these types of loans (see "Loan Originations and
Sales"). However, management expects that delinquencies in its consumer loan
portfolio may increase as RV loans continue to season. At December 31, 1997,
$295,000, or 1.1%, of the Company's consumer loan portfolio was non-performing.
There can be no assurances that additional delinquencies will not occur in the
future.
Commercial Business Lending
The Company also originates commercial business loans, although the
origination of these types of loans has recently been de-emphasized by the Bank.
At December 31, 1997, commercial business loans comprised $3.7 million, or 1.3%
of the Company's gross loan portfolio. Most of the Company's commercial business
loans have been extended to finance local businesses and include primarily short
term loans to finance machinery and equipment purchases and, to a lesser extent,
inventory and accounts receivable. Loans made to finance inventory and accounts
receivable will only be made if the borrower secures such loans with the
inventory and/or receivables plus additional collateral acceptable to the
Company, generally real estate. Commercial loans also involve the extension of
revolving credit for a combination of equipment acquisitions and working capital
in expanding companies.
The terms of loans extended on machinery and equipment are based on the
projected useful life of such machinery and equipment, generally not to exceed
seven years. Secured, non-mortgage lines of credit are available to borrowers
provided that the outstanding balance is paid in full (i.e., the credit line has
a zero balance) for at least 30 consecutive days every year. In the event the
borrower does not meet this 30 day requirement, the line of credit is generally
terminated and the outstanding balance is converted into an amortizing loan.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property, the value of which tends to be
more easily ascertainable, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the
business itself (which, in turn, is often dependent upon the general economic
environment). The Company's commercial business loans are usually, but not
always, secured by business assets. However, the collateral securing the loans
12
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business. As part of its commercial business
lending policy, the Company generally requires all borrowers with commercial
business loans to submit annual financial statements to the Company.
The Company's commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Consideration of the borrower's
cash flows is also an important aspect of the Company's current credit analysis.
The Company generally obtains personal guarantees on its commercial business
loans. Nonetheless, such loans are believed to carry higher credit risk than
more traditional thrift institution investments.
The balances of these types of loans have declined from $9.7 million in
1995 to $3.7 million in 1997, due primarily to the bulk sale of certain
performing and non-performing loans, and the partial charge-off of the Bennett
Funding Group loan relationship in 1996, as well as the general de-emphasis of
this loan type in 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Management Strategy - Asset Quality" in
the Annual Report. The Company plans to continue to de-emphasize the origination
of commercial business loans, thereby reducing its credit risk exposure
associated with this type of lending.
Loan Originations and Sales
Loan originations are developed from continuing business with depositors
and borrowers, soliciting realtors, dealerships and mortgage brokers, as well as
walk-in customers. Loans are originated by the Company's staff of salaried loan
officers.
While the Company originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon demand for loans in its market.
Demand is affected by the local economy and interest rate environment. The
Company currently retains fixed-rate and adjustable-rate real estate loans it
originates in its portfolio. As a regular part of its business, the Company does
not sell loans and has not purchased a significant amount of loans since 1989.
During 1996, the Company completed the bulk sale of certain performing and
nonperforming loans in order to improve the credit quality of its loan
portfolio. See "Management Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Company's Annual Report.
For the year ended December 31, 1997, the Company originated $91.5 million
of loans compared to $81.4 million and $50.2 million in 1996 and 1995,
respectively. During 1997 and 1996, the Company increased its originations of
one- to four-family mortgages through the referrals of several local brokers. Of
the one- to four-family and home equity originations, approximately $22.6
million were adjustable rate, and $44.9 million were fixed rate loans.
In periods of economic uncertainty, the Company's ability to originate
large dollar volumes of real estate loans with acceptable underwriting
characteristics may be substantially reduced or restricted with a resultant
decrease in operating earnings.
13
The following table shows the loan origination, loan sale and repayment
activities of the Company for the periods indicated.
Years Ended December 31,
--------------------------
1997 1996 1995
--------------------------
Origination by Type: (In Thousands)
Real estate-one- to four-family (1) $67,503 $61,982 $16,190
-multi-family 1,490 190 134
-non-residential 3,000 2,838 2,014
Non-real estate-consumer 14,694 7,735 18,359
-commercial business 4,781 8,681 13,472
------ ------ ------
Total loans originated $91,468 $81,426 $50,169
Repayments:
Principal repayments 57,084 52,741 58,374
Proceeds from sale of loans --- 18,929 ---
Net decrease in other items (2) 1,355 11,653 3,385
------ ------ ------
Net increase (decrease) $ 33,029 ($1,897) ($11,590)
======== ======= ======
- -----------------------------------
(1) Includes home equity loans.
(2) Includes net charge-offs, transfers to real estate owned, and additions to
loan loss allowances.
Asset Quality
Generally, when a borrower fails to make a required payment on a loan
secured by residential real estate or consumer products, the Company initiates
collection procedures by mailing a delinquency notice after the account is 15
days delinquent. At 30 days delinquent, a personal letter is generally sent to
the customer requesting him or her to make arrangements to bring the loan
current. If the delinquency is not cured by the 45th day, the customer is
generally contacted by telephone and another personal letter is sent, with the
same procedure being repeated if the loan becomes 60 days delinquent. At 90 days
past due, a demand letter is generally sent. If there is no response, a final
demand letter for payment in full is sent, and unless satisfactory repayment
arrangements are made subsequent to the final demand letter, immediate
repossession or foreclosure procedures are commenced.
Similar collection procedures are employed for loans secured by commercial
real estate and commercial business collateral, except when such loans are 60
days delinquent, a letter is generally sent requesting rectification of the
delinquency within seven days, otherwise foreclosure or repossession procedures,
as applicable, are commenced.
14
The following table sets forth the Company's loan delinquencies by type,
by amount and by percentage of type at December 31, 1997.
--------------------------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days or More
------------------------------ ------------------------------ ------------------------------
% of Loan % of Loan % of Loan
Number Amount Category Number Amount Category Number Amount Category
-------- ------- --------- -------- ------- -------- -------- -------- ---------
(Dollars in Thousands)
Real Estate:
One-to four-family 37 $1,629 0.85% 22 $1,069 0.56% 59 $2,698 1.42%
Home Equity 2 86 0.28% 2 54 0.18% 4 140 0.46%
Multi-family - - - 1 28 0.67% 1 28 0.67%
Commercial 1 23 0.09% 4 278 1.05% 5 301 1.13%
Consumer 28 251 0.93% 37 295 1.09% 65 546 2.01%
Commercial Business 3 60 1.62% 6 603 16.25% 9 663 17.90%
-------- ------- -------- ------- -------- --------
Total 71 $2,049 0.72% 72 $2,327 0.82% 143 $4,376 1.54%
======== ======= ===== ======== ======= ====== ======== ======== ======
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets at the dates indicated. Loans are generally placed on non-accrual status
when the loan is more than 90 days delinquent (except for FHA insured and VA
guaranteed loans) or when the collection of principal and/or interest in full
becomes doubtful. When loans are designated as non-accrual, all accrued but
unpaid interest is reversed against current period income and, as long as the
loan remains on non-accrual status interest is recognized using the cash basis
method of income recogntion. Accruing loans delinquent 90 days or more include
FHA insured loans, VA guaranteed loans, and loans that are in the process of
negotiating a restructuring with the Bank, excluding troubled debt
restructurings (TDRs), or where the Bank has been notified by the borrower that
the outstanding loan balance plus accrued interest and late fees will be
paid-in-full within a relatively short period of time from the date of such
notification. Foreclosed assets includes assets acquired in settlement of loans.
For further discussion of non-performing assets, and the 1996 bulk sale of
certain non-performing assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset Quality" contained in the
Annual Report.
15
December 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(In thousands)
Non-accruing loans:
One- to four-family (1) $843 $ 259 $1,525 $1,130 $1,705
Multi-family 28 --- 77 563 1,354
Commercial real estate 265 339 1,549 4,096 2,937
Consumer 293 256 605 111 286
Commercial Business 447 2,269 743 404 684
------- ------- ------- ------- -------
Total 1,876 3,123 4,499 6,304 6,966
------- ------- ------- ------- -------
Accruing loans delinquent
more than 90 days:
One- to four-family (1) 280 151 261 480 396
Multi-family --- --- --- --- 54
Commercial real estate 13 568 --- --- 67
Consumer 2 6 --- --- ---
Commercial Business 156 --- --- --- ---
------- ------- ------- ------- -------
Total 451 725 261 480 517
------- ------- ------- ------- -------
Troubled debt restructured loans:
One- to four-family (1) 86 88 89 90 91
Multi-family 34 38 1,626 1,645 1,709
Commercial real estate 761 781 2,185 1,758 1,547
Consumer -- 56 84 62 3
Commercial Business 50 68 51 95 527
------- ------- ------- ------- -------
Total 931 1,031 4,035 3,650 3,877
------- ------- ------- ------- -------
Total non-performing loans: 3,258 4,879 8,795 10,434 11,360
------- ------- ------- ------- -------
Foreclosed assets:
One- to four-family (1) 69 194 459 102 346
Multi-family --- 282 926 1,792 2,405
Commercial real estate --- --- 1,503 1,799 2,707
Consumer 74 239 281 111 42
Commercial Business --- --- --- --- ---
------- ------- ------- ------- -------
Total 143 715 3,169 3,804 5,500
------- ------- ------- ------- -------
Total non-performing assets $3,401 $5,594 $11,964 $14,238 $16,860
======= ======= ======= ======= =======
Total as a percentage of total assets 0.67% 1.18% 2.72% 4.15% 5.06%
<FN>
- --------------------------------------
(1) Includes home equity loans
</FN>
16
For the year ended December 31, 1997, gross interest income which would
have been recorded had the year end non-accruing loans been current in
accordance with their original terms amounted to $357,000. The amount that was
included in interest income on such loans was $127,000, which represented actual
receipts.
Similarly, for the year ended December 31, 1997, gross interest income
which would have been recorded had the year end restructured loans paid in
accordance with their original terms amounted to $112,000. The amount that was
included in interest income for the year ended December 31, 1997 was $65,000.
Non-Accruing Loans
At December 31, 1997, the Company had $1.9 million in non-accruing loans,
which constituted 0.7% of the Company's gross loan portfolio. There were no
non-accruing loans or aggregate non-accruing loans-to-one-borrower in excess of
$500,000.
Accruing Loans Delinquent More than 90 Days
As of December 31, 1997, the Company had $445,000 of accruing loans
delinquent more than 90 days. Of these loans, $259,000 were FHA insured or VA
guaranteed one-to-four family residential loans. The remaining $186,000
represented one (1) one-to-four-family real estate loan, one (1) commercial real
estate loan, and two (2) commercial loans for which management believes that all
contractual payments are collectible. These loans are pending restructuring with
the Bank.
Restructured Loans
As of December 31, 1997, the Company had restructured loans of $931,000
with one loan or aggregate lending relationship over $500,000 as discussed
below. The balance of the Company's restructured loans at that date consisted of
one (1) one- to four-family residential mortgage loan, one (1) multi-family real
estate loan, three (3) commercial real estate loans, and three (3) commercial
business loans.
The Company's largest restructured loan or lending relationship at December
31, 1997, was a 58% loan participation interest, secured by a mixed use
office/apartment complex located in Syracuse, New York, on which the Company is
the lead lender. The loan participation was originated for $1.1 million in
February 1986 with a loan to value ratio of 67.0%. The loan had been
experiencing delinquencies since June 1993 due to cash flow problems caused by
high vacancy rates. In December 1993, the Company, based on an October 1993
appraisal, wrote-down the loan balance to $609,000 and in July 1994 restructured
the loan to reduce the principal balance outstanding and interest rate charged.
At December 31, 1997, the outstanding balance on the Company's participation
interest was $583,000. This loan has continued to perform according to the terms
of the restructure; however, tenancy remains a problem and the property is in
need of a significant upgrade that will require a new infusion of capital. The
Company has reached a tentative agreement to sell, at a discount, its share of
the participation loan and transfer its lead lender status to a group of
investors who will bring the needed capital to this project. Current reserves on
the loan are adequate to accommodate the discounted sale and no additional
write-down is anticipated.
17
Foreclosed Assets
As of December 31, 1997, the Company had $143,000 in carrying value of
foreclosed assets. One-to-four family real estate represents 48.3% of the
company's foreclosed property, consisting of two properties. Repossessed
consumer assets represented 51.7% of the Company's foreclosed properties,
consisting of 12 recreational vehicles.
Other Loans of Concern
As of December 31, 1997, there were $5.8 million of other loans not
included in the table or discussed above where known information about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms. Set forth
below is a description of the largest other loans of concern.
The largest other loan of concern at December 31, 1997 consisted of a
commercial real estate loan secured by a one-story educational facility located
in Amsterdam, New York. This loan was originated in December 1995 as a
$1,000,000 line of credit with a loan-to-value ratio of 25%. The loan is due to
mature on December 31, 1998. Discussions with the borrower indicate that this
loan will not be fully repaid by the maturity date, and negotiations have
commenced to rewrite this loan. At December 31, 1997, the balance was $892,000.
The second largest other loan of concern at December 31, 1997 consisted of
a commercial real estate loan secured by a one-story light industrial facility
in Gates, New York. This loan was originated in May 1988 for $930,000 with a
loan-to-value ratio of 74.4%. The property has experienced tenant vacancies in
the past and based on financial information submitted by the borrower, the cash
flow generated by this property had deteriorated. However, the borrower has been
able to keep the loan current by utilizing other sources of funds. As a result,
the Bank has requested additional financial information from the guarantors on
this loan, to assess their financial position, as the secondary source of
repayment on this lending relationship. The most recent information provided by
the customer indicates that, as of November 1997, this property has been fully
leased. At December 31, 1997, the principal balance of this loan was $876,000.
The third largest other loan of concern at December 31, 1997 consisted of a
multi-family real estate loan secured by a 32-unit apartment building located in
LeRoy, New York. This loan was originated in December 1989 with a loan-to-value
ratio of 72.2%. Although the property was 97% occupied based on a 1996 rent
roll, the cash flow generated was not sufficient to keep the loan current but
the borrower has been able to keep the loan current by utilizing other sources
of funds. Recent financial information obtained from the guarantors for this
loan confirms the resources used to keep this loan current. At December 31,
1997, the principal balance on this loan was $636,000.
As of December 31, 1997, all of the above loans were current.
There were no other loans with a balance in excess of $500,000 being
specially monitored by the Company as of December 31, 1997. The balance of other
loans of concern at that date consisted of 21 commercial and multi-family real
estate loans totaling $2.6 million, 12 commercial business loans totaling
$683,000 and one (1) one-to four-family mortgage loan totaling $72,000. These
loans have been considered by management in conjunction with the analysis of the
adequacy of the allowance for loan losses.
18
Classified Assets
Federal regulations provide for the classification of loans and other
assets, such as debt and equity securities considered to be of lesser quality,
as "substandard," "doubtful" or "loss." An asset is considered "substandard" if
it is inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the insured institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it may increase general allowances for loan losses in an amount
deemed prudent by management to address the increased risk of loss on such
assets. General allowances represent loss allowances which have been established
to recognize the inherent risk associated with lending activities, but which,
unlike specific allowances, have not been allocated to particular problem
assets. When an insured institution classifies problem assets as "loss," it is
required either to establish a specific allowance for losses equal to 100% of
that portion of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review and adjustment by the
OTS and the FDIC, which may order increases in general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Company regularly
reviews the problem assets in its portfolio to determine whether any assets
require classification in accordance with applicable regulations. On the basis
of management's review of its assets at December 31, 1997, the Company had
classified $8.1 million as substandard, $326,000 as doubtful, and none as loss.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and changes in the nature and volume of its loan activity, including
those loans which are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectability may
not be reasonably assured, considers among other matters, the loan
classifications discussed above, the estimated fair value, less estimated
disposal costs, of the underlying collateral, economic conditions, historical
loan loss experience, and other factors that warrant recognition in providing
for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at fair
value, less estimated disposal costs. If fair value at the date of foreclosure
is lower than the book balance of the related loan, the difference will be
charged to the allowance for loan losses at the time of transfer. Valuations of
the property are periodically updated by management and if the value declines, a
specific provision for losses on such property is recorded by a charge to
operations and the asset's recorded value is written down accordingly.
19
Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in determining the level of the
allowance. Future additions to the Company's allowances will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. In addition, federal regulatory agencies, as an integral part of the
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based upon their judgment of the information available to them at the
time of their examination. At December 31, 1997, the Company had a total
allowance for loan losses of $3.8 million, representing 117.1% of total
non-performing loans. See Note 5 of the Notes to Consolidated Financial
Statements.
The following table sets forth an analysis of the Company's allowance for
loan losses.
For the year
ended December 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(In thousands)
Balance at beginning of period $3,438 $2,647 $2,235 $3,248 $3,089
Charge-offs:
One- to four-family (1) (15) (530) (31) (28) (24)
Multi-family (51) (1,174) (171) (668) (257)
Commercial real estate (372) (2,564) (568) (1,336) (641)
Consumer (316) (1,834) (400) (196) (409)
Commercial business (460) (2,616) (46) (232) (399)
----------- ----------- ----------- ----------- -----------
Total Charge offs (1,214) (8,718) (1,216) (2,460) (1,730)
-----------------------------------------------------------
Recoveries:
One- to four-family (1) 1 10 --- 27 13
Multi-family -- -- 64 --- 1
Commercial real estate 26 -- 1 193 ---
Consumer 76 49 41 110 128
Commercial business 392 -- --- 10 58
----------- ----------- ----------- ----------- -----------
Total Recoveries 495 59 106 340 200
-----------------------------------------------------------
Net Charge-offs (719) (8,659) (1,110) (2,120) (1,530)
Provisions charged to operations 1,088 9,450 1,522 1,107 1,689
----------- ----------- ----------- ----------- -----------
Balance at end of period $3,807 $3,438 $2,647 $2,235 $3,248
=========== =========== =========== =========== ===========
Ratio of net charge-offs during
the period to average loans
outstanding during period 0.25% 3.30% 0.42% 0.88% 0.65%
====== ====== ====== ====== ======
<FN>
- -------------------------------------
(1) Includes home equity loans.
</FN>
20
No portion of the allowance is restricted to any loan or group of loans,
and the entire allowance is available to absorb realized losses. The amount and
timing of realized losses and future allowance allocations may vary from current
estimates. The following table summarizes the distribution of the Company's
allowance for losses on loans at the dates indicated:
December 31,
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------- -------------------- -------------------- -------------------- -------------------
Percent Percent Percent Percent Percent
Amount of loans Amount of loans Amount of loans Amount of loans Amount of loans
of in each of in each of in each of in each of in each
Loan category Loan category Loan category Loan category Loan category
Loss to total Loss to total Loss to total Loss to total Loss to total
Allowance loans Allowance loans Allowance loans Allowance loans Allowance loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
One- to four-family (1) $897 77.55% $ 157 72.26% $268 60.18% $207 60.02% $175 59.41%
Multi-family and
Commercial real estate 1,818 10.84% 1,599 13.84% 1,097 19.97% 1,260 21.18% 2,607 28.01%
Construction and
development --- 0.73% --- 0.89% --- 0.43% --- 1.84% - 0.36%
Consumer 449 9.57% 355 10.29% 718 15.55% 454 13.65% 330 9.04%
Commercial Business 483 1.31% 1,327 2.72% 268 3.87% 114 3.31% 127 3.18%
Unallocated 160 ---- --- ---- 296 ---- 200 ---- 9 ----%
------ ------- ------ ------- ------ ------- ------ ------- ----- -------
Total $3,807 100.00% $3,438 100.00% $2,647 100.00% $2,235 100.00% $3,248 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<FN>
- -------------------------------
(1) Includes home equity loans.
</FN>
Investment Activities
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and above
levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At December 31, 1997, the Bank's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 37.05%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" contained in the Annual Report.
In December 1995 the Company reclassified its entire portfolio of
investment and mortgage-backed securities to the available for sale category.
This reclassification was made in response to a one time transfer allowed by the
Financial Accounting Standards Board and the various federal banking regulators.
See Note 1(d) of the Notes to Consolidated Financial Statements contained in the
Annual Report.
Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based upon the Company's need
for liquidity, to achieve the proper balance between its desire to minimize risk
and maximize yield, to provide collateral for borrowings and to fulfill the
Company's asset/liability management policies. To date, the Company's investment
strategy has been directed toward high-quality mortgage-backed securities.
21
Substantially all of the mortgage-backed securities owned by the Company are
issued, insured or guaranteed either directly or indirectly by a federal agency.
At December 31, 1997, all of the Company's securities were classified as
available for sale. The fair value (excluding FHLB stock) and amortized cost of
the Company's securities at December 31, 1997 were $205.8 million and $206.3
million, respectively. For additional information on the Company's securities,
see Note 4 of the Notes to Consolidated Financial Statements in the Annual
Report.
Mortgage-backed securities generally increase the quality of the Company's
assets by virtue of the insurance or guarantees that back them. Such securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company. At December 31, 1997, $111.2
million or 78.3% of the Company's mortgage-backed securities were pledged to
secure various obligations of the Company.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities. The prepayment risk associated with mortgage-backed securities is
monitored periodically, and prepayment rate assumptions adjusted as appropriate
to update the Company's mortgage-backed securities accounting and
asset/liability reports. Classification of the Company's mortgage-backed
securities portfolio as available for sale is designed to minimize that risk.
At December 31, 1997, the contractual maturity of 96.2% of all of the
Company's mortgage-backed securities was in excess of ten years. The actual
maturity of the mortgage-backed security is typically less than its stated
maturity due to prepayments of the underlying mortgages. Prepayments that are
different than anticipated will affect the yield to maturity. The yield is based
upon the interest income and the amortization of any premium or discount related
to the mortgage-backed security. In accordance with generally accepted
accounting principles, premiums and discounts are amortized/accreted over the
estimated lives of the securities, which decrease and increase interest income,
respectively. The prepayment assumptions used to determine the
amortization/accretion period for premiums and discounts can significantly
affect the yield of the mortgage-backed security, and these assumptions are
reviewed periodically to reflect actual prepayments. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
falling mortgage interest rates, if the coupon rate of the underlying mortgages
exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Company may be
subject to reinvestment risk because to the extent that the Company's
mortgage-backed securities amortize or prepay faster than anticipated, the
Company may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.
22
The following table sets forth the composition of the Company's securities
at the dates indicated.
December 31,
---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
Carrying Carrying Carrying
Value (1) %of Total Value (1) %of Total Value (1) %of Total
----------- -------- ------------ -------- ----------- --------
(Dollars in Thousands)
Securities:
Federal Agency Obligations $ 63,145 30.19% $43,773 21.65% $ 9,967 13.06%
Municipal Bonds 766 0.37% 505 0.25% --- ----%
Other investment securities (2) --- ---- --- ---% 11,422 14.97%
Mortgage-backed securities 141,897 67.85% 156,261 77.10% 53,033 69.49%
---------- ------- ---------- ------- --------- ------
Total debt securities 205,808 98.41% 200,539 99.00% 74,422 97.52%
FHLB stock 3,291 1.57% 2,029 1.00% 1,892 2.48%
Other equity securities (3) 34 .02% --- ----% --- ----%
---------- ------- ---------- ------- --------- ------
Total securities and FHLB stock $ 209,133 100.00% $202,568 100.00% $ 76,314 100.00%
========== ======= ========== ======= ========= ======
Other interest-earning assets:
Interest-bearing deposits with banks $ 4,598 100.00% $ 2,051 31.31% $ 5,259 6.39%
Federal Funds Sold --- ---- 4,500 68.69% 77,100 93.61%
---------- ------- ---------- ------- ---------- ------
Total $ 4,598 100.00% $ 6,551 100.00% $ 82,359 100.00%
========== ======= ========== ======= ========= ======
<FN>
-------------------------------------
(1)At December 31, 1997, 1996 and 1995, debt securities are classified as
available for sale and are carried at fair value. The FHLB stock is
non-marketable and accordingly is carried at cost.
(2)Primarily comprised of debt securities of Fortune 500 companies initially
rated A or better. These securities generally contain greater risk than U.S.
Government securities and Federal agency obligations.
(3)Comprised of municipal bond mutual funds.
</FN>
23
The composition and contractual maturities of the securities portfolio (all
of which are categorized as available for sale), excluding FHLB stock and other
equity securities, are indicated in the following table. The Company's
securities portfolio at December 31, 1997, contained no securities of any issuer
with an aggregate book value in excess of 10% of the Company's equity, excluding
those issued by the United States Government or its agencies. Securities are
stated at their contractual maturity date (mortgage backed securities are
included by final contractual maturity). Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
December 31, 1997
---------------------------------------------------------------------------------------
Over One Over Five
One Year Year through Years through Over
or less Five Years Ten Years 10 Years Total Securities
-------------- -------------- -------------- -------------- ---------------------------
Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost Fair Value
-------------- -------------- -------------- -------------- -------------- ------------
(Dollars in Thousands)
Federal agency obligations $ 3,998 $ 13,000 $ 31,200 $ 15,000 $ 63,198 $ 63,145
Municipal Bonds --- 755 --- --- 755 766
Mortgage-backed securities --- --- 5,433 136,879 142,312 141,897
------- ------- ------- ------- ------- -------
Total investment securities $ 3,998 $ 13,755 $ 36,633 $151,879 $206,265 $205,808
======= ======= ======= ======= ======= =======
Weighted average yield .... 5.74% 6.05% 7.06% 7.35% 7.18% 7.18%
======= ======= ======= ======= ======= =======
Sources of Funds
General
The Company's primary sources of funds are deposits, borrowings,
amortization and prepayment of loan and mortgage-backed security principal,
maturities of investment securities, short-term investments, and funds provided
from operations.
Deposits
The Company offers a variety of deposit accounts having a range of interest
rates and terms. The Company's deposits consist of savings accounts, money
market accounts, transaction accounts, and certificate accounts currently
ranging in terms from 91 days to 60 months. The Company primarily solicits
deposits from its primary market area and at December 31, 1997, did not have
brokered deposits. The Company relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits. The
Company has utilized premiums and promotional gifts for new accounts in
connection with the opening of new branches or with club accounts. At times the
Company also uses small advertising give-aways in the aisles of the supermarkets
where it maintains branches. For information regarding average balances and rate
information on deposit accounts, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report and for
information on the dollar amount of deposits in the various deposit types
offered by the Company, see Note 8 of the Notes to Consolidated Financial
Statements in the Annual Report.
24
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The variety of deposit accounts offered by the Company has allowed
it to be competitive in obtaining funds and to respond with flexibility to
changes in consumer demand. The Company has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Company manages the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability objectives. Based on
its experience, the Company believes that its savings accounts and transaction
accounts are relatively stable sources of deposits. However, the ability of the
Company to attract and maintain money market accounts and certificates of
deposit and the rates paid on these deposits have been and will continue to be
significantly affected by market conditions.
The following table sets forth the deposit flows at the Company during the
periods indicated. The net increase in deposits for the year ended December 31,
1995, was primarily the result of the Company's having opened two new branches
in 1995 and the Company's decision to raise the interest rates offered on six
month certificates of deposit in order to replace borrowed funds. Management
believes that the net decrease in deposits during 1996 was the result, in part,
to some of the Bank's depositors deciding to pursue alternative opportunities,
such as stock mutual funds, with a portion of their investable funds. The net
increase in deposits during 1997 was attributable, in part, to the reverse of
1996 with depositors shifting investable funds into certificates of deposit to
obtain the relatively higher interest rates paid by the Bank and its market area
competitors. Also contributing to the increase were new account relationships
that resulted from the opening of three new branch offices in May 1997.
Years Ended December 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
(Dollars in thousands)
Opening balance $298,082 $311,238 $293,152
Deposits 924,133 860,011 841,042
Withdrawals 902,595 885,591 835,404
Interest credited 13,645 12,424 12,448
========== ========= ========
Ending balance $333,265 298,082 $311,238
========== ========= ========
Net increase (decrease) $35,183 ($13,156) $ 18,086
========== ========= ========
Percent increase (decrease) 11.80% (4.23)% 6.17%
========== ========= ========
25
The following table shows rate and maturity information for the Company's
certificates of deposit as of December 31, 1997.
Certificate Accounts 0.00- 4.01 - 6.01 - Percent
Maturing in Quarter Ending: 4.00% 6.00% 8.00 Total of Total
- --------------------------- ------- -------- -------- -------- --------
(Dollars in Thousands)
March 31, 1998 $ 999 $ 43,640 $ 1,189 $ 45,828 25.00%
June 30, 1998 12 41,571 3,255 44,838 24.46%
September 30, 1998 --- 23,597 383 23,980 13.08%
December 31, 1998 --- 24,443 14 24,457 13.34%
March 31, 1999 --- 8,389 996 9,385 5.12%
June 30, 1999 --- 4,295 994 5,289 2.88%
September 30, 1999 --- 3,897 177 4,074 2.22%
December 31, 1999 --- 2,173 1,098 3,271 1.78%
March 31, 2000 --- 2,091 5,294 7,385 4.03%
June 30, 2000 --- 1,305 5,070 6,375 3.48%
September 30, 2000 --- 1,541 85 1,626 .89%
December 31, 2000 --- 764 13 777 .42%
Thereafter --- 3,359 2,688 6,047 3.30%
------ ----- ----- ----- -------
Total $ 1,011 $161,065 $ 21,256 $183,332 100.00%
======== ======== ======== ======== =======
Percent of Total 0.55% 87.86% 11.59% 100.00%
======== ======== ======== ========
The following table indicates the amount of the Company's certificates of
deposit by time remaining until maturity as of December 31, 1997.
Maturity
-------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
--------- -------- -------- -------- --------
(In thousands)
Certificates of deposit
less than $100,000 $42,611 $39,724 $43,066 $40,083 $165,484
Certificates of deposit
of $100,000 or more 3,217 5,114 5,371 4,146 17,848
--------- -------- -------- -------- --------
Total certificates of deposit $45,828 $44,838 $48,437 $44,229 $183,332
========= ======== ======== ======== ========
26
Borrowings
Although deposits are the Company's primary source of funds, the Company's
policy generally has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when the
Company needs additional funds to satisfy loan demand.
The Company's borrowings historically have consisted of advances from the
FHLB of New York. Such advances can be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. At
December 31, 1997, the Company had $12.3 million in FHLB advances. During 1996,
the Company significantly increased its other borrowings by $102.8 million.
These borrowings were used to purchase various investments including Federal
agency obligations and mortgage-backed securities which were simultaneously
pledged as securities sold under agreements to repurchase. At December 31, 1997,
pledged securities totaled $111.2 million. The positive interest rate spread
between the volume of pledged securities and the related borrowings has produced
an increase in net interest income but at an interest rate spread that is less
than the Company has earned on other asset to funding spreads. The increased
level of borrowings coupled with a reduction in the interest rate spread related
to the borrowings has resulted in a narrowing in the Company's overall net
interest margin from 3.66% for the year ended December 31, 1996 to 3.36% for the
year ended December 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Operating Results" contained in
the Annual Report. See Note 9 of the Notes to Consolidated Financial Statements
contained in the Annual Report.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances, securities sold under agreements to repurchase and
other borrowings for the periods indicated.
Years Ended December 31,
-----------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
Maximum Balance:
FHLB Advances $ 14,400 $28,000 $15,000
Securities sold under agreements to repurchase 99,410 102,780 4,000
Average Balance:
FHLB Advances 3,667 9,757 3,922
Securities sold under agreements to repurchase 95,261 57,815 958
27
The following table sets forth certain information as to the Company's
borrowings at the dates indicated:
December 31,
-----------------------------
1997 1996 1995
-------- -------- --------
(Dollars in thousands)
FHLB advances $ 12,300 $ 6,000 $------
Securities sold under agreements to repurchase 99,250 102,780 ------
--------- -------- --------
Total borrowings $111,550 $108,780 $------
========= ======== ========
Weighted average interest rate of FHLB advances 6.38% 6.88% ----%
Weighted average interest rate of securities sold
under agreements to repurchase 6.04% 5.96% ----%
Subsidiary and Other Activities
As a federally chartered savings association, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or $10.2 million at December 31,
1997, in the stock of, or loans to, service corporation subsidiaries. As of such
date, the Bank had no investments in service corporation subsidiaries. The Bank
may invest an additional 1% of its assets in service corporations where such
additional funds are used for inner-city or community development purposes and
up to 50% of its total capital in conforming loans to service corporations in
which it owns more than 10% of the capital stock. Federal associations also are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities which a federal association may engage in directly.
The Bank organized a single service corporation in 1984, which is known as
ASB Insurance Agency, Inc. ("ASB Insurance"). In November 1996, the Company
purchased the service corporation from the Bank for $1,000. ASB Insurance offers
mutual funds, annuity and brokerage services through a registered broker-dealer
to the Company's customers and members of the general public. ASB Insurance
recognized gross revenues of $60,800 for the year ended December 31, 1997.
Regulation
General
The Bank, organized in 1886, is a federally chartered savings bank, the
deposits of which are federally insured by the FDIC and backed by the full faith
and credit of the United States Government. Accordingly, the Bank is subject to
broad federal regulation and oversight by the OTS extending to all its
operations. The Bank is a member of the FHLB of New York and is subject to
certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As a savings and loan holding company, the
Company also is subject to federal regulation and oversight. The Bank is a
member of the Bank Insurance Fund ("BIF"), which is administered by the FDIC.
Its deposits are insured up to applicable limits by the FDIC. As a result, the
FDIC also has certain regulatory and examination authority over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
28
Federal Regulation of Savings Association.
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS, its
primary federal banking regulator, and the FDIC. The last regular OTS
examination of the Bank was as of December 31, 1996. When these examinations are
conducted by the OTS and the FDIC, the examiners, if they deem appropriate, may
require the Bank to provide for higher general or specific loan loss reserves.
All savings associations are subject to a semi-annual assessment, based upon the
savings association's total assets, to fund the operations of the OTS. The
Bank's OTS assessment for the fiscal year ended December 31, 1997, was $110,000.
The OTS also has extensive enforcement authority over savings associations
and their holding companies, including the Bank and the Company. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including the
filing of misleading or untimely reports with the OTS.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal law. For instance, no savings institution may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Bank is in compliance with the noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1997, the Bank's lending limit was $7.4 million. The Bank is in
compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action. The OTS and the other federal banking agencies have also proposed
additional guidelines on asset quality and earnings standards. No assurance can
be given as to whether or in what form the proposed regulations will be adopted.
29
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines, by regulation or order, to pose a serious risk to the insurance
fund. The FDIC also has the authority to initiate enforcement actions against
savings associations, after giving the OTS an opportunity to take such action,
and may terminate deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) or considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC semi-annually.
The FDIC is authorized to adjust the insurance premium rates for banks that
are insured by the BIF, such as the Bank, in order to maintain the reserve ratio
of the BIF at 1.25% of BIF insured deposits. The ranges of BIF premium rates in
effect during fiscal 1997 was 0% to 0.27%. In addition, BIF insured institutions
are required to contribute to the cost of financial bonds that were issued to
finance the cost of resolving the thrift failures in the 1980s (the "FICO
Premium"). The rate currently set for the FICO Premium for BIF insured banks,
such as the Bank, is 1.3 basis points.
Regulatory Capital Requirements
Federally insured savings associations, such as the Bank, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations. The OTS is also authorized to impose capital requirements
in excess of these standards on a case-by-case basis. At December 31, 1997, the
Bank was in compliance with its regulatory capital requirements. See Note 15 of
the Notes to Consolidated Financial Statements contained in the Annual Report.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
30
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the Bank
or the Company may have a substantial adverse effect on the Company's operations
and profitability. Company shareholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution of a
shareholder's percentage ownership of the Company.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the retained earnings of the association would
be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Generally, savings associations, such as the Bank, that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. The Bank may pay
dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day notice period based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
31
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMELS 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Qualified Thrift Lender Test
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings association may maintain 60% of its assets in those
assets specified under Section 7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential housing related loans
and investments. At December 31, 1997, the Bank met the test and has always met
the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If such an association has not yet requalified or converted to a national
bank, its new investments and activities are limited to those permissible for
both a savings association and a national bank, and it is limited to national
bank branching rights in its home state. In addition, the association is
immediately ineligible to receive any new FHLB borrowings and is subject to
national bank limits for payment of dividends. If such association has not
requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
32
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of the
Bank, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS.
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, the Bank may be required to devote additional funds for investment
and lending in its local community. The Bank was last examined for CRA
compliance in June 1996 and received a rating of "satisfactory".
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, which authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any savings association) would become
subject to activity restrictions unless such other associations each qualify as
a QTL and were acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See
"Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control of
any savings association. Such acquisitions are generally prohibited if they
result in a multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate acquisitions are
permitted based on specific state authorization or in a supervisory acquisition
of a failing savings association.
33
Federal Taxation
Savings associations such as the Bank that meet certain definitional tests
relating to the composition of assets and other conditions prescribed by the
Internal Revenue Code of 1986, as amended (the "Code"), are permitted to
establish reserves for bad debts and to make annual additions thereto which may,
within specified formula limits, be taken as a deduction in computing taxable
income for federal income tax purposes. The amount of the bad debt reserve
deduction is computed under the experience method. Under the experience method,
the bad debt reserve deduction is an amount determined under a formula based
generally upon the bad debts actually sustained by the savings association over
a period of years.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, were also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.
To the extent prior years earnings appropriated to a savings association's
bad debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed under
the experience method and to the extent of the association's supplemental
reserves for losses on loans ("Excess"), such Excess may not, without adverse
tax consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses).
The Company and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting.
The Bank and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns through December 31,
1988. With respect to years examined by the IRS, either all deficiencies have
been satisfied or sufficient reserves have been established to satisfy asserted
deficiencies. The IRS is currently examining the Company, including returns of
subsidiaries and predecessors, for the years ended 1990 through 1996. In the
opinion of management, any examination of still open returns (including returns
of subsidiaries and predecessors of, or entities merged into, the Bank) would
not result in a deficiency which could have a material adverse effect on the
financial condition of the Bank and its consolidated subsidiaries.
34
New York Taxation
The Bank and its subsidiaries that operate in New York are subject to New
York state taxation. The Bank is subject to the New York State Franchise Tax on
Banking Corporations in an annual amount equal to the greater of (i) 9% of the
Bank's "entire net income" allocable to New York State during the taxable year,
or (ii) the applicable alternative minimum tax. The alternative minimum tax is
generally the greater of (a) 0.01% of the value of the Bank's assets allocable
to New York State with certain modifications, (b) 3% of the Bank's "alternative
entire net income" allocable to New York State, or (c) $250. Entire net income
is similar to federal taxable income, subject to certain modifications
(including the fact that net operating losses cannot be carried back or carried
forward) and alternative entire net income is equal to entire net income without
certain modifications. The Bank and its consolidated subsidiaries have been
audited by the New York State Department of Taxation and Finance through
December 31, 1994.
Delaware Taxation
As a Delaware holding company, the Company is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
Competition
The Company faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions, commercial banks, credit
unions and mortgage brokers making loans secured by real estate located in the
Company's primary market area. Other savings institutions, commercial banks,
credit unions and finance companies provide vigorous competition in consumer
lending.
The Company attracts substantially all of its deposits through its branch
offices, primarily from the communities in which those branch offices are
located; therefore, competition for those deposits is principally from mutual
funds and other savings institutions, commercial banks and credit unions doing
business in the same communities. The Company competes for these deposits by
offering a variety of deposit accounts at competitive rates, convenient business
hours, and convenient branch locations with interbranch deposit and withdrawal
privileges. Automated teller machine facilities are also available.
Employees
At December 31, 1997, the Company had a total of 189 employees, including
26 part-time employees. The Company's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
35
Executive Officers of the Company and the Bank Who Are Not Directors
The following information as to the business experience during the past
five years is supplied with respect to the executive officers of the Company and
the Bank who do not serve on the Company's or the Bank's Board of Directors.
There are no arrangements or understandings between such persons named and any
persons pursuant to which such officers were selected.
Harold A. Baylor, Jr. Mr. Baylor, age 55, is Vice President, Chief
Financial Officer and the Treasurer of the Company and the Bank, positions he
has held with the Company since June 1995 and with the Bank since 1990 and 1987,
respectively.
Robert Kelly. Mr. Kelly, age 51, is Vice President, Secretary and General
Counsel to the Company, positions he has held with the Company since its
incorporation in June 1995. Mr. Kelly has been Vice President and General
Counsel to the Bank since July 1994. In January 1995 he was appointed Secretary
of the Bank. Prior to joining the Bank in 1994, Mr. Kelly was self-employed in
the general practice of law in the State of New York.
Nancy S. Virkler. Ms. Virkler, age 48, is Vice President of Operations/MIS
at the Bank. She was appointed Vice President in June 1994. Ms. Virkler has
served the Bank in various capacities since she began as a management trainee in
1977.
Richard C. Edel. Mr. Edel, age 48, is a Vice President of the Bank, a
position he has held since 1987. Mr. Edel is also currently serving as the
Community Reinvestment Act Officer of the Bank.
Cynthia M. Proper. Ms. Proper, age 35, was appointed Vice President and
Director of Lending of the Bank in July 1995. Prior to such appointment, Ms.
Proper was the Director of Internal Audit. She also served the Bank in various
other capacities, primarily in the lending and savings areas. Ms. Proper has
been employed at the Bank since 1985.
Item 2. Description of Property
The Company conducts its business at its main office, eleven other banking
offices and an operations office in its primary market area. The Company owns
its Main Office, its operations center and two branch offices and leases the
remaining nine branch offices. The Company also owns a parking lot located at
18-22 Division Street, Amsterdam, New York, which is used to service the main
office. The net book value of the Company's premises and equipment (including
land, building and leasehold improvements and furniture, fixtures and equipment)
at December 31, 1997 was $3.1 million. See Note 7 of Notes to Consolidated
Financial Statements in the Annual Report. The Company believes that its current
facilities are adequate to meet the present and foreseeable needs of the Bank
and the Company, subject to possible future expansion.
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Company's results of operations. For more information on certain
legal proceedings, see Note 13(a) of the Notes to Consolidated Financial
Statements contained in the Annual Report.
36
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1997.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Page 61 of the Annual Report is herein incorporated by reference.
Item 6. Selected Financial Data
Pages 3 and 4 of the Annual Report is herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 5 through 20 of the Annual Report are herein incorporated by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Pages 17 through 19 of the Annual Report are herein incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
Pages 21 through 60 of the Annual Report are herein incorporated by
reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent consolidated financial statements reporting a
change of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.
37
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
- ---------
Information concerning Directors of the Registrant is incorporated herein
by reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 22, 1998, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Executive Officers
- ------------------
Information concerning executive officers of the Company is set forth under
the caption "Executive Officers of the Company and the Bank who are not
Directors" contained in Part 1 of this Form 10-K.
Compliance with Section 16(a)
- -----------------------------
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more that 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based soley on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 22, 1998, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
38
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Corporation's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 22, 1998, except for information contained under the heading "Compensation
Committee Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Corporation's definitive Proxy
Statement for the Annual Meeting of Shareholders scheduled to be held on May 22,
1998, except for information contained under the heading "Compensation Committee
Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Registrant's Annual Report to
Shareholders for the year ended December 31, 1997, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.
Pages in
Annual
Annual Report Section Report
--------------------- --------
Independent Auditors' Report ........................................ 22
Consolidated Statements of Financial Condition at
December 31, 1997 and 1996 ..................................... 23
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 ............................... 24
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995 ............... 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ............................... 26-27
Notes to Consolidated Financial Statements .......................... 28-60
39
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is
not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
See Index to Exhibits
(b) Reports on Form 8-K:
Current reports on form 8-K were filed as follows:
On November 20, 1997, a Press Release dated November 19, 1997 announcing
regular quarterly cash dividend.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
Date: March 30, 1998 By: /s/ Robert J. Brittain
------------------------------ ----------------------
Robert J. Brittain, President
and Chief Executive Officer
(Duly Authorized Representative)
41
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert J. Brittain /s/ Paul W. Baker
- ----------------------------------- -------------------------------------
Robert J. Brittain, President Paul W. Baker, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 30, 1998 Date: March 30, 1998
----------------------------- --------------------------------
/s/ William A. Wilde, Jr. /s/ Lauren T. Barnett
- ----------------------------------- -------------------------------------
William A. Wilde, Jr., Director Lauren T. Barnett, Director
Date: March 30, 1998 Date: March 30, 1998
----------------------------- --------------------------------
/s/ Robert J. Dunning /s/ Carl A. Schmidt, Jr.
- ----------------------------------- -------------------------------------
Robert J. Dunning, DDS, Director Carl A. Schmidt, Jr., Director
Date: March 30, 1998 Date: March 30, 1998
----------------------------- --------------------------------
/s/ Charles S. Pedersen /s/ Lionel H. Fallows
- ----------------------------------- -------------------------------------
Charles S. Pedersen, Director Lionel H. Fallows, Director
Date: March 30, 1998 Date: March 30, 1998
----------------------------- --------------------------------
/s/ John J. Daly /s/ Harold A. Baylor, Jr.
- ----------------------------------- -------------------------------------
John J. Daly, Director Harold A. Baylor, Jr., Vice
President and Treasurer (Principal
Financial and Accounting Officer)
Date: March 30, 1998 Date: March 30, 1998
----------------------------- --------------------------------
/s/ Marvin R. LeRoy, Jr.
- -----------------------------------
Marvin R. LeRoy, Jr., Director
Date: March 30, 1998
-----------------------------
42
Index to Exhibits
Exhibit
Number Document
- ------ ------------------------------------------------------------
3(i) Registrants's Certificate of Incorporation as currently in
effect, filed as an exhibit to Registrants's Registration
Statement of Form S-1 (File No. 33-96654), is incorporated
herein by reference.
3(ii) Registrants's Bylaws as currently in effect, filed as an
exhibit to Registrant's Registration Statement on Form S-1
(File No. 33-96654), is incorporated herein by reference.
4 Registrant's Specimen Stock Certificate, filed as an exhibit
to Registrant's Registration Statement on Form S-1 (File No.
33-96654), is incorporated herein by reference.
10.1 Employment Agreements between the Registrant's operating
subsidiary and Robert J. Brittain, Harold A. Baylor, Jr.,
Richard C. Edel, Nancy S. Virkler, Cynthia M. Proper and
Robert Kelly, filed as exhibits to Registrant's Registration
Statement on Form S-1 (File No. 33-96654), are incorporated
herein by reference.
10.2 Registrant's Employee Stock Ownership Plan, filed as an
exhibit to Registrant's Registration Statement on Form S-1
(File No. 33-96654), is incorporated herein by reference.
10.3 Registrant's 1997 Stock Option and Incentive Plan, Filed as
Exhibit A to Registrant's Proxy Statement filed with the
Commission on March 26, 1997, pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (File No.
0-27036), is incorporated herein by reference.
10.4 Registrant's Recognition and Retention Plan, filed as
Exhibit B to Registrant's Proxy Statement filed with the
Commission on March 26, 1997, pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (File No.
0-27036), is incorporated herein by reference.
11 Statement re: computation of per share earnings (see Notes
1(n) and 17 of the Notes to Consolidated Financial
Statements contained in the Annual Report to Shareholders
filed as Exhibit 13 herein).
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant
27 Financial Data Schedule