UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1997 Commission File No. 0-19843
ALBANK Financial Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 14-1746910
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 NORTH PEARL STREET, ALBANY, NY 12207-2774
(Address of principal executive offices)
Registrant's telephone number, including area code: (518)445-2100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __x___ No ______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Number of shares outstanding
Class of Common Stock as of April 30, 1997
Common Stock, Par $.01 12,785,491
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three
Months Ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Financial Condition as
of March 31, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Changes in Stockholders' Equity for
the Three Months Ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 (unaudited)
Notes to Unaudited Consolidated Interim Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(In thousands, except per share data)
Three Months Ended
March 31,
1997 1996
(Unaudited)
Interest income:
Mortgage loans $ 42,041 37,706
Other loans 10,856 9,132
Securities available for sale 9,468 11,354
Investment securities 1,762 2,260
Federal funds sold 1 159
Securities purchased under
agreement to resell - 738
Stock in Federal Home Loan Bank 302 239
Total interest income 64,430 61,588
Interest expense:
Deposits and escrow accounts 30,228 30,092
Short-term borrowed funds
and repurchase agreements 864 296
Long-term debt 302 308
Total interest expense 31,394 30,696
Net interest income 33,036 30,892
Provision for loan losses 1,800 1,425
Net interest income after
provision for loan losses 31,236 29,467
Noninterest income:
Service charges on deposit accounts 1,538 1,356
Net security transactions - 2
Brokerage and insurance commissions 555 398
Other 1,164 1,254
Total noninterest income 3,257 3,010
Noninterest expense:
Compensation and employee benefits 9,967 9,460
Occupancy, net 2,552 2,409
Furniture, fixtures and equipment 1,526 1,247
Federal deposit insurance premiums 353 1,149
Professional, legal and other fees 857 654
Telephone, postage and printing 1,193 1,229
Goodwill amortization 874 736
Other 2,484 2,764
Total noninterest expense 19,806 19,648
Income before income taxes 14,687 12,829
Income tax expense 5,370 5,118
Net income $ 9,317 7,711
Earnings per share:
Primary $ 0.67 0.53
Fully diluted 0.67 0.53
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
March 31, December 31,
1997 1996
(Unaudited)
Assets
Cash and due from banks $ 54,651 68,883
Securities available for sale,
at approximate market value 619,330 617,943
Investment securities (approximate market
value of $109,705 at March 31, 1997 and
$111,091 at December 31, 1996) 109,072 109,607
Loans receivable 2,565,113 2,566,364
Less: allowance for loan losses 25,210 24,114
Loans receivable, net 2,539,903 2,542,250
Accrued interest receivable 26,920 27,092
Office premises and equipment, net 49,159 48,554
Stock in Federal Home Loan Bank, at cost 21,408 16,913
Real estate owned 3,976 4,012
Other assets 71,912 70,882
$ 3,496,331 3,506,136
Liabilities
Deposits $ 2,988,050 3,013,129
Escrow accounts 13,357 26,603
Accrued income taxes payable 11,077 3,938
Short-term borrowed funds
and repurchase agreements 80,706 42,346
Long-term debt 20,061 30,061
Obligation under capital lease 4,621 4,646
Other liabilities 56,758 66,288
Total liabilities 3,174,630 3,187,011
Stockholders' Equity
Preferred stock, $.01 par value.
Authorized 25,000,000 shares;
none outstanding -- --
Common stock, $.01 par value.
Authorized 50,000,000 shares;
15,697,500 shares issued; 12,818,539
shares outstanding at March 31, 1997
and 12,910,763 shares outstanding at
December 31, 1996 157 157
Additional paid-in capital 180,957 180,670
Retained earnings, substantially restricted 221,488 214,283
Treasury stock, at cost (2,878,961 shares
at March 31, 1997 and 2,786,737 shares
at December 31, 1996) (74,375) (71,235)
Unrealized gain (loss) on securities
available for sale, net of tax (358) 1,781
Common stock acquired by:
Employee stock ownership plan ("ESOP") (6,150) (6,279)
Bank recognition plan ("BRP") (18) (252)
Total stockholders' equity 321,701 319,125
$ 3,496,331 3,506,136
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
(In thousands) (Unaudited)
Net Unrealized
Undis- Gain (Loss) on Common Common
Additional tributed Securities Stock Stock
Common Paid-in Retained Stock Treasury Available Acquired Acquired
Stock Capital Earnings Dividend Stock for Sale by ESOP by BRP Total
Three Months Ended
March 31, 1996
Balance at December 31, 1995 $ 157 151,969 258,631 -- (82,381) 3,528 (7,535) (1,187) 323,182
Net income -- -- 7,711 -- -- -- -- -- 7,711
Purchase of treasury stock
(210,900 shares) -- -- -- -- (6,077) -- -- -- (6,077)
Exercise of stock options -- -- 481 -- 313 -- -- -- 794
Tax benefits related to
vested BRP stock and
stock options exercised -- 200 -- -- -- -- -- -- 200
Adjustment of securities
available for sale
to market, net of tax -- -- -- -- -- (3,686) -- -- (3,686)
Cash dividends declared -- -- (1,639) -- -- -- -- -- (1,639)
Stock dividends declared -- -- (64,051) 64,051 -- -- -- -- --
Amortization of award
of ESOP stock -- -- -- -- -- -- 101 -- 101
Amortization of award
of BRP stock -- -- -- -- -- -- -- 234 234
Balance at March 31, 1996 $ 157 152,169 201,133 64,051 (88,145) (158) (7,434) (953) 320,820
Three Months Ended
March 31, 1997
Balance at December 31, 1996 $ 157 180,670 214,283 -- (71,235) 1,781 (6,279) (252) 319,125
Net income -- -- 9,317 -- -- -- -- -- 9,317
Purchase of treasury stock
(113,000 shares) -- -- -- -- (3,576) -- -- -- (3,576)
Exercise of stock options -- -- (185) -- 436 -- -- -- 251
Tax benefits related to
vested BRP stock and
stock options exercised -- 287 -- -- -- -- -- -- 287
Adjustment of securities
available for sale
to market, net of tax -- -- -- -- -- (2,139) -- -- (2,139)
Cash dividends declared -- -- (1,927) -- -- -- -- -- (1,927)
Amortization of award
of ESOP stock -- -- -- -- -- -- 129 -- 129
Amortization of award
of BRP stock -- -- -- -- -- -- -- 234 234
Balance at March 31, 1997 $ 157 180,957 221,488 -- (74,375) (358) (6,150) (18) 321,701
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31,
1997 1996
(Unaudited)
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net income $ 9,317 7,711
Reconciliation of net income to net cash provided by operating activities:
Depreciation and lease amortization 1,566 1,247
Goodwill amortization 874 736
Net amortization of premiums and accretion of discounts on securities 260 346
Amortization of award of ESOP and BRP stock 363 335
Net gain on security transactions -- (2)
Net gain on sale of real estate owned (89) (57)
Origination of loans receivable for sale (2,743) (9,116)
Proceeds from sale of loans receivable 7,483 11,946
Provision for loan losses 1,800 1,425
Writedown of real estate owned 126 112
Net decrease in accrued interest receivable 172 794
Net decrease (increase) in other assets (574) 1,494
Net increase in accrued income taxes payable 7,426 4,776
Net decrease in other liabilities and obligation under capital lease (9,527) (689)
Net cash provided by operating activities 16,454 21,058
Cash flows from investing activities
Net cash used by acquisition activity -- (54,437)
Proceeds from the maturity or call of securities available for sale 46,635 54,200
Proceeds from the maturity or call of investment securities 15,668 22,354
Purchase of securities available for sale (51,758) (16,192)
Purchase of investment securities (15,126) (10,179)
Purchase of loans receivable (28,730) (11,089)
Net decrease in loans receivable 22,617 11,198
Redemption (purchase) of Federal Home Loan Bank stock (4,495) 2,912
Proceeds from the sale of real estate owned 1,919 1,203
Capital expenditures (2,171) (1,063)
Net cash used by investing activities (15,441) (1,093)
Cash flows from financing activities
Net increase (decrease) in deposits (25,079) 6,124
Net decrease in escrow accounts (13,246) (7,688)
Net increase (decrease) in short-term borrowed funds and repurchase agreements 38,360 (20,972)
Proceeds from long-term debt -- 30,000
Repayment of long-term debt (10,000) --
Purchase of treasury stock (3,576) (6,077)
Dividends paid (1,955) (1,386)
Cash proceeds from the exercise of stock options 251 231
Net cash provided (used) by financing activities (15,245) 232
Net increase (decrease) in cash and cash equivalents (14,232) 20,197
Cash and cash equivalents at beginning of period 68,883 105,002
Cash and cash equivalents at end of period $ 54,651 125,199
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest on deposits, escrows, short-term borrowed funds,
repurchase agreements and long-term debt $ 31,107 30,500
Income taxes -- 718
Supplemental schedule of noncash investing and financing activities:
Net reduction in loans resulting from transfers to real estate owned 1,920 1,486
Net unrealized loss on securities available for sale (3,469) (6,262)
Tax benefits related to vested BRP stock and stock options 287 200
Acquisition activity:
Fair value of noncash assets acquired -- 408,693
Fair value of liabilities assumed -- 354,256
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
accompanying unaudited consolidated interim financial statements
should be read in conjunction with the financial statements and
the related management's discussion and analysis of financial
condition and results of operations filed with the 1996 Form
10-K of ALBANK Financial Corporation and subsidiary. In the
opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for
the three months ended March 31, 1997, are not necessarily
indicative of results that may be expected for the entire year
ending December 31, 1997.
The unaudited consolidated interim financial statements include
the accounts of ALBANK Financial Corporation (the "Holding
Company") and its wholly owned subsidiary, ALBANK, FSB and
subsidiaries (the "Bank"; collectively with the Holding Company,
the "Company"). The accounting and reporting policies of the
Company conform in all material respects to generally accepted
accounting principles and to general practice within the savings
bank industry. Certain prior period amounts have been
reclassified to conform to the current period classifications.
NOTE 2. Earnings Per Share
Earnings per share are calculated by dividing net income by the
weighted average number of common shares and common stock
equivalents outstanding for the respective period, retroactively
adjusted to give effect to the declaration of stock dividends.
Stock options are regarded as common stock equivalents and are
therefore considered in earnings per share calculations, if
dilutive. Common stock equivalents are computed using the
treasury stock method.
NOTE 3. Pending Acquisition
On January 24, 1997, the Bank entered into a purchase agreement
with KeyBank National Association (New York) relating to deposit
liabilities of approximately $530 million and 35 New York State
banking offices currently operated by KeyBank (the "KeyBank
Transaction"). The offices are located in northern New York, the
greater Hudson Valley, and the Binghamton area. The Company
intends to establish as a new subsidiary a New York chartered
commercial bank, ALBANK Commercial, which will act under the
agreement to pay a deposit premium of approximately 7% and will
have the option to purchase approximately $53 million in small
business, consumer and mortgage loans. The KeyBank Transaction,
the establishment of ALBANK Commercial and the related
registration of the Company as a bank holding company are
subject to approval by bank regulatory authorities. Following
receipt of those approvals, the two companies currently
anticipate closing the transaction in mid-summer 1997.
NOTE 4. Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." This Statement provides
accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured
borrowings, and supersedes the accounting for financial assets
under SFAS No. 122. The Company adopted SFAS No. 125 on January
1, 1997. Certain aspects of SFAS No. 125 were amended by SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125." The adoption of SFAS No. 125 did not
have a material impact on the Company's unaudited consolidated
interim financial statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
ALBANK Financial Corporation (the "Holding Company", "Company",
"ALBANK") completed its initial public offering on April 1,
1992. To date, the principal operations of ALBANK Financial
Corporation have been those of ALBANK, FSB and subsidiaries (the
"Bank").
The Bank operates as a thrift institution with its principal
business being the solicitation of deposits from the general
public; these deposits, together with funds generated from
operations, are invested primarily in single-family, owner
occupied adjustable rate mortgage loans. The Bank is a member of
the Federal Home Loan Bank of New York ("FHLB") and is subject
to certain regulations of the Board of Governors of the Federal
Reserve System with respect to reserves required to be
maintained against deposits and certain other matters.
Approximately 66% of the Bank's deposit accounts as of March 31,
1997, were insured by the SAIF, as administered by the FDIC,
and approximately 34% were treated as insured by the Bank Insurance
Fund ("BIF"), as administered by the FDIC, in each case, up to
the maximum amount permitted by law. The Bank is subject to
regulation by the Office of Thrift Supervision ("OTS"). The Bank
conducts its operations through a network of 71 branch offices
in upstate New York, western Massachusetts and Vermont. The
Bank's principal operating subsidiary is Alvest Financial
Services, Inc. This wholly owned company, operating through the
Bank's branch network, offers a full range of investment and
insurance products and services.
The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest
income earned on its loan portfolio, investment securities and
securities available for sale portfolios and other earning
assets, and its cost of funds, consisting of the interest paid
on its deposits and borrowings. The Bank's operating results are
also impacted by provisions for loan losses, and to a lesser
extent, by gains and losses on the sale of its securities
available for sale portfolio, the operations of its brokerage
and insurance subsidiary and other noninterest income. The
Bank's operating expenses principally consist of employee
compensation and benefits, federal deposit insurance premiums,
occupancy expense and other general and administrative expenses.
The Bank's results of operations are also significantly affected
by general economic and competitive conditions, particularly
changes in market interest rates, government policies and
actions of the regulatory authorities.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and
principal and interest payments on its loan and securities
portfolios. While maturities and scheduled amortization of loans
and securities are, in general, a predictable source of funds,
deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition.
The Company's most liquid assets are cash and cash equivalents
and highly liquid short-term investments. The levels of these
assets are dependent on the Company's operating, financing and
investing activities during any given period. Cash and cash
equivalents at March 31, 1997 were $54.7 million, a decline of
$14.2 million (21%) from $68.9 million at December 31, 1996.
The Bank is required to maintain minimum levels of liquid assets
as defined by OTS Regulations. This requirement, which may vary
at the direction of the OTS depending on economic conditions and
deposit flows, is based upon a percentage of deposits and
short-term borrowings. The required ratio of liquid assets to
deposits and short-term borrowings is currently 5%. The Bank's
liquidity ratio at March 31, 1997, was 21.96%.
At the time of its conversion to stock form, the Bank was
required to establish a liquidation account in an amount equal
to its regulatory net worth as of December 31, 1991. The amount
of this liquidation account reduces to the extent that eligible
depositors' accounts are reduced. In the unlikely event of a
complete liquidation (and only in such event), each eligible
depositor would be entitled to receive a distribution from the
liquidation account before any liquidation distribution could be
made to the common stockholders of the Company.
At March 31, 1997, the Bank's capital exceeded each of the
capital requirements of the OTS. At March 31, 1997, the Bank's
tangible and core capital levels were both $248.7 million (7.23%
of total adjusted assets) and its risk-based capital level was
$273.8 million (12.47% of total risk-weighted assets). The
minimum regulatory capital ratio requirements are 1.5% for
tangible capital, 3.0% for core capital and 8.0% for risk-based
capital.
Financial Condition
As of March 31, 1997, total assets were $3.496 billion, a
decrease of $9.8 million from the $3.506 billion outstanding at
year-end 1996. The decrease in total assets is primarily the
result of a slight deposit outflow which was only partially
offset by additional short-term borrowed funds. Loans receivable
of $2.565 billion at March 31, 1997, declined $1.3 million from
year-end 1996 as principal repayments slightly outpaced
originations. Stock in the Federal Home Loan Bank of $21.4
million increased $4.5 million (27%) due to a purchase of stock
during the first quarter of 1997 in order to maintain required
regulatory levels. Total liabilities declined $12.4 million and
totaled $3.175 billion at March 31, 1997. Total deposits of
$2.988 billion declined $25.1 million (1%) as a $10.2 million
(4%) increase in money market accounts was more than offset by
declines of $8.1 million (1%), $13.5 million (1%), $3.1 million
(1%), and $10.6 million (10%) in savings, certificate, NOW, and
noninterest checking accounts, respectively. Borrowings
increased $28.4 million (39%) to total $100.8 million at March
31. 1997. Escrow balances were $13.4 million at March 31, 1997,
a decline of $13.2 million (50%) from December 31, 1996, due
primarily to seasonal tax payments during the first quarter of
1997. Accrued income taxes payable increased $7.1 million (181%)
to total $11.1 million at March 31, 1997, due mainly to the
excess of accrued income tax liability over the required first
quarter federal and state estimated income tax payments. Other
liabilities declined $9.5 million (14%) and totaled $56.8
million primarily as a result of declines in outstanding checks
of $4.9 million (19%) and accounts payable of $1.9 million
(26%).
Stockholders' equity of $321.7 million increased $2.6 million
(1%) from $319.1 million at year-end 1996. Increases included
net income of $9.3 million and stock option exercises of $0.3
million. Other increases were the result of amortization and tax
benefits related to ESOP and BRP stock. Offsetting these
increases were purchases of treasury stock amounting to $3.6
million, net unrealized depreciation in the securities available
for sale portfolio of $2.1 million since December 31, 1996
(primarily the result of a generally increasing interest rate
environment), and cash dividends declared during the first three
months of 1997 of $1.9 million.
Book value per common share increased to $25.10 per share at
March 31, 1997, from $24.72 per share at December 31, 1996. The
increase is a combined result of an increase in stockholders'
equity of $2.6 million (1%) to $321.7 million at March 31, 1997,
and a reduction in shares outstanding as additional stock was
purchased under the Company's ongoing repurchase program. At
March 31, 1997, the Holding Company held 2,878,961 shares of its
common stock as treasury stock. As of March 31, 1997, the
Holding Company had cumulatively acquired 5,257,247 shares
pursuant to its repurchase program at a cost of $112.3 million.
On April 1, 1996, the Holding Company distributed 2,267,307
shares of stock from treasury stock with a fair market value of
$64.1 million to shareholders of record on March 15, 1996, to
effect a 20% stock dividend. Additional cumulative distributions
of 110,979 shares have been made to fulfill stock option
exercises. At March 31, 1997, the ratio of equity to assets was
9.20%, which compared with 9.10% at December 31, 1996.
Nonperforming assets decreased $1.5 million (4%) to total $32.3
million at March 31, 1997, compared with $33.8 million as of
December 31, 1996. Nonperforming loans declined $1.5 million
(5%) and totaled $28.3 million at March 31, 1997, compared with
$29.8 million as of December 31, 1996. The reduction in
nonperforming loans reflects mainly a decline of $4.1 million
(39%) in accruing loans 90 days or more delinquent, offset by an
increase of $2.6 million (13%) in nonaccrual loans. The ratio of
nonperforming assets to total assets at March 31, 1997, was
0.92% compared with 0.96% at December 31, 1996. The ratio of
nonperforming loans to loans receivable was 1.10% at March 31,
1997, compared with 1.16% at December 31, 1996.
Comparisons of Operating Results for the Three Months Ended
March 31, 1997 and 1996
The analyses of net interest income that are shown in
the following two tables are an integral part of the discussion
of the results of operations for three months ended March 31,
1997, compared with the corresponding period of the prior year.
Analysis of Changes in Net Interest Income
The table below presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated. Information
is provided in each category with respect to (i) changes attributable
to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (changes in rate
multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate
have been allocated proportionately to the changes due to volume
and the changes due to rate.
Three Months Ended March 31, 1997
compared with
Three Months Ended March 31, 1996
Increase (Decrease)
Due to
Volume Rate Net
Interest Income (In thousands) (Unaudited)
Mortgage loans, net (1) $ 5,198 (863) 4,335
Other loans, net (1) 2,046 (322) 1,724
Securities available for sale (1,765) (121) (1,886)
Investment securities (605) 107 (498)
Federal funds sold (119) (39) (158)
Securities purchased
under agreement to resell (738) -- (738)
Stock in Federal Home Loan Bank 36 27 63
Total 4,053 (1,211) 2,842
Interest Expense
Deposits:
Savings accounts (2) (259) (116) (375)
Transaction accounts (3) 308 258 566
Certificate accounts 1,008 (1,063) (55)
Short term borrowed funds
and repurchase agreements 568 -- 568
Long-term debt (9) 3 (6)
Total 1,616 (918) 698
Change in net interest income $ 2,437 (293) 2,144
(1) Net of unearned discounts, premiums and related deferred loan fees/costs,
where applicable.
(2) Includes passbook, statement and interest-bearing escrow accounts.
(3) Includes NOW, Super NOW, money market and interest-bearing deposit accounts.
Average Balance Sheets, Interest Rates and Interest Differential
The average balance sheets that follow reflect the average yield
on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing
annualized income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. The yields and
costs include fees which are considered adjustments to yields.
Three Months Ended March 31, 1997 1996
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands) (Unaudited)
Assets
Interest-earning assets:
Mortgage loans, net (1) $ 2,089,077 42,041 8.06 % $ 1,831,568 37,706 8.24 %
Other loans, net (1) 480,392 10,856 9.13 390,272 9,132 9.38
Securities available for sale 615,130 9,468 6.16 729,707 11,354 6.22
Investment securities 107,479 1,762 6.56 144,695 2,260 6.25
Federal funds sold 111 1 5.64 12,005 159 5.34
Securities purchased under
agreement to resell -- -- -- 50,000 738 5.93
Stock in Federal Home Loan Bank 18,611 302 6.48 16,274 239 5.91
Total interest-earning assets 3,310,800 64,430 7.80 3,174,521 61,588 7.77
Noninterest-earning assets 182,050 168,127
Total assets $ 3,492,850 $ 3,342,648
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 832,205 5,962 2.90 % $ 868,080 6,337 2.94 %
Transaction accounts (3) 499,416 3,380 2.75 452,246 2,814 2.50
Certificate accounts 1,572,701 20,886 5.39 1,498,774 20,941 5.62
Short-term borrowed funds
and repurchase agreements 64,731 864 5.39 22,184 296 5.37
Long-term debt 22,394 302 5.47 23,077 308 5.36
Total interest-bearing liabilities 2,991,447 31,394 4.26 2,864,361 30,696 4.31
Demand deposits 99,243 73,999
Noninterest-bearing liabilities 80,012 81,729
Total liabilities 3,170,702 3,020,089
Stockholders' equity 322,148 322,559
Total liabilities and
stockholders' equity $ 3,492,850 $ 3,342,648
Net interest income and
net interest spread $ 33,036 3.54 % $ 30,892 3.46 %
Net interest-earning assets and
net interest margin $ 319,353 3.96 % $ 310,160 3.88 %
Interest-earning assets to
interest-bearing liabilities 1.11x 1.11x
Average balances are derived principally from average daily balances and include
nonaccruing loans. Tax-exempt securities income has not been calculated
on a tax equivalent basis. Interest on securities available for sale
includes dividends received on equity securities.
(1) Net of unearned discounts, premiums and related deferred loan fees/costs,
where applicable.
(2) Includes passbook, statement and interest-bearing escrow accounts.
(3) Includes NOW, Super NOW, money market and interest-bearing demand deposit
accounts.
Net Income and Interest Analysis
Three Months Ended March 31, 1997 compared with 1996
Net income for the quarter ended March 31, 1997, was $9.3
million, an increase of $1.6 million (21%) from the comparable
quarter last year. Primary and fully diluted earnings per share
were $0.67 for the first quarter of 1997, up from $0.53 per
share a year ago, representing a 26% increase. The 1997 results
of operations include the impact of the September 1996
acquisition of approximately $108 million in loans and deposits
from the Green Mountain Bank of Rutland, Vermont ("Green
Mountain"), a wholly owned subsidiary of Arrow Financial
Corporation. Net interest income increased $2.1 million (7%) and
totaled $33.0 million for the first quarter of 1997. Noninterest
income and noninterest expense each increased $0.2 million (8%
and 1%, respectively). Noninterest income totaled $3.3 million
while noninterest expense totaled $19.8 million for the first
quarter of 1997 compared with $3.0 million and $19.6 million,
respectively, for the comparable 1996 period. Return on average
equity and return on average assets for the first quarter of
1997 were 11.73% and 1.08%, respectively. For the comparable
1996 period, return on average equity was 9.62%, while return on
average assets was 0.93%.
Core net income excludes income or expense amounts (net of
income taxes) included in net income of a nonrecurring nature
which detract from comparative analysis. No such amounts were
recorded for the quarters ended March 31, 1997, or 1996. Cash
net income is defined as core net income plus amortization of
goodwill and costs associated with certain stock-related
employee benefit plans, net of any income tax benefits. Cash net
income for the quarter ended March 31, 1997, was $10.3 million
or $0.74 per share on a primary and fully diluted basis. Cash
net income for the quarter ended March 31, 1996, was $8.6
million or $0.60 and $.59 per share on a primary and fully
diluted basis, respectively. Cash return on tangible equity was
14.99% compared with 12.19% for the same period last year; cash
return on average assets rose to 1.20% from 1.04% in 1996.
Interest income for the three months ended March 31, 1997,
totaled $64.4 million, an increase of $2.8 million (5%) from
1996's first quarter that was a combined result of a $136.3
million (4%) rise in average interest-earning assets to $3.311
billion and a 3 basis point increase in the average rate earned
to 7.80%. Interest income on mortgage loans increased $4.3
million (11%) and totaled $42.0 million as an 18 basis point (2%)
decline in the average rate earned was more than offset by a
$257.5 million (14%) rise in the average balance. The average
balance increased as a combined result of approximately $108
million in balances acquired from Green Mountain in September
1996 and the impact of strong mortgage loan origination activity
since March 31, 1996. Similarly, interest income on other loans
was $10.9 million, an increase of $1.7 million (19%), as the
average rate paid declined 25 basis points (3%) and the average
balance increased $90.1 million (23%). Offsetting these
increases was a decline in interest income on securities
available for sale of $1.9 million (17%). This decline occurred
as both the average amount invested and the average rate earned
decreased by $114.6 million (16%) and 6 basis points (1%),
respectively. Interest income on investment securities of $1.8
million was $0.5 million (22%) lower than the comparable 1996
period as a decline in average balance invested of $37.2 million
(26%) more than offset an increase in the average rate earned of
31 basis points (5%).
Interest expense for the quarter ended March 31, 1997, amounted
to $31.4 million, $0.7 million (2%) more than the corresponding
quarter of last year as a result of the net effect of a $127.1
million (4%) increase in average interest-bearing liabilities to
$2.991 billion and a 5 basis point (1%) decrease in the average
rate paid to 4.26%. The increase in average interest-bearing
deposits was primarily attributable to the assumption of
approximately $108 million in deposits in conjunction with the
Green Mountain acquisition. Declines in savings account average
balances of $35.9 million (4%) and average rate paid of 4 basis
points (1%) resulted in a decrease of $0.4 million (6%) in
interest expense compared with the first quarter of 1996.
Transaction account average balances grew $47.2 million (10%)
and rates paid increased by 25 basis points (10%) resulting in
an increase in related interest expense of $0.6 million (20%) to
$3.4 million. Interest expense on certificate accounts declined
$0.1 million and totaled $20.9 million as the net result of a
$73.9 million (5%) increase in average balance and a 23 basis
point (4%) drop in the average rate paid. Interest expense on
short-term borrowings increased $0.6 million (192%) to total
$0.9 million almost entirely as a result of a corresponding
percentage increase in average balance.
Net interest income for the three months ended March 31, 1997,
totaled $33.0 million, $2.1 million (7%) greater than the $30.9
million reported for the comparable quarter a year ago. The
increase in net interest income was driven primarily by
increased average loan balances outstanding coupled with an
increase in the average yield earned as well as by a reduction
in the average rate paid on interest-bearing liabilities that
principally resulted from a drop in rates paid on certificate
accounts. The net interest spread of 3.54% and the net interest
margin of 3.96% for the quarter ended March 31, 1997, were each
8 basis points higher than the results recorded in the
comparable quarter a year ago.
Provision for Loan Losses
The provision for loan losses amounted to $1.8 million for the
quarter ended March 31, 1997, compared with $1.4 million a year
ago. The increase reflects the increased outstanding balance of
loans receivable and has contributed to an improvement in the
coverage ratios of the allowance for loan losses to
nonperforming loans and nonperforming assets. The Bank utilizes
the provision for loan losses to maintain an allowance for loan
losses that it deems appropriate to provide for known and
inherent risks in its loan portfolio. In determining the
adequacy of its allowance for loan losses, management takes into
account the current status of the Bank's loan portfolio and
changes in appraised values of collateral as well as general
economic conditions. The Bank's allowance for loan losses totaled
$25.2 million (0.98% of loans receivable and 88.97% of nonperforming
loans) at March 31, 1997, compared with $24.1 million (0.94% of loans
receivable and 80.88% of nonperforming loans) at December 31, 1996.
The increase in the allowance during the first quarter of 1997
was the net result of a provision for loan losses of $1.8 million
reduced by net chargeoffs of $0.7 million.
Noninterest Income
Noninterest income increased $0.3 million (8%) and totaled $3.3
million for the three months ended March 31, 1997, compared with
$3.0 million for the same period last year. Service charges on
deposit accounts, the largest component of noninterest income,
increased $0.2 million (13%). The increase is the combined
result of increased fees charged by the Bank for certain deposit
services such as handling returned checks as well as the higher
level of deposit accounts related primarily to the expansion of
the Bank's Marble Division in Vermont to include branches acquired
from Green Mountain. Brokerage and insurance commissions also
increased $0.2 million (39%) as brokerage and insurance activity
increased during the first quarter of 1997 compared with the
previous year, while other noninterest income declined by $0.1
million (7%).
Noninterest Expense
Noninterest expense increased $0.2 million (1%) to $19.8 million
for the three months ended March 31, 1997, compared with $19.6
million for the same period in 1996. Compensation and employee
benefits totaled $10.0 million, an increase of $0.5 million (5%)
from 1996's first quarter. The increase arose as a decline in
temporary help of $0.1 million (67%) was offset by an increase
of $0.6 million (8%) in salaries related to salaries incurred to
staff branches acquired from Green Mountain, other increases in
staff necessary to support expanded services, and the effect of
annual merit increases in March.
Net occupancy expense increased $0.1 million (6%) to $2.6
million primarily as a combined result of increased depreciation
of branches acquired from Green Mountain as well as rental
expenses relating to the expanded branch network. For the three
months ended March 31, 1997, increased furniture, fixtures and
equipment expense of $0.3 million (22%) to $1.5 million
is primarily the result of depreciation of equipment acquired
in connection with the Bank's data processing conversions.
FDIC deposit insurance premiums declined $0.8 million (69%) for
the three months ended March 31, 1997, compared with the previous
year. At March 31, 1997, approximately 34% of the Bank's
deposits, including all of the deposits acquired in the
Green Mountain acquisition, were treated as insured by the
BIF. The remainder of the Bank's deposits were insured by the
SAIF. In September 1996, the Bank recognized as expense a $10.4
million assessment to recapitalize the SAIF. As a result of the
one-time special assessment, the SAIF rate was reduced to $0.065
per $100 of deposit for 1997 versus $0.230 per $100 for the same
period last year. BIF rates were $0.013 per $100 during the
first quarter of 1997 and were effectively zero for the first
quarter of 1996.
The increase in professional, legal and other fees of $0.2
million (31%) to $0.9 million for the three months ended March
31, 1997, was primarily related to legal fees.
Telephone, postage and printing expense remained relatively
constant in the three months ended March 31, 1997, as compared to
the prior year and totaled $2.0 million. The Company was able to
offset additional expenses related to the operation of an
expanded Marble Division with cost savings in this area.
The increase in goodwill amortization of $0.1 million (19%) to
$0.9 million for the three months ended March 31, 1997, was
related to the amortization of goodwill resulting from the Green
Mountain acquisition.
Other noninterest expense of $2.5 million for the three months
ended March 31, 1997, represented an decrease of $0.3 million
(10%) below prior year levels. This decline occurred primarily
as a result of reductions of foreclosure and acquisition costs
of $0.2 million (80%) and a reduction in insurance premiums of
$0.1 million (66%).
The ratios of noninterest expense to average assets was 2.30% on
an annualized basis for the three months March 31, 1997,
compared with 2.35% for the same period last year. The ratios of
noninterest expense net of noninterest income, excluding the
effect of gains and losses on securities portfolios, to average
assets were 1.92% and 1.99% on an annualized basis for the three
months ended March 31, 1997 and 1996, respectively. The
efficiency ratio measures noninterest expense (excluding
amortization of intangibles and real estate owned related
expense) as a percentage of net interest income plus noninterest
income (exclusive of net security transactions and real estate
owned related income). The efficiency ratios for the quarters
ended March 31, 1997 and 1996 were 51.39% and 54.39%,
respectively. Efficiency ratios for thrift institutions in the
$1-5 billion asset range, as reported by SNL Securities, were
59.28% for the quarter ended December 31, 1996. The comparable
ratio for all thrifts in the fourth quarter of 1996 was 59.41%.
Income Tax Expense
Income tax expense for the three months ended March 31, 1997,
totaled $5.4 million, a $0.3 million (5%) increase over the same
period of the prior year. The increase was due to a rise in
income before income taxes partially offset by a reduction in
the effective tax rate. The Company's effective tax rate of
36.6% for the first quarter of 1997 compares with 39.9% for
the first quarter of 1996. The lower effective tax rate is
due to the result of the combined effect of Federal low income
housing and historic preservation tax credits, and expansion of
the Bank's operations into the State of Vermont.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Holding Company and the Bank are not engaged in any legal
proceedings of a material nature at the present time.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
Regulation S-K Exhibit
Reference Number
11.1 Statement regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALBANK Financial Corporation
(Registrant)
DATE: May 12, 1997 BY: /s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: May 12, 1997 BY: /s/ Richard J. Heller
Richard J. Heller
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Form 10-Q
Exhibit Index
Regulation S-K Exhibit Exhibit
Reference Number Number
11 11.1 Statement regarding Computation of
Per Share Earnings 11.1
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Form 10-Q
Statement regarding Computation of Per Share Earnings
Three Months Ended
March 31,
Exhibit 11.1 1997 1996
1. Net income $ 9,317,283 7,711,464
2. Weighted average common shares outstanding 12,848,710 13,650,002
3. Weighted average common stock equivalents
due to the dilutive effect of stock options
when utilizing the treasury stock method.
Per share market price is based on the average
per share market price for the period. 1,016,599 800,097
4. Total weighted average common shares and
common stock equivalents outstanding for primary
earnings per share computation 13,865,309 14,450,099
5. Primary earnings per share $ 0.67 0.53
6. Weighted average common shares outstanding 12,848,710 13,650,002
7. Weighted average common stock equivalents due
to the dilutive effect of stock options when
utilizing the treasury stock method. Per
share market price used is the greater of the
average market price for the period
or the end-of-period market price per share. 1,064,928 937,148
8. Total weighted average common shares and
dilutive shares outstanding for fully diluted
earnings per share computation 13,913,638 14,587,150
9. Fully diluted earnings per share $ 0.67 0.53