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, 1998 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, 1998
Common Stock, Par $.01 12,855,441
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Earnings for the Three
Months Ended March 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Financial Condition as
of March 31, 1998 (unaudited) and December 31, 1997 4
Consolidated Statements of Changes in Stockholders' Equity for
the Three Months Ended March 31, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 (unaudited) 6
Notes to Unaudited Consolidated Interim Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
Three Months Ended
March 31,
1998 1997
(Unaudited)
Interest income:
Mortgage loans $ 45,688 42,041
Other loans 12,205 10,754
Securities available for sale 11,610 9,468
Investment securities 1,600 1,864
Federal funds sold 330 1
Securities purchased under agreement to resell 1,202 --
Federal Home Loan Bank Stock 466 302
Total interest income 73,101 64,430
Interest expense:
Deposits and escrow accounts 35,134 30,228
Short-term borrowed funds and repurchase agreements 339 864
Long-term debt 168 302
Total interest expense 35,641 31,394
Net interest income 37,460 33,036
Provision for loan losses 1,800 1,800
Net interest income after provision for loan losses 35,660 31,236
Noninterest income:
Service charges on deposit accounts 2,504 1,538
Net security transactions 93 --
Brokerage and insurance commissions 626 555
Other 1,622 1,164
Total noninterest income 4,845 3,257
Noninterest expense:
Compensation and employee benefits 11,653 9,967
Occupancy, net 2,733 2,552
Furniture, fixtures and equipment 1,811 1,526
Federal deposit insurance premiums 360 353
Professional, legal and other fees 806 857
Telephone, postage and printing 1,591 1,193
Goodwill amortization 1,571 874
Capital securities expense 1,172 --
Other 3,095 2,484
Total noninterest expense 24,792 19,806
Income before income taxes 15,713 14,687
Income tax expense 5,906 5,370
Net income $ 9,807 9,317
Basic earnings per share $ 0.76 0.73
Diluted earnings per share 0.71 0.68
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
March 31, December 31,
1998 1997
(Unaudited)
Assets
Cash and due from banks $ 77,751 97,389
Federal funds sold 23,000 --
Securities purchased under agreement to resell 105,000 75,000
Total cash and cash equivalents 205,751 172,389
Securities available for sale 721,490 768,517
Investment securities 78,609 94,971
Loans receivable 2,843,764 2,856,049
Less: allowance for loan losses 29,751 29,117
Loans receivable, net 2,814,013 2,826,932
Accrued interest receivable 27,133 27,837
Office premises and equipment, net 57,107 57,435
Federal Home Loan Bank Stock 25,864 21,408
Real estate owned 4,433 3,966
Goodwill 79,920 80,281
Other assets 75,108 29,361
$4,089,428 4,083,097
Liabilities
Deposits $3,539,650 3,483,791
Escrow accounts 14,105 21,172
Accrued income taxes payable 13,667 8,289
Short-term borrowed funds and
repurchase agreements 22,397 68,747
Long-term debt 10,061 20,061
Obligation under capital lease 4,515 4,542
Other liabilities 68,205 66,882
Total liabilities 3,672,600 3,673,484
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust 50,000 50,000
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;
12,853,277 shares outstanding at March 31, 1998 and
12,906,845 shares outstanding at December 31, 1997 157 157
Additional paid-in capital 182,728 182,704
Retained earnings, substantially restricted 255,462 248,402
Treasury stock, at cost (2,844,223 shares at March
31, 1998 and 2,790,655 shares at December 31, 1997) (74,215) (73,200)
Accumulated other comprehensive income 7,612 6,578
Common stock acquired by employee stock ownership
plan ("ESOP") and bank recognition plan ("BRP") (4,916) (5,028)
Total stockholders' equity 366,828 359,613
$4,089,428 4,083,097
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands) (Unaudited)
Accumulated Common
Additional Other Stock Total
Comprehensive Common Paid-in Retained Treasury Comprehensive Acquired by Stockholders'
Income Stock Capital Earnings Stock Income ESOP & BRP Equity
Three Months Ended March 31, 1997
Balance at December 31, 1996 $ -- $ 157 180,670 214,283 (71,235) 1,781 (6,531) 319,125
Net income 9,317 -- -- 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) -- (2,139)
Cash dividends declared -- -- -- (1,927) -- -- -- (1,927)
Amortization of award of ESOP & BRP stock -- -- -- -- -- -- 363 363
Balance at March 31, 1997 $ 7,178 $ 157 180,957 221,488 (74,375) (358) (6,168) 321,701
Three Months Ended March 31, 1998
Balance at December 31, 1997 $ -- $ 157 182,704 248,402 (73,200) 6,578 (5,028) 359,613
Net Income 9,807 -- -- 9,807 -- -- -- 9,807
Purchase of treasury stock (31,500 shares) -- -- -- -- (1,432) -- -- (1,432)
Transfer of unallocated BRP shares to
treasury stock (73,022 shares) -- -- -- -- (609) -- -- (609)
Exercise of stock options -- -- -- (422) 1,026 -- -- 604
Tax benefits related to vested BRP
stock and stock options exercised -- -- 24 -- -- -- -- 24
Adjustment of securities available
for sale to market, net of tax 1,034 -- -- -- -- 1,034 -- 1,034
Cash dividends declared -- -- -- (2,325) -- -- -- (2,325)
Amortization of award of ESOP & BRP stock -- -- -- -- -- -- 112 112
Balance at March 31, 1998 $ 10,841 $ 157 182,728 255,462 (74,215) 7,612 (4,916) 366,828
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Three Months Ended
March 31,
1998 1997
Increase (decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income $ 9,807 9,317
Reconciliation of net income to net cash provided
(used) by operating activities:
Depreciation and lease amortization 1,959 1,566
Goodwill amortization 1,571 874
Amortization of capitalized costs related to
the issuance of capital securities 13 --
Net amortization of premiums and accretion of
discounts on securities 162 260
Amortization of award of ESOP and BRP stock 314 363
Net gain on security transactions (93) --
Net gain on sale of real estate owned (67) (89)
Net gain on sale of fixed assets (4) --
Origination of loans receivable for sale (439) (2,743)
Proceeds from sale of loans receivable 747 7,483
Provision for loan losses 1,800 1,800
Writedown of real estate owned 102 126
Net decrease in accrued interest receivable 704 172
Net increase in other assets (46,296) (574)
Net increase in accrued income taxes payable 5,402 7,426
Net increase (decrease) in other liabilities
and obligation under capital lease 1,164 (9,527)
Net cash provided (used) by operating activities (23,154) 16,454
Cash flows from investing activities
Net cash provided by acquisition activity 19,274 --
Proceeds from the maturity or call of securities
available for sale 89,607 46,635
Proceeds from the maturity or call of
investment securities 16,412 15,668
Purchase of securities available for sale (41,088) (51,758)
Purchase of investment securities -- (15,126)
Purchase of loans receivable (36,982) (28,730)
Net decrease in loans receivable 46,417 22,617
Purchase of Federal Home Loan Bank stock (4,456) (4,495)
Proceeds from the sale of real estate owned 1,237 1,919
Capital expenditures (1,353) (2,171)
Net cash provided (used) by investing activities 89,068 (15,441)
Cash flows from financing activities
Net increase (decrease) in deposits 34,731 (25,079)
Net decrease in escrow accounts (7,067) (13,246)
Net increase in short-term borrowed funds and
repurchase agreements (46,350) 38,360
Redemption of long-term debt (10,000) (10,000)
Purchase of treasury stock (2,041) (3,576)
Dividends paid (2,321) (1,955)
Cash proceeds from the exercise of stock options 496 251
Net cash used by financing activities (32,552) (15,245)
Net increase (decrease) in cash and cash equivalents 33,362 (14,232)
Cash and cash equivalents at beginning of period 172,389 68,883
Cash and cash equivalents at end of period $ 205,751 54,651
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 $ 35,133 31,107
Income taxes 48 --
Supplemental schedule of noncash investing and
financing activities:
Net reduction in loans resulting from transfers
to real estate owned 1,740 1,920
Net unrealized gain (loss) on securities available
for sale 1,704 (3,469)
Tax benefits related to vested BRP stock and stock
options exercised 24 287
Acquisition activity:
Fair value of noncash assets acquired 1,889 --
Fair value of liabilities assumed 21,163 --
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
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 1997 Form 10-K of ALBANK Financial Corporation and
Subsidiaries. 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,
1998, are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1998.
The unaudited consolidated interim financial statements include the accounts
of ALBANK Financial Corporation (the "Holding Company") and its three wholly
owned subsidiaries (collectively with the Holding Company, the "Company"),
ALBANK, FSB and subsidiaries, ALBANK Commercial and subsidiary and ALBANK
Capital Trust I. The accounting and reporting policies of the Company conform
in all material respects to generally accepted accounting principles and to
general practice within the banking industry. Certain prior period amounts have
been reclassified to conform to the current period classifications.
NOTE 2. Acquisitions
On January 23, 1998, ALBANK acquired two branch offices previously operated by
First Union National Bank, a subsidiary of First Union Corporation of Charlotte,
North Carolina. On May 1, 1998, one additional branch office was acquired from
First Union. All three of the branches are located in the greater Hudson Valley
area of New York State. These transactions involved $30.3 million in deposits.
NOTE 3. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and its
components. Comprehensive income includes the reported net income of a company
adjusted for items that are currently accounted for as direct entries to equity,
such as the mark-to-market adjustment on securities available for sale, foreign
currency items and minimum pensiion liability adjustments. In the case of the
Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealixed gains and losses on
securities available for sale for the period. Accumulated other comprehensive
income represents the net unrealized gains and losses on securities available
for sale as of the balance sheet dates indicated.
NOTE 4. Earnings Per share
The following table reconciles basic and diluted earnings per share
calculations:
Weighted-
Net Average Per Share
(Dollars in thousands, except per share data) Income Shares Amount
For the Three Months Ended March 31, 1998
Basic earnings per share $ 9,807 12,843,610 $ .76
Dilutive effect of stock options and grants 873,988
Diluted earnings per share $ 9,807 13,717,598 $ .71
For the Three Months Ended March 31, 1997
Basic earnings per share $ 9,317 12,683,188 $ .73
Dilutive effect of stock options and grants 987,662
Diluted earnings per share $ 9,317 13,670,850 $ .68
Not included in the March 31, 1998 shares above are 166,650 shares which are
anti-dilutive for earnings per share purposes
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
ALBANK Financial Corporation ("ALBANK", the "Company", the "Holding Company")
was formed as a savings and loan holding company under Delaware Law. On October
10, 1997, the Company became a bank holding company as a result of the formation
of ALBANK Commercial, a newly chartered New York commercial bank. The
information and unaudited consolidated interim financial statements in this
report include the accounts of ALBANK Financial Corporation; its wholly owned
subsidiaries, ALBANK, FSB and ALBANK Commercial, along with their related
subsidiaries; and its wholly owned business trust subsidiary, ALBANK Capital
Trust 1. The Company conducts its operations through a branch network of 110
offices in upstate New York, western Massachusetts and Vermont.
On April 1, 1992, ALBANK completed its public offering for 15,697,500 shares of
common stock at $10.00 per share, realizing net proceeds of $150.8 million after
expenses, and concurrently acquired ALBANK, FSB as part of its conversion from a
mutual to a stock form savings bank. ALBANK used $75.4 million of the net
proceeds to acquire all of the issued and outstanding stock of ALBANK, FSB. The
remaining net proceeds were used by the Company for general corporate purposes
which, to date, have included the repurchase of shares of ALBANK's common stock.
ALBANK's business currently consists primarily of the business of its
constituent financial institutions. ALBANK, FSB was organized as the second
mutual savings bank in New York State on March 24, 1820, and is currently the
oldest operating savings bank in the state. On June 30, 1982, ALBANK, FSB
converted to a federally chartered mutual savings bank. ALBANK, FSB's principal
business has been and continues to be attracting retail and corporate deposits
and investing those deposits, together with funds generated from operations and
borrowings, in various loan products and investment securities. With regard to
loans, ALBANK, FSB originates and purchases primarily single-family, owner
occupied, adjustable-rate mortgage loans. ALBANK, FSB also provides provision
of Savings Bank Life Insurance. Additionally, through ALVEST Financial Services,
Inc., a wholly owned brokerage and insurance subsidiary of ALBANK Commercial,
ALBANK offers a wide range of financial products and services. ALBANK
Commercial's business consists primarily of attracting deposits from retail and
corporate customers and municipal/public entities and investing those deposits
together with funds available from operations, in various loan products and
investment securities.
ALBANK is a legal entity separate and distinct from ALBANK, FSB and ALBANK
Commercial. The principal sources of the Company's revenues are dividends and
interest derived from its investments and dividends the Company receives from
ALBANK, FSB and, in the future, from ALBANK Commercial.
As a bank holding company, ALBANK is subject to the regulation and supervision
of the Federal Reserve Board under the Bank Holding Company Act of 1956 and must
file reports with the Federal Reserve Board. Prior to its registration as a
bank holding company in late 1997, ALBANK, as a savings and loan holding
company, was subject to the regulation of the Office of Thift Supervision
("OTS") under the Savings and Loan Holding Company Act. As a bank holding
company, ALBANK is no longer subject to holding company regulation by the OTS.
ALBANK, FSB, as a federally chartered savings bank, is subject to comprehensive
regulation, examination and supervision by the OTS as its primary federal
regulator and by the FDIC as the administrator of the deposit insurance funds.
ALBANK, FSB's deposit accounts are insured by the FDIC, principally through the
Savings Association Insurance Fund. As a New York chartered commercial bank,
ALBANK Commercial is subject to comprehensive regulation, examination and
supervision by the New York Superintendent of Banks and the New York State
Banking Department under the New York Banking Law. As a state-chartered bank
that is not a member of the Federal Reserve System, ALBANK Commercial's primary
federal regulator is the FDIC. ALBANK Commercial's deposit accounts are insured
by the FDIC through the Bank Insurance Fund. ALBANK, FSB must file reports with
the OTS and the FDIC and ALBANK Commercial must file reports with the New York
Superintendent of Banks and with the FDIC concerning their activities and
financial condition and must obtain regulatory approvals prior to entering into
certain transactions, including mergers with, or acquisitions of, other
financial institutions. ALBANK, FSB also is a member of the Federal Home Loan
Bank of New York. Both institutions are subject to certain limited regulation by
the Federal Reserve Board.
The Company'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 Company'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 Company's operating expenses principally consist of employee
compensation and benefits, federal deposit insurance premiums, occupany expense
and other general and administrative expenses. The Company'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.
ALBANK, FSB is required to maintain levels of liquid assets as promulgated by
its primary regulator, the OTS. 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 hort-term borrowings. The required ratio
of liquid assets to deposits and short-term borrowings is currently 4%. ALBANK,
FSB's liquidity ratio at March 31, 1998, was 25.43%
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, 1998 were $205.8 million, an increase of
$33.4 million (19%) from $172.4 million at December 31, 1997.
At the time of its conversion to stock form, ALBANK, FSB 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.
As of March 31, 1998, ALBANK's leverage ratio, Tier 1 risk-based ratio and total
risk-based ratio were 8.26%, 12.99% and 14.16%, respectively. ALBANK
Commercial's leverage ratio, Tier 1 risk-based ratio and total risk-based ratio
were 5.07%, 13.61% and 14.49%, respectively. ALBANK FSB's tangible capital
ratio, core ("leverage") ratio, Tier 1 risk-based ratio and total risk-based
ratio were 6.88%, 6.88%, 11.03% and 12.22%, respectively.
The foregoing capital ratios are based in part on specific quantitive measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulatory authorities concerning capital
components, risk weightings and other factors. Management believes that ALBANK,
ALBANK, FSB and ALBANK Commercial met all pertinent regulatory capital adequacy
requirements at March 31, 1998.
Financial Condition
On March 31, 1998, total assets equaled $4.089 billion, an increase of $6.3
million from year-end 1997. Securities available for sale decreased $47.0
million (6%) and totaled $721.5 million at March 31, 1998, as proceeds from
maturities, payments and calls of $89.6 million exceeded purchases of $41.1
million. Investment securities were $78.6 million at March 31, 1998, a decrease
of $16.4 million (17%) from year-end 1997 that resulted primarily from the
maturity, repayment and call of investment securities. On March 31, 1998, loans
receivable totaled $2.844 billion, $12.3 million less than at December 31, 1997,
as mortgage principal repayments and transfers to other real estate totaling
$109.2 million exceeded originations of $103.4 million and other loan repayments
of $26.3 million exceeded additions to the portfolio of $19.8 million. Other
assets at March 31, 1998, reflect the first quarter purchase of $50 million of
single-premium bank owned life insurance, whereby the Company is the beneficiary
of life insurance on certain of its officers and employees. Cash and cash
equivalents rose $33.4 million (19%) and Federal Home Loan Bank Stock increased
$4.5 million (21%) during the first quarter of 1998.
Total liabilities declined $0.9 million from December 31, 1997 and totaled
$3.673 billion at March 31, 1998. Total deposits of $3.540 billion increased
$55.9 million (2%) from year-end 1997. Increases in time accounts of $51.8
million (3%) and money market accounts of $22.4 million (6%) outpaced declines
in savings accounts, interest-bearing checking accounts and noninterest-bearing
checking accounts of $7.5 million (1%), $8.1 million (3%) and $2.7 million (1%),
respectively. The majority of the increase in time and money market accounts
resulted from municipal deposits obtained since December 31, 1997. Escrow
accounts of $14.1 million declined $7.1 million (33%) as a result of seasonal
tax payments during the first quarter of 1998. Accrued income taxes payable
increased $5.4 million (65%) to total $13.7 million at March 31, 1998, due
mainly to the excess of accrued income tax liability over the required federal
estimated income tax payments paid in April 1998. Borrowings declined $56.4
million (63%) as maturing issuances were retired.
Stockholders' equity of $366.8 million increased $7.2 million (2%) from $359.6
million at year-end 1997. Increases due to net income of $9.8 million, an
increase of $1.0 million in accumulated other comprehensive income (representing
net appreciation in the securities available for sale portfolio) and net stock
option activity of $0.6 million were partially offset by declines due to
treasury stock activity of $2.0 million and dividends declared of $2.3 million.
The increase in book value per common share to $28.54 at March 31, 1998, from
$27.86 at December 31, 1997, was primarily the result of the $7.2 million (2%)
increase in stockholders' equity to $366.8 million at March 31, 1998. At March
31, 1998 the Holding Company held 2,844,223 shares of its common stock as
treasury stock compared with 2,790,655 at year-end 1997. During 1998 the Company
acquired 104,522 shares and issued 50,954 shares to fulfill stock option
exercises. At March 31, 1998, the Company's ratio of equity to assets was 8.97%
compared with 8.81% at December 31, 1997.
Nonperforming assets increased $1.9 million (5%) to total $37.7 million at
March 31, 1998, compared with $35.8 million at December 31, 1997. Nonperforming
loans increased $1.4 million (4%) to $33.2 million at March 31, 1998, compared
with $31.8 million at year-end 1997. The increase in nonperforming loans
reflects a $0.8 million (11%) increase in accruing loans 90 or more days
delinquent and a $0.6 million (2%) increase in nonaccrual loans. The ratio of
nonperforming assets to total assets was 0.92% at March 31, 1998 and 0.88% at
December 31, 1997. The ratio of nonperfroming loans to loans receivable was
1.17% at March 31, 1998, compared with 1.11% at December 31, 1997.
Comparisons of Operating Results for the Three Months Ended March 31, 1998
and 1997
The analyses of net interest income that are shown in the following tables are
an integral part of the discussion of the results of operations for three months
ended March 31, 1998, 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.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Rate/Volume Analysis
(In thousands) (Unaudited)
Three Months Ended March 31, 1998
compared with
Three Months Ended March 31, 1997
Increase (Decrease)
Due to
Volume Rate Net
Interest Income
Mortgage loans, net (1) $ 4,543 (896) 3,647
Other loans, net (1) 1,254 197 1,451
Securities available for sale 1,819 323 2,142
Investment securities (407) 143 (264)
Federal funds sold 329 -- 329
Securities purchased under agreement to resell 1,202 -- 1,202
Federal Home Loan Bank Stock 89 75 164
Total 8,829 (158) 8,671
Interest Expense
Deposits:
Savings accounts (2) (104) (412) (516)
Transaction accounts (3) 920 (250) 670
Certificate accounts 4,169 583 4,752
Short-term borrowed funds and repurchase
agreements (445) (80) (525)
Long-term debt (136) 2 (134)
Total 4,404 (157) 4,247
Change in net interest income $ 4,425 (1) 4,424
(1) Net of unearned discounts, premiums and related deferred loan fees and 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.
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,
1998 1997
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands) (Unaudited)
Assets
Interest-earning assets:
Mortgage loans, net (1) $2,318,841 45,688 7.86% $2,089,077 42,041 8.06%
Other loans, net (1) 528,270 12,205 9.28 473,843 10,754 9.26
Securities available for sale 730,061 11,610 6.36 615,130 9,468 6.16
Investment securities 24,542 1,600 7.07 114,028 1,864 6.54
Federal funds sold 90,505 330 5.46 111 1 5.64
Securities purchased under
agreement to resell 81,667 1,202 5.89 -- -- --
Federal Home Loan Bank Stock 23,487 466 8.04 18,611 302 6.48
Total interest-earning assets 3,797,373 73,101 7.69 3,310,800 64,430 7.80
Noninterest-earning assets 269,772 182,050
Total assets $4,067,145 $3,492,850
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 817,507 5,446 2.70% $ 832,205 5,962 2.90%
Transaction accounts (3) 643,498 4,050 2.55 499,416 3,380 2.75
Certificate accounts 1,879,320 25,638 5.53 1,572,701 20,886 5.39
Short-term borrowed funds and
repurchase agreements 28,249 339 4.84 64,731 864 5.39
Long-term debt 12,394 168 5.50 22,394 302 5.47
Total interest-bearing liabilities 3,380,968 35,641 4.27 2,991,447 31,394 4.26
Noninterest-bearing demand deposits 188,413 99,243
Noninterest-bearing liabilities 84,754 80,012
Total liabilities 3,654,135 3,170,702
Corporation-obligated manditorily
redeemable capital securities of
subsidiary trust 50,000 --
Stockholders' equity 363,010 322,148
Total liabilities and
stockholders' equity $4,067,145 $3,492,850
Net interest income and
net interest spread $37,460 3.42% $33,036 3.54%
Net interest-earning assets and
net interest margin $ 416,405 3.89% $ 319,353 3.96%
Interest-earning assets to
interest-bearing liabilities 1.12x 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 and 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, 1998 compared with 1997
Net income for the quarter ended March 31, 1998, was $9.8 million, an increase
of $0.5 million (5%) from the comparable quarter last year. Basic and diluted
earnings per share were $0.76 and $0.71, respectively for the first quarter of
1998, up from $0.73 and $0.68 per share, respectively, a year ago. The 1998
results of operations include the impact of the November 1997 acquisition of 35
branch offices from KeyBank. Net interest income increased $4.4 million (13%)
and totaled $37.5 million for the first quarter of 1998. Noninterest income
increased $1.6 million (49%) and totaled $4.8 million, while noninterest expense
increased $5.0 million (25%) and totaled $24.8 million. Return on average equity
and return on average assets for the first quarter of 1998 were 10.96% and
0.98%, respectively. For the comparable 1997 period, return on average equity
was 11.73%, while return on average assets was 1.08%. Return of average
stockholders' equity was lower in 1998 because average stockholders'equity
between the two quarters grew 13% while income was up 5%. The reduction in
return on average assets is primarily a reflection of the leveraged nature of
the KeyBank branch acquisition which increased deposits by approximately $540
million.
"Core net income" excludes income or expense amounts (net of income taxes)
included in net income of a nonrecurring nature. For the first quarter of 1998
and 1997 core net income totaled $9.7 million and $9.3 million, respectively.
Core net income for 1998 excludes the after-tax effect of the March 1998 partial
recovery ($0.06 million) of the 1995 Nationar write-off. For the first quarter
of 1997 there were no adjustments to net income to arrive at core net income.
Core return on average equity for the first quarter of 1998 was 10.89% compared
with 11.73% for the same period last year; core return on average assets of
0.97% compared with 1.08% in 1997.
"Cash net income" is defined as core net income plus amortization of goodwill
and costs associated with certain stock related employee benefit plans. Cash net
income for the quarter ended March 31, 1998, was $11.6 million or $0.85 per
share on a diluted basis. Cash net income for the quarter ended March 31, 1997,
was $10.7 million or $0.79 per share on a diluted basis. Cash return on average
tangible equity for the first quarter of 1998 was 16.71% compared with 15.61%
for the same period last year; cash return on average assets of 1.16% compared
with 1.25% in 1997.
Interest income for the three months ended March 31, 1998, totaled $73.1
million, an increase of $8.7 million (13%) from 1997's first quarter and was a
net result of a $486.6 million (15%) rise in average interest-earning assets to
$3.797 billion and an 11 basis point (1%) decrease in the average rate earned to
7.69%. Interest income on mortgage loans increased $3.6 million (9%) and totaled
$45.7 million as a 20 basis point (2%) decline in the average rate earned was
more than offset by a $229.8 million (11%) rise in average balance. The average
balance increased as a result of strong loan origination activity since the
first quarter of 1997. Interest income on other loans was $12.2 million, an
increase of $1.5 million (13%), as the average rate earned and the average
balance increased by 2 basis points and $54.4 million (11%), respectively. The
increase in average balance of other loans included $47.2 million in loans
acquired from KeyBank. Interest income on securities available for sale
increased $2.1 million (23%) and totaled $11.6 million for the current quarter.
The increase was the result of a rise in the average amount invested of $114.9
million (19%) and a higher average rate earned of 20 basis points (3%). Interest
income on investment securities of $1.6 million was $0.3 million (14%) lower
than the comparable 1997 period as a decline in the average balance invested of
$89.5 million (78%) more than offset an increase in the average rate earned of
53 basis points (8%). Interest income on federal funds sold rose $0.3 million
as balances averaged $90.4 million higher during 1998's first quarter compared
with 1997, while the average yield earned fell 18 basis points (3%). An
increase in interest income on securities purchased under agreement to resell of
$1.2 million was the product of $81.7 million on average invested during the
first quarter of 1998 at an average yield of 5.89%. Interest income on Federal
Home Loan Bank Stock rose $0.2 million (54%) to $0.5 million as a $4.9 million
(26%) increase in average balance combined with a 156 basis point (24%) rise in
the average rate earned.
Interest expense for the quarter ended March 31, 1998, amounted to $35.6
million, $4.2 million (14%) more than the corresponding quarter of last year as
the combined result of a $389.5 million (13%) increase in average
interest-bearing liabilities to $3.381 billion and a 1 basis point increase in
the average rate paid to 4.27%. Interest-bearing liabilities acquired in the
KeyBank branch acquisition totaled approximately $540 million at the date of
acquisition. Declines in saving account average balances of $14.7 million (2%)
and the average rate paid of 20 basis points (7%) resulted in a decrease of $0.5
million (9%) in interest expense compared with the first quarter of 1997.
Interest-bearing transaction account average balances grew $144.1 million (29%)
while rates paid decreased by 20 basis points (7%) resulting in an increase in
related interest expense of $0.7 million (20%) to $4.1 million. Interest expense
on certificate accounts increased $4.8 million (23%) and totaled $25.6 million
as the combined result of a $306.6 million (19%) increase in average balances
and a 14 basis point (3%) increase in the average rate paid. Interest expense on
short-term borrowings declined $0.5 million (61%) as a result of a $36.5 million
(56%) decrease in average balances to $28.2 million coupled with a 55 basis
point (10%) decline in the average rate paid. The decline in average rate paid
occurred as over 70% af the average short-term borrowings for the first quarter
of 1998 were in comparatively lower rate retail repurchase agreements compared
with 5% in 1997's comparable quarter. Interst expense on long-term debt was $0.2
million, a decrease of $0.1 million (44%) that was the net result of a $10.0
million (45%) decline in the average balance and a 3 basis point (1%) increase
in the average rate paid.
Net interest income for the three months ended March 31, 1998, totaled $37.5
million, $4.4 million (13%) greater than the $33.0 million reported for the
comparable quarter a year ago. The increase in net interest income occurred as a
result of a rise of $486.6 million (15%) in interest-earning assets which
exceeded an increase of $389.5 million (13%) in interest-bearing liabilities.
The net interest spread of 3.42% was 12 basis points (3%) lower than the results
recorded in the comparable quarter a year ago as the rate earned on
interest-earning assets decreased by 11 basis points (1%), while the rate paid
on interest-bearing liabilities increased by 1 basis point. The net interest
margin for the first quarter of 1998 totaled 3.89% and was 7 basis points (2%)
lower than that reported for the first quarter of 1997.
Provision for Loan Loss
The provision for loan losses amounted to $1.8 million for the three months
ended March 31, 1998 and 1997. The Company 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 Company's loan portfolio and changes in appraised values
of collateral as well as general economic conditions. The Company's allowance
for loan losses totaled $29.8 million (1.05% of loans receivable and 89.69% of
nonperforming loans) at March 31, 1998, compared with $29.1 million (1.02% of
loans receivable and 91.52% of nonperforming loans) at December 31, 1997. The
increase in the allowance for loan losses of $0.6 million (2%) was the net
result of a $1.8 million provision for loan losses and net chargeoffs of $1.2
million incurred during the first quarter of 1998.
Noninterest Income
Noninterest income of $4.8 million for the first quarter of 1998 increased $1.6
million (49%) over 1997's first quarter. ALBANK Commercial, which was formed
during the fourth quarter of 1997, contributed significantly to the increased
levels of noninterest income. Service charges on deposit accounts totaled $2.5
million, an increase of $1.0 million (63%) over 1997. Almost 80% of the increase
was related to fees generated by ALBANK Commercial. The remainder of the
increase was primarily the result of greater levels of business account and ATM
fees realized by ALBANK, FSB. Net security transactions of $0.1 million in 1998
represent a recovery of an investment in Nationar which was previously written
off. Other noninterest income of $1.6 million increased $0.5 million (39%) as a
result of the institution of a bank owned life insurance program and customer
based fees generated by ALBANK Commercial of $0.3 million and $0.1 million,
respectively.
Noninterest Expense
Noninterest expense for the three months ended March 31, 1998, was $24.8
million, an increase of $5.0 million (25%) over the same period last year. Over
$3.1 million (62%) of the increase related to expenses incurred for the
operation of ALBANK Commercial. Compensation and employee benefits increased
$1.7 million (17%) as expenses incurred to staff ALBANK Commercial combined with
the impact of annual merit increases which became effective in March. The net
increase in salary expense for the quarter was somewhat reduced by a decline in
expense related to the amortization of shares in the BRP compared with the first
quarter of 1997.
Net occupancy expense increased $0.2 million (7%) and totaled $2.7 million for
the first quarter of 1998. Increases related to the addition of the ALBANK
Commercial branches were somewhat offset by declines in property taxes on
certain properties and building maintenance reductions due to the comparatively
mild weather conditions experienced in much of the Company's primary market
area.
Furniture, fixture and equipment expense for the first quarter of 1998 of $1.8
million increased $0.3 million (19%) compared with 1997 as the result of an
increase in depreciation of $0.3 million about two-thirds of which relates to
ALBANK, FSB and is primarily the result of additional hardware and software
depreciation. The remaining increase reflects equipment depreciation for ALBANK
Commercial.
Telephone, postage and printing expense of $1.6 million increased $0.4 million
(33%) over the prior year, with telephone and postage expense increases
accounting for about one-third and two-thirds of the increase, respectively. The
higher telephone expense is reflective of the overall expansion of the Company's
branch network. Postage expense also reflects the expanded branch network as
well as special mailings in the first quarter related to changes in service fees
on deposit accounts.
The increase in goodwill amortization of $0.7 million (80%) for the three months
ended March 31, 1998, resulted from the KeyBank branch acquisition in November
1997 and the First Union acquisition in January 1998.
Capital securities expense for the three months ended March 31, 1998, totaled
$1.2 million and was related to the corporation-obligated mandatorily redeemable
capital securities of subsidiary trust issued on June 6, 1997.
Other noninterest expense of $3.1 million for the first quarter of 1998
increased $0.6 million (25%) as a result of increases in ORE related expense of
$0.2 million (56%) and advertising costs of $0.1 million (16%). The remainder of
the increase was primarily attributable to the operation of ALBANK Commercial
and its branch network.
Income Tax Expense
Income tax expense for the first quarter of 1998 was $5.9 million, an increase
of $0.5 million (10%). The increase resulted as a $1.0 million (7%) rise in
income before income taxes combined with an increase in the effective tax rate
to 37.6% for 1998 from 36.6% in the prior year.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings
of a material nature at the present time.
Item 2. Changes in Securities
None.
Item 3. Defaults 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 14, 1998 BY: /s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: May 14, 1998 BY: /s/ Richard J. Heller
Richard J. Heller
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
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 SUBSIDIARIES
Form 10-Q
Statement Regarding Computation of Per Share Earnings
Exhibit 11.1
See Footnote 4. of the Consolidated Unaudited Interim Financial Statements for a
table which reconciles basic and diluted earnings per share calculations.