SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
[ ]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 33-60230
Albion Banc Corp.
(Exact name of registrant as specified in its charter)
Delaware 16-1435160
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
48 North Main Street, Albion, New York 14411-0396
(Address of principal executive offices) (Zip Code)
(716) 589-5501
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of May 1,1998
Common Stock, $.01 par value 790,953 shares
ALBION BANC CORP.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Financial Condition
March 31, 1998 (unaudited)and December 31, 1997 1
Consolidated Statement of Income (unaudited)
Three months ended March 31, 1998 and 1997 2
Consolidated Statement of Comprehensive Income (unaudited) 3
Three months ended March 31, 1998 and 1997
Consolidated Statement of Cash Flows (unaudited) 4
Three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Information 5-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II. Other Information 12
Signatures 13
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
March 31, December 31,
1998 1997
Assets (unaudited)
Cash and due from banks $ 1,600,707 $ 1,539,966
Federal funds sold 3,150,000 2,850,000
Investment securities:
Available for sale 5,304,218 4,034,900
Held to maturity (fair value of
$5,238,300 and $6,883,000, respectively) 5,189,904 6,833,577
Loans held for sale 482,686 550,340
Loans 53,986,954 52,743,312
Less-Allowance for loan losses (273,290) (276,300)
Net Loans 53,713,664 52,467,012
Accrued interest receivable 387,224 411,638
Federal Home Loan Bank (FHLB)stock, at cost 528,800 500,000
Premises and equipment, net 2,300,688 2,350,964
Other assets 240,543 180,852
Total Assets $72,898,434 $71,719,249
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 2,831,090 $ 2,395,245
Interest-bearing 53,058,419 52,514,936
Total deposits 55,889,509 54,910,181
FHLB advances and other borrowings 9,192,829 9,200,526
Advances from borrowers for taxes & insurance 666,524 891,392
Other liabilities 923,746 562,318
Total Liabilities $66,672,608 $65,564,417
Shareholders' Equity:
Preferred stock, $.01 par value
500,000 shares authorized, none outstanding
Common stock, $.0033 par value
3,000,000 shares authorized, 790,953 and
789,258 shares issued, respectively 2,637 2,631
Capital surplus 2,396,133 2,383,434
Retained earnings 4,048,377 3,986,735
Treasury stock, 39,105 shares, at cost (221,595) (221,595)
Unearned ESOP shares (40,292) (44,638)
Accumulated other comprehensive income 40,566 48,265
Total Shareholders' Equity 6,225,826 6,154,832
Total Liabilities and Shareholders'
Equity $72,898,434 $71,719,249
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1998 1997
Interest income:
Interest and fees on loans $1,092,278 $1,006,692
Interest on investment securities
and federal funds sold 225,878 219,034
Total interest income 1,318,156 1,225,726
Interest expense:
Interest on deposits 609,983 528,513
Interest on borrowed funds 141,318 146,520
Total interest expense 751,301 675,033
Net interest income 566,855 550,693
Provision for loan losses 9,000 8,650
Net interest income after
provision for loan losses 557,855 542,043
Noninterest income:
Gain on sale of loans and real estate owned 11,560 0
Other noninterest income 86,546 113,695
Total noninterest income 98,106 113,695
Noninterest expense:
Salaries and employee benefits 218,014 238,534
Occupancy expenses 106,009 84,068
Deposit insurance premiums 8,551 11,125
Professional fees 30,555 32,619
Data processing fees 48,216 43,155
Other operating expenses 76,275 74,667
Total noninterest expense 487,620 484,168
Income before income tax expense 168,341 171,570
Income tax expense 66,100 58,233
Net income $ 102,241 $ 113,337
Basic earnings per common share $0.14 $0.16
Diluted earnings per common share $0.13 $0.15
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
Net income $102,241 $113,337
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding losses arising
during period (7,699) (7,291)
Less: reclassification adjustments for gains
included in net income 0 0
Other comprehensive loss (7,699) (7,291)
Comprehensive income $ 94,542 $106,046
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net Income $ 102,241 $ 113,337
Depreciation, amortization and accretion 81,022 39,380
Provision for loan losses 9,000 8,650
Net gain on sale of mortgage loans (11,560)
Net gain on sale of real estate owned (34,476)
ESOP expense 11,400 11,379
Originations of loans held for sale (732,300) (230,853)
Proceeds from sale of loans held for sale 811,514
Changes in operating assets and liabilities-
Decrease in other assets (35,277) (197,125)
Increase in other liabilities 366,489 90,609
Net cash provided by (used in) operating activities $ 602,529 $ (199,099)
Cash flows from investing activities:
Proceeds from the sale of foreclosed real estate 151,586
Proceeds from maturities of investment securities
held to maturity 1,625,080 301,636
Proceeds from maturities and calls of investment
securities available for sale 208,488
Purchases of investment securities held to maturity (1,009,965)
Purchases of investment securities
available for sale (1,493,899)
Net (increase) decrease in loans receivable (1,255,652) 82,262
Purchase) of FHLB stock (28,800) (50,000)
Net purchase of fixed assets (9,411) (10,286)
Net cash used in investing activities (954,194) (534,767)
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts
and money market accounts 2,617,596 90,355
Net (decrease) increase in time deposits (1,638,268) 1,723,549
Proceeds from FHLB and other borrowings 2,000,000 2,000,000
Payment on FHLB advances and other borrowings (2,007,697) (2,006,088)
Net increase in advances from borrowers for
taxes and insurance (224,868) (208,615)
Proceeds from exercise of stock options 5,651
Dividends paid (40,008) (75,923)
Net cash provided by financing activities 712,406 1,523,278
Net increase in cash and cash equivalents 360,741 789,412
Cash and cash equivalents at beginning of period 4,389,966 2,125,929
Cash and cash equivalents at end of period $4,750,707 $2,915,341
Cash paid during the period for:
Interest $ 754,129 $ 675,033
Income taxes 3,000 0
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
MARCH 31, 1998
NOTE 1 - BASIS OF PRESENTATION:
The unaudited interim financial information includes the accounts of Albion Banc
Corp. (the "Company", Albion Federal Savings and Loan Association (the
"Association") and New Frontier of Albion Corp. ("New Frontier"). The financial
information has been prepared in accordance with the Summary of Significant
Accounting Policies as outlined in the Company's Annual Report for the year
ended December 31, 1997, and in the opinion of management, contains all
adjustments necessary to present fairly the Company's financial position as
of March 31, 1998 and December 31, 1997, and its results of operations,its
comphrehensive income and cash flows for the three month period ended March
31, 1998 and 1997. All adjustments made to the unaudited interim financial
information were of a recurring nature.
NOTE 2 - COMPREHENSIVE INCOME:
In the first quarter, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company has chosen to disclose comprehensive income in a separate
statement, in which the components of comprehensive income are displayed net
of income taxes. The following table sets forth the related tax effects
allocated to each element of comprehensive for the three months ended March
31, 1998 and 1997:
Three months ended March 31, 1998
Before-tax Tax Net-of-Tax
Amount Expense Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (12,759) $ 5,060 $ (7,699)
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized loss (12,759) 5,060 (7,699)
Other comprehensive loss $ (12,759) $ 5,060 $ (7,699)
Three months ended March 31, 1997
Before-tax Tax Net-of-Tax
Amount Expense Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (12,105) $ 4,814 $ (7,291)
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized loss (12,105) 4,814 (7,291)
Other comprehensive loss $ (12,105) $ 4,814 $ (7,291)
The following table sets forth the components of accumulated other comprehensive
income for the three months ended March 31, 1998 and 1997:
Three Months Ended
March 31,
1998 1997
Beginning balance $48,265 $55,615
Unrealized losses on securities, net (7,699) (7,291)
Ending balance $40,566 $48,324
Note 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
The amortized cost and estimated market value of investment securities available
for sale are as follows:
March 31, 1998 December 31, 1997
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $5,236,616 $5,304,218 $3,954,539 $4,034,900
Note 4 - INVESTMENT SECURITIES HELD TO MATURITY:
The amortized cost and estimated market value of investment securities held to
maturity are as follows:
March 31, 1998 December 31, 1997
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities 5,189,904 5,238,300 5,832,311 5,882,700
U.S. Agencies 0 0 1,001,266 1,000,300
$5,189,904 $5,238,300 $6,833,577 $6,883,000
NOTE 5 - LOANS RECEIVABLE:
Loans consist of the following:
March 31, December 31,
1998 1997
Real estate loans:
Secured by one-to-four family residences $43,774,980 $42,473,738
Secured by other properties 2,091,448 2,203,839
Construction loans 407,000 413,200
46,273,428 45,090,777
Other loans:
Automobile loans 110,663 100,607
Home improvement loans 7,179,161 7,152,228
Other 616,021 688,245
7,905,845 7,941,080
Less:
Undisbursed portion of loans (236,900) (327,480)
Net deferred loan origination costs 44,581 38,935
Allowance for loan losses (273,290) (276,300)
(465,609) (564,845)
$53,713,664 $52,467,012
NOTE 6 - ALLOWANCE FOR LOAN LOSSES:
An analysis of changes in the allowance for loan losses is as follows:
Three-months ended
March 31,
1998 1997
Balance at beginning of period $276,300 $305,900
Provision expense 9,000 8,650
Net (charge-offs) recoveries (12,010) 380
Balance at end of period $273,290 $314,930
NOTE 7 - EARNINGS PER SHARE:
Earnings per share was calculated as follows:
Three-months ended
March 31, 1998
Per-Share
Income Shares Amount
Basic EPS $102,241 738,673 $ .14
Effective of Dilutive Securities:
Options 32,802
Diluted EPS $102,241 771,475 $ .13
Three-months ended
March 31, 1997
Per-Share
Income Shares Amount
Basic EPS $113,337 730,203 $ .16
Effective of Dilutive Securities:
Options 17,119
Diluted EPS $113,337 747,322 $ .15
ALBION BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1998
Financial Condition
Total assets of Albion Banc Corp. were $72.9 million as of March 31, 1998, an
increase of $1.2 million or 1.6% over total assets as of December 31, 1997.
Deposits, the Company's primary source of funds, increased $1.0 million or 1.8%
to $55.9 million at March 31, 1998. Borrowings from the Federal Home Loan Bank
of New York were $9.0 million at March 31, 1998,unchanged from the $9.0 million
at December 31, 1997.
Investment securities available for sale, primarily mortgage-backed securities,
increased from $4.0 million at December 31, 1997 to $5.3 million at March 31,
1998. This increase can be attributed to the purchase of $1.5 million
of mortgage-backed securities during the first quarter and the normal principal
paydowns of this type of security.
Investment securities held to maturity, primarily mortgage-backed securities and
U.S. agency securities decreased from $6.8 million at December 31, 1997 to $5.2
million at March 31, 1998. This decrease can be attributed to the normal
principal paydowns of mortgage-backed securities and the call of a U.S. agency
security of $1.0 million.
Total loans receivable as of March 31, 1998 were $54.5 million, an increase of
$1.2 million over total loans at December 31, 1997. The majority of this
increase occurred in real estate loans, primarily one-to-four family properties.
Real estate loans secured by one-to-four family properties increased by $1.6
million while real estate loans secured by other properties, including
construction loans as of March 31, 1998, decreased by $.1 million during the
period.
The Company's shareholders' equity increased $70,994 or 1.2%, from $6,154,832 at
December 31, 1997 to $6,225,826 at March 31, 1998. This increase is due
primarily to earnings in the first quarter and the resulting increase in equity,
offset by cash dividends on common stock of $40,008. The Company's equity as a
percentage of total assets at March 31, 1998 was 8.5% and exceeded all
regulatory requirements.
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers credit needs. The Company's
principal sources of funds are customer deposits, advances from the Federal Home
Loan Bank of New York and principal and interest payments on loans, mortgage-
backed securities and investments. Under current federal regulations, Albion
Federal is required to maintain specified liquid assets in an amount equal to at
least 4% of its net withdrawable liabilities plus short-term borrowings. The
Company has generally maintained liquidity levels well above those required by
regulation. At March 31, 1998, the Association's liquidity ratio was 25.8%,
exceeding the minimum required. Federal funds sold at March 31, 1998 amounted
to $3,150,000. These funds are available immediately to meet upcoming
obligations. During the period, the Company did not sell any investments prior
to maturity and did not transfer any securities between its available for sale
and held to maturity categories.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997
Net Income. Net income of $102,241 for the three months ended March 31, 1998
represents a decrease of $11,096 from the $113,337 earned in the comparable
period ended March 31, 1997.
Net Interest Income. Net interest income increased to $566,855 for the three
months ended March 31, 1998, up 2.9% from $550,693 earned during the three month
period ended March 31, 1997. This increase is due primarily to growth in the
balance sheet, primarily real estate loans. The Company's net interest margin
declined during the quarter; however the increase in loan volume offset the
decline. Total interest income increased 7.5% or $92,430 during the period
while total interest expense increased 11.3% or $76,268.
Provision for Loan Losses. The provision for possible loan losses, the charge
to earnings for potential credit losses associated with lending activities, was
$9,000 for the three months ended March 31, 1998, an increase of $350 from the
comparable period in 1997. Management charges earnings for an amount necessary
to maintain the allowance for possible loan losses at a level considered
adequate to absorb potential losses in the loan portfolio. The level of the
allowance is based on management's evaluation of individual loans, past loan
loss experience, the assessment of prevailing conditions and anticipated
economic conditions and other relevant factors. The allowance for possible loan
losses of the Association at March 31, 1998 was $273,290 or .50% of total loans,
compared to $276,300, or .52% of total loans at December 31, 1997. The level of
nonperforming assets increased from $276,267 at December 31, 1997 to $403,014 at
March 31, 1998. Also, the ratio of allowance for loan losses to nonaccual loans
was 67.8% at March 31, 1998 as compared to 100.0% at December 31, 1997.
Although the Association believes its allowance for loan losses is at a level
which it considers to be adequate to provide for losses, there can be no
assurances such losses will not exceed the estimated amounts.
Noninterest Income. Noninterest income for the three month period ended March
31, 1998 was $98,106 compared with $113,695 during the same period in the prior
year. Included in the March 31, 1997 results was nonrecurring loan recovery
income related to profits on the sale of real estate owned of $34,476 and a
$11,000 recovery from an insurance claim.
Noninterest Expense. Noninterest expense for the three month period ended March
31, 1998, was $487,620, an increase of .71% from the $484,168 recorded for the
same period in the prior year. This increase is primarily the result of
increases in the following: occupancy expenses of $21,941 or 26.1%, data
processing fees of $5,061 or 11.7% and other operating expenses of $1,608 or
2.2%. These increases were partially offset by decreases in the following:
salaries and employee benefits of $20,520 or 8.6%, deposit insurance premiums of
$2,574 or 23.1% and professional fees of $2,064 or 6.3%.
Income Taxes. The provision for income taxes increased to $66,100 for the three
months ended March 31, 1998 from $58,233 for the three months ended March 31,
1997. The Company's effective tax rate increased to 39.3% from 33.9% as a
result of changes in the deduction thrift institutions are allowed for bad
debts.
Impact of the Year 2000. The year 2000 problem, which is common to most
companies, concerns the inability of information systems, primarily computer
software programs, to properly recognize and process date sensitive information
as the year 2000 approaches. The Company has completed an assessment of the
majority of its systems to identify the systems that could be affected by the
year 2000 issue and has developed an implementation plan to address this issue.
The Company estimates that 60% of its plan has been completed and expects to
meet the target completion date of year-end 1998. In June 1997, the Company
converted its data processing to an in-house system, which is year 2000
compliant. At that time, the majority of computer equipment was also upgraded
to meet system requirements. At this time, the Company does not anticipate
incurring significant costs related to the year 2000 problem and the Company
does not expect that such costs will be material to the Company's results of
operations. To the extent that costs are incurred related to the year 2000
problem, they will be expensed.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Periodically, there have been various claims and lawsuits involving
the Company, mainly as a defendant, such as claims to enforce
liens, condemnation proceedings on properties in which the Company
holds security interests, claims involving the making and servicing
of real property loans and other issues incident to the Company's
business. The Company is not a party to any pending legal
proceedings that it believes would have a material adverse effect
on the financial condition or operation of the Company.
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
Exhibit 27 - Financial Data Schedule
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 therunto duly authorized.
Albion Banc Corp.
(Registrant)
Dated: May 13, 1998 \s\Jeffrey S. Rheinwald
Jeffrey S. Rheinwald
President and C.E.O.
Dated: May 13, 1998 \s\John S. Kettle
John S. Kettle
Senior VP and Treasurer
Dated: May 13, 1998 \s\Mark F. Reed
Mark F. Reed
Vice President and C.F.O.