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 June 30, 1999
[ ]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 August 10,1999
Common Stock, $.01 par value 792,163 shares
ALBION BANC CORP.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Financial Condition
June 30, 1999 (unaudited)and December 31, 1998 1
Consolidated Statement of Income (unaudited)
Three months ended June 30, 1999 and 1998 2
Consolidated Statement of Income (unaudited)
Six months ended June 30, 1999 and 1998 3
Consolidated Statement of Comprehensive Income (unaudited) 4
Three and six months ended June 30, 1999 and 1998
Consolidated Statement of Cash Flows (unaudited) 5
Six months ended June 30, 1999 and 1998
Notes to Consolidated Financial Information 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
Part II. Other Information 16
Signatures 17
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, December 31,
1999 1998
Assets (unaudited)
Cash and due from banks $ 1,838,878 $ 1,881,421
Federal funds sold 4,080,000 4,670,000
Investment securities:
Available for sale 2,716,894 3,943,816
Held to maturity (fair value of
$4,929,535 and $3,869,466, respectively) 4,970,074 3,821,624
Loans held for sale 122,836 122,912
Loans receivable, net of allowance for loan
losses of $269,000 and $267,000, respectively 61,815,558 58,806,027
Federal Home Loan Bank (FHLB)stock, at cost 563,800 528,800
Premises and equipment, net 2,060,880 2,172,967
Other assets 542,224 522,686
Total Assets $78,711,144 $76,470,253
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 3,264,077 $ 3,254,054
Interest-bearing 57,764,676 55,866,036
Total deposits 61,028,753 59,120,090
FHLB advances and other borrowings 9,099,636 9,118,734
Advances from borrowers for taxes & insurance 1,060,155 933,248
Other liabilities 1,021,040 874,705
Total Liabilities $72,209,584 $70,046,777
Shareholders' Equity:
Preferred stock, $.01 par value
500,000 shares authorized, none outstanding
Common stock, $.0033 par value
3,000,000 shares authorized,
792,163 shares issued, respectively 2,649 2,649
Capital surplus 2,419,263 2,410,463
Retained earnings 4,331,412 4,248,716
Unearned ESOP shares (30,641) (35,290)
Accumulated other comprehensive income 472 18,533
Treasury stock, 39,105 shares, at cost (221,595) (221,595)
Total Shareholders' Equity 6,501,560 6,423,476
Total Liabilities and Shareholders'
Equity $78,711,144 $76,470,253
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
June 30,
1999 1998
Interest income:
Interest and fees on loans $1,175,370 $1,138,945
Interest on investment securities
and federal funds sold 177,259 206,313
Total interest income 1,352,629 1,345,258
Interest expense:
Interest on deposits 617,715 599,604
Interest on borrowed funds 135,886 151,642
Total interest expense 753,601 751,246
Net interest income 599,028 594,012
Provision for loan losses 21,000 13,000
Net interest income after
provision for loan losses 578,028 581,012
Noninterest income:
Gain on sale of loans and real estate owned 3,840
Other noninterest income 96,517 92,757
Total noninterest income 96,517 96,597
Noninterest expense:
Salaries and employee benefits 281,082 260,658
Occupancy expenses 103,057 108,751
Deposit insurance premiums 8,679 8,639
Professional fees 38,302 31,672
Data processing fees 70,149 48,545
Other operating expenses 90,040 74,701
Total noninterest expense 591,309 532,966
Income before income tax expense 83,236 144,643
Income tax expense 32,050 54,650
Net income $ 51,186 $ 89,993
Basic earnings per common share $0.07 $0.12
Diluted earnings per common share $0.07 $0.12
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP
CONSOLIDATED STATEMENT OF INCOME (unaudited)
Six Months Ended
June 30, 1998
1999 1998
Interest income:
Interest and fees on loans $2,339,196 $2,228,488
Interest on investment securities
and federal funds sold 345,784 434,926
Total interest income 2,684,980 2,663,414
Interest expense:
Interest on deposits 1,229,696 1,209,587
Interest on borrowed funds 270,507 292,960
Total interest expense 1,500,203 1,502,547
Net interest income 1,184,777 1,160,867
Provision for loan losses 42,276 22,000
Net interest income after
provision for loan losses 1,142,501 1,138,867
Noninterest income:
Gain on sale of loans and real estate owned 15,400
Other noninterest income 174,384 179,303
Total noninterest income 174,384 194,703
Noninterest expense:
Salaries and employee benefits 514,921 466,186
Occupancy expenses 204,342 213,960
Deposit insurance premiums 17,298 17,191
Professional fees 63,009 60,027
Data processing fees 130,113 97,562
Other operating expenses 182,667 165,660
Total noninterest expense 1,112,350 1,020,586
Income before income tax expense 204,535 312,984
Income tax expense 76,655 120,750
Net income 127,880 192,234
Basic earnings per common share $0.17 $0.26
Diluted earnings per common share $0.17 $0.25
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
June 30,
1999 1998
Net income $ 51,186 $ 89,993
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding losses arising
during period (14,677) (6,910)
Less: reclassification adjustments for gains
included in net income 0 0
Other comprehensive loss (14,677) (6,910)
Comprehensive income $ 36,509 $ 83,083
Six Months Ended
June 30,
1999 1998
Net income $127,880 $192,234
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding losses arising
during period (18,061) (14,609)
Less: reclassification adjustments for gains
included in net income 0 0
Other comprehensive loss (18,061) (14,609)
Comprehensive income $109,819 $177,625
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net Income $ 127,880 $ 192,234
Depreciation, amortization and accretion 159,896 162,118
Provision for loan losses 42,276 22,000
Net gain on sale of mortgage loans (15,400)
ESOP expense 13,449 19,230
Originations of loans held for sale (802,094)
Proceeds from sale of loans held for sale 1,244,417
Changes in operating assets and liabilities-
Decrease in other assets (19,538) (8,119)
Increase in other liabilities 158,452 103,373
Net cash provided by operating activities $ 482,415 $ 917,759
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 820,784 2,050,064
Proceeds from maturities and calls of investment
securities available for sale 1,179,851 735,488
Purchases of investment securities held to maturity (1,994,375) 0
Purchases of investment securities
available for sale (1,493,899)
Net increase in loans receivable (3,051,807) (4,375,554)
Purchase of FHLB stock (35,000) (28,800)
Net purchase of fixed assets (5,699) (26,804)
Net cash used in investing activities (3,086,246) (3,139,505)
Cash flows from financing activities:
Net increase (decrease) in time deposits 359,341 (1,466,182)
Net increase in non-time deposits 1,549,322 2,532,568
Proceeds from FHLB and other borrowings 1,000,000
Payment on FHLB advances and other borrowings (19,098) (15,559)
Net increase in advances from borrowers for
taxes and insurance 126,907 113,281
Proceeds from exercise of stock options 7,649
Dividends paid (45,184) (62,563)
Net cash provided by financing activities 1,971,288 2,109,194
Net decrease in cash and cash equivalents (632,543) (112,552)
Cash and cash equivalents at beginning of period 6,551,421 4,389,966
Cash and cash equivalents at end of period $5,918,878 $4,277,414
Cash paid during the period for:
Interest $1,510,203 $1,502,547
Income taxes 130,000 5,000
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 1999
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, 1998, and in the opinion of management, contains all
adjustments necessary to present fairly the Company's financial position as
of June 30, 1999 and December 31, 1998, and its results of operations and
comprehensive income for the three month and six month period ended June 30,
1999 and 1998. All adjustments made to the unaudited interim financial
information were of a recurring nature.
NOTE 2 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
The amortized cost and estimated market value of investment securities available
for sale are as follows:
June 30, 1999 December 31, 1998
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $2,716,107 $2,716,894 $3,912,927 $3,943,816
Note 3 - INVESTMENT SECURITIES HELD TO MATURITY:
The amortized cost and estimated market value of investment securities held to
maturity are as follows:
June 30, 1999 December 31, 1998
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $3,965,436 $3,940,785 $3,821,624 $3,869,466
U.S. Government Agencies 1,004,638 988,750 0 0
$4,970,074 $4,929,535 $3,821,624 $3,869,466
NOTE 4 - LOANS RECEIVABLE:
Loans consist of the following:
June 30, December 31,
1999 1998
Real estate loans:
Secured by one-to-four family residences $51,173,218 $48,043,606
Secured by other properties 1,713,167 1,792,947
Construction loans 1,135,000 1,588,951
54,021,385 51,425,504
Other loans:
Automobile loans 82,221 93,438
Home improvement loans 7,839,403 7,413,971
Other 778,587 787,351
8,700,211 8,294,760
Less:
Undisbursed portion of loans (721,238) (721,492)
Net deferred loan origination costs 84,200 74,255
Allowance for loan losses (269,000) (267,000)
(906,038) (914,237)
$61,815,558 $58,806,027
NOTE 5 - ALLOWANCE FOR LOAN LOSSES:
An analysis of changes in the allowance for loan losses is as follows:
Six-months ended
June 30,
1999 1998
Balance at beginning of period $267,000 $276,300
Provision expense 42,276 22,000
Net charge-offs (40,276) (43,463)
Balance at end of period $269,000 $254,837
NOTE 6 - EARNINGS PER SHARE:
Earnings per share was calculated as follows:
Three-months ended
June 30, 1999
Per-Share
Income Shares Amount
Basic EPS $ 51,186 743,619 $ .07
Effect of Dilutive Securities:
Options 28,333
Diluted EPS $ 51,186 771,952 $ .07
Six-months ended
June 30, 1999
Per-Share
Income Shares Amount
Basic EPS $127,880 743,296 $ .17
Effect of Dilutive Securities:
Options 27,926
Diluted EPS $127,880 771,222 $ .17
NOTE 7 - COMPREHENSIVE INCOME:
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 and six months ended June 30, 1999 and
1998:
Three months ended June 30, 1999
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (24,461) $ 9,784 $(14,677)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
Net unrealized loss (24,461) 9,784 (14,677)
Other comprehensive loss $ (24,461) $ 9,784 $(14,677)
Three months ended June 30, 1998
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (11,509) $ 4,599 $ (6,910)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
Net unrealized loss (11,509) 4,599 (6,910)
Other comprehensive loss $ (11,509) $ 4,599 $ (6,910)
Six months ended June 30, 1999
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (30,102) $ 12,041 $(18,061)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
Net unrealized loss (30,102) 12,041 (18,061)
Other comprehensive loss $ (30,102) $ 12,041 $(18,061)
Six months ended June 30, 1998
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (24,268) $ 9,659 $(14,609)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
Net unrealized loss (24,268) 9,659 (14,609)
Other comprehensive loss $ (24,268) $ 9,659 $(14,609)
The following table sets forth the components of accumulated other comprehensive
income for the six months ended June 30, 1999 and 1998:
Six Months Ended
June 30,
1999 1998
Beginning balance $18,533 $48,265
Unrealized losses on securities, net (18,061) (14,609)
Ending balance $ 472 $33,656
ALBION BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1999
Financial Condition
Total assets of Albion Banc Corp. were $78.7 million as of June 30, 1999, an
increase of $2.2 million or 2.9% over total assets as of December 31, 1998.
Deposits, the Company's primary source of funds, increased $1.9 million or 3.2%
to $61.0 million at June 30, 1999. Borrowings from the Federal Home Loan Bank of
New York were $9.0 million at June 30, 1999,unchanged from the $9.0 million at
December 31, 1998.
Investment securities available for sale, primarily mortgage-backed securities,
decreased from $3.9 million at December 31, 1998 to $2.7 million at June 30,
1999. This decrease can be attributed to the normal principal paydowns of this
type of security during the first two quarters.
Investment securities held to maturity, comprised of mortgage-backed securities
and U.S. agency securities increased from $3.8 million at December 31, 1998 to
$5.0 million at June 30, 1999. This increase can be attributed to the purchases
of a U.S. Agency security of $1.0 million and a mortgage-backed security of $1.0
million, offset by the normal principal paydowns of mortgage-backed securities
during the first two quarters.
Net loans receivable as of June 30, 1999 were $61.9 million, an increase of $3.0
million over net loans at December 31, 1998. 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 $3.1 million
while real estate loans secured by other properties, including construction
loans as of June 30, 1999, decreased by $.5 million during the period.
Deposits increased $1.9 million from $59.1 million at December 31, 1998 to $61.0
million at June 30, 1999. Noninterest-bearing deposits remained stable at $3.3
million while interest-bearing deposits increased $1.9 million to $57.7 million.
The Company's shareholders' equity increased $78,084 or 1.2%, from $6,423,476 at
December 31, 1998 to $6,501,560 at June 30, 1999. This increase is due
primarily to earnings in the first two quarters and the resulting increase in
equity, offset by cash dividends on common stock of $45,184. The Company's
equity as a percentage of total assets at June 30, 1999 was 8.3% 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 June 30, 1999, the Association's liquidity ratio was 22.7%,
exceeding the minimum required. Federal funds sold at June 30, 1999 amounted to
$4,080,000. 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 Six Months Ended June 30, 1999 and 1998
Net Income. Net income of $127,880 for the six months ended June 30, 1999
represents an decrease of $64,354 from the $192,234 earned in the comparable
period ended June 30, 1998.
Net Interest Income. Net interest income increased to $1,184,777 for the six
months ended June 30, 1999, up 2.1% from $1,160,867 earned during the six month
period ended June 30, 1998. This increase is due primarily to growth in the
balance sheet, primarily real estate loans. The Company's net interest margin
declined during the period, however the increase in loan volume offset the
decline. Total interest income increased 0.8% or $21,566 during the period
while total interest expense decreased 0.2% or $2,344.
Provision for Loan Losses. The provision for loan losses, the charge to
earnings for potential credit losses associated with lending activities, was
$42,276 for the six months ended June 30, 1998, an increase of $20,276 from the
comparable period in 1998. The increase in the provision during the period was
due primarily to the deterioration in credit quality of three one-to-four family
properties. 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 June 30, 1999 was $269,000 or .43% of total loans, compared to
$267,000, or .44 of total loans at December 31, 1998. The level of nonperforming
assets increased from $262,243 at December 31, 1998 to 292,318 at June 30,
1999.
Also, the ratio of allowance for loan losses to nonaccrual loans was 92.0% at
June 30, 1999 as compared to 102.6% at December 31, 1998. 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 six month period ended June 30,
1999 was $174,384 compared with $194,703 during the same period in the prior
year. This decrease is attributable to a decline in the number of real estate
loans sold during the firt two quarters as compared to the same period last year
and therefore a decrease in the gains on the sale of such loans. Also, fees
from New Frontier of Albion Corp declined primarily due to slow annuity sales
caused by the low interest rate environment.
Noninterest Expense. Noninterest expense for the six month period ended June
30, 1999 was $1,112,350 an increase of $91,764 or 9.0% from the $1,020,586
recorded for the same period in the prior year. This increase is a result of
increases in the following: salaries and employee benefits expense of $48,735 or
10.5%; professional fees of $2,982 or 5.0%; data processing fees of $32,551 or
33.4% and other operating expenses of $17,007 or 10.3%. These increases were
partially offset by decreased occupancy expenses of $9,618 or 4.5%. These
increases were primarily the result of inflationary increases in salaries and
employee benefits, software maintenance fees, telephone banking and debit card
expenses and real estate owned expenses.
Income Taxes. The provision for income taxes decreased to $76,655 for the six
months ended June 30, 1999 from $120,750 for the six months ended June 30, 1998,
primarily as a result of decreased taxable income.
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998
Net Income. Net income of $51,186 for the three months ended June 30, 1999
represents a decrease of $38,807 or 43.1% from the $89,993 earned in the
comparable period ended June 30, 1998.
Net Interest Income. Net interest income increased to $599,028 for the three
months ended June 30, 1999, up 0.8% from $594,012 earned during the three month
period ended June 30, 1998. This increase is primarily due to growth in the
balance sheet, primarily loans. The Company's net interest margin declined
during the period, however the increase in loan volume offset the decline.
Total interest income increased 0.5% or $7,371 during the period while total
interest expense increased 0.3% or $2,355.
Provision for Loan Losses. The provision for possible loan losses, the charge
to earnings for potential credit losses associated with lending activities, was
$21,000 for the three months ended June 30, 1999, an increase of $8,000 from the
comparable period in 1998.
Noninterest Income. Noninterest income for the three month period ended June
30, 1999 was $96,517 compared with $96,597 during the same period in the prior
year.
Noninterest Expense. Noninterest expense for the three month period ended June
30, 1999 was $591,309 an increase of 10.9% from the $532,966 recorded for the
same period in the prior year. This increase is a result of increases in the
following: salaries and employee benefits of $20,424 or 7.8%; professional fees
of $6,630 or 20.9%; data prosessing fees of $21,604 or 44.4% and other operating
expenses of $15,339 or 20.5%. These increases were partially offset by
decreased occupancy expenses of $5,694 or 5.2%. These increases were primarily
the result of inflationary increases in salaries and employee benefits, software
maintenance fees, telephone banking and debit card expenses and real estate
owned expenses.
Income Taxes. The provision for income taxes decreased to $32,050 for the three
months ended June 30, 1999 from $54,650 for the three months ended June 30,
1998.
Year 2000 Issues.
The year 2000 problem("Y2K"), 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 Y2K issue affects the entire banking industry because of it's
reliance on computers and other equipment that use computer chips and may have
significant effects on banking customers, bank regulators and the general
economy.
In 1997, management of the Company established a Y2K Plan to prevent or mitigate
adverse effects of the Y2K issue on the Company and its customers. Goals of the
Y2K Plan include; identifying risks, testing data processing and other systems
and equipment used by the Company, informing customers of Y2K issues and risks,
establishing a contingency plan for operating if Y2K issues cause important
systems or equipment to fail, implementing changes necessary to achieve Y2K
compliance and verifying that these changes are effective. The Board of
Directors reviews progress under the plan each quarter.
Management designed the Y2K Plan to comply with the requirements for Y2K efforts
established by the Office of Thrift Supervision, the primary federal regulator
of the Company. The Office of Thrift Supervision has performed Y2K examinations
of the Company's Y2K Plan and the Company's progress in implementing the plan.
Federal regulations prevent the Company from disclosing the results of Y2K
examinations by banking regulators. The examinations do not represent approval
or certification of a Company's Y2K plans or efforts.
The Company continues to implement the Y2K Plan. The Company has met its Y2K
goals to date and believes that it will continue to meet the goals of the Y2K
Plan. As of June 30, 1999, the Company had completed an assessment of its
systems to identify the systems that could be affected by the Y2K issue, had
implemented its customer awareness program, had developed a Y2K contingency plan
and had completed the process of testing and implementing necessary changes in
hardware and software. The Y2K contingency plan calls for the Company to
utilize a backup electrical generator in the event that normal electrical power
is not available in the short term and to manually process bank transactions and
to use other data processing methods in the event that normal electrical power
is not restored within a week. Delays in processing banking transactions would
result if the Company were required to use manual processing or other methods
instead of its normal computer processes. These delays could disrupt the normal
business activities of the Company and its customers.
All of the Company's applications used in operations are purchased from outside
vendors. These vendors are responsible for maintenance of their systems and
modifications to become year 2000 compliant. In June 1997, the Company
converted its data processing to an in-house client-server system, which is
reported to be year 2000 compliant. The supplier of the software has performed
extensive testing and has assured the Company that it is year 2000 compliant.
At the time of the data processing conversion, the majority of the Company's
computer hardware was upgraded to meet the new system requirements and meet year
2000 compliance. The Company and the supplier are in the process of testing
hardware and software and will continue to do so into the year 2000. The
Company's plan includes obtaining certification from third parties and testing
all of the impacted applications.
At this time, the Company believes that the cost of resolving Y2K issues will
not be material to the Company's business, operations, liquidity, capital
resources or financial condition, based on information developed to date and
communications from data processing suppliers. The Company estimates that its
total cash outlays in connection with Y2K compliance will be approximately
$20,000, excluding costs of Company employees involved in Y2K compliance
activities. As of June 30, 1999, the Company had expensed approximately $16,500
towards Y2K compliance. To the extent that costs are incurred related to the
year 2000 problem, they will be expensed.
Although the Company has completed an assessment of Y2K effects on its current
commercial lending and other customers, the actual effects on individual,
corporate and governmental customers of the Company and on governmental
authorities that regulate the Company and its subsidiaries and any resulting
consequences to the Company, cannot be determined with any assurance. The
Company's belief that it and its primary suppliers of data processing services
will achieve Y2K compliance, are based on a number of assumptions and on
statements made by third parties and are subject to uncertainty. The Company
also is not able to predict the effects, if any, on the Company, financial
markets or society in general of the public's reaction to Y2K. Because of this
uncertainty and reliance upon assumptions and statements of third parties, the
Company cannot be assured that the results of its Y2K Plan will be achieved.
Management believes, however, that the Company will be able to accomplish its
Y2K goals and that the Company will be able to continue providing financial
services to its customers into the year 2000 and beyond.
New Accounting Pronouncement. In June 1998, the Financial Accounting Standards
Board issued (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts and for hedging activities. The Company does not currently hold
derivative financial instruments covered by this Statement and therefore, does
not believe it will have a material impact on the Company upon adoption.
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: August 10, 1999 \s\Jeffrey S. Rheinwald
Jeffrey S. Rheinwald
President and C.E.O.
Dated: August 10, 1999 \s\John S. Kettle
John S. Kettle
Senior VP and Treasurer
Dated: August 10, 1999 \s\Mark F. Reed
Mark F. Reed
Vice President and C.F.O.