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 September 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 November 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
September 30, 1999 (unaudited)and December 31, 1998 1
Consolidated Statement of Income (unaudited)
Three months ended September 30, 1999 and 1998 2
Consolidated Statement of Income (unaudited)
Nine months ended September 30, 1999 and 1998 3
Consolidated Statement of Comprehensive Income (unaudited) 4
Three and nine months ended September 30, 1999 and 1998
Consolidated Statement of Cash Flows (unaudited) 5
Nine months ended September 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
September 30, December 31,
1999 1998
Assets (unaudited)
Cash and due from banks $ 2,467,689 $ 1,881,421
Federal funds sold 2,600,000 4,670,000
Investment securities:
Available for sale 2,545,890 3,943,816
Held to maturity (fair value of
$4,696,887 and $3,869,466, respectively) 4,767,426 3,821,624
Loans held for sale 122,114 122,912
Loans receivable, net of allowance for loan
losses of $290,000 and $267,000, respectively 63,035,405 58,806,027
Federal Home Loan Bank (FHLB)stock, at cost 563,800 528,800
Premises and equipment, net 2,007,761 2,172,967
Other assets 513,990 522,686
Total Assets $78,624,075 $76,470,253
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 3,584,240 $ 3,254,054
Interest-bearing 56,793,434 55,866,036
Total deposits 60,377,674 59,120,090
FHLB advances and other borrowings 9,089,780 9,118,734
Advances from borrowers for taxes & insurance 547,969 933,248
Other liabilities 2,089,103 874,705
Total Liabilities $72,104,526 $70,046,777
Shareholders' Equity:
Preferred stock, $.01 par value
500,000 shares authorized, none outstanding
Common stock, $.01 par value
3,000,000 shares authorized,
792,163 shares issued, respectively 7,922 7,922
Capital surplus 2,420,744 2,405,190
Retained earnings 4,343,715 4,248,716
Unearned ESOP shares (28,373) (35,290)
Accumulated other comprehensive income (2,894) 18,533
Treasury stock, 39,105 shares, at cost (221,595) (221,595)
Total Shareholders' Equity 6,519,549 6,423,476
Total Liabilities and Shareholders'
Equity $78,624,075 $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
September 30,
1999 1998
Interest income:
Interest and fees on loans $1,198,045 $1,159,461
Interest on investment securities
and federal funds sold 186,691 185,556
Total interest income 1,384,736 1,345,017
Interest expense:
Interest on deposits 614,246 595,836
Interest on borrowed funds 137,149 156,511
Total interest expense 751,395 752,347
Net interest income 633,341 592,670
Provision for loan losses 21,000 21,000
Net interest income after
provision for loan losses 612,341 571,670
Noninterest income:
Gain on sale of loans and real estate owned 0 1,398
Other noninterest income 102,353 82,864
Total noninterest income 102,353 84,262
Noninterest expense:
Salaries and employee benefits 239,140 251,884
Occupancy expenses 104,659 99,381
Deposit insurance premiums 8,804 8,530
Professional fees 128,995 23,891
Data processing fees 80,509 47,764
Other operating expenses 96,598 70,372
Total noninterest expense 658,705 501,822
Income before income tax expense 55,989 154,110
Income tax expense 21,095 60,000
Net income $ 34,894 $ 94,110
Basic earnings per common share $0.05 $0.13
Diluted earnings per common share $0.04 $0.12
The accompanying notes are an integral part of these consolidated financial
statements.ALBION BANC CORP
CONSOLIDATED STATEMENT OF INCOME (unaudited)
Nine Months Ended
September 30,
1999 1998
Interest income:
Interest and fees on loans $3,537,241 $3,384,763
Interest on investment securities
and federal funds sold 532,475 623,646
Total interest income 4,069,716 4,008,409
Interest expense:
Interest on deposits 1,843,942 1,805,423
Interest on borrowed funds 407,656 449,470
Total interest expense 2,251,598 2,254,893
Net interest income 1,818,118 1,753,516
Provision for loan losses 63,276 43,000
Net interest income after
provision for loan losses 1,754,842 1,710,516
Noninterest income:
Gain on sale of loans and real estate owned 0 16,798
Other noninterest income 276,737 262,190
Total noninterest income 276,737 278,988
Noninterest expense:
Salaries and employee benefits 754,060 704,882
Occupancy expenses 309,001 312,475
Deposit insurance premiums 26,102 25,720
Professional fees 192,004 81,718
Data processing fees 210,622 146,193
Other operating expenses 279,265 251,421
Total noninterest expense 1,771,054 1,522,409
Income before income tax expense 260,525 467,095
Income tax expense 97,750 180,750
Net income 162,775 286,345
Basic earnings per common share $0.22 $0.39
Diluted earnings per common share $0.21 $0.37
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
September 30,
1999 1998
Net income $ 34,894 $ 94,110
Other comprehensive loss, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising
during period (3,366) 0
Less: reclassification adjustments for losses
included in net income 0 0
Other comprehensive loss (3,366) 0
Comprehensive income $ 31,528 $ 94,110
Nine Months Ended
September 30,
1999 1998
Net income $162,775 $286,345
Other comprehensive loss, net of tax:
Unrealized gains on securities:
Unrealized holding losses arising
during period (21,427) (14,609)
Less: reclassification adjustments for losses
included in net income 0 0
Other comprehensive loss (21,427) (14,609)
Comprehensive income $141,348 $271,736
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net Income $ 162,775 $ 286,345
Depreciation, amortization and accretion 227,444 246,745
Provision for loan losses 63,276 43,000
Net gain on sale of mortgage loans 0 (16,798)
ESOP expense 22,501 25,368
Originations of loans held for sale 0 (945,721)
Proceeds from sale of loans held for sale 0 1,390,516
Changes in operating assets and liabilities-
Increase in other assets (26,640) (11,683)
Increase in other liabilities 1,228,682 257,898
Net cash provided by operating activities $1,678,038 $1,275,670
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 1,015,987 2,627,622
Proceeds from maturities and calls of investment
securities available for sale 1,342,831 1,149,416
Purchases of investment securities held to maturity (1,994,375) (1,493,899
Purchases of investment securities
available for sale 0 0
Net increase in loans receivable (4,292,654) (4,968,908)
Purchase of FHLB stock (35,000) (28,800)
Proceeds from the sale of foreclosed real estate 36,134 0
Net purchase of fixed assets (10,268) (57,504)
Net cash used in investing activities (3,937,345) (2,772,073)
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts
and money market accounts 1,774,574 (711,943)
Net (decrease) increase in time deposits (516,990) 1,989,473
Proceeds from FHLB and other borrowings 0 1,000,000
Payment on FHLB advances and other borrowings (28,954) (1,023,590)
Net increase in advances from borrowers for
taxes and insurance (385,279) (413,857)
Proceeds from exercise of stock options 0 7,649
Dividends paid (67,776) (85,137)
Net cash provided by financing activities 775,575 762,595
Net decrease in cash and cash equivalents (1,483,732) (733,808)
Cash and cash equivalents at beginning of period 6,551,421 4,389,966
Cash and cash equivalents at end of period $5,067,689 $3,656,158
Cash paid during the period for:
Interest $2,267,997 $2,267,083
Income taxes 150,000 5,000
The accompanying notes are an integral part of these consolidated financial
statements.ALBION BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
SEPTEMBER 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 September 30, 1999 and December 31, 1998, and its results of operations
and comprehensive income for the three month and nine month period ended
September 30, 1999 and 1998. All adjustments made to the unaudited interim
financial information were of a recurring nature.
NOTE 2 - MERGER AGREEMENT:
On August 30, 1999, the Boards of Directors of Albion Banc Corp. and Niagara
Bancorp unanimously approved a merger agreement under which Niagara Bancorp,
Inc. will acquire all of the outstanding shares of Albion Banc Corp. Under
the terms of the agreement, Niagara Bancorp Inc. has agreed to pay $15.75 per
share in cash for each outstanding share of Albion Banc Corp. common stock.
The transaction will be accounted for under the purchase method and is
subject to approval by Albion Banc Corp. shareholders and various regulatory
agencies. It is anticipated that the transaction will close by the end of
the first quarter of 2000.
NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
The amortized cost and estimated market value of investment securities available
for sale are as follows:
September 30, 1999 December 31, 1998
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $2,550,713 $2,545,890 $3,912,927 $3,943,816
NOTE 4 - INVESTMENT SECURITIES HELD TO MATURITY:
The amortized cost and estimated market value of investment securities held to
maturity are as follows:
September 30, 1999 December 31, 1998
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $3,765,413 $3,713,757 $3,821,624 $3,869,466
U.S. Government Agencies 1,002,013 983,130 0 0
$4,767,426 $4,696,887 $3,821,624 $3,869,466
NOTE 5 - LOANS RECEIVABLE:
Loans consist of the following:
September 30, December 31,
1999 1998
Real estate loans:
Secured by one-to-four family residences $52,628,987 $48,043,606
Secured by other properties 1,691,769 1,792,947
Construction loans 1,294,600 1,588,951
55,615,356 51,425,504
Other loans:
Automobile loans 69,138 93,438
Home improvement loans 7,825,142 7,413,971
Other 724,447 787,351
8,618,727 8,294,760
Less:
Undisbursed portion of loans (1,000,232) (721,492)
Net deferred loan origination costs 91,554 74,255
Allowance for loan losses (290,000) (267,000)
(1,198,678) (914,237)
$63,035,405 $58,806,027
NOTE 6 - ALLOWANCE FOR LOAN LOSSES:
An analysis of changes in the allowance for loan losses is as follows:
Nine-months ended
September 30,
1999 1998
Balance at beginning of period $267,000 $276,300
Provision expense 63,276 43,000
Net charge-offs 40,276 43,463
Balance at end of period $290,000 $275,837
NOTE 7 - EARNINGS PER SHARE:
Earnings per share was calculated as follows:
Three-months ended
September 30, 1999
Per-Share
Income Shares Amount
Basic EPS $ 34,894 744,276 $ .05
Effect of Dilutive Securities:
Options 33,402
Diluted EPS $ 34,894 777,678 $ .04
Three-months ended
September 30, 1998
Per-Share
Income Shares Amount
Basic EPS $ 94,110 740,216 $ .13
Effect of Dilutive Securities:
Options 26,529
Diluted EPS $ 94,110 766,745 $ .12
Nine-months ended
September 30, 1999
Per-Share
Income Shares Amount
Basic EPS $162,775 743,619 $ .22
Effect of Dilutive Securities:
Options 30,939
Diluted EPS $162,775 774,558 $ .21
Nine-months ended
September 30, 1998
Per-Share
Income Shares Amount
Basic EPS $286,345 739,342 $ .39
Effect of Dilutive Securities:
Options 29,750
Diluted EPS $286,345 769,092 $ .37
NOTE 8 - 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
September 30, 1999 and 1998:
Three months ended September 30, 1999
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (5,610) $ 2,244 $ (3,366)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
Net unrealized loss (5,610) 2,244 (3,366)
Other comprehensive loss $ (5,610) $ 2,244 $ (3,366)
Three months ended September 30, 1998
Before-tax Tax Net-of-Tax
Amount Expense Amount
Unrealized gains on
securities:
Unrealized holding gains
arising during period $ 0 $ 0 $ 0
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized gains 0 0 0
Other comprehensive income $ 0 $ 0 $ 0
Nine months ended September 30, 1999
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (35,712) $ 14,285 $(21,427)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
Net unrealized loss (35,712) 14,285 (21,427)
Other comprehensive loss $ (35,712) $ 14,285 $(21,427)
Nine months ended September 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 nine months ended September 30, 1999 and 1998:
Nine Months Ended
September 30,
1999 1998
Beginning balance $18,533 $48,265
Unrealized (losses) gains on securities, net (21,427) (14,609)
Ending balance $(2,894) $33,656
ALBION BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1999
Merger Agreement
On August 30, 1999, the Boards of Directors of Albion Banc Corp. and Niagara
Bancorp unanimously approved a merger agreement under which Niagara Bancorp,
Inc. will acquire all of the outstanding shares of Albion Banc Corp. Under the
terms of the agreement, Niagara Bancorp Inc. has agreed to pay $15.75 per share
in cash for each outstanding share of Albion Banc Corp. common stock. The
transaction will be accounted for under the purchase method and is subject to
approval by Albion Banc Corp. shareholders and various regulatory agencies. It
is anticipated that the transaction will close by the end of the first quarter
of 2000.
Financial Condition
Total assets of Albion Banc Corp. were $78.6 million as of September 30, 1999,
an increase of $2.2 million or 2.8% over total assets as of December 31, 1998.
Deposits, the Company's primary source of funds, increased $1.3 million or 2.1%
to $60.4 million at September 30, 1999. Borrowings from the Federal Home Loan
Bank of New York were $9.0 million at September 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 $2.5 million at September
30, 1999. This decrease can be attributed to the normal principal paydowns of
this type of security during the first three 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
$4.7 million at September 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 three quarters.
Net loans receivable as of September 30, 1999 were $63.0 million, an increase
of $4.2 million over net loans receivable 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 $4.6 million while real estate loans secured by other properties,
including construction loans as of September 30, 1998, decreased by $.4 million
during the period.
Deposits increased $1.3 million from $59.1 million at December 31, 1998 to $60.4
million at September 30, 1999. Noninterest-bearing deposits increased $330,186
or 10.1% and interest-bearing deposits increased $.9 million or 1.7%.
The Company's shareholders' equity increased $96,073 or 1.5%, from $6,423,476 at
December 31, 1998 to $6,519,549 at September 30, 1999. This increase is due
primarily to earnings in the first three quarters and the resulting increase in
equity, offset by cash dividends on common stock of $67,776. The Company's
equity as a percentage of total assets at September 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 September 30, 1999, the
Association's liquidity ratio was 20.5%, exceeding the minimum required.
Federal funds sold at September 30, 1998 amounted to $2,600,000. 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 saleand held to
maturity categories.
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998.
Net Income. Net income of $162,775 for the nine months ended September 30, 1999
represents a decrease of $123,570, or 43.2% from the $286,345 earned in the
comparable period ended September 30, 1998.
Net Interest Income. Net interest income increased to $1,818,118 for the nine
months ended September 30, 1999, up 3.7% from $1,753,516 earned during the nine
month period ended September 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, from 3.35% at September 30, 1998 to 3.28% at
September 30, 1999, however the increase in loan volume offset the decline.
Total interest income increased $61,307 or 1.5% during the period while total
interest expense decreased $3,295 or .15%.
Provision for Loan Losses. The provision for loan losses, the charge to
earnings for potential credit losses associated with lending activities, was
$63,276 for the nine months ended September 30, 1999, an increase of $23,276
from the comparable period in 1998. Management charges earnings for an amount
necessary to maintain the allowance for 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 economic conditions and other relevant
factors. The allowance for loan losses of the Association at September 30, 1999
was $290,000 or .46% of total loans, compared to $267,000, or .45% of total
loans at December 31, 1998. The level of nonperforming assets increased from
$262,243 at December 31, 1998 to 426,973 at September 30, 1999. Also, the ratio
of allowance for loan losses to nonaccrual loans was 67.9% at September 30, 1999
as compared to 101.8% at December 31, 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. 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 nine month period ended
September 30, 1999 was $276,737 compared with $278,988 during the same period in
the prior year. However, included in the September 30, 1998 amount was $16,798
of nonrecurring loan recovery income related to profits on the sale of real
estate owned. Recurring noninterest income increased from $262,190 at September
30, 1997 to $276,737 at September 30, 1999. This increase was attributable to
increased fee income from depository transaction accounts and fee income from
New Frontier of Albion Corp.
Noninterest Expense. Noninterest expense for the nine month period ended
September 30, 1999 was $1,771,055 an increase of $248,646 or 16.3% from the
$1,522,409 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
$49,179 or 7.0%; professional fees of $110,286 or 135.0%; data processing fees
of $64,429 or 44.1% and other operating expenses of $27,844 or 11.1%. These
increases were primarily the result of inflationary increases in salaries and
employee benefits, expenses related to the merger agreement with Niagara
Bancorp, software maintenance fees, telephone banking and debit card expenses
and real estate owned expenses.
Income Taxes. The provision for income taxes decreased to $97,750 for the nine
months ended September 30, 1999 from $180,750 for the nine months ended
September 30, 1998, primarily as a result of decreased taxable income.
Comparison of Operating Results for the Three Months Ended September 30, 1999
and 1998.
Net Income. Net income of $34,894 for the three months ended September 30, 1999
represents a decrease of $59,216 or 62.9% from the $94,110 earned in the
comparable period ended September 30, 1998.
Net Interest Income. Net interest income increased to $633,341 for the three
months ended September 30, 1999, up 6.86% from $592,670 earned during the three
month period ended September 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, from 3.35% at September 30, 1998 to 3.28% at
September 30, 1999, however the increase in loan volume offset the decline.
Total interest income increased $39,719 or 2.95% during the period while total
interest expense decreased $952 or .13%.
Provision for Loan Losses. The provision for loan losses, the charge to
earnings for potential credit losses associated with lending activities, was
$21,000 for the three months ended September 30, 1999, the same as the
comparable period in 1998.
Noninterest Income. Noninterest income for the three month period ended
September 30, 1999 was $102,353 compared with $84,262 during the same period in
the prior year. This increase was attributable primarily to increased fee
income from depository transaction accounts.
Noninterest Expense. Noninterest expense for the three month period ended
September 30, 1999 was $658,705 an increase of $156,883, or 31.3% from the
$501,822 recorded for the same period in the prior year. This increase is a
result of increased professional fees of $105,104 or 439.9%; data processing
fees of $32,745 or 68.6%; and other operating expenses of $26,226 or 37.3%.
These increases were partially offset by decreases in salaries and employee
benefits of $12,744 or 5.1%. These increases in noninterest expenses were
primarily related to the merger agreement with Niagara Bancorp, software
maintenance fees, telephone banking and debit card expenses and real estate
owned expenses.
Income Taxes. The provision for income taxes decreased to $21,095 for the three
months ended September 30, 1999 from $60,000 for the three months ended
September 30, 1998, primarily as a result of decreased taxable income.
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 monthly.
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 has completed it's Y2K plan and is substantially Y2K ready. The
Company's mission critical systems have been tested and are deemed to be Y2K
ready. As of September 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 and tested 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. It is
anticipated that the Company's deposit customers will have increased demands for
cash in the latter part of 1999 and correspondingly, the Company will maintain
higher liquidity levels.
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 year
2000 compliant. The supplier of the software and the Company have performed
extensive testing and assure 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.
At this time, the Company believes that the remaining 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 September 30, 1999, the Company had expensed approximately
$20,000 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
The Company filed a Form 8-K on September 10, 1999 reporting
that Albion Banc Corp. had entered into an Agreement and Plan
of Merger with Niagara Bancorp under Item 5, Other Events.
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: November 10, 1999 \s\Jeffrey S. Rheinwald
Jeffrey S. Rheinwald
President and C.E.O.
Dated: November 10, 1999 \s\John S. Kettle
John S. Kettle
Senior VP and Treasurer
Dated: November 10, 1999 \s\Mark F. Reed
Mark F. Reed
Vice President and C.F.O.