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, 1996 Commission File No. 0-19843
ALBANK Financial Corporation
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(Exact name of registrant as specified in its charter)
DELAWARE 14-1746910
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 NORTH PEARL STREET, ALBANY, NY 12207
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(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, 1996
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Common Stock, Par $.01 13,585,933
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three
Months Ended March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Financial Condition as
of March 31, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995 (unaudited)
Notes to Unaudited Consolidated Interim Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(in thousands, except per share data)
<CAPTION>
Three months ended
March 31,
1996 1995
(unaudited)
<S> <C> <C>
Interest income:
Mortgage loans $ 37,706 29,666
Other loans 9,132 6,750
Securities available for sale 11,354 2,364
Investment securities 2,260 11,780
Federal funds sold 159 206
Securities purchased under agreement to resell 738 115
Stock in Federal Home Loan Bank 239 343
Total interest income 61,588 51,224
Interest expense:
Deposits and escrow accounts 30,092 23,506
Borrowed funds and repurchase agreements 604 39
Total interest expense 30,696 23,545
Net interest income 30,892 27,679
Provision for loan losses 1,425 1,125
Net interest income after provision for loan losses 29,467 26,554
Noninterest income:
Service charges on deposit accounts 1,356 1,268
Net security transactions 2 (1,199)
Brokerage and insurance commissions 398 450
Other 1,254 900
Total noninterest income 3,010 1,419
Noninterest expense:
Compensation and employee benefits 9,460 7,961
Occupancy, net 2,409 2,058
Furniture, fixtures and equipment 1,247 949
Federal deposit insurance premiums 1,149 1,413
Professional, legal and other fees 654 609
Telephone, postage and printing 1,229 1,049
Other 3,500 2,508
Total noninterest expense 19,648 16,547
Income before income taxes 12,829 11,426
Income tax expense 5,118 4,475
Net income $ 7,711 6,951
Earnings per share (primary and fully diluted)<F1> $ 0.53 0.45
<FN>
<F1> Adjusted to reflect the 20% stock dividend effected on April 1, 1996.
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(dollars in thousands, except per share data)
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 61,199 54,002
Federal funds sold 14,000 1,000
Securities purchased under agreement to resell 50,000 50,000
Total cash and cash equivalents 125,199 105,002
Securities available for sale, at approximate market value 709,976 656,784
Investment securities (approximate market value of $142,687 at
March 31, 1996 and $155,862 at December 31, 1995) 141,787 153,740
Loans receivable 2,219,581 1,946,601
Less: allowance for loan losses 24,100 15,949
Loans receivable, net 2,195,481 1,930,652
Accrued interest receivable 28,365 26,351
Office premises and equipment, net 46,079 40,655
Stock in Federal Home Loan Bank, at cost 16,913 15,750
Real estate owned 5,345 3,899
Other assets 63,960 37,337
$ 3,333,105 2,970,170
Liabilities
Deposits $ 2,888,006 2,558,288
Escrow accounts 27,380 34,928
Accrued income taxes payable 9,135 4,529
Borrowed funds and repurchase agreements 33,467 1,290
Obligation under capital lease 4,720 4,743
Other liabilities 49,577 43,210
Total liabilities 3,012,285 2,646,988
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; 11,337,757 shares outstanding at March 31, 1996
and 11,521,970 shares outstanding at December 31, 1995 157 157
Additional paid-in capital 152,169 151,969
Retained earnings, substantially restricted 201,133 258,631
Undistributed stock dividend 64,051 --
Treasury stock, at cost (4,359,743 shares at March 31, 1996
and 4,175,530 shares at December 31, 1995) (88,145) (82,381)
Unrealized gain (loss) on securities available for sale, net of tax (158) 3,528
Common stock acquired by:
Employee stock ownership plan (ESOP) (7,434) (7,535)
Bank recognition plan (BRP) (953) (1,187)
Total stockholders' equity 320,820 323,182
$ 3,333,105 2,970,170
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
(in thousands) (unaudited)
<CAPTION>
Net Unrealized
Gain (Loss) on Common Common
Additional Undistributed Securities Stock Stock
Common Paid-in Retained Stock Treasury Available for Acquired Acquired
Stock Capital Earnings Dividend Stock Sale, Net of Tax by ESOP by BRP Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended
March 31, 1996
Balance at December 31, 1995 $ 157 151,969 258,631 -- (82,381) 3,528 (7,535) (1,187) 323,182
Net income -- -- 7,711 -- -- -- -- -- 7,711
Purchase of
treasury stock -- -- -- -- (6,077) -- -- -- (6,077)
Proceeds from the exercise
of stock options -- -- (82) -- 313 -- -- -- 231
Reduction of stock
option rollover
liability upon
exercise of
stock options -- -- 563 -- -- -- -- -- 563
Tax benefits related
to vested BRP stock and
stock options exercised -- 200 -- -- -- -- -- -- 200
Adjustment of securities
available for sale
to market, net of tax -- -- -- -- -- (3,686) -- -- (3,686)
Cash dividends declared -- -- (1,639) -- -- -- -- -- (1,639)
Stock dividends declared -- -- (64,051) 64,051 -- -- -- -- --
Amortization of award
of ESOP stock -- -- -- -- -- -- 101 -- 101
Amortization of award
of BRP stock -- -- -- -- -- -- -- 234 234
Balance at March 31, 1996 $ 157 152,169 201,133 64,051 (88,145) (158) (7,434) (953) 320,820
Three months ended
March 31, 1995
Balance at December 31, 1994 $ 157 151,433 235,065 -- (58,218) (735) (8,791) (2,122) 316,789
Net income -- -- 6,951 -- -- -- -- -- 6,951
Purchase of treasury stock -- -- -- -- (5,681) -- -- -- (5,681)
Proceeds from the exercise
of stock options -- -- (2) -- 12 -- -- -- 10
Tax benefits related to
vested BRP stock and
stock options exercised -- 130 -- -- -- -- -- -- 130
Adjustment of securities
available for sale
to market, net of tax -- -- -- -- -- 1,135 -- -- 1,135
Cash dividends declared -- -- (1,468) -- -- -- -- -- (1,468)
Amortization of award
of ESOP stock -- -- -- -- -- -- 98 -- 98
Amortization of award
of BRP stock -- -- -- -- -- -- -- 234 234
Balance at March 31, 1995 $ 157 151,563 240,546 -- (63,887) 400 (8,693) (1,888) 318,198
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Three months ended
March 31,
1996 1995
(unaudited)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net income $ 7,711 6,951
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and lease amortization 1,247 907
Amortization of goodwill 736 374
Net amortization (accretion) of premiums/discounts
on securities available for sale 329 (146)
Net amortization of premiums/discounts
on investment securities 17 465
Amortization of award of ESOP and BRP stock 335 332
Net security transactions (2) 1,199
Net gain on sale of real estate owned (57) (9)
Origination of loans receivable for sale (9,116) (639)
Sale of loans receivable originated for sale 11,946 1,223
Provision for loan losses 1,425 1,125
Writedown of real estate owned 112 115
Change in assets and liabilities net of
effects from the purchase of Marble Financial:
Net increase in accrued income taxes payable 4,776 1,463
Net decrease in accrued interest receivable 794 610
Net decrease in other assets 1,494 3,891
Net decrease in other liabilities and
obligation under capital lease (689) (7,092)
Net cash provided by operating activities 21,058 10,769
Cash flows from investing activities
Payment for purchase of Marble Financial,
net of cash acquired (54,437) --
Proceeds from the maturity or call
of securities available for sale 54,200 46,421
Proceeds from the maturity or call
of investment securities 22,354 52,250
Purchase of securities available for sale (16,192) (37,238)
Purchase of investment securities (10,179) (201)
Purchase of loans receivable (11,089) (58,612)
Net decrease (increase) in loans receivable 11,198 (25,044)
Redemption (purchase) of Federal Home Loan Bank stock 2,912 (1,621)
Proceeds from the sale of real estate owned 1,203 1,402
Capital expenditures (1,063) (4,343)
Net cash used by investing activities (1,093) (26,986)
Cash flows from financing activities
Net increase (decrease) in deposits 6,124 (13,466)
Net decrease in escrow accounts (7,688) (6,165)
Proceeds from borrowed funds and repurchase agreements 10,318 --
Repayment of borrowed funds and repurchase agreements (1,290) (13,300)
Purchase of treasury stock (6,077) (5,681)
Dividends paid (1,386) (1,244)
Proceeds from the exercise of stock options 231 10
Net cash provided (used) by financing activities 232 (39,846)
Net increase (decrease) in cash and cash equivalents 20,197 (56,063)
Cash and cash equivalents at beginning of period 105,002 107,192
Cash and cash equivalents at end of period $ 125,199 51,129
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest on deposits, borrowed funds,
and repurchase agreements $ 30,500 23,581
Income taxes 718 793
Net reduction in loans resulting from
transfers to real estate owned 1,486 1,433
Net unrealized gain (loss) on
securities available for sale (6,262) 682
Tax benefits related to vested BRP
stock and stock options 200 130
The Company purchased all of the common stock of Marble
Financial for $61,229. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 415,485 --
Cash paid for the common stock (61,229) --
Liabilities assumed $ 354,256 --
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying unaudited
consolidated interim financial statements should be read in conjunction with
the financial statements and the related management's discussion and analysis
of financial condition and results of operations filed with the 1995 Form
10-K of ALBANK Financial Corporation and subsidiary. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. The results
of operations for the three months ended March 31, 1996, are not necessarily
indicative of results that may be expected for the entire year ending
December 31, 1996.
The unaudited consolidated interim financial statements include the accounts
of ALBANK Financial Corporation (the "Holding Company") and its wholly owned
subsidiary, ALBANK, FSB and subsidiaries (the "Bank"; collectively with the
Holding Company, the "Company"). The accounting and reporting policies of the
Company conform in all material respects to generally accepted accounting
principles and to general practice within the savings bank industry. Certain
prior period amounts have been reclassified to conform to the current period
classifications.
NOTE 2. Earnings Per Share
Earnings per share for the three months ended March 31, 1996 and March 31,
1995, have been determined by dividing net income by the weighted average
number of shares of common stock and weighted average number of common stock
equivalents outstanding and have been adjusted to reflect the 20% stock
dividend effected on April 1, 1996.
Stock options are regarded as common stock equivalents and are, therefore,
considered in both primary and fully diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method.
NOTE 3. Acquisitions
On January 3, 1996, the Bank acquired all of the outstanding common stock of
Marble Financial Corporation of Rutland, Vermont for $18.00 per share in cash.
On the date of closing, Marble Financial and its banking subsidiary Marble
Bank had consolidated assets and deposits of $396.2 million and $326.6 million,
respectively. Marble's seven banking offices are operating as a division of
the Bank. The transaction, which was accounted for under the purchase method
of accounting, generated accounting goodwill of approximately $20.1 million
which is being amortized over 15 years.
On February 27, 1996, the Holding Company announced that it had entered into
a purchase and assumption agreement with Arrow Financial Corporation of Glens
Falls, New York under which the Bank will assume the deposit liabilities and
purchase loans owned and serviced by six banking offices currently operated
by the Green Mountain Bank of Rutland, Vermont, a wholly owned subsidiary of
Arrow Financial. Pending regulatory approvals, the transaction is expected to
close in the third quarter of 1996. The Green Mountain offices are located in
central Vermont and, at March 31, 1996, had $108.7 million in deposits, loans
with a net book value of $115.0 million and approximately $45 million in
loans serviced for others.
NOTE 4. Write-off of Investment in Nationar
The Bank wrote off its $1.2 million capital investment in Nationar during the
first quarter of 1995. Formed in 1933, and originally known as Savings Banks
Trust Co., Nationar was organized as a special purpose commercial bank to
service New York State savings banks. In February 1995, the State Banking
Department seized Nationar because of its deteriorating financial condition.
The $1.2 million charge, after taxes, was equivalent to $0.05 per share.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
ALBANK Financial Corporation (the "Holding Company", "Company", "ALBANK") is
the holding company for ALBANK, FSB and subsidiaries (the "Bank"), a
federally chartered stock savings bank. On April 1, 1992, the Bank completed
its conversion from a mutual to a stock savings bank. On that date, the
Holding Company issued and sold 15,697,500 shares of its common stock. Net
proceeds to the Holding Company were $150.8 million after reflecting
conversion expenses of $6.1 million. The Holding Company used $75.4 million
of net proceeds to acquire all of the issued and outstanding stock of the
Bank. ALBANK's business currently consists primarily of the business of the
Bank.
The Bank operates as a thrift institution with its principal business being
the solicitation of deposits from the general public; these deposits,
together with funds generated from operations, are invested primarily in
single-family, owner occupied adjustable rate mortgage loans. The Bank is a
member of the Federal Home Loan Bank of New York ("FHLB") and is subject to
certain regulations of the Board of Governors of the Federal Reserve System
with respect to reserves required to be maintained against deposits and
certain other matters. Approximately 69% of the Bank's deposit accounts as of
March 31, 1996, were insured by the Savings Association Insurance Fund
("SAIF"), as administered by the Federal Deposit Insurance Corporation (the
"FDIC"), and approximately 31% were insured by the Bank Insurance Fund
("BIF"), as administered by the FDIC, in each case, up to the maximum amount
permitted by law. The Bank is subject to regulation by the Office of Thrift
Supervision ("OTS"). The Bank conducts its operations through a network of 64
branch offices in upstate New York, western Massachusetts and Vermont. The
Bank's principal operating subsidiary is Alvest Financial Services, Inc. This
wholly owned company, operating through the Bank's branch network, offers a
full range of investment and insurance products and services.
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its
loan portfolio, investment securities and securities available for sale
portfolios and other earning assets, and its cost of funds, consisting of the
interest paid on its deposits and borrowings. The Bank's operating results
are also impacted by provisions for loan losses, and to a lesser extent, by
gains and losses on the sale of its securities available for sale portfolio,
the operations of its brokerage and insurance subsidiary and other
noninterest income. The Bank's operating expenses principally consist of
employee compensation and benefits, federal deposit insurance premiums,
occupancy expense and other general and administrative expenses. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of the regulatory authorities.
Liquidity and Capital Resources
The Company's 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 of $105.0 million at December 31, 1995,
increased $20.2 million (19%) to $125.2 million as of March 31, 1996.
The Company's primary sources of funds are deposits and principal and
interest payments on its loan and securities portfolios. While maturities and
scheduled amortization of loans and securities are, in general, a predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS Regulations. This requirement, which may vary at the direction of the
OTS depending on economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required ratio of
liquid assets to deposits and short-term borrowings is currently 5%. The
Bank's liquidity ratio at March 31, 1996, was 32.17%.
The Company's cash flows are comprised of three classifications: cash flows
from operating activities; cash flows from investing activities; and cash
flows from financing activities. Cash flows provided by operating activities,
consisting primarily of interest and dividends received less interest paid on
deposits, were $21.1 million and $10.8 million for the three months ended
March 31, 1996 and 1995, respectively. Net cash used by investing activities
amounted to $1.1 million and $27.0 million for the quarters ended March 31,
1996 and 1995, respectively. The 1996 usage included a $54.4 million cash
outlay (net of cash acquired) to fund the acquisition of Marble Financial.
The Company acquired assets with a fair value of $415.5 million and assumed
liabilities with a fair value of $354.3 million in exchange for $18.00 per
share in cash totaling $61.2 million. Adjusting for the Marble Financial
acquisition, the cash usage between the 1995 and 1996 quarters declined by
$80.3 million. This reduction was the result of a decline of $47.5 million in
cash used for loan purchases and a net decrease of $36.2 million in loans
receivable offset by increased use of funds of $3.4 million in the
remaining investing activities categories. Cash flows from financing
activities increased over 1995 levels from net cash used of $39.8 million
to net cash provided of $0.2 million in the first quarter of 1996. Net cash
provided by borrowed funds and repurchase agreements of $9.0 million in the
1996 quarter compared with net cash used to repay such borrowed funds and
repurchase agreements of $13.3 million in the first quarter of 1995. Also
contributing to increased cash flows was a net increase in deposits of $6.1
million in the first quarter of 1996 compared with a net decrease in deposits
in the quarter ended March 31, 1995, of $13.5 million.
On February 27, 1996, the Board of Directors of the Holding Company declared
a 6-for-5 stock split effected as a 20% stock dividend. The quarterly cash
dividend was maintained at $0.12 per share. Effectively, the stock dividend
resulted in a 20% increase in cash dividend distributions by the Holding
Company. Both the stock and cash dividend were paid April 1, 1996, to
shareholders of record on March 15, 1996.
At March 31, 1996, the Bank's capital exceeded each of the capital
requirements of the OTS. At March 31, 1996, the Bank's tangible and core
capital levels were both $256.1 million (7.82% of total adjusted assets) and
its risk-based capital level was $279.4 million (14.57% of total
risk-weighted assets). The minimum regulatory capital ratio requirements are
1.5% for tangible capital, 3.0% for core capital and 8.0% for risk-weighted
capital.
Financial Condition
As of March 31, 1996, total assets were $3.333 billion, an increase of $362.9
million (12%) from the $2.970 billion in total assets outstanding at December
31, 1995. The increase occurred primarily as a result of the January 3, 1996,
acquisition of Marble Financial Corporation.
Cash and cash equivalents increased $20.2 million (19%) to $125.2 million at
March 31,1996. The overall rise was a result of a $7.2 million (13%) increase
in cash and due from banks and $13.0 million increase in Federal Funds Sold.
The increase in cash and due from banks reflects $6.8 million acquired
from Marble Financial. The increase in Federal Funds Sold is due to increased
funds available for short term investment by the Bank.
Securities available for sale increased $53.2 million (8%) to $710.0 million
at March 31, 1996. Included in this increase were additions to
mortgage-backed securities of $91.3 million and U.S. Government agency
balances of $6.5 million resulting from the Marble Financial acquisition.
These increases were offset by maturing securities available for sale, the
proceeds from which were redirected to the loan portfolio resulting in
declines of $7.5 million (6%) in U.S. Government bonds and reductions of $27.4
million (7%) in corporate securities. Furthermore, the valuation
allowance for securities available for sale declined $6.3 million
(104%) between December 31, 1995 and March 31, 1996.
Investment Securities decreased $12.0 million (8%) to $141.8 million at March
31, 1996. The decreases reflects a conscious effort to redirect funds from
maturing investment securities to higher-yielding loan products. Stock in the
Federal Home Loan Bank ("FHLB"), an investment required by law, which is
determined annually using year-end Bank financial information, increased $1.2
million (7%) to $16.9 million at March 31, 1996.
Loans receivable grew $273.0 million (14%) to $2.220 billion at March 31,
1996. Mortgage loans which stood at $1.819 billion as of March 31, 1996,
constituted most of the growth as mortgage balances rose $188.3 million (12%)
during the quarter. Mortgage loans with balances totaling $198.9 million were
acquired from Marble Financial. Additionally, mortgage loans originated in
the first quarter totaled $70.1 million, $49.5 million were one- to
four-family mortgages, $7.3 million were construction loans and $2.2
million were commercial real estate mortgages. Mortgage loan purchases,
all of which were one- to four-family mortgages, totaled $11.1 million in
the first quarter of 1996. Offsetting the foregoing additions were principal
repayments of $66.9 million, sales of mortgage loans totaling $11.9 million
and transfers to real estate owned of $1.5 million.
Nonmortgage loans increased $84.7 million (27%) over the previous year end to
equal $398.9 million at March 31, 1996. The increase is generally reflective
of commercial and consumer loan balances acquired from Marble Financial
totaling $53.4 million and $26.0 million, respectively.
The increase in the allowance for loan losses of $8.2 million (51%) to $24.1
million at March 31, 1996, compared with year end was due largely to the
Marble Financial acquisition. Included in the overall balances acquired was
an allowance for loan losses balance of $7.6 million.
Increases in the remaining asset categories of $35.5 million (33%) were
generally due to the Marble Financial acquisition. Office premises and
equipment increased $5.4 million (13%) to $46.1 million at March 31, 1996.
The Marble Financial acquisition included office premises and equipment of
$6.0 million. Real estate owned acquired in the Marble Financial transaction
totaled $1.2 million, while the total increase in real estate owned for the
first quarter amounted to $1.4 million (37%). Goodwill booked as a result of
the acquisition totaled $20.1 million and is being amortized over a fifteen
year period on a straight-line basis. Accrued interest receivable increased
$2.0 million (8%) to $28.4 million at March 31, 1996, as a result of the loan
portfolio acquired from Marble Financial. Net deferred tax assets increased
$3.8 million (92%) due mainly to the mark-to-market adjustment related to the
Bank's securities available for sale portfolio.
Total liabilities increased $365.3 million (14%) from December 31, 1995, to
$3.012 billion at March 31, 1996. The total amount of liabilities assumed by
the Bank as a result of the Marble Financial acquisition was $354.3 million.
Total deposits increased $329.7 million (13%) to $2.888 billion at March 31,
1996, as deposit liabilities of $326.6 million were assumed in the
acquisition transaction. Escrow balances declined $7.5 million (22%) to $27.4
million at March 31, 1996, due to seasonal tax payments incurred during the
first quarter. Borrowed funds increased $32.2 million, primarily due
to FHLB advances used to finance the Marble Financial acquisition. As a
result of the expanded franchise, the Bank's accrued expenses and outstanding
checks increased $1.7 million (10%) and $1.5 million (8%), respectively over
balances outstanding at December 31, 1995. Accrued income taxes payable
increased $4.6 million (102%) to $9.1 million at March 31, 1996. The increase
reflects the timing of federal income tax payments which, for the first
quarter, are not due until after the end of the quarter on April 15.
Total stockholders equity decreased $2.4 million (1%) to $320.8 million at
March 31, 1996. Increases from net income and amortization of stock awards of
$7.7 million and $0.3 million, respectively, were offset by decreases of $6.1
million for treasury stock purchases, $1.6 million for cash dividends and a
$3.7 million decrease in the quarter-end unrealized gain/loss on securities
available for sale that resulted from an increase in the general interest
rate environment that, in turn, resulted in market value depreciation within
the securities available for sale portfolio.
Book value per common share adjusted to reflect the 20% stock dividend
effected on April 1, 1996, increased to $23.58 per share at March 31, 1996,
from $23.37 per share at December 31, 1995. The increase is a result of a net
decrease in stockholders' equity of $2.4 million (1%) to $320.8 million at
March 31, 1996, offset by a reduction in shares outstanding as additional
stock was purchased under the Company's ongoing repurchase program. As of
March 31, 1996, the Holding Company held 4,359,743 shares which had been
acquired pursuant to its repurchase program at a cost of $88.1 million. On
April 1, 1996, the Holding Company distributed 2,267,307 shares of stock from
treasury stock with a fair market value of $64.1 million to shareholders of
record on March 15, 1996 to effect the 20% stock dividend.
Nonperforming assets increased $7.4 million (27%) to total $34.4 million as
of March 31, 1996, compared with $27.1 million as of December 31, 1995.
Nonperforming loans increased $5.9 million (26%) and totaled $29.1 million as
of March 31, 1996, compared with $23.2 million as of December 31, 1995. The
increase in nonperforming assets and nonperforming loans reflects mainly the
acquisition of such assets from Marble Financial. Approximately $5.6 million
in nonperforming loans and $1.2 million in real estate owned were acquired in
the transaction. The ratio of nonperforming assets to total assets at March
31, 1996, was 1.03% compared with 0.91% at December 31, 1995. The ratio of
nonperforming loans to total loans was 1.31% at March 31, 1996, compared with
1.19% at December 31, 1995.
Comparisons of Operating Results for the Three Months Ended March 31, 1996
and 1995
Analysis of Changes in Net Interest Income
The analyses of changes in net interest income that are shown in the
following two tables are an integral part of the discussion of the results of
operations for three months ended March 31, 1996, compared with the
corresponding period of the prior year.
The rate/volume analysis 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 Bank'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.
Rate/Volume Analysis
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
compared with
Three Months Ended March 31, 1995
Increase (Decrease)
Due to
Volume Rate Net
(in thousands) (unaudited)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net $ 5,777 2,263 8,040
Other loans, net 2,459 (77) 2,382
Securities available for sale 9,116 (126) 8,990
Investment securities (9,835) 315 (9,520)
Federal funds sold (35) (12) (47)
Securities purchased under agreement to resell 617 6 623
Stock in Federal Home Loan Bank 28 (132) (104)
Total interest-earning assets 8,127 2,237 10,364
Interest-bearing liabilities:
Deposits:
Savings accounts (729) 83 (646)
Transaction accounts 735 510 1,245
Certificate accounts 4,005 1,982 5,987
Borrowed funds and repurchase agreements 567 (2) 565
Total interest-bearing liabilities 4,578 2,573 7,151
Change in net interest income $ 3,549 (336) 3,213
</TABLE>
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 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. Tax-exempt
securities income, which is not material, has not been calculated on a tax
equivalent basis.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
Average Average
Average Yield/ Average Yield/
Balance <F1> Interest <F2> Cost Balance <F1> Interest <F2> Cost
(dollars in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans, net <F3> $ 1,831,568 37,706 8.24% $ 1,545,533 29,666 7.68%
Other loans, net <F3> 390,272 9,132 9.38 285,244 6,750 9.47
Securities available for sale 729,707 11,354 6.22 144,241 2,364 6.56
Investment securities 144,695 2,260 6.25 774,959 11,780 6.08
Federal funds sold 12,005 159 5.34 14,542 206 5.75
Securities purchased under
agreement to resell 50,000 738 5.93 8,222 115 5.67
Stock in Federal Home Loan Bank 16,274 239 5.91 14,957 343 9.30
Total interest-earning assets 3,174,521 61,588 7.77 2,787,698 51,224 7.35
Noninterest-earning assets 168,127 130,195
Total assets $ 3,342,648 $ 2,917,893
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Savings accounts <F4> $ 868,080 6,337 2.94 $ 968,032 6,983 2.93
Transaction accounts <F5> 452,246 2,814 2.50 322,550 1,569 1.97
Certificate accounts 1,498,774 20,941 5.62 1,201,410 14,954 5.05
Borrowed funds and repurchase agreements 45,261 604 5.37 2,807 39 5.63
Total interest-bearing liabilities 2,864,361 30,696 4.31 2,494,799 23,545 3.83
Noninterest-bearing liabilities 155,728 103,651
Total liabilities 3,020,089 2,598,450
Stockholders' equity 322,559 319,443
Total liabilities and stockholders' equity $ 3,342,648 $ 2,917,893
Net interest income and
interest rate spread 30,892 3.46% 27,679 3.52%
Net interest-earning assets and
net interest margin $ 310,160 3.88% $ 292,899 3.93%
Interest-earning assets to
interest-bearing liabilities 1.11x 1.12x
<FN>
<F1> Average balances are derived principally from average daily
balances and include nonaccruing loans.
<F2> Includes dividends on equity securities.
<F3> Net of unearned discounts, premiums and related deferred loan
fees/costs, where applicable.
<F4> Includes passbook, statement and interest-bearing escrow accounts.
<F5> Includes NOW, Super NOW, money market and interest-bearing demand
deposit accounts
</TABLE>
Net Income and Interest Analysis
Net income for the quarter ended March 31, 1996, was $7.7 million, an
increase of $0.8 million (11%) from the comparable prior year quarter. Per
share earnings, both primary and fully diluted, were $0.53 for the three
months ended March 31, 1996, up from $0.45 per share a year ago, representing
an 18% increase. The per share earnings are adjusted to reflect the 20% stock
dividend effected on April 1, 1996. The increase in net income was fueled by
a higher volume of net interest income. The volume increased due primarily to
the Marble Financial acquisition on January 3, 1996. Additionally,
noninterest income in the first quarter of 1995 included the write down of
100% of the Bank's $1.2 million investment in Nationar, while noninterest
expense increased during the first quarter of 1996 compared with the 1995 due
to the expanded branch network. Return on average assets was 0.93% for the
first quarter of 1996 and 0.97% for the first quarter of 1995; the return on
average equity of 9.62% compared with 8.83% a year earlier. The return on
average equity exclusive of unrealized gains/losses on securities available
for sale, net of tax was 9.72% for the first quarter of 1996 compared with
8.82% a year earlier.
Interest income for the three months ended March 31, 1996, totaled $61.6
million, an increase of $10.4 million (20%) from 1995's first quarter, as a
combined result of a $386.8 million (14%) rise in average interest-earning
assets to $3.175 billion and a 42 basis point (6%) increase in the average
rate earned to 7.77%. The most significant factor contributing to the higher
level of interest income was the acquisition of interest-earning assets with
balances totaling $383.7 million from Marble Financial. Earnings on mortgage
loans rose $8.0 million (27%) as a $286.0 million (19%) increase in average
balance invested combined with a 56 basis point (7%) rise in the average rate
earned. Other loan income advanced by $2.4 million (35%) as a $105.0 million
(38%) increase in average balance (which occurred primarily in commercial,
auto and student loans) more than offset a 9 basis point (1%) drop in the
average rate earned. Interest income from securities available for sale
increased $9.0 million (380%) as a decrease of 34 basis points (5%) in the
average rate earned was more than offset by a $585.5 million (406%) increase
in the average amount invested. The increased average amount invested
reflects the acquisition of securities classified as available for sale from
Marble Financial of $98.0 million as well as the December 29, 1995, transfer
of investment securities with a book value of $492.3 million and a market
value of $491.9 million to securities available for sale. Earnings on
investment securities for the current quarter declined $9.5 million (81%)
compared with the prior year due to the previously mentioned transfer to
securities available for sale.
Interest expense for the quarter ended March 31, 1996, amounted to $30.7
million, $7.2 million (30%) more than the corresponding quarter of last year
as a result of a $369.6 million (15%) increase in average interest-bearing
liabilities to $2.864 billion and a 48 basis point (13%) rise in the average
rate paid to 4.31%. The increase in average interest-bearing deposits was
primarily attributable to the assumption of deposits in conjunction with the
Marble Financial acquisition. The mix within the deposit structure changed as
savings accounts average balances declined $100.0 million (10%) while the
average rate paid increased 1 basis point. Transaction and certificate
account average balances grew $129.7 million (40%) and $297.3 million (25%),
respectively, as rates paid increased by 53 basis points (27%) on transaction
accounts and 57 basis points (12%) on certificate accounts. Of the overall
increase of $6.6 million in interest expense on deposit liabilities almost
60% relates to $326.6 million in balances acquired from Marble Financial.
Average borrowed funds (representing advances from the Federal Home Loan Bank
of New York) jumped $42.5 million while the average rate paid dropped 26
basis points (5%) as borrowings were used to fund the Marble Financial
acquisition.
Net interest income for the three months ended March 31, 1996, totaled $30.9
million, $3.2 million (12%) greater than the $27.7 million reported for the
comparable quarter a year ago. The increase in net interest income was volume
driven as the interest rate spread of 3.46% and the net interest margin of
3.88% for the quarter ended March 31, 1996 were 6 basis points and 5 basis
points lower, respectively, than the results recorded in the comparable
quarter a year ago. These declines occurred as a result of a greater
percentage increase in the cost of interest-bearing liabilities (13%)
compared with the Bank's percentage increase in its yield on
interest-earnings assets (6%), while the average balance of both
interest-earning assets and interest-bearing liabilities advanced by
approximately 14% between the respective periods. The most significant factor
which caused the decline in both net interest spread and net interest margin
was the increased cost to the Bank of borrowed funds used to fund the cash
acquisition of Marble Financial.
Provision for Loan Losses
The provision for loan losses amounted to $1.4 million for the quarter ended
March 31, 1996 compared with $1.1 million a year ago. The Bank utilizes the
provision for loan losses to maintain an allowance for loan losses that it
deems appropriate to provide for known and inherent risks in its loan
portfolio. In determining the adequacy of its allowance for loan losses,
management takes into account the current status of the Bank's loan portfolio
and changes in appraised values of collateral as well as general economic
conditions. As of March 31, 1996, the Bank's allowance for loan losses
totaled $24.1 million (1.09% of loans and 82.86% of nonperforming loans)
compared with $15.9 million (0.82% of loans and 68.88% of nonperforming
loans) at December 31, 1995. In comparison, the allowance for loan losses of
$16.0 million at March 31, 1995, represented 0.85% of loans and 74.56% of
nonperforming loans. The increase in the allowance during 1996's first
quarter was primarily a reflection of the addition of the Marble Financial
allowance which totaled $7.6 million.
Noninterest Income
Noninterest income increased to $3.0 million for the three months ended March
31, 1996, compared with $1.4 million for the corresponding period in the
previous year. Net security transactions accounted for approximately
three-quarters of the overall increase due to a loss of $1.2 million on the
Bank's investment in Nationar (See NOTE 4 to the accompanying interim
financial statements) which was recognized during the first quarter of 1995.
Service charges collected on deposit accounts increased $0.1 million (7%),
largely due to increased fees on NOW and savings accounts that resulted from
the assumption of deposits in the Marble Financial acquisition. Other
noninterest income increased $0.4 million (40%) primarily due to a one-time
insurance settlement of $0.3 million related to the successful conclusion of
multi-year real estate related litigation. Other areas of miscellaneous
noninterest income which showed improvement included fees related to loan
servicing and gains recorded on sale/origination of mortgage loans.
Noninterest Expense
Noninterest expense increased $3.1 million (19%) to $19.6 million for the
three months ended March 31, 1996, as compared with $16.5 million for the
same period in 1995. Compensation and employee benefits, the largest
component of noninterest expense, increased $1.5 million (19%). This increase
was the result of personnel costs associated with the Marble Financial
acquisition and annual merit increases which are effective in March of each
year.
Occupancy expense increased $2.4 million (17%) for the three months ended
March 31, 1996. This was primarily due to increases in bank building
depreciation, rent, and operation charges, attributable to the acquisition of
branches and banking house in the Marble Financial acquisition, increased
expenditures for maintenance and repairs and costs associated with the
relocation of one of the Bank's branch offices. An increase of $0.3 million
(31%) in furniture, fixtures and equipment expense was attributable to not
only the Bank's increased branch network but also to the acquisition and
rental of computer equipment which is being used in the conversion and
upgrading of the Bank's data processing system. The new computer system is
expected to provide the capacity to facilitate future acquisitions as well as
to increase internal efficiencies.
In spite of the previously noted increase in deposits, FDIC premium expense
for the current quarter declined $0.3 million (19%). Including Marble
Financial's deposits, approximately 31% of the Bank's deposits are insured by
the BIF with the balance of deposits insured by the SAIF. Deposit premium
expense dropped due to a rate differential on BIF insured deposits, which was
effectively zero for the current quarter compared with a rate of $0.23 per
$100 of deposits on SAIF insured deposits.
Telephone, postage, and printing increased 17% to $1.2 million at March 31,
1996 from $1.0 million at March 31, 1995. This increase was due primarily to
the acquisition of Marble Financial.
Other noninterest expense increased $1.0 million (40%) to $3.5 million
compared with $2.5 million recorded in the first quarter of 1995. The largest
dollar change occurred in amortization of goodwill which increased $0.4
million (97%) as a result of the Marble Financial acquisition. Other notable
increases occurred in advertising which increased $0.2 million (47%) and
foreclose related costs which rose $0.1 million (18%) over amounts incurred
in 1995. The remaining increase of $0.3 million relates generally to the
increased costs of operating the expanded branch network and cost associated
with increases in the volume of loan applications.
The ratios of noninterest expense, excluding gains and losses related to the
securities portfolios, to average assets were 2.35% and 2.27% on an
annualized basis for the three months ended March 31, 1996 and 1995,
respectively. The ratios of noninterest expense net of noninterest income
(exclusive of gains or losses on net security transactions) to average assets
were 1.99% and 1.91% on an annualized basis for the three months ended March
31, 1996 and 1995, respectively. The efficiency ratio measures noninterest
expense (excluding amortization of intangibles and real estate owned related
expense) as a percentage of net interest income plus noninterest income
(exclusive of net security transactions and real estate owned related income).
The efficiency ratios for the quarters ended March 31, 1996 and March 31, 1995
were 54.39% and 52.08%, respectively. Efficiency ratios for thrift institutions
in the $1-5 billion asset range, as reported by SNL Securities, were 59.52% for
the quarter ended March 31, 1995 and 59.55% for the year ended December 31,
1995. Comparable ratios for all thrifts in the above time periods were 63.37%
and 63.13%, respectively.
Income Tax Expense
Income tax expense totaled $5.1 million for the three months ended March 31,
1996, a increase of $0.6 million (14%) over the three months ended March 31,
1995. The effective tax rate for the three months ended March 31, 1996 was
39.9% compared with 39.2% for the corresponding period in 1995.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Holding Company and the Bank are not engaged in any legal
proceedings of a material nature at the present time.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
The following exhibit is filed as part of this report.
Regulation S-K Exhibit
Reference Number
----------------------
11 11.1 Statement regarding Computation of Per Share Earnings
(b). Reports on Form 8-K
On January 4, 1996, the Company filed a Form 8-K with the
Securities and Exchange Commission. This Form 8-K reported
that on January 3, 1996, ALBANK acquired for cash all 3,401,614
shares of the outstanding common stock of Marble Financial
Corporation, a Vermont corporation and registered bank
holding company.
On March 18, 1996, the Company filed a Form 8-KA with the
Securities and Exchange Commission. The filing was an
amendment to the Current Report on Form 8-K filed on
January 4, 1996, and presented certain historical and
unaudited pro-forma financial information related to the
acquisition by ALBANK of Marble Financial Corporation.
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 9, 1996 BY: /s/ Herbert G. Chorbajian
---------------------------
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: May 9, 1996 BY: /s/ Richard J. Heller
---------------------------
Richard J. Heller
Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Form 10-Q
Exhibit Index
Regulation S-K Exhibit Exhibit
Reference Number Number
- ---------------------- ------------
11 11.1 Statement regarding Computation of Exhibit-11.1
Per Share Earnings
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Form 10-Q
Statement regarding Computation of Per Share Earnings
Three months ended
March 31,
1996 1995
<S> <C> <C>
Exhibit 11.1
1. Net income $ 7,711,464 6,951,475
2. Weighted average common shares outstanding <F1> 13,650,002 14,747,088
3. Weighted average common stock equivalents due to the
dilutive effect of stock options when utilizing the
treasury stock method. Per share market price is based
on the average per share market price for the period. <F1> 800,097 729,193
4. Total weighted average common shares and weighted average
common stock equivalents outstanding for primary earnings
per share computation 14,450,099 15,476,281
5. Primary earnings per share <F1> $ 0.53 0.45
6. Weighted average common shares outstanding <F1> 13,650,002 14,747,088
7. Weighted average common stock equivalents due
to the dilutive effect of stock options when utilizing
the treasury stock method. Per share market price used
is the greater of the average market price for the period
or the end-of-period market price per share. <F1> 937,148 742,746
8. Total weighted average common shares and weighted
average common stock equivalents outstanding for
fully diluted earnings per share computation 14,587,150 15,489,834
9. Fully diluted earnings per share <F1> $ 0.53 0.45
<FN>
<F1> Adjusted to reflect the 20% stock dividend effected on April 1, 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 61,199
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 709,976
<INVESTMENTS-CARRYING> 141,787
<INVESTMENTS-MARKET> 142,687
<LOANS> 2,219,581
<ALLOWANCE> 24,100
<TOTAL-ASSETS> 3,333,105
<DEPOSITS> 2,888,066
<SHORT-TERM> 3,467
<LIABILITIES-OTHER> 90,812
<LONG-TERM> 30,000
0
0
<COMMON> 157
<OTHER-SE> 320,663
<TOTAL-LIABILITIES-AND-EQUITY> 3,333,105
<INTEREST-LOAN> 46,838
<INTEREST-INVEST> 13,614
<INTEREST-OTHER> 1,136
<INTEREST-TOTAL> 61,588
<INTEREST-DEPOSIT> 29,964
<INTEREST-EXPENSE> 30,696
<INTEREST-INCOME-NET> 30,892
<LOAN-LOSSES> 1,425
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 19,648
<INCOME-PRETAX> 12,829
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,711
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 3.88
<LOANS-NON> 19,317
<LOANS-PAST> 9,767
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,949
<CHARGE-OFFS> 1,109
<RECOVERIES> 210
<ALLOWANCE-CLOSE> 24,100
<ALLOWANCE-DOMESTIC> 15,907
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,193
</TABLE>
