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 September 30, 1996 Commission File No. 0-19843
ALBANK Financial Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 14-1746910
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 NORTH PEARL STREET, ALBANY, NY 12207
(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 October 31, 1996
Common Stock, Par $.01 13,090,763
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 September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Earnings for the Nine
Months Ended September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Financial Condition as
of September 30, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 (unaudited)
Notes to Unaudited Consolidated Interim Financial Statements
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
September 30,
1996 1995
(unaudited)
<S> <C> <C>
Interest income:
Mortgage loans $ 39,129 31,918
Other loans 9,339 7,744
Securities available for sale 10,076 2,793
Investment securities 2,117 10,491
Fed funds sold 27 502
Securities purchased under agreement to resell 709 793
Stock in Federal Home Loan Bank 263 308
Total interest income 61,660 54,549
Interest expense:
Deposits and escrow accounts 29,551 27,235
Borrowed funds and repurchase agreements 731 33
Total interest expense 30,282 27,268
Net interest income 31,378 27,281
Provision for loan losses 1,425 1,125
Net interest income after provision for loan losses 29,953 26,156
Noninterest income:
Service charges on deposit accounts 1,375 1,309
Net security transactions - 1
Brokerage and insurance commissions 518 395
Other 1,017 897
Total noninterest income 2,910 2,602
Noninterest expense:
Compensation and employee benefits 9,709 7,760
Occupancy, net 2,223 2,023
Furniture, fixtures and equipment 1,345 1,021
Federal deposit insurance premiums 1,143 1,105
Federal deposit insurance special SAIF assessment 10,397 --
Professional, legal and other fees 968 626
Telephone, postage and printing 1,057 1,054
Other 3,729 2,664
Total noninterest expense 30,571 16,253
Income before income taxes 2,292 12,505
Income tax expense 644 4,935
Net income $ 1,648 7,570
Primary and fully diluted earnings per share
based on "core earnings"<F1>: $ 0.57 0.50
Primary and fully diluted earnings per share $ 0.12 0.50
<F1> Core earnings excludes the after tax effect of the 9/30/96 special
assessment to recapitalize the Savings Association Insurance Fund.
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(in thousands, except per share data)
<CAPTION>
Nine months ended
September 30,
1996 1995
(unaudited)
<S> <C> <C>
Interest income:
Mortgage loans $ 114,336 92,784
Other loans 27,862 21,355
Securities available for sale 32,033 7,996
Investment securities 6,659 33,477
Federal funds sold 507 874
Securities purchased under agreement to resell 2,166 1,099
Stock in Federal Home Loan Bank 774 967
Total interest income 184,337 158,552
Interest expense:
Deposits and escrow accounts 89,044 76,786
Borrowed funds and repurchase agreements 1,781 140
Total interest expense 90,825 76,926
Net interest income 93,512 81,626
Provision for loan losses 4,275 3,375
Net interest income after provision for loan losses 89,237 78,251
Noninterest income:
Service charges on deposit accounts 4,073 3,814
Net security transactions 5 (1,198)
Brokerage and insurance commissions 1,463 1,255
Other 3,471 3,066
Total noninterest income 9,012 6,937
Noninterest expense:
Compensation and employee benefits 28,678 23,647
Occupancy, net 6,895 6,147
Furniture, fixtures and equipment 3,854 2,955
Federal deposit insurance premiums 3,439 3,935
Federal deposit insurance special SAIF assessment 10,397 --
Professional, legal and other fees 2,308 1,884
Telephone, postage and printing 3,361 3,114
Other 11,016 7,631
Total noninterest expense 69,948 49,313
Income before income taxes 28,301 35,875
Income tax expense 11,107 14,097
Net income $ 17,194 21,778
Earnings per share based on "core earnings" (F1):
Primary $ 1.65 1.48
Fully diluted 1.64 1.47
Earnings per share:
Primary $ 1.20 1.43
Fully diluted 1.20 1.42
<F1> Core earnings excludes the after tax effect of both the 9/30/96 special
assessment to recapitalize the Savings Association Insurance Fund and the
3/31/95 $1.2 million write-off of the capital investment in Nationar.
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>
September 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 67,675 54,002
Federal funds sold -- 1,000
Securities purchased under agreement to resell 25,000 50,000
Total cash and cash equivalents 92,675 105,002
Securities available for sale, at approximate market value 635,619 656,784
Investment securities (approximate market value of $126,229 at
September 30, 1996 and $155,862 at December 31, 1995) 125,586 153,740
Loans receivable 2,515,043 1,946,601
Less: allowance for loan losses 28,240 15,949
Loans receivable, net 2,486,803 1,930,652
Accrued interest receivable 29,181 26,351
Office premises and equipment, net 47,480 40,655
Stock in Federal Home Loan Bank, at cost 16,913 15,750
Real estate owned 5,811 3,899
Other assets 69,661 37,337
$ 3,509,729 2,970,170
Liabilities
Deposits $ 2,998,377 2,558,288
Escrow accounts 16,093 34,928
Accrued income taxes payable 2,583 4,529
Borrowed funds and repurchase agreements 108,032 1,290
Obligation under capital lease 4,671 4,743
Other liabilities 65,935 43,210
Total liabilities 3,195,691 2,646,988
Stockholders' Equity
Preferred stock, $.01 par value. Authorized 25,000,000 shares;
none outstanding -- --
15,697,500 shares issued; 13,100,163 shares outstanding at September 30, 1996
and 11,521,970 shares outstanding at December 31, 1995 157 157
Additional paid-in capital 180,371 151,969
Retained earnings, substantially restricted 207,232 258,631
Treasury stock, at cost (2,597,337 shares at September 30, 1996
and 4,175,530 shares at December 31, 1995) (65,502) (82,381)
Unrealized gain (loss) on securities available for sale, net of tax (517) 3,528
Common stock acquired by:
Employee stock ownership plan ("ESOP") (7,217) (7,535)
Bank recognition plan ("BRP") (486) (1,187)
Total stockholders' equity 314,038 323,182
$ 3,509,729 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 Securities Stock Stock
Common Paid-in Retained Treasury Available for Acquired Acquired
Stock Capital Earnings Stock Sale, Net of Tax by ESOP by BRP Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine months ended September 30, 1996
Balance at December 31, 1995 $ 157 151,969 258,631 (82,381) 3,528 (7,535) (1,187) 323,182
Net income -- -- 17,194 -- -- -- -- 17,194
Purchase of treasury stock -- -- -- (20,101) -- -- -- (20,101)
Proceeds from the exercise
of stock options -- -- (333) 732 -- -- -- 399
Reduction of stock option
rollover liability upon
exercise of stock options -- -- 615 -- -- -- -- 615
Tax benefits related to
vested BRP stock and
stock options exercised -- 599 -- -- -- -- -- 599
Adjustment of securities
available for sale
to market, net of tax -- -- -- -- (4,045) -- -- (4,045)
Cash dividends declared -- -- (4,824) -- -- -- -- (4,824)
Stock dividends declared -- 27,803 (64,051) 36,248 -- -- -- --
Amortization of award
of ESOP stock -- -- -- -- -- 318 -- 318
Amortization of award
of BRP stock -- -- -- -- -- -- 701 701
Balance at September 30, 1996 $ 157 180,371 207,232 (65,502) (517) (7,217) (486) 314,038
Nine months ended September 30, 1995
Balance at December 31, 1994 $ 157 151,433 235,065 (58,218) (735) (8,791) (2,122) 316,789
Net income -- -- 21,778 -- -- -- -- 21,778
Purchase of treasury stock -- -- -- (19,258) -- -- -- (19,258)
Proceeds from the exercise
of stock options -- -- (9) 59 -- -- -- 50
Tax benefits related to
vested BRP stock and
stock options exercised -- 405 -- -- -- -- -- 405
Adjustment of securities
available for sale
to market, net of tax -- -- -- -- 3,458 -- -- 3,458
Cash dividends declared -- -- (4,320) -- -- -- -- (4,320)
Amortization of award
of ESOP stock -- -- -- -- -- 307 -- 307
Amortization of award
of BRP stock -- -- -- -- -- -- 701 701
Balance at September 30, 1995 $ 157 151,838 252,514 (77,417) 2,723 (8,484) (1,421) 319,910
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
Nine months ended
September 30,
1996 1995
(unaudited)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net income $ 17,194 21,778
Reconciliation of net income to net cash provided by operating activities:
Depreciation and lease amortization 3,934 2,874
Amortization of goodwill 2,209 1,169
Net amortization (accretion) of premiums/discounts on securities available for sale 944 (289)
Net amortization of premiums/discounts on investment securities 28 1,309
Amortization of award of ESOP and BRP stock 1,019 1,008
Net security transactions (5) 1,198
Net gain on sale of real estate owned (308) (288)
Origination of loans receivable for sale (15,775) (11,580)
Sale of loans receivable originated for sale 20,273 14,845
Provision for loan losses 4,275 3,375
Writedown of real estate owned 473 274
Change in assets and liabilities net of effects from the purchase
of Marble and Green Mountain:
Net increase (decrease) in accrued income taxes payable (1,377) 2,113
Net decrease (increase) in accrued interest receivable 725 (1,010)
Net decrease in other assets 2,949 402
Net increase (decrease) in other liabilities and obligation under capital lease 18,746 (1,841)
Net cash provided by operating activities 55,304 35,337
Cash flows from investing activities
Payment for purchase of Marble, net of cash acquired (54,437) --
Payment for purchase of Green Mountain Bank, net of cash acquired (7,002) --
Proceeds from the sale of securities available for sale 25,485 --
Proceeds from the maturity or call of securities available for sale 130,762 76,402
Proceeds from the maturity or call of investment securities 53,544 137,935
Purchase of securities available for sale (45,105) (75,549)
Purchase of investment securities (25,179) (20,350)
Purchase of loans receivable (170,883) (92,861)
Net increase in loans receivable (24,213) (44,944)
Redemption (purchase) of Federal Home Loan Bank stock 2,912 (1,621)
Proceeds from the sale of real estate owned 4,644 4,432
Capital expenditures (4,215) (8,363)
Net cash used by investing activities (113,687) (24,919)
Cash flows from financing activities
Branch purchases - deposits acquired -- 18,194
Less: purchase premium and capitalized costs -- 655
Net -- 17,539
Net increase in deposits 5,778 9,492
Net decrease in escrow accounts (18,975) (9,554)
Proceeds from borrowed funds and repurchase agreements 109,883 3,000
Repayment of borrowed funds and repurchase agreements (26,290) (15,300)
Purchase of treasury stock (20,101) (19,258)
Dividends paid (4,638) (4,151)
Proceeds from the exercise of stock options 399 50
Net cash provided (used) by financing activities 46,056 (18,182)
Net decrease in cash and cash equivalents (12,327) (7,764)
Cash and cash equivalents at beginning of period 105,002 107,192
Cash and cash equivalents at end of period $ 92,675 99,428
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest on deposits, borrowed funds, and repurchase agreements $ 90,936 76,963
Income taxes 12,804 11,638
Net reduction in loans resulting from transfers to real estate owned 5,380 4,058
Net unrealized (loss) gain on debt and equity securities available for sale (6,874) 3,172
Tax benefits related to vested BRP stock and stock options 599 405
The Company purchased all of the common stock of Marble for $61,229 and
the net assets of Green Mountain Bank for $7,771. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 530,967 --
Cash paid for Marble common stock (61,229) --
Cash paid for Green Mountain net assets (7,771) --
Liabilities assumed $ 461,967 --
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 nine months ended September 30, 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 quarters and nine month periods ended
September 30, 1996 and 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,
accordingly, are 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 ("Marble") of
Rutland, Vermont for $18.00 per share in cash. On the date of
closing, Marble 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
goodwill of approximately $20.1 million which is being amortized
over 15 years.
On September 30, 1996, the Company assumed the deposit
liabilities and purchased loans owned and serviced by six
banking offices formerly operated by the Green Mountain Bank of
Rutland, Vermont ("Green Mountain"), a wholly owned subsidiary
of Arrow Financial Corporation. The transaction included
approximately $107.7 million in deposits, loans with a net book
value of $108.4 million and $41.0 million in loans serviced for
other investors and generated goodwill amounting to $8.2 million
which is being amortized over 15 years. The Rutland banking
office of Green Mountain was consolidated with and will be
serviced from the existing Rutland banking office acquired from
Marble. The remaining Green Mountain banking offices, located in
central Vermont, together with the seven banking offices
acquired from Marble, are currently operating as the Bank's
Marble Division ("Marble Division").
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.
NOTE 5. Federal Deposit Insurance Special Savings Association
Insurance Fund ("SAIF") Assessment
Legislation signed into law on September 30, 1996, provided for
a special one-time assessment to be levied by the Federal
Deposit Insurance Corporation ("FDIC") on all institutions with
SAIF insured deposits to contribute to the recapitalization of
the SAIF. On September 30, 1996, the Bank accrued $10.4 million
for the special assessment. The after-tax charge of $6.4 million
was equivalent to $0.45 per share. In return for payment of the
special assessment, the Bank will receive a substantial
reduction in FDIC deposit insurance premiums on its SAIF insured
deposits commencing January 1, 1997. Upon FDIC approval expected
in the fourth quarter, the premium on SAIF insured deposits are
anticipated to be reduced from the present rate of 23 basis
points to the proposed premium of 6.4 basis points on SAIF
insured deposits; simultaneously the present premium rate on
Bank Insurance Fund ("BIF") insured deposits is expected to be
increased from effectively 0 basis points to 1.3 basis points.
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 the 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 66% of the Bank's deposit accounts as of September
30, 1996, were insured by the Savings Association Insurance Fund
("SAIF"), as administered by the FDIC, and approximately 34%
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 69 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.
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, decreased $12.3 million (12%) to $92.7 million as of
September 30, 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 September 30, 1996, was 26.10%.
The Company's cash flows are comprised of cash flows from
operating activities, investing activities and financing
activities.
Cash flows provided by operating activities, consisting
primarily of interest and dividends received less interest paid
on deposits, were $55.3 million and $35.3 million for the nine
months ended September 30, 1996 and 1995, respectively. The
increase is primarily due to the one-time assessment of $10.4
million accrued September 30, 1996, anticipated to be paid in
the fourth quarter. Cash received from the sale of loans
receivable originated for sale increased $5.4 million while
other operating sources of cash contributed to the remaining net
increase of $4.2 million.
Net cash used by investing activities amounted to $113.7 million
and $24.9 million for the nine months ended September 30, 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 Corporation ("Marble"). 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. Also included
in investing cash usage was a $7.0 million cash outlay (net of
cash acquired) to fund the acquisition of Green Mountain Bank
("Green Mountain"). The Company acquired assets with a fair
value of $115.5 million and assumed liabilities with a fair
value of $107.7 million in exchange for the cash premium.
Adjusting for the Marble and Green Mountain acquisitions, the
cash usage between the first nine months of 1995 and 1996
increased $27.3 million. The purchase of loans receivable
reduced by net declines in loans receivable increased cash used
by investing activities $57.3 million over the same period in
1995. The increase in cash used by loan activity was offset by
an increased net provision of cash from security activity
totaling $21.1 million and a net increase in cash provided by
the remaining investing categories of $8.9 million.
Cash flows provided by financing activities of $46.1 million for
the first nine months of 1996 compared with cash flows used by
financing activities of $18.2 million in the first nine months
of 1995. Net cash provided by borrowed funds and repurchase
agreements of $83.6 million in 1996 compared with net cash used
to repay such borrowings of $12.3 million in 1995. Offsetting
the cash provided by borrowing activity were cash outflows from
a net decrease in escrow accounts during 1996 of $19.0 million
compared with $9.6 million during 1995. Cash provided by
financing activity in 1995 included the acquisition of deposits
of $17.5 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 stock dividend was paid April 1, 1996, to
shareholders of record on March 15, 1996. 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.
At September 30, 1996, the Bank's capital exceeded each of the
regulatory capital requirements of the OTS. At September 30,
1996, the Bank's tangible and core capital levels were both
$233.1 million (6.76% of total adjusted assets) and its
risk-based capital level was $258.6 million (12.59% 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-based capital.
Financial Condition
As of September 30, 1996, total assets were $3.510 billion, an
increase of $539.6 million (18%) from $2.970 billion at year-end
1995. This increase is primarily the result of the acquisition
of Marble on January 3, 1996, and Green Mountain on
September 30, 1996.
A $12.3 million (12%) decrease in cash and cash equivalents to
$92.7 million at September 30, 1996, was the net result of a
$25.0 million decrease from the maturity of a cash equivalent
repurchase agreement offset by a $13.7 million (25%) increase in
other cash equivalent balances, primarily the Bank's account
balance with the Federal Reserve Bank. The proceeds from the
repurchase agreement maturity were used to fund loan growth. The
increased Federal Reserve Bank balance reflects the Bank's
expanded branch network and deposit base.
Securities available for sale decreased $21.2 million (3%) to
$635.6 million at September 30, 1996. A $6.9 million (115%)
decrease in the valuation allowance for securities available for
sale was only partially offset by net activity within the
remainder of the portfolio. Additions included $142.9 million in
purchases of securities available for sale, including $91.3 and
$6.5 million in mortgage-backed securities and U.S. Government
agencies, respectively, that were a result of the Marble
acquisition. These increases were more than offset by
maturities, payments, and calls of $133.3 million and sales of
$23.0 million for the nine months ended September 30, 1996. The
net amortization of premiums and discounts accounted for the
remainder of the change.
Investment securities declined $28.2 million (18%) to $125.6
million as proceeds from maturities, payments and calls exceeded
new purchases. These proceeds were redirected into the loan
portfolio. Stock in the Federal Home Loan Bank ("FHLB"), an
investment required by law, is determined annually using
year-end Bank financial information, increased $1.2 million (7%)
to $16.9 million at September 30, 1996.
Loans receivable grew $568.4 million (29%) to $2.215 billion at
September 30, 1996. Mortgage loans, which showed the greatest
dollar increase, rose $410.7 million (25%) to $2.043 billion.
Increases in mortgage loans included $198.9 million and $44.4
million of balances acquired from Marble and Green Mountain,
respectively, $235.3 million in loan originations, and $170.9
million in purchases of individual one- to four-family loans.
Principal repayments of $216.7 million, sales of loans amounting
to $20.3 million and transfers to real estate owned of $6.1
million represented principal reductions to mortgage loans
during the period. Residential mortgage application volume
topped $577 million during the first nine months of 1996
compared with $230 million for the comparable period of 1995; as
a result, 1996 is on track to be a record year for residential
mortgage originations. Other loans increased to $472.1 million
as a result of increases in the commercial and consumer loan
portfolios of $122.2 million (106%) and $35.6 million (18%),
respectively. Included in this increase were commercial loans of
$53.4 million and $55.1 million and consumer loans of $26.0
million and $8.9 million acquired from Marble and Green
Mountain, respectively. Current year other loan originations
totaled $78.0 million. Reductions were comprised principally of
principal payments of $62.3 million.
The allowance for loan losses increased $12.3 million (77%) to
$28.2 million at September 30, 1996, primarily as a result of
the $7.6 million and $3.7 million in balances that were acquired
from Marble and Green Mountain, respectively. The remaining
increase is attributable to the excess of the provision for loan
losses over net loan chargeoff activity.
The remaining asset categories increased by $43.9 million (41%)
and were mainly reflective of assets received in the Vermont
Marble and Green Mountain acquisitions. Goodwill resulting from
the Marble acquisition of $20.1 million and the Green Mountain
acquisition of $8.2 million was the principle cause of the
overall increase in other assets. Other increases primarily the
result of the Marble and Green Mountain acquisitions included
office premises and equipment which increased $6.9 million
(17%), accrued interest receivable which increased $2.8 million
(11%), and real estate owned which increased $1.9 million (50%)
to $5.8 million, $1.2 million and $0.2 million of which were
balances acquired from Marble and Green Mountain, respectively.
Total liabilities increased $548.7 million (21%) to $3.196
billion predominantly as a result of the $354.3 million and
$107.7 million in liabilities assumed by the Bank as part of the
Marble and Green Mountain acquisitions, respectively. Deposits
increased $440.1 million (17%) to $2.998 billion as the $462.0
million in deposits acquired were partially offset by net
deposit outflows of $21.9 million. Primarily as a result of
outflows for payment of property taxes, escrow account balances
declined $18.8 million (53.9%) to $16.1 million at September 30,
1996. Borrowed funds increased $106.7 million to $108.0 million
as FHLB advances were used to partially finance the Marble
acquisition, and to fund new loan growth. The Bank's other
liabilities increased $22.7 million (53%) to $65.9 million at
September 30, 1996. Almost half of this increase represents the
$10.4 million accrual for the special SAIF assessment (See NOTE
5 to the accompanying interim financial statements). The
remainder of the increase, which included a $6.8 increase in
outstanding checks, is attributed to the operation of an
expanded branch network.
Stockholders' equity of $314.0 million decreased $9.1 million
(3%) from $323.2 million at year-end 1995. Significant increases
included net income of $17.2 million, stock option exercises of
$1.0 million, and amortization and tax benefit related to ESOP
and BRP stock totaling $1.0 million. Offsetting these increases
were purchases of treasury stock amounting to $20.1 million, net
unrealized depreciation in the securities available for sale
portfolio of $4.0 million since December 31, 1995 (primarily as
a result of increasing interest rates), and cash dividends
declared during the first nine months of 1996 of $4.8 million.
Book value per common share increased to $23.97 per share at
September 30, 1996, from $23.37 per share at December 31, 1995.
The increase is a result of a net decrease in stockholders'
equity of $9.1 million (3%) to $314.0 million at September 30,
1996, offset by a reduction in shares outstanding as additional
stock was purchased under the Company's ongoing repurchase
program. At September 30, 1996, the Holding Company held
2,597,337 shares of its common stock as treasury stock. As of
September 30, 1996, the Holding Company had cumulatively
acquired 4,954,247 shares pursuant to its repurchase program at
a cost of $103.0 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 a 20% stock dividend. Additional
cumulative distributions of 89,603 shares have been made to
fulfill stock option exercises. At September 30, 1996, the ratio
of equity to assets was 8.95%, compared with 10.88% at
December 31, 1995.
Nonperforming assets increased $13.3 million (49%) to total
$40.4 million at September 30, 1996, compared with $27.1 million
as of December 31, 1995. Nonperforming loans increased $11.3
million (49%) and totaled $34.5 million at September 30, 1996,
compared with $23.2 million as of December 31, 1995. The
increase in nonperforming assets and nonperforming loans
reflects mainly the nonperforming classification of certain
assets acquired from Marble and Green Mountain. The ratio of
nonperforming assets to total assets at September 30, 1996, was
1.15% compared with 0.91% at December 31, 1995. The ratio of
nonperforming loans to loans receivable was 1.37% at September
30, 1996, compared with 1.19% at December 31, 1995.
Comparisons of Operating Results for the Three and Nine Months
Ended September 30, 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 and nine months ended
September 30, 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.
<TABLE>
<CAPTION>
Three months ended September 30, 1996
compared with
Three months ended September 30, 1995
Increase (Decrease)
Due to
Volume Rate Net
(in thousands) (unaudited)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net $ 6,887 324 7,211
Other loans, net 2,343 (748) 1,595
Securities available for sale 7,547 (264) 7,283
Investment securities (8,995) 621 (8,374)
Federal funds sold (419) (56) (475)
Securities purchased under agreement to resell (21) (63) (84)
Stock in Federal Home Loan Bank 22 (67) (45)
Total interest-earning assets 7,364 (253) 7,111
Interest-bearing liabilities:
Deposits:
Savings accounts (155) (17) (172)
Transaction accounts 677 464 1,141
Certificate accounts 2,624 (1,277) 1,347
Borrowed funds and repurchase agreements 705 (7) 698
Total interest-bearing liabilities 3,851 (837) 3,014
Change in net interest income $ 3,513 584 4,097
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1996
compared with
Nine months ended September 30, 1995
Increase (Decrease)
Due to
Volume Rate Net
(in thousands) (unaudited)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net $ 17,842 3,710 21,552
Other loans, net 7,233 (726) 6,507
Securities available for sale 24,687 (650) 24,037
Investment securities (28,253) 1,435 (26,818)
Federal funds sold (294) (73) (367)
Securities purchased under agreement to resell 1,139 (72) 1,067
Stock in Federal Home Loan Bank 71 (264) (193)
Total interest-earning assets 22,425 3,360 25,785
Interest-bearing liabilities:
Deposits:
Savings accounts (1,146) 107 (1,039)
Transaction accounts 2,219 1,271 3,490
Certificate accounts 9,453 354 9,807
Borrowed funds and repurchase agreements 1,661 (20) 1,641
Total interest-bearing liabilities 12,187 1,712 13,899
Change in net interest income $ 10,238 1,648 11,886
</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 September 30,
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> $ 1,942,108 39,129 8.06 % $ 1,600,154 31,918 7.98 %
Other loans, net <F3> 407,224 9,339 9.15 307,212 7,744 10.08
Securities available for sale 645,286 10,076 6.25 163,282 2,793 6.84
Investment securities 132,199 2,117 6.40 696,281 10,491 6.03
Federal funds sold 2,098 27 5.25 34,098 502 5.84
Securities purchased under
agreement to resell 48,641 709 5.79 50,000 793 6.29
Stock in Federal Home Loan Bank 16,913 263 6.18 15,750 308 7.76
Total interest-earning assets 3,194,469 61,660 7.72 2,866,777 54,549 7.61
Noninterest-earning assets 171,671 133,088
Total assets $ 3,366,140 $ 2,999,865
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits and escrow accounts:
Savings accounts <F4> $ 876,454 6,395 2.90 $ 897,693 6,567 2.90
Transaction accounts <F5> 462,167 2,949 2.54 347,486 1,808 2.06
Certificate accounts 1,507,623 20,207 5.33 1,315,958 18,860 5.69
Borrowed funds and repurchase
agreements 54,197 731 5.36 2,022 33 6.47
Total interest-bearing liabilities 2,900,441 30,282 4.15 2,563,159 27,268 4.22
Noninterest-bearing liabilities 149,444 112,155
Total liabilities 3,049,885 2,675,314
Stockholders' equity 316,255 324,551
Total liabilities and
stockholders' equity $ 3,366,140 $ 2,999,865
Net interest income and
interest spread 31,378 3.57 % 27,281 3.39 %
Net interest-earning assets and
net interest margin $ 294,028 3.94 % $ 303,618 3.84 %
Interest-earning assets to
interest-bearing liabilities 1.10 x 1.12 x
<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>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
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> $ 1,872,775 114,336 8.14 % $ 1,578,645 92,784 7.84 %
Other loans, net <F3> 399,635 27,862 9.30 296,189 21,355 9.61
Securities available for sale 684,724 32,033 6.24 157,987 7,996 6.75
Investment securities 140,073 6,659 6.34 735,721 33,477 6.07
Federal funds sold 12,728 507 5.33 19,951 874 5.86
Securities purchased under
agreement to resell 49,544 2,166 5.84 23,590 1,099 6.23
Stock in Federal Home Loan Bank 16,701 774 6.19 15,488 967 8.35
Total interest-earning assets 3,176,180 184,337 7.74 2,827,571 158,552 7.48
Noninterest-earning assets 170,080 130,620
Total assets $ 3,346,260 $ 2,958,191
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits and escrow accounts:
Savings accounts <F4> $ 873,392 19,112 2.92 $ 925,797 20,151 2.91
Transaction accounts <F5> 459,419 8,644 2.51 333,312 5,154 2.07
Certificate accounts 1,499,971 61,288 5.46 1,268,567 51,481 5.43
Borrowed funds and repurchase
agreements 44,454 1,781 5.35 3,042 140 6.15
Total interest-bearing liabilities 2,877,236 90,825 4.22 2,530,715 76,926 4.06
Noninterest-bearing liabilities 149,261 105,266
Total liabilities 3,026,497 2,635,981
Stockholders' equity 319,763 322,210
Total liabilities and
stockholders' equity $ 3,346,260 $ 2,958,191
Net interest income and
interest spread 93,512 3.52 % 81,626 3.42 %
Net interest-earning assets and
net interest margin $ 298,944 3.92 % $ 296,856 3.84 %
Interest-earning assets to
interest-bearing liabilities 1.10 x 1.12 x
<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
Three Months Ended September 30, 1996 compared with 1995
Net income for the quarter ended September 30, 1996, was $1.6
million. Core earnings- that is, net income excluding the
one-time SAIF special assessment of $10.4 million, $6.4 million
after tax- were $8.0 million, an increase of $0.5 million (6%)
from the comparable quarter last year. For a further discussion
of the SAIF assessment and the proposed reductions in FDIC
deposit insurance premiums refer to NOTE 5 of the unaudited
consolidated interim financial statements. Primary and fully
diluted earnings per share were $0.12 for the third quarter of
1996. Primary and fully diluted per share earnings based on core
earnings were $0.57 for the three months ended September 30,
1996, up from $0.50 per share a year ago, representing a 14%
increase. The per share earnings have been adjusted to reflect
the 20% stock dividend effected on April 1, 1996. The increase
in core earnings generally reflects increases in net interest
income provided by the spread between interest related assets
and liabilities acquired from Marble which more than compensated
for increases in noninterest expense related to operating an
expanded branch network. Net interest income increased $4.1
million (15%) and totaled $31.4 million for the third quarter of
1996. Noninterest income increased $0.3 million (12%) to $2.9
million. Core noninterest expense, which excludes the FDIC
special assessment of $10.4 million, increased $3.9 million
(24%) to $20.2 million compared with $16.3 million in 1995.
Return on average assets and return on average equity for the
third quarter of 1996 were, 0.19% and 2.07%, respectively. Based
on core earnings, return on average assets was 0.95% and return
on average equity was 10.10% for the third quarter of 1996. For
the comparable 1995 period, return on average assets was 1.00%,
while return on average equity was 9.25%.
Interest income for the three months ended September 30, 1996,
totaled $61.7 million, an increase of $7.1 million (13%) from
1995's third quarter that was a combined result of a $327.7
million (11%) rise in average interest-earning assets to $3.194
billion and a 11 basis point (1%) increase in the average rate
earned to 7.72%. 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. Earnings on mortgage loans rose $7.2 million (23%)
as a $342.0 million (21%) increase in average balance invested
combined with an 8 basis point (1%) rise in the average rate
earned. Other loan income advanced by $1.6 million (21%) as a
$100.0 million (33%) increase in average balance more than
offset a 93 basis point (9%) drop in the average rate earned.
Interest income from securities available for sale increased
$7.3 million (261%) as a decrease of 59 basis points (8%) in the
average rate earned was more than offset by a $482.0 million (295%)
increase in the average amount invested. The increased average
amount invested reflects the acquisition of securities classified
as available for sale from Marble of $98.0 million as well as the
December 29, 1995, transfer of securities with a book value of $492.3
million and a market value of $491.9 million from investment
securities to securities available for sale. Earnings on investment
securities for the current quarter declined $8.4 million (80%)
compared with the prior year as an increase of 37 basis points (6%)
in average rate earned was more than offset by a decrease in average
amount invested of $564.0 million (81%) primarily due to the
previously mentioned transfer to securities available for sale.
Federal funds sold income decreased $0.5 million (95%) as a decrease
of 59 basis points (10%) in average rate earned combined with a
decrease in average amount invested of $32.0 million (94%). Income
from securities purchased under agreement to resell declined $0.1
million due to a decrease of $1.4 million (3%) in the average amount
invested resulting from the maturity of $25 million in investment
principal in the third quarter of 1996 combined with a decrease
in the average rate earned of 50 basis points (20%). Income from
stock in the FHLB decreased slightly as the increase in the
average amount invested of $1.2 million (7%) was offset by a
decrease in the average rate earned of 158 basis points (20%).
Interest expense for the quarter ended September 30, 1996,
amounted to $30.3 million, $3.0 million (11%) more than the
corresponding quarter of last year. The increase reflects the
net effect of a $337.3 million (13%) increase in average
interest-bearing liabilities to $2.900 billion and a 7 basis
point (2%) reduction in the average rate paid to 4.15%. The
increase in average interest-bearing deposits was primarily
attributable to the assumption of $326.6 million in deposits in
conjunction with the Marble acquisition. The mix within the
deposit structure changed as savings accounts average balances
declined $21.2 million (2%) while the average rate paid remained
constant resulting in a decrease of $0.2 million (3%) in
interest expense compared with the third quarter of 1995.
Transaction and certificate account average balances grew $114.7
million (33%) and $191.7 million (15%), respectively, as rates
paid increased by 48 basis points (23%) on transaction accounts
and decreased by 36 basis points (6%) on certificate accounts
resulting in an increase in interest expense of $1.1 million
(63%) on transaction accounts and $1.3 million (7%) on
certificate accounts. The increase in the cost of transaction
accounts reflects slightly higher rates offered by the Bank's
Marble division on transaction accounts. The decrease in
the cost of certificate accounts is due to slightly lower rates
offered by the Bank on certificate accounts with maturities
greater than six months compared with the third quarter of 1995.
Interest expense on borrowed funds (representing advances from
the FHLB) and repurchase agreements grew $0.7 million as an
increase in average balance for the period of $52.2 million was
used to partially fund the Marble acquisition and to fund new
loan growth.
Net interest income for the three months ended September 30, 1996,
totaled $31.4 million, $4.1 million (15%) greater than the
$27.3 million reported for the comparable quarter a year ago.
The increase in net interest income was generally volume driven
reflecting the impact of the acquisition of Marble. The net
interest spread of 3.57% and the net interest margin of 3.94%
for the quarter ended September 30, 1996 were 18 basis points
and 10 basis points higher, respectively, than the results
recorded in the comparable quarter a year ago.
Nine Months Ended September 30, 1996 compared with 1995
Net income for the nine months ended September 30, 1996
decreased $4.6 million (21%) to total $17.2 million. Core
earnings- that is net income excluding the one-time SAIF special
assessment of $10.4 million, $6.4 million after tax in 1996 and
the write-off of the Bank's investment of Nationar of $1.2
million, $0.7 million after tax in 1995- increased $1.1 million
(5%) to $23.6 million for the nine months ended September 30,
1996 as compared with a year ago. For a further discussion of
the SAIF assessment and the proposed reductions in FDIC deposit
insurance premiums and the write-off of the Bank's investment in
Nationar refer to NOTE 5 and NOTE 4, respectively, of the
unaudited consolidated interim financial statements. Both
primary and fully diluted per share earnings were $1.20 for the
nine months ended September 30, 1996. Core fully diluted
earnings per share were $1.64 for the nine months ended
September 30, 1996, up 12% from $1.47 per share a year ago. Core
primary earnings per share of $1.65 for the nine months ended
September 30, 1996, represented an 11% increase over $1.48
earned during the first three quarters of 1995. The above per
share earnings results have been adjusted to reflect the
Company's April 1, 1996, 20% stock dividend. Net income
increased as a result of a higher volume of net interest income
which increased $11.9 million (15%) to $93.5 million for the
first three quarters of 1996. The volume of net interest income
increased due primarily to the Marble acquisition on January 3,
1996. Noninterest income increased $2.1 million (30%) to $9.0
million. The increase is due primarily to the 1995 chargeoff of
the Bank's investment in Nationar. Noninterest expense rose
$20.6 million (42%) to $69.9 million. Of the increase, $10.4
million (50%) was related to the Bank's accrual for the one-time
FDIC special SAIF assessment.
Interest income of $184.3 million for the nine months ended
September 30, 1996, was $25.8 million (12%) higher than the
$158.6 million earned during the first nine months of 1995, as a
$348.6 million (16%) increase in average interest-earning assets
to $3.176 billion combined with a 26 basis point (3%) rise in
average rate earned to 7.74%. The increase in interest-bearing
assets resulted primarily from the Marble acquisition. An
increase in average balance invested in mortgage loans of $294.1
million (19%) to $1.873 billion combined with an increase in
average rate earned of 30 basis points (4%) to 8.14% to increase
interest income on mortgage loans by $21.6 million (23%) to
$114.3 million. Interest income on other loans increased $6.5
million (30%) to $27.9 million as an increase in average amount
invested of $103.4 million (35%) was only partially offset by a
decrease of 31 basis points (3%) to 9.30% in average rate
earned. The average balance of securities available for sale
increased $526.7 million to $684.7 million while the average
rate earned declined 51 basis points (8%) to 6.24%, resulting in
a four-fold increase over 1995 levels of interest income to
$32.0 million. As previously discussed, the increased average
amount invested reflects the December 29, 1995, transfer of
investment securities to securities available for sale as well
as the acquisition of $98.0 million of securities from Marble.
Earnings on investment securities declined $26.8 million (80%)
to $6.7 million as the decline in the average amount invested
resulting from the aforementioned transfer to securities
available for sale was only slightly offset by an increase of 27
basis points (4%) to 6.34% in average rate earned. A decline in
the average amount invested and the average rate earned on
federal funds sold of $7.2 million (36%) and 53 basis points
(9%) combined to reduce the related interest income by $0.4
million (42%) to $0.5 million. Interest income from securities
purchased under agreement to resell rose to $2.2 million as an
increase in the average amount invested of $30.0 million (110%)
was partially offset by a decline in the average rate earned of
39 basis points (6%) to 5.84%. A decline in average rate earned
of 216 basis points (29%) to 6.19% on Stock in the FHLB was
partially offset by an increase in the average amount invested
to $16.7 million resulting in a $0.2 million (20%) decline in
interest income.
Interest expense for the nine months ended September 30, 1996
was $90.8 million, an increase of $13.9 million (18%) over the
$76.9 million report in the first nine months of 1995. This
increase resulted from a $346.5 million (14%) increase in
average interest-bearing liabilities to $2.877 billion and a
rise in the average rate paid of 16 basis points (4%) to 4.22%.
The average balance of interest-bearing liabilities acquired
from Marble was the most significant reason for the higher level
of interest expense. The mix of deposits compared with 1995
changed as savings account average balances declined $52.4
million (6%) to $873.4 million while the average rate earned
increased slightly resulting in a $1.0 million (5%) decline in
interest expense to $19.1 million. Interest expense on
transaction and certificate accounts increased by $3.5 million
(68%) to $8.6 million and by $9.8 million (19%) to $61.3
million, respectively. The average balance of transaction
accounts increased $126.1 million (38%) to $459.4 million, while
the average rate paid rose 44 basis points (21%) to 2.51%. The
average balance in certificate accounts was $1.500 billion, an
increase of $231.4 million (18%) over last year, while the
average rate paid was 5.46%, a 3 basis point (1%) increase over
last year. Interest paid on borrowed funds and repurchase
agreements increased $1.6 million to $1.8 million as the net
effect of a $41.4 million increase in the average balance to
$44.5 million and an 80 basis point (13%) decrease in the
average rate paid to 5.35%.
Net interest income for the nine months ended September 30, 1996,
totaled $93.5 million, $11.9 million (15%) greater than
the $81.6 million reported for the comparable period a year ago.
Although the increase in net interest income was principally
volume driven, net interest spread for the nine months ended
September 30, 1996 equaled 3.52%, an increase of 10 basis points
(3%) over the comparable 1995 period, while the net interest
margin advanced 8 basis points to 3.92% for first nine months of
1996 as compared with the comparable 1995 period.
Provision for Loan Losses
The provision for loan losses amounted to $1.4 million for the
quarter and $4.3 million for the nine months ended September 30,
1996 compared with $1.1 million and $3.4 million, respectively,
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 September 30, 1996,
the Bank's allowance for loan losses totaled $28.2 million
(1.12% of loans and 81.74% of nonperforming loans) compared with
$15.9 million (0.82% of loans and 68.88% of nonperforming loans)
at December 31, 1995. The increase in the allowance during 1996
was primarily a reflection of the Marble and Green Mountain
acquisitions which increased the allowance for loan losses by
$7.6 million and $3.7 million, respectively.
Noninterest Income
Noninterest income increased $0.3 million (12%) to $2.9 million
for the three months ended September 30, 1996, compared with
$2.6 million for the same period last year. Service charges on
deposit accounts, the largest component of noninterest income,
increased $0.1 million (5%) as a result of increased fees
related to the higher level of deposit accounts that resulted
from the operation of the Marble Division. Brokerage and
insurance commissions also increased $0.1 million (31%) as
brokerage activity increased during the third quarter of 1996.
Other noninterest income increased by $0.1 million (13%) mainly
as the result of profits realized on the sale of other real
estate during the third quarter of 1996.
Noninterest income for the nine months ended September 30, 1996,
amounted to $9.0 million, an increase of $2.1 million (30%) over
the same period in 1995. 1995's results included a security loss
of $1.2 million that resulted from the write-off of the Bank's
investment in Nationar (see NOTE 4 to the accompanying interim
financial statements). Excluding the Nationar loss, core
noninterest income rose $0.9 million (10%) during the nine
months of 1996 over the comparable 1995 period. Service charges
on deposit accounts increased $0.3 million (7%) primarily due to
increased NOW account fees related to the higher level of these
types of deposits that have been maintained since the Marble
acquisition. Brokerage and insurance commissions increased $0.2
million (17%). Other noninterest income increased $0.4 million
(64%) due to the combined effects of increases in fees received
for loans serviced for other institutions, gains recorded on the
sale/origination of loans, and a one-time real estate insurance
settlement.
Noninterest Expense
Noninterest expense increased $14.3 million (88%) to $30.6
million for the three months ended September 30, 1996, and $20.6
million (42%) to $69.9 million for the nine months ended
September 30, 1996, compared with $16.3 and $49.3 million for
the same periods in 1995, respectively. Excluding the $10.4
million FDIC special SAIF assessment (see NOTE 5 to the
accompanying interim financial statements) included in the 1996
periods, noninterest expense would have increased $3.9 million
(24%) in the three month period and $10.2 million (21%) in the
nine month period ended September 30, 1996.
Compensation and employee benefits increased $1.9 million (25%)
and $5.0 million (21%) for the three months and nine months
ended September 30, 1996, as the impact of annual merit
increases combined with the expanded employee base resulting
from the operation of an expanded branch network.
Net occupancy expense increased $0.2 million (10%) to $2.2
million for the third quarter of 1996 and $0.7 million (12%) to
$6.9 million for the three months ended September 30, 1996, as a
result of increased depreciation, repair, and maintenance
related to the operation of an expanded branch network. For the
three and nine months ended September 30, 1996, increases in
expense related to furniture, fixtures and equipment of $0.3
million (32%) to $1.3 million and $0.9 million (30%) to $3.9
million, respectively, may be attributed to the operation of the
Marble Division and depreciation of the upgraded computer system.
Despite increased levels of total deposits, FDIC deposit
insurance expense declined $0.5 million (12%) for the nine
months ended September 30, 1996, and remained consistent with
1995 for the three months ended September 30, 1996. At
September 30, 1996, approximately 34% of the Bank's deposits,
including all of the deposits acquired in the Marble and Green
Mountain acquisitions, were BIF insured. The remainder of the
Bank's deposits were insured by the SAIF. During 1996, the BIF
rate of insurance was effectively zero, while the SAIF rate was
$0.23 per $100 of deposits. For the first quarter of 1995, there
was no differential between BIF and SAIF rates. Therefore, as a
combined result of the BIF insurance rate in effect in 1996 and
the increased level of deposits insured by the BIF in 1996, the
Bank realized a decrease in the insurance premiums paid, despite
increased deposit liabilities.
Professional, legal and other fees increased $0.3 million (54%)
to $1.0 million for the three months and $0.4 million (22%) to
$2.3 million for the nine months ended September 30, 1996.
Telephone, postage and printing expense remained constant in the
three month period ended September 30, 1996, while the nine
month period then ended increased $0.2 million (8%) to $3.3
million. In the three month period, increases in postage,
printing and stationery expense were almost entirely offset by
decreases in telephone and computer supplies and forms expense,
as the effect of the operation of an expanded branch network was
offset by cost savings in computer supplies and forms. In the
nine month period cost savings in telephone expense of $0.2
million were not enough to offset increases in expense for
printing and stationery and postage, which increased by $0.2
million each.
Other noninterest expense of $3.7 million for the three months
ended September 30, 1996 and $11.0 million for the nine months
ended September 30, 1996, represented increases of $1.0 million
(40%) and $3.4 million (44%), respectively. Goodwill
amortization, related to the $20.1 million in goodwill generated
in the Marble acquisition, increased other noninterest expense
$0.3 million and $1.0 million in the three and nine month
periods, respectively, was the most significant single factor
increasing other noninterest expense. Other increases in other
noninterest expense for the three and nine months ended
September 30, 1996, respectively were as follows: advertising of
$0.2 million and $0.5 million primarily related to the expanded
branch geography and an ongoing television ad campaign, $0.3
million and $0.6 million in expenses related to increases in
bankruptcies and foreclosures, and $0.2 million and $0.9 million
in other expenses related to the operation of an expanded branch
network. Additionally, in the nine month period there was an
increase of $0.3 million in expenses related to increased loan
application volume.
The ratios of noninterest expense to average assets, excluding
the effect of gains and losses on securities portfolios in 1995
and 1996 and the effect of the one-time FDIC special SAIF
assessment in 1996, were 2.40% and 2.37% on an annualized basis
for the three months and nine months ended September 30, 1996,
compared with 2.17% and 2.22% for the same periods ended
September 30, 1995. The ratios of noninterest expense net of
noninterest income, excluding the effect of gains and losses on
securities portfolios in 1995 and 1996 and the effect of the
one-time FDIC special SAIF assessment in 1996, to average assets
were 2.05% and 1.82% on an annualized basis for the three months
ended September 30, 1996 and 1995, respectively, and 2.01% and
1.86% for the nine months ended September 30, 1996 and 1995. The
efficiency ratio measures noninterest expense (excluding
amortization of intangibles, real estate owned related expense,
and the one-time FDIC special SAIF assessment) 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 September 30, 1996 and
1995 were 54.90% and 51.68%, respectively. Efficiency ratios for
thrift institutions in the $1-5 billion asset range, as reported
by SNL Securities, were 57.65% and 59.83%, respectively for the
quarters ended June 30, 1996, and September 30, 1995.
Comparable efficiency ratios for all thrifts for the quarters
ended June 30, 1996, and September 30, 1995, were 60.38% and
62.61%, respectively.
Income Tax Expense
Income tax expense for the three months ended September 30,
1996, which includes a $4.0 million reduction for the tax effect
of the one-time FDIC special SAIF assessment, totaled $0.6
million, a $4.3 million (87%) decrease over the same period of
the prior year. Reduced by the $10.4 million expense for the
one-time FDIC special SAIF assessment, pre-tax income generated
during the third quarter of 1996 was $2.2 million, a $10.2
million (82%) decline from the prior year. The Company's
effective tax rate of 28.0% for the third quarter of 1996
compares with 39.5% for 1995. The lower effective tax rate in
1996 is the result of legislation passed by the New York State
legislature in the third quarter which allows the Bank to
continue to use the favorable percentage of taxable income
method in calculating its bad debt deduction for New York State
income tax purposes. The more favorable income tax method was
discontinued by the Congress in the third quarter, however, New
York State decoupled its connection to the Federal legislation
to allow thrifts the continued use of the percentage of taxable
income method. The Bank adjusted its state income tax accruals
to reflect the new legislation.
Income tax expense for the nine months ended September 30, 1996,
totaled $11.1 million, a $2.9 million (21%) decrease over 1995.
Earnings before income taxes were $28.3 million or $7.6 million
(21%) lower than 1995 levels. This decrease is attributable
mainly to the Marble acquisition's impact on earnings as offset
by the SAIF special assessment. The Company's effective tax rate
for the nine months ended September 30, 1996 was 39.2% compared
to 39.3% for the prior year.
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
11.1 Statement regarding Computation of
Per Share Earnings
(b). Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALBANK Financial Corporation
(Registrant)
DATE: November 13, 1996 BY: _______________________________
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 13, 1996 BY: ________________________________
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
Per Share Earnings Ex. - 11.1
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
None
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Form 10-Q
Statement regarding Computation of Per Share Earnings
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
Exhibit 11.1 1996 1995 1996 1995
<S> <C> <C> <C> <C>
1. Net income $ 1,648,267 7,570,610 $ 17,194,144 21,778,333
2. Weighted average common shares outstanding 13,135,591 14,190,908 13,430,541 14,470,135
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. 882,246 807,811 882,871 765,217
4. Total weighted average common shares and
common stock equivalents outstanding for primary
earnings per share computation 14,017,837 14,998,719 14,313,412 15,235,352
5. Primary earnings per share $ 0.12 0.50 $ 1.20 1.43
6. Weighted average common shares outstanding 13,135,591 14,190,908 13,430,541 14,470,135
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. 919,529 830,090 935,429 830,090
8. Total weighted average common shares and
dilutive shares outstanding for fully diluted
earnings per share computation 14,055,120 15,020,998 14,365,970 15,300,225
9. Fully diluted earnings per share $ 0.12 0.50 $ 1.20 1.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 67,675
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 635,619
<INVESTMENTS-CARRYING> 125,586
<INVESTMENTS-MARKET> 126,229
<LOANS> 2,515,043
<ALLOWANCE> 28,240
<TOTAL-ASSETS> 3,509,729
<DEPOSITS> 2,998,377
<SHORT-TERM> 27,971
<LIABILITIES-OTHER> 89,282
<LONG-TERM> 80,061
0
0
<COMMON> 157
<OTHER-SE> 313,881
<TOTAL-LIABILITIES-AND-EQUITY> 3,509,729
<INTEREST-LOAN> 142,198
<INTEREST-INVEST> 38,692
<INTEREST-OTHER> 3,447
<INTEREST-TOTAL> 184,337
<INTEREST-DEPOSIT> 88,559
<INTEREST-EXPENSE> 90,825
<INTEREST-INCOME-NET> 89,237
<LOAN-LOSSES> 4,275
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 69,948
<INCOME-PRETAX> 28,301
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,194
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 3.92
<LOANS-NON> 23,132
<LOANS-PAST> 11,414
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 27,278
<CHARGE-OFFS> 3,859
<RECOVERIES> 546
<ALLOWANCE-CLOSE> 28,240
<ALLOWANCE-DOMESTIC> 28,240
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 28,240
</TABLE>
