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, 1997 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 12207-2774
(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, 1997
Common Stock, Par $.01 12,877,895
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three
Months Ended September 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Earnings for the Nine
Months Ended September 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Financial Condition as
of September 30, 1997 (Unaudited) and December 31, 1996
Consolidated Statements of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 (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 SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
<CAPTION>
Three Months Ended
September 30,
1997 1996
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 43,874 39,129
Other loans 11,231 9,339
Securities available for sale 10,617 10,076
Investment securities 1,444 2,117
Federal funds sold 23 27
Securities purchased under agreement to resell -- 709
Stock in Federal Home Loan Bank 333 263
Total interest income 67,522 61,660
Interest expense:
Deposits and escrow accounts 30,880 29,551
Short-term borrowed funds and repurchase agreements 1,844 315
Long-term debt 281 416
Total interest expense 33,005 30,282
Net interest income 34,517 31,378
Provision for loan losses 1,800 1,425
Net interest income after provision for loan losses 32,717 29,953
Noninterest income:
Service charges on deposit accounts 1,661 1,375
Net security transactions 19 --
Brokerage and insurance commissions 557 518
Other 1,052 1,017
Total noninterest income 3,289 2,910
Noninterest expense:
Compensation and employee benefits 10,145 9,709
Occupancy, net 2,476 2,223
Furniture, fixtures and equipment 1,664 1,345
Federal deposit insurance premiums 345 1,143
Federal deposit insurance special SAIF assessment -- 10,397
Professional, legal and other fees 672 968
Telephone, postage and printing 1,085 1,057
Goodwill amortization 872 737
Capital securities expense 1,170 --
Other 2,693 2,992
Total noninterest expense 21,122 30,571
Income before income taxes 14,884 2,292
Income tax expense 5,506 644
Net income $ 9,378 1,648
Primary and fully diluted earnings per share $ 0.67 0.12
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 127,987 114,336
Other loans 33,514 27,862
Securities available for sale 30,130 32,033
Investment securities 4,934 6,659
Federal funds sold 37 507
Securities purchased under agreement to resell 6 2,166
Stock in Federal Home Loan Bank 962 774
Total interest income 197,570 184,337
Interest expense:
Deposits and escrow accounts 91,907 89,044
Short-term borrowed funds and repurchase agreements 3,803 651
Long-term debt 857 1,130
Total interest expense 96,567 90,825
Net interest income 101,003 93,512
Provision for loan losses 5,400 4,275
Net interest income after provision for loan losses 95,603 89,237
Noninterest income:
Service charges on deposit accounts 4,778 4,073
Net security transactions 274 5
Brokerage and insurance commissions 1,622 1,463
Other 3,381 3,471
Total noninterest income 10,055 9,012
Noninterest expense:
Compensation and employee benefits 30,003 28,678
Occupancy, net 7,467 6,895
Furniture, fixtures and equipment 4,838 3,854
Federal deposit insurance premiums 1,056 3,439
Federal deposit insurance special SAIF assessment -- 10,397
Professional, legal and other fees 2,391 2,308
Telephone, postage and printing 3,310 3,361
Goodwill amortization 2,619 2,209
Capital securities expense 1,495 --
Other 7,955 8,807
Total noninterest expense 61,134 69,948
Income before income taxes 44,524 28,301
Income tax expense 16,388 11,107
Net income $ 28,136 17,194
Earnings per share:
Primary $ 2.03 1.20
Fully diluted 2.02 1.20
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
(Unaudited)
Assets
Cash and due from banks $ 59,625 68,883
Securities available for sale, at approximate market value 722,245 617,943
Investment securities (approximate market value of $75,904 at
September 30, 1997, and $111,091 at December 31, 1996) 74,608 109,607
Loans receivable 2,716,682 2,566,364
Less: allowance for loan losses 26,458 24,114
Loans receivable, net 2,690,224 2,542,250
Accrued interest receivable 28,318 27,092
Office premises and equipment, net 49,615 48,554
Stock in Federal Home Loan Bank, at cost 21,408 16,913
Real estate owned 3,137 4,012
Goodwill 40,901 43,482
Other assets 26,873 27,400
$ 3,716,954 3,506,136
Liabilities
Deposits $ 2,968,626 3,013,129
Escrow accounts 7,118 26,603
Accrued income taxes payable 12,944 3,938
Short-term borrowed funds and repurchase agreements 218,493 42,346
Long-term debt 20,061 30,061
Obligation under capital lease 4,569 4,646
Other liabilities 91,631 66,288
Total liabilities 3,323,442 3,187,011
Corporation-obligated mandatorily redeemable
capital securities of a subsidiary trust ("capital securities") 50,000 --
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; 12,872,195 shares outstanding at
September 30, 1997, and 12,910,763 shares outstanding at
December 31, 1996 157 157
Additional paid-in capital 182,328 180,670
Retained earnings, substantially restricted 235,728 214,283
Treasury stock, at cost (2,825,305 shares at September 30, 1997,
and 2,786,737 shares at December 31, 1996) (73,898) (71,235)
Unrealized gain on securities available for sale, net of tax 5,130 1,781
Common stock acquired by:
Employee stock ownership plan ("ESOP") (5,924) (6,279)
Bank recognition plan ("BRP") (9) (252)
Total stockholders' equity 343,512 319,125
$ 3,716,954 3,506,136
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands) (Unaudited)
<CAPTION>
Net Unrealized
Gain (Loss) Common Common
Additional on Securities Stock Stock
Common Paid-in Retained Treasury Available Acquired Acquired
Stock Capital Earnings Stock for Sale 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 (736,517 shares) -- -- -- (20,101) -- -- -- (20,101)
Exercise of stock options -- -- 282 732 -- -- -- 1,014
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, 1997
Balance at December 31, 1996 $ 157 180,670 214,283 (71,235) 1,781 (6,279) (252) 319,125
Net income -- -- 28,136 -- -- -- -- 28,136
Purchase of treasury stock (154,468 shares) -- -- -- (5,057) -- -- -- (5,057)
Exercise of stock options -- -- (528) 2,394 -- -- -- 1,866
Tax benefits related to vested BRP stock
and stock options exercised -- 1,658 -- -- -- -- -- 1,658
Adjustment of securities available for
sale to market, net of tax -- -- -- -- 3,349 -- -- 3,349
Cash dividends declared -- -- (6,163) -- -- -- -- (6,163)
Amortization of award of ESOP stock -- -- -- -- -- 355 -- 355
Amortization of award of BRP stock -- -- -- -- -- -- 243 243
Balance at September 30, 1997 $ 157 182,328 235,728 (73,898) 5,130 (5,924) (9) 343,512
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)(Unaudited)
<CAPTION> Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Decrease in cash and cash equivalents
Cash flows from operating activities
Net income $ 28,136 17,194
Reconciliation of net income to net cash provided by operating activities:
Depreciation and lease amortization 4,857 3,934
Goodwill amortization 2,619 2,209
Amortization of capitalized costs related to the issuance of capital securities 14 --
Net amortization of premiums and accretion of discounts on securities 703 972
Amortization of award of ESOP and BRP stock 1,185 1,643
Net gain on security transactions (274) (5)
Net gain on sale of real estate owned (229) (308)
Origination of loans receivable for sale (5,405) (15,775)
Proceeds from sale of loans receivable 10,239 20,273
Provision for loan losses 5,400 4,275
Writedown of real estate owned 219 473
Net decrease (increase) in accrued interest receivable (1,226) 725
Net decrease (increase) in other assets (2,062) 2,325
Net increase (decrease) in accrued income taxes payable 10,664 (1,377)
Net increase in other liabilities and obligation under capital lease 27,221 18,746
Net cash provided by operating activities 82,061 55,304
Cash flows from investing activities
Net cash used by acquisition activity -- (61,439)
Proceeds from the sale of securities available for sale -- 25,485
Proceeds from the maturity or call of securities available for sale 163,563 130,762
Proceeds from the sale of securities available for sale 10,519 --
Proceeds from the maturity or call of investment securities 55,377 53,544
Proceeds from the partial recovery of Nationar investment 252 --
Purchase of securities available for sale (273,762) (45,105)
Purchase of investment securities (20,369) (25,179)
Purchase of loans receivable (211,728) (170,883)
Net decrease (increase) in loans receivable 50,271 (24,213)
Redemption (purchase) of Federal Home Loan Bank stock (4,495) 2,912
Proceeds from the sale of real estate owned 4,120 4,644
Capital expenditures (5,918) (4,215)
Net cash used by investing activities (232,170) (113,687)
Cash flows from financing activities
Net increase (decrease) in deposits (44,503) 5,778
Net decrease in escrow accounts (19,485) (18,975)
Net increase in short-term borrowed funds and repurchase agreements 176,147 53,532
Proceeds from long-term debt -- 30,061
Repayment of long-term debt (10,000) --
Proceeds from capital securities 50,000 --
Purchase of treasury stock (5,057) (20,101)
Dividends paid (8,117) (4,638)
Cash proceeds from the exercise of stock options 1,866 399
Net cash provided by financing activities 140,851 46,056
Net decrease in cash and cash equivalents (9,258) (12,327)
Cash and cash equivalents at beginning of period 68,883 105,002
Cash and cash equivalents at end of period $ 59,625 92,675
Supplemental disclosures of cash flow information
Cash paid during the period:
Interest on deposits, escrows, short-term borrowed funds,
repurchase agreements and long-term debt $ 96,882 90,936
Income taxes 6,549 12,804
Supplemental schedule of noncash investing and financing activities:
Net reduction in loans resulting from transfers to real estate owned 3,235 5,380
Net unrealized loss on securities available for sale 5,312 (6,874)
Tax benefits related to vested BRP stock and stock options 1,658 599
Acquisition activity:
Fair value of noncash assets acquired -- 530,967
Fair value of liabilities assumed -- 461,967
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
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 1996 Form
10-K of ALBANK Financial Corporation and subsidiaries. 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, 1997, are not necessarily
indicative of results that may be expected for the entire year
ending December 31, 1997.
The unaudited consolidated interim financial statements include
the accounts of ALBANK Financial Corporation (the "Holding
Company") and its two wholly owned subsidiaries (collectively
with the Holding Company, the "Company"), ALBANK, FSB and
subsidiaries (the "Bank") and ALBANK Capital Trust I (the
"Trust"). 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. Acquisitions
On November 10, 1997, ALBANK Commercial, a newly formed
commercial bank subsidiary of the company, acquired 35 New York
State banking offices from KeyBank National Association (the
"KeyBank Transaction"). The offices are located in northern New
York, the greater Hudson Valley and the Binghamton area. The
transaction included deposit liabilities of approximately $540
million and loans of approximately $49 million for which ALBANK
Commercial paid a deposit premium of approximately 7%. Under a
separate agreement announced in August, ALBANK will acquire
three additional New York State branch offices currently
operated by First Union National Bank, a subsidiary of First
Union Corporation of Charlotte, North Carolina. That
transaction, which involves approximately $33.5 million in
deposits, is scheduled to close early next year.
NOTE 3. Corporation-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust
On June 6, 1997, the Company, through the Trust formed for the
sole purpose of issuing capital securities, issued $50,000,000
in 9.27% capital securities due June 6, 2027 (the "Capital
Securities"), in a private transaction. Proceeds of this issue
are being used for general corporate purposes. In October, 1996
the Federal Reserve Board approved Tier I capital treatment for
this type of capital security. "Dividends" paid on this type of
security are treated as interest for income tax purposes and
are, therefore, a deductible expense. The proceeds to the Trust
were lent to the Holding Company as long-term junior
subordinated debentures that are subordinated to all Holding
Company debt but senior to all common stock. The Capital
Securities may be called at a premium, in whole or in part, on
or after June 6, 2007, and provisions are included which could
provide for the temporary deferral of "dividend" payments for up
to five years under certain conditions.
The Company and the Trust have filed with the Securities and
Exchange Commission a Registration Statement on Form S-4 with
respect to the Trust's $50,000,000 in 9.27% Capital Securities
due June 6, 2007 and the Company's $51,547,000 in corresponding
junior subordinated debentures that will be offered in exchange
for the existing privately placed Capital Securities and junior
subordinated debentures.
NOTE 4. Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." This Statement provides
accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured
borrowings, and supersedes the accounting for financial assets
under SFAS No. 122. The Company adopted SFAS No. 125 on January
1, 1997. Certain aspects of SFAS No. 125 were amended by SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions
of SFAS Statement No. 125." The adoption of SFAS No. 125 did not
have a material impact on the Company's unaudited consolidated
interim financial statements.
NOTE 5. Other Accounting Matters
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock. SFAS
No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. All
prior period EPS will be restated after the effective date of
this statement. Management does not believe the adoption of SFAS
No. 128 will have a material impact on its financial condition
or results of operations.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure" which establishes standards
for disclosure about a company's capital structure. In
accordance with SFAS No. 129, companies will be required to
provide in the financial statements a complete description of
all aspects of their capital structure, including call and put
features, redemption requirements and conversion options. The
disclosures required by SFAS No. 129 are for financial
statements for periods ending after December 15, 1997.
Management anticipates providing the required information in the
1997 annual financial statements.
In June 1997, the FASB issued SFAS No. 130, " Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting comprehensive income. SFAS No. 130 states that
comprehensive income includes the reported net income of a
company adjusted for items that are currently accounted for as
direct entries to equity, such as the mark to market adjustment
on securities available for sale, foreign currency items and
minimum pension liability adjustments. This statement is
effective for fiscal years beginning after December 15, 1997.
Management anticipates developing the required information for
inclusion in the 1998 consolidated financial statements.
In June 1997, the FASB issued SFAS No, 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for reporting by public companies about
operating segments of their business. SFAS No. 131 also
establishes standards for related disclosures about products and
services, geographic areas and major customers. This statement
is effective for periods beginning after December 15, 1997.
Management anticipates developing any required information for
inclusion in the 1998 annual consolidated financial statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
ALBANK Financial Corporation (the "Holding Company", "Company",
"Corporation", "ALBANK") completed its initial public offering
on April 1, 1992. To date, the principal operations of ALBANK
Financial Corporation have been those of ALBANK, FSB and
subsidiaries (the "Bank"). As a result of the formation of
ALBANK Commercial as a New York State-chartered FDIC-insured
commercial bank in October 1997 in connection with the
acquisition by ALBANK Commercial on November 10, 1997 of 35 New
York State banking offices of KeyBank National Association with
deposit liabilities of approximately $540 million and loans of
approximately $49 million, ALBANK became a bank holding company,
registered as such with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") under the Bank
Holding Company Act of 1956.
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 and is subject to certain
regulations of the Federal Reserve Board 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, 1997, were insured by the Savings
Association Insurance Fund ("SAIF"), as administered by the
FDIC, and approximately 34% were treated as 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
73 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.
Under a consent decree filed in the U.S. District Court for the
Northern District of New York on August 13, 1997, entered into
by the U.S. Department of Justice, the Company and the Bank
concerning allegations of fair lending violations relating to
certain of the Bank's arrangements with unaffiliated
"correspondent" mortgage bankers or brokers from whom the Bank
purchased loans originated in Connecticut and in Westchester
County, New York, the Bank agreed to make available $35 million
of home mortgage loans at 1.5% below market rates to homebuyers
in the Connecticut cities of Bridgeport, Hartford, New Britian,
New Haven, Norwalk, Stamford and Waterbury over the next five
years. In Westchester County below I-287, the Bank will make
available $20 million in similarly discounted loans over the
next two years. The Bank will also contribute $350,000 over the
next five years to support home buying counseling and education
programs provided by local organizations in these areas, and
will spend another $350,000, primarily in the form of services,
for the Bank's home buyer education programs.
In agreeing to the Consent Decree, the Bank denied any and all
allegations that it intentionally violated fair lending laws. In
particular, the Bank believes that the loan origination criteria
that it set for the mortgage bankers from whom it purchased
loans in Connecticut and Westchester County were based primarily
on credit quality considerations and, initially, the desire to
stay within markets similar to the Bank's upstate New York
lending area. The Bank agreed to accept the conditions of the
Consent Decree because it believed that the cost of contesting
allegations in the courts would have been significant, and that
protracted litigation would have hampered the Bank's strategic
growth plans.
Liquidity and Capital Resources
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 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 at September 30, 1997, were $59.6 million, a
decrease of $9.3 million (13%) from $68.9 million at December
31, 1996.
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, 1997, was 23.71%.
At the time of its conversion to stock form, the Bank was
required to establish a liquidation account in an amount equal
to its regulatory net worth as of December 31, 1991. The amount
of this liquidation account reduces to the extent that eligible
depositors' accounts are reduced. In the unlikely event of a
complete liquidation (and only in such event), each eligible
depositor would be entitled to receive a distribution from the
liquidation account before any liquidation distribution could be
made to the common stockholders of the Company.
At September 30, 1997, the Bank's capital exceeded each of the
capital requirements of the OTS. At September 30, 1997, the
Bank's tangible and core capital levels were both $233.9 million
(6.40% of total adjusted assets) and its risk-based capital
level was $260.2 million (11.70% 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
On September 30, 1997, total assets equaled $3.717 billion, an
increase of $210.8 million (6%) from the $3.506 billion
outstanding at year-end 1996. The increase in total assets was
generally the combined result of the June 6, 1997, issuance of
$50.0 million of Capital Securities (See Note 3 to Unaudited
Consolidated Interim Financial Statements) and an increased
level of net borrowings. Securities available for sale of $722.2
million at September 30, 1997, increased $104.3 million (17%)
from year-end 1996 as purchases of $273.8 million exceeded
investment proceeds from maturities, payments, calls and sales
of $174.1 million. Investment securities declined $35.0 million
(32%) and totaled $74.6 million at September 30, 1997, as
investment proceeds of $55.4 million exceeded additions to the
portfolio of $20.4 million. Loans receivable of $2.717 billion
at September 30, 1997, increased $150.3 million (6%) from
year-end 1996 as mortgage and other loan originations of $411.0
million and $57.7 million, respectively, outpaced principal
paydowns in each portfolio. Stock in the Federal Home Loan Bank
of $21.4 million increased $4.5 million (27%) due to a purchase
of stock during the first quarter of 1997 in order to maintain
required regulatory levels.
Total liabilities increased $136.4 million (4%) from year-end
1996 and equaled $3.323 billion at September 30, 1997. Total
deposits of $2.969 billion declined $44.5 million (1%) as an
increase of $9.3 million (1%) in time accounts was more than
offset by declines in savings accounts, money market accounts,
interest-bearing transaction accounts and noninterest checking
accounts of $44.9 million (5%), $7.0 million (3%), $1.1 million
and $0.9 million (1%), respectively. Escrow accounts declined
$19.5 million (73%) and totaled $7.1 million at September 30,
1997 as a result of seasonal tax payments. A related increase in
other liabilities occurred as outstanding checks increased $24.2
million (95%). Borrowings increased $166.1 million (229%) to
total $238.6 million at September 30, 1997. Such increases were
used to fund additional investments in securities available for
sale along with increases in net loans outstanding. Accrued
income taxes payable increased $9.0 million (229%) to total
$12.9 million at September 30, 1997, due mainly to the timing of
the required federal and state estimated income tax payments.
Stockholders' equity of $343.5 million increased $24.4 million
(8%) from $319.1 million at year-end 1996. Increases included
net income of $28.1 million, stock option exercises of $1.9
million, net unrealized appreciation in the securities available
for sale portfolio of $3.4 million since December 31, 1996, and
amortization and tax benefits related to ESOP and BRP stock of
$2.3 million. Offsetting these increases were purchases of
treasury stock amounting to $5.1 million and cash dividends
declared during the first nine months of 1997 of $6.2 million.
Book value per common share increased to $26.69 per share at
September 30, 1997, from $24.72 per share at December 31, 1996.
The increase is a combined result of an increase in
stockholders' equity of $24.4 million (8%) to $343.5 million at
September 30, 1997, and a reduction in shares outstanding as
additional stock was purchased under the Company's repurchase
program. At September 30, 1997, the Holding Company held
2,825,305 shares of its common stock as treasury stock compared
with 2,786,737 at year-end 1996. During the first nine months of
1997 the Holding Company acquired 154,468 shares pursuant to its
repurchase program at a cost of $5.1 million and distributed
115,900 shares to fulfill stock option exercises. At September
30, 1997, the Company's ratio of equity to assets was 9.24%,
which compared with 9.10% at December 31, 1996.
Nonperforming assets increased $1.1 million (3%) to total $34.9
million at September 30, 1997, compared with $33.8 million as of
December 31, 1996. Nonperforming loans increased $1.9 million
(6%) from year-end 1996 and totaled $31.7 million at September
30, 1997, compared with $29.82 million at year-end 1996. The
increase in nonperforming loans reflects mainly a decline of
$2.7 million (25%) in accruing loans 90 days or more delinquent,
offset by an increase of $4.6 million (24%) in nonaccrual loans.
The ratio of nonperforming assets to total assets at September
30, 1997, was 0.94% compared with 0.96% at December 31, 1996.
The ratio of nonperforming loans to loans receivable was 1.17%
at September 30, 1997, compared with 1.16% at December 31, 1996.
Comparisons of Operating Results for the Three and Nine Months
Ended September 30, 1997 and 1996
The analyses of net interest income that are shown in the
following tables are an integral part of the discussion of the
results of operations for three and nine months ended September
30, 1997, compared with the corresponding period of the prior
year.
Analysis of Changes in Net Interest Income
The tables below present the extent to which changes in interest
rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company'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>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Rate/Volume Analysis
(in thousands) (unaudited)
<CAPTION>
Three months ended September 30, 1997
compared with
Three months ended September 30, 1996
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income
Mortgage loans, net (1) $ 4,770 (25) 4,745
Other loans, net (1) 1,787 105 1,892
Securities available for sale 456 85 541
Investment securities (758) 84 (674)
Federal funds sold (6) 2 (4)
Securities purchased under agreement to resell (709) 0 (709)
Stock in Federal Home Loan Bank 70 1 71
Total 5,610 252 5,862
Interest Expense
Deposits:
Savings accounts (2) (396) (66) (462)
Transaction accounts (3) 207 (38) 169
Certificate accounts 1,014 608 1,622
Short-term borrowed funds and
repurchase agreements 1,496 33 1,529
Long-term debt (140) 5 (135)
Total 2,181 542 2,723
Change in net interest income $ 3,429 (290) 3,139
</TABLE>
<TABLE>
Nine months ended September 30, 1997
compared with
Nine months ended September 30, 1996
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income
Mortgage loans, net (1) $ 14,821 (1,170) 13,651
Other loans, net (1) 6,067 (415) 5,652
Securities available for sale (1,959) 56 (1,903)
Investment securities (2,020) 295 (1,725)
Federal funds sold (482) 12 (470)
Securities purchased under agreement to resell (2,037) (123) (2,160)
Stock in Federal Home Loan Bank 178 10 188
Total 14,568 (1,335) 13,233
Interest Expense
Deposits:
Savings accounts (2) (1,023) (218) (1,241)
Transaction accounts (3) 775 444 1,219
Certificate accounts 3,251 (366) 2,885
Short-term borrowed funds and
repurchase agreements 3,100 52 3,152
Long-term debt (283) 10 (273)
Total 5,820 (78) 5,742
Change in net interest income $ 8,748 (1,257) 7,491
(1) Net of unearned discounts, premiums and related deferred loan fees/costs, where applicable.
(2) Includes passbook, statement and interest-bearing escrow accounts.
(3) Includes NOW, Super NOW, money market and interest-bearing demand deposit accounts.
</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
annualized 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.
<TABLE>
Three Months Ended September 30,
1997 1996
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands) (Unaudited)
Assets
Interest-earning assets:
Mortgage loans, net (1) $ 2,179,034 43,874 8.05 % $ 1,942,108 39,129 8.06 %
Other loans, net (1) 484,332 11,231 9.22 407,224 9,339 9.15
Securities available for sale 674,267 10,617 6.30 645,286 10,076 6.25
Investment securities 86,572 1,444 6.67 132,199 2,117 6.40
Federal funds sold 1,692 23 5.31 2,098 27 5.25
Securities purchased under agreement to resell -- -- -- 48,641 709 5.79
Stock in Federal Home Loan Bank 21,408 333 6.23 16,913 263 6.18
Total interest-earning assets 3,447,305 67,522 7.82 3,194,469 61,660 7.72
Noninterest-earning assets 180,531 171,671
Total assets $ 3,627,836 $ 3,366,140
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 821,692 5,933 2.87 % $ 876,454 6,395 2.90 %
Transaction accounts (3) 494,967 3,118 2.50 462,167 2,949 2.54
Certificate accounts 1,581,869 21,829 5.47 1,507,623 20,207 5.33
Short-term borrowed funds and
repurchase agreements 128,990 1,844 5.61 24,155 315 5.18
Long-term debt 20,061 281 5.56 30,042 416 5.51
Total interest-bearing liabilities 3,047,579 33,005 4.29 2,900,441 30,282 4.15
Noninterest-bearing demand deposits 108,557 83,422
Noninterest-bearing liabilities 85,002 66,022
Total liabilities 3,241,138 3,049,885
Capital securities 50,000 --
Stockholders' equity 336,698 316,255
Total liabilities and
stockholders' equity $ 3,627,836 $ 3,366,140
Net interest income and
net interest spread $ 34,517 3.53 % $ 31,378 3.57 %
Net interest-earning assets and
net interest margin $ 399,726 4.03 % $ 294,028 3.94 %
Interest-earning assets to
interest-bearing liabilities 1.13 x 1.10 x
Average balances are derived principally from average daily balances and include nonaccruing loans.
Tax-exempt securities income has not been calcualted on a tax equivalent basis. Interest on
securities available for sale includes dividends received on equity securities.
(1) Net of unearned discounts, premiums and related deferred loan fees/costs, where applicable.
(2) Includes passbook, statement and interest-bearing escrow accounts.
(3) Includes NOW, Super NOW, money market and interest-bearing demand deposit accounts.
</TABLE>
<TABLE>
Nine Months Ended September 30,
1997 1996
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands) (Unaudited)
Assets
Interest-earning assets:
Mortgage loans, net (1) $ 2,117,841 127,987 8.06 % $ 1,872,775 114,336 8.14 %
Other loans, net (1) 487,870 33,514 9.18 399,635 27,862 9.30
Securities available for sale 642,921 30,130 6.25 684,724 32,033 6.24
Investment securities 99,213 4,934 6.63 140,073 6,659 6.34
Federal funds sold 907 37 5.32 12,728 507 5.33
Securities purchased under agreement to resell 146 6 5.70 49,544 2,166 5.84
Stock in Federal Home Loan Bank 20,486 962 6.26 16,701 774 6.19
Total interest-earning assets 3,369,384 197,570 7.82 3,176,180 184,337 7.74
Noninterest-earning assets 181,301 170,080
Total assets $ 3,550,685 $ 3,346,260
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 826,180 17,871 2.89 % $ 873,392 19,112 2.92 %
Transaction accounts (3) 499,314 9,863 2.64 459,419 8,644 2.51
Certificate accounts 1,579,962 64,173 5.43 1,499,971 61,288 5.46
Short-term borrowed funds and
repurchase agreements 91,027 3,803 5.54 16,739 651 5.20
Long-term debt 20,830 857 5.50 27,715 1,130 5.44
Total interest-bearing liabilities 3,017,313 96,567 4.28 2,877,236 90,825 4.22
Noninterest-bearing demand deposits 103,785 78,454
Noninterest-bearing liabilities 79,838 70,807
Total liabilities 3,200,936 3,026,497
Capital securities 21,429 --
Stockholders' equity 328,320 319,763
Total liabilities and
stockholders' equity $ 3,550,685 $ 3,346,260
Net interest income and
net interest spread $ 101,003 3.54 % $ 93,512 3.52 %
Net interest-earning assets and
net interest margin $ 352,071 3.99 % $ 298,944 3.92 %
Interest-earning assets to
interest-bearing liabilities 1.12 x 1.10 x
Average balances are derived principally from average daily balances and include nonaccruing loans.
Tax-exempt securities income has not been calculated on a tax equivalent basis. Interest on
securities available for sale includes dividends received on equity securities.
(1) Net of unearned discounts, premiums and related deferred loan fees/costs, where applicable.
(2) Includes passbook, statement and interest-bearing escrow accounts.
(3) Includes NOW, Super NOW, money market and interest-bearing demand deposit accounts.
</TABLE>
Net Income and Interest Analysis
Three Months Ended September 30, 1997 compared with 1996
Net income for the quarter ended September 30, 1997, was $9.4
million, an increase of $7.7 million (469%) from the comparable
quarter last year. Primary and fully diluted earnings per share
were $0.67 for the third quarter of 1997, up from $0.12 per
share a year ago. The 1997 results of operations include the
impact of the September 1996 acquisition of approximately $108
million in loans and deposits from the Green Mountain Bank of
Rutland, Vermont ("Green Mountain"), a wholly owned subsidiary
of Arrow Financial Corporation, and the 1996 one-time assessment
to recapitalize the Savings Association Insurance Fund ("SAIF").
Net interest income increased $3.1 million (10%) and totaled
$34.5 million for the third quarter of 1997. Noninterest income
increased $0.4 million (13%) and totaled $3.3 million, while
noninterest expense declined $9.4 million (31%) and totaled
$21.1 million. Return on average equity and return on average
assets for the third quarter of 1997 were 11.05% and 1.03%,
respectively. For the comparable 1996 period, return on average
equity was 2.07%, while return on average assets was 0.19%.
"Core net income" excludes income or expense amounts (net of
income taxes) included in net income of a nonrecurring nature
which detract from comparative analysis. For the third quarter
of 1997 and 1996 core net income totaled $9.4 million and $8.0
million, respectively. For the third quarter of 1997 there were
no adjustments to net income to arrive at core net income. Core
net income for 1996 excludes the $6.4 million after-tax, $10.4
million before-tax, assessment to recapitalize the SAIF which
amounted to $0.45 per fully diluted share. Core return on
average equity for the third quarter of 1997 was 11.05% compared
with 10.10% for the same period last year; core return on
average assets rose to 1.03% from 0.95% in 1996. "Cash net
income" is defined as core net income plus amortization of
goodwill and costs associated with certain stock related
employee benefit plans. Cash net income for the quarter ended
September 30, 1997, was $10.6 million or $0.76 per share on a
primary and fully diluted basis. Cash net income for the quarter
ended September 30, 1996, was $9.3 million or $0.66 per share on
a both primary and fully diluted basis. Cash return on average
tangible equity for the third quarter of 1997 was 14.20%
compared with 13.26% for the same period last year; cash return
on average assets rose to 1.16% from 1.10% in 1996.
Interest income for the three months ended September 30, 1997,
totaled $67.5 million, an increase of $5.9 million (10%) from
1996's third quarter and was a combined result of a $252.8
million (8%) rise in average interest-earning assets to $3.447
billion and a 10 basis point (1%) increase in the average rate
earned to 7.82%. Interest income on mortgage loans increased
$4.7 million (12%) and totaled $43.9 million as a 1 basis point
decline in the average rate earned was more than offset by a
$236.9 million (12%) rise in the average balance. The average
balance increased as a result of approximately $108 million in
balances acquired from Green Mountain in September 1996 coupled
with loan originations of $212.1 million in the third quarter
of 1997 (which compared with $221.0 million in the third quarter
of 1996). Interest income on other loans was $11.2 million, an
increase of $1.9 million (20%), as both the average rate earned
and the average balance increased by 7 basis points (1%) and
$77.1 million (19%), respectively. Interest income on securities
available for sale increased $0.5 million (5%) and totaled
$10.6 million. The increase occurred as an increase in the
average amount invested of $29.0 million (4%) coupled with an
increase in the average rate earned of 5 basis points (1%).
Interest income on investment securities of $1.4 million was
$0.7 million (32%) lower than the comparable 1996 period as a
decline in the average balance invested of $45.6 million (35%)
more than offset an increase in the average rate earned of 27
basis points (4%). A decline in interest income on securities
purchased under agreement to resell of $0.7 million (100%) was
the result of the maturity of securities in 1997 which were
outstanding during the third quarter of 1996.
Interest expense for the quarter ended September 30, 1997,
amounted to $33.0 million, $2.7 million (9%) more than the
corresponding quarter of last year as the combined result of a
$147.1 million (5%) increase in average interest-bearing
liabilities to $3.048 billion and a 14 basis point (3%) increase
in the average rate paid to 4.29%. The increase in average
interest-bearing deposits of $52.3 million (2%) to $2.899
billion was attributable to the assumption of approximately $108
million in deposits in conjunction with the Green Mountain
acquisition. Declines in savings account average balances of
$54.8 million (6%) and average rate paid of 3 basis points (1%)
resulted in a decrease of $0.5 million (7%) in interest expense
compared with the third quarter of 1996. Transaction account
average balances grew $32.8 million (7%) while rates paid
decreased by 4 basis points (2%) resulting in an increase in
related interest expense of $0.2 million (6%) to $3.1 million.
Interest expense on certificate accounts increased $1.6 million
(8%) and totaled $21.8 million as the combined result of a $74.2
million (5%) increase in average balances and a 14 basis point
(3%) decrease in the average rate paid. Interest expense on
short-term borrowings totaled $1.8 million as a result of a
$104.8 million increase in average balances to $129.0 million
coupled with a 43 basis point (8%) increase in the average rate
paid. Interest expense on long-term debt was $0.3 million, a
decrease of $0.1 million (32%) that was the net result of a
$10.0 million (33%) decline in the average balance and a 5 basis
point (1%) increase in the average rate paid.
Net interest income for the three months ended September 30,
1997, totaled $34.5 million, $3.1 million (10%) greater than the
$31.4 million reported for the comparable quarter a year ago.
The increase in net interest income occurred as a result of a
rise of $252.8 million (8%) in interest-earning assets which
exceeded an increase of $147.1 million (5%) in interest-bearing
liabilities. The net interest spread of 3.53% was 4 basis points
(1%) lower than the results recorded in the comparable quarter a
year ago. The net interest margin for the third quarter of 1997
totaled 4.03% and was 9 basis points (2%) higher than the 1996
third quarter. The increased margin arose as average
interest-bearing assets had a greater percentage increase than
average interest-bearing liabilities. The net interest spread
declined as the rate earned on interest-bearing assets increased
by 10 basis points (1%), while the rate paid on interest-bearing
liabilities increased by 14 basis points (3%).
Nine Months Ended September 30, 1997 compared with 1996
Net income of $28.1 million for first nine months of 1997,
represented an increase of $10.9 million (64%) from the
comparable 1996 period. Primary and fully diluted earnings per
share were $2.03 and $2.02, respectively for the nine months
ended September 30, 1997, both of which were up approximately
70% from $1.20 per share reported in the corresponding
categories during 1996. The 1997 results of operations include
the impact of the September 1996 acquisition of Green Mountain
and the 1996 $6.4 million after tax charge to recapitalize the
SAIF. Net interest income increased $7.5 million (8%) and
totaled $101.0 million for the first nine months of 1997.
Noninterest income of $10.1 million increased $1.0 million
(12%) compared with 1996. Noninterest expense decreased $8.8
million (13%) and totaled $61.1 million for the nine months
ended September 30, 1997. Return on average equity and return on
average assets for the first nine months of 1997 were 11.46% and
1.06%, respectively, compared with 7.18% and 0.69% in 1996.
Core net income for the first nine months of 1997 excludes the
$0.2 million after tax, partial recovery of the 1995 Nationar
write-off. Core net income for 1996 excludes the $6.4 million
after-tax charge to recapitalize the SAIF. For the nine months
of 1997, core net income was $28.0 million or $2.01 per share on
a primary and fully diluted basis, compared with $23.6 million
or $1.65 per primary share and $1.64 per fully diluted share for
1996. Core return on average equity for the first nine months of
1997 was 11.39% compared with 9.85% for the same period last
year; core return on average assets rose to 1.05% from 0.94% in
1996. Cash net income for the nine months ended September 30,
1997, was $31.8 million compared with $27.4 million for 1996.
Earnings per share based on cash net income were $2.29 on a
primary basis and $2.28 on a fully diluted basis for the first
nine months of 1997 compared with $1.92 and $1.91 on a primary
and fully diluted basis for 1996, respectively. Cash return on
average tangible equity for the first nine months of 1997 was
14.85% compared with 12.97% for the same period last year; cash
return on average assets rose to 1.20% from 1.09% in 1996.
Interest income for the nine months of 1997 equaled $197.6
million, $13.2 million (7%) higher than the corresponding period
of 1996. The increase resulted as average interest-earning
assets rose $193.2 million (6%), primarily as a result of
approximately $108 million in loans received in the Green
Mountain acquisition, and totaled $3.369 billion for the nine
months ended September 30, 1997, while the average rate earned
increased 8 basis points (1%) to 7.82%. Interest income on
mortgage loans increased $13.7 million (12%) and totaled $128.0
million as a $245.1 million (13%) increase in average amount
invested was partially reduced by a 8 basis point (1%) decline
in the average rate earned. An increase in the average balance
of other loans of $88.2 million (22%) offset with a 12 basis
point (1%) decline in the average rate earned resulted in an
increase in interest income of $5.7 million (20%). Average loan
balances outstanding continued to expand despite a $15.8 million
(3%) decrease in loan originations which totaled $468.7 million
in the first nine months of 1997 compared with $484.5 million
generated in the comparable period of 1996. Interest income on
securities available for sale declined $1.9 million (6%) as a
result of decreases in the average amount invested of $41.8
million (6%) and a 1 basis point increase in the average rate
earned. Interest income on investment securities dropped $1.7
million (26%) as a decline in the average amount invested of
$40.9 million (29%) was partially offset by an increase in the
average rate paid of 29 basis points (5%). The average amount
invested in federal funds sold declined $11.8 million (93%)
resulting in a corresponding percentage decline in related
interest income. The maturity of a $50.0 million repurchase
agreement which was outstanding throughout the first nine months
of 1996 resulted in a decline in related interest income of $2.2
million.
Interest expense for the first nine months of 1997 was $96.6
million, an increase of $5.7 million (6%) from 1996. The
increase was the combined result of increases in average balance
and average rate paid of $140.1 million (5%) and 6 basis points
(1%), respectively. Interest expense on savings accounts
declined $1.2 million (6%) as a decline in the average balance
of $47.2 million (5%) combined with a 3 basis point (1%) drop in
the average rate paid. A $1.2 million (14%) increase in interest
expense on transaction accounts resulted from a $39.9 million
(9%) increase in average balance and a 13 basis point (5%)
increase in the average rate paid. The average balance of
certificate accounts increased $80.0 million (5%), while the
average rate paid declined 3 basis points (1%) resulting in a
$2.9 million (5%) increase in related interest expense. Interest
expense on short-term borrowed funds increased $3.2 million
(484%) as an increase in average balance of $74.3 million (444%)
combined with a 34 basis point (7%) increase in the average rate
paid.
Net interest income for the first nine months of 1997 increased
$7.5 million (8%) and equaled $101.0 million. The increase in
net interest income arose as a widening net interest spread and
margin of 2 basis points (1%) and 7 basis points (2%),
respectively, combined with an increase in net interest-earning
assets of $53.1 million (18%).
Provision for Loan Losses
The provision for loan losses amounted to $1.8 million and $5.4
million for the quarter and nine months ended September 30,
1997, respectively, compared with $1.4 million and $4.3 million
a year ago. The increases are primarily a function of the
increased outstanding balance of loans receivable. 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. The Bank's allowance for loan losses
totaled $26.5 million (0.97% of loans receivable and 83.43% of
nonperforming loans) at September 30, 1997, compared with $24.1
million (0.94% of loans receivable and 80.88% of nonperforming
loans) at December 31, 1996. The increase in the allowance
during the first nine months of 1997 was the net result of a
provision for loan losses of $5.4 million reduced by net
chargeoffs of $3.1 million.
Noninterest Income
Noninterest income totaled $3.3 million and $10.1 million for
the three and nine months ended September 30, 1997,
respectively, increases of $0.4 (13%) and $1.0 (12%) from the
comparable periods last year. Service charges on deposit
accounts which totaled $1.7 million for the quarter and $4.8
million for the nine months ended September 30, 1997, increased
$0.3 million (21%) and $0.7 million (17%) over the comparable
1996 periods, respectively. The increases are the combined
result of increased fees charged by the Bank for certain deposit
services such as handling returned checks as well as the higher
level of deposit accounts related primarily to the expansion of
the Bank's Marble Division in Vermont to include branches
acquired from Green Mountain. Net security transactions for
the nine months ended September 30, 1997 include a $0.3 million
April 1997 partial recovery of the Nationar investment that was
written off in 1995. Brokerage and insurance commissions
increased $0.2 million (11%) for the nine month period and were
essentially flat for the three month period ended September 30,
1997, as compared with the comparable 1996 period.
Noninterest Expense
Noninterest expense decreased $9.4 million (31%) and totaled
$21.1 million for the three months ended September 30, 1997,
compared with $30.6 million for the same period in 1996. For the
first nine months of 1997 noninterest expense of $61.1 million
compared with $69.9 million in 1996, a decrease of $8.8 million
(13%). Excluding the effect of the September 1996 $10.4 million
assessment to recapitalize the SAIF, noninterest expense
increased $1.0 million (5%) and $1.6 million (3%) for the three
and nine months periods, respectively. Compensation and employee
benefits totaled $10.1 million for the quarter and $30.0 million
for the nine months ended September 30, 1997, increases of $0.4
million (4%) and $1.3 million (5%), respectively, from 1996. A
net increase in salaries resulted from salaries incurred to
staff branches acquired from Green Mountain, other increases in
staff necessary to support the formation of ALBANK Commercial
and the effect of annual merit increases beginning in March. The
net increase in salaries expense for the third quarter of 1997
was somewhat reduced by declines in expenses incurred for
temporary help of $0.1 million (74%) and overtime salaries of
$0.1 million (26%). Corresponding declines for the nine months
ended September 30, 1997 were $0.3 million (67%) and $0.1
million (16%), respectively.
Net occupancy expense for the third quarter of 1997 increased
$0.3 million (11%) to $2.5 million primarily as a combined
result of increased depreciation and tax payments of branches
acquired from Green Mountain as well as rental expenses relating
to the expanded branch network. Similarly, for the nine months
ended September 30, 1997 net occupancy expense increased $0.6
million (8%).
Increased furniture, fixtures and equipment expense of $0.3
million (24%) and $1.0 million (26%) for the three and nine
months ended September 30, 1997, is primarily the result of
depreciation of equipment used to assimilate branches acquired
into the Bank's data processing system.
Excluding the $10.4 million expense incurred in September 1996
to recapitalize the SAIF, Federal deposit insurance premiums
declined $0.8 million (70%) for the three months ended September
30, 1997, and $2.4 million (69%) for the nine months ended
September 30, 1997, compared with the previous year. At
September 30, 1997, approximately 34% of the Bank's deposits,
including all of the deposits acquired in the Green Mountain
acquisition, were insured by the BIF. The remainder of the
Bank's deposits were insured by the SAIF. In September 1996, the
Bank recognized as expense a $10.4 million assessment to
recapitalize the SAIF. As a result of the one-time special
assessment, the SAIF insurance rate was reduced to $0.063 per
$100 of deposit for 1997 from $0.230 per $100 for the same
period last year. BIF rates were $0.013 per $100 during the
first nine months of 1997 and were effectively zero for the
first nine months of 1996.
Professional, legal and other fees declined $0.3 million (31%)
and totaled $0.7 million for the third quarter of 1997 primarily
as a result of lower legal fees. For the nine months ended
September 30, 1997 professional, legal and other fees increased
$0.1 million (4%) to total $2.4 million .
Telephone, postage and printing expense changed slightly in the
third quarter and the first nine months of 1997, as compared to
the prior year and totaled $1.1 million and $3.3 million,
respectively. The Company was able to offset additional expenses
related to the operation of an expanded branch network with
managed cost reductions in this area.
The increases in goodwill amortization of $0.1 million (18%) for
the three months ended September 30, 1997 and $0.4 million (19%)
for the nine months ended September 30, 1997, were related to
the amortization of goodwill resulting from the Green Mountain
acquisition.
Capital securities expense for the third quarter and first nine
months of 1997 totaled $1.2 million and $1.5 million,
respectively and is related to the Corporation-obligated
mandatorily redeemable capital securities of subsidiary trust
issued on June 6, 1997.
Other noninterest expense of $2.7 million for the three months
ended September 30, 1997, represented a decrease of $0.3 million
(10%) below prior year levels. For the first nine months of
1997 other noninterest expense declined $0.9 million (10%) and
totaled $8.0 million. These declines occurred primarily as a
result of reductions of other real estate expense of $0.1
million (16%) and $0.7 million (30%) for the three and nine
month periods, respectively and a reduction of $0.2 million
(40%) in insurance expense in the first nine months of 1997.
The ratios of noninterest expense, excluding capital securities
expense and the 1996 one-time special SAIF assessment, to
average assets were 2.18% and 2.25% on an annualized basis for
the three and nine months ended September 30, 1997, compared
with 2.40% and 2.37% for the same periods last year. The ratios
of noninterest expense net of noninterest income, excluding net
security transactions, capital securities expense and the 1996
one-time special SAIF assessment, to average assets were 1.82%
and 1.88% on an annualized basis for the three and nine months
ended September 30, 1997, respectively, compared with 2.05% and
2.01% for the comparable periods a year ago. The efficiency
ratio measures noninterest expense (excluding amortization of
intangibles, real estate owned-related expense, capital
securities expense and the 1996 one-time 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, 1997 and 1996 were 49.12% and
54.90%, respectively, while the efficiency ratios for the first
nine months of 1997 and 1996 were 50.56% and 54.41%,
respectively.
Income Tax Expense
Income tax expense for the three months ended September 30,
1997, totaled $5.5 million, a $4.9 million (755%) increase over
the same period of the prior year. For the first nine months of
1997, income tax expense was $16.4 million, an increase of $5.3
million (48%) from the comparable 1996 period. The above
increases in income tax expense were primarily related to the
reduction of $4.0 million in income taxes related to the $10.4
million expense to recapitalize the SAIF realized in September
1996. The Company's effective tax rates for the third quarter
and first nine months of 1997 were 37.0% and 36.8%,
respectively, compared with 28.1% and 39.2% in 1996. The lower
effective tax rate for the nine month period resulted from the
combined effect of Federal low income housing and historic
preservation tax credits and downward trends in effective state
franchise tax rates.
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. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(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 14, 1997 BY: /s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 14, 1997 BY: /s/ Richard J. Heller
Richard J. Heller
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q
Exhibit Index
Regulation S-K Exhibit Exhibit
Reference Number Number
11 11.1 Statement regarding Computation of
Per Share Earnings 11.1
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q
Statement regarding Computation of Per Share Earnings
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
Exhibit 11.1 1997 1996 1997 1996
<S> <C> <C>
1. Net income $ 9,378,449 1,648,267 28,136,417 17,194,144
2. Weighted average common shares outstanding 12,842,541 13,135,591 12,829,339 13,430,541
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. 1,073,827 882,246 1,057,528 882,871
4. Total weighted average common shares and
common stock equivalents outstanding for
primary earnings per share computation 13,916,368 14,017,837 13,886,867 14,313,412
5. Primary earnings per share $ 0.67 0.12 2.03 1.20
6. Weighted average common shares outstanding 12,842,541 13,135,591 12,829,339 13,430,541
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. 1,105,310 919,529 1,131,343 935,429
8. Total weighted average common shares and
common stock equivalents outstanding for
fully diluted earnings per share computation 13,947,851 14,055,120 13,960,682 14,365,970
9. Fully diluted earnings per share $ 0.67 0.12 2.02 1.20
</TABLE>
[ARTICLE] 9
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] SEP-30-1997
[CASH] 59,625
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 722,245
[INVESTMENTS-CARRYING] 74,608
[INVESTMENTS-MARKET] 75,904
[LOANS] 2,716,682
[ALLOWANCE] 26,458
[TOTAL-ASSETS] 3,716,954
[DEPOSITS] 2,968,626
[SHORT-TERM] 218,493
[LIABILITIES-OTHER] 116,262
[LONG-TERM] 20,061
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 157
[OTHER-SE] 343,355
[TOTAL-LIABILITIES-AND-EQUITY] 3,716,954
[INTEREST-LOAN] 161,501
[INTEREST-INVEST] 35,064
[INTEREST-OTHER] 1,005
[INTEREST-TOTAL] 197,570
[INTEREST-DEPOSIT] 91,907
[INTEREST-EXPENSE] 96,567
[INTEREST-INCOME-NET] 101,003
[LOAN-LOSSES] 5,400
[SECURITIES-GAINS] 274
[EXPENSE-OTHER] 61,134
[INCOME-PRETAX] 44,524
[INCOME-PRE-EXTRAORDINARY] 28,136
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 28,136
[EPS-PRIMARY] 2.03
[EPS-DILUTED] 2.02
[YIELD-ACTUAL] 3.99
[LOANS-NON] 23,808
[LOANS-PAST] 7,905
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 24,114
[CHARGE-OFFS] 4,003
[RECOVERIES] 947
[ALLOWANCE-CLOSE] 26,458
[ALLOWANCE-DOMESTIC] 21,963
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 4,495
</TABLE>
