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 June 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 July 31, 1997
Common Stock, Par $.01 12,834,006
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 June 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Earnings for the Six
Months Ended June 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Financial Condition as
of June 30, 1997 (Unaudited) and December 31, 1996
Consolidated Statements of Changes in Stockholders' Equity for
the Six Months Ended June 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the Six
Months Ended June 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
June 30,
1997 1996
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 42,072 37,501
Other loans 11,427 9,391
Securities available for sale 10,045 10,603
Investment securities 1,728 2,282
Federal funds sold 13 321
Securities purchased under agreement to resell 6 719
Stock in Federal Home Loan Bank 327 272
Total interest income 65,618 61,089
Interest expense:
Deposits and escrow accounts 30,799 29,401
Short-term borrowed funds and repurchase agreements 1,095 40
Long-term debt 274 406
Total interest expense 32,168 29,847
Net interest income 33,450 31,242
Provision for loan losses 1,800 1,425
Net interest income after provision for loan losses 31,650 29,817
Noninterest income:
Service charges on deposit accounts 1,579 1,342
Net security transactions 255 3
Brokerage and insurance commissions 510 547
Other 1,165 1,200
Total noninterest income 3,509 3,092
Noninterest expense:
Compensation and employee benefits 9,891 9,509
Occupancy, net 2,439 2,263
Furniture, fixtures and equipment 1,648 1,262
Federal deposit insurance premiums 358 1,147
Professional, legal and other fees 862 686
Telephone, postage and printing 1,032 1,075
Goodwill amortization 873 736
Capital securities expense 322 --
Other 2,781 3,051
Total noninterest expense 20,206 19,729
Income before income taxes 14,953 13,180
Income tax expense 5,512 5,345
Net income $ 9,441 7,835
Primary and fully diluted earnings per share $ 0.68 0.54
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>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 84,113 75,207
Other loans 22,283 18,523
Securities available for sale 19,513 21,957
Investment securities 3,490 4,542
Federal funds sold 14 480
Securities purchased under agreement to resell 6 1,457
Stock in Federal Home Loan Bank 629 511
Total interest income 130,048 122,677
Interest expense:
Deposits and escrow accounts 61,027 59,493
Short-term borrowed funds and repurchase agreements 1,959 336
Long-term debt 576 714
Total interest expense 63,562 60,543
Net interest income 66,486 62,134
Provision for loan losses 3,600 2,850
Net interest income after provision for loan losses 62,886 59,284
Noninterest income:
Service charges on deposit accounts 3,117 2,698
Net security transactions 255 5
Brokerage and insurance commissions 1,065 945
Other 2,329 2,454
Total noninterest income 6,766 6,102
Noninterest expense:
Compensation and employee benefits 19,858 18,969
Occupancy, net 4,991 4,672
Furniture, fixtures and equipment 3,174 2,509
Federal deposit insurance premiums 711 2,296
Professional, legal and other fees 1,719 1,340
Telephone, postage and printing 2,225 2,304
Goodwill amortization 1,747 1,472
Capital securities expense 322 --
Other 5,265 5,815
Total noninterest expense 40,012 39,377
Income before income taxes 29,640 26,009
Income tax expense 10,882 10,463
Net income $ 18,758 15,546
Primary and fully diluted earnings per share $ 1.35 1.07
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>
June 30, December 31,
1997 1996
<S> <C> <C>
(Unaudited)
Assets
Cash and due from banks $ 77,815 68,883
Securities available for sale, at approximate market value 660,836 617,943
Investment securities (approximate market value of $93,846 at
June 30, 1997 and $111,091 at December 31, 1996) 92,870 109,607
Loans receivable 2,612,869 2,566,364
Less: allowance for loan losses 25,960 24,114
Loans receivable, net 2,586,909 2,542,250
Accrued interest receivable 28,966 27,092
Office premises and equipment, net 50,029 48,554
Stock in Federal Home Loan Bank, at cost 21,408 16,913
Real estate owned 3,302 4,012
Goodwill 41,774 43,482
Other assets 38,318 27,400
$ 3,602,227 3,506,136
Liabilities
Deposits $ 2,986,514 3,013,129
Escrow accounts 24,749 26,603
Accrued income taxes payable 8,988 3,938
Short-term borrowed funds and repurchase agreements 112,927 42,346
Long-term debt 20,061 30,061
Obligation under capital lease 4,595 4,646
Other liabilities 62,887 66,288
Total liabilities 3,220,721 3,187,011
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust 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; 12,824,856 shares outstanding at
June 30, 1997 and 12,910,763 shares outstanding at
December 31, 1996 157 157
Additional paid-in capital 181,196 180,670
Retained earnings, substantially restricted 228,716 214,283
Treasury stock, at cost (2,872,644 shares at June 30, 1997
and 2,786,737 shares at December 31, 1996) (74,800) (71,235)
Unrealized gain on securities available for sale, net of tax 2,287 1,781
Common stock acquired by:
Employee stock ownership plan ("ESOP") (6,036) (6,279)
Bank recognition plan ("BRP") (14) (252)
Total stockholders' equity 331,506 319,125
$ 3,602,227 3,506,136
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
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>
Six Months Ended June 30, 1996
Balance at December 31, 1995 $ 157 151,969 258,631 (82,381) 3,528 (7,535) (1,187) 323,182
Net income -- -- 15,546 -- -- -- -- 15,546
Purchase of treasury stock (541,017 shares) -- -- -- (15,097) -- -- -- (15,097)
Exercise of stock options -- -- 367 570 -- -- -- 937
Tax benefits related to vested BRP stock and
stock options exercised -- 400 -- -- -- -- -- 400
Adjustment of securities available for sale
to market, net of tax -- -- -- -- (5,691) -- -- (5,691)
Cash dividends declared -- -- (3,251) -- -- -- -- (3,251)
Stock dividends declared -- 27,803 (64,051) 36,248 -- -- -- --
Amortization of award of ESOP stock -- -- -- -- -- 210 -- 210
Amortization of award of BRP stock -- -- -- -- -- -- 467 467
Balance at June 30, 1996 $ 157 180,172 207,242 (60,660) (2,163) (7,325) (720) 316,703
Six Months Ended June 30, 1997
Balance at December 31, 1996 $ 157 180,670 214,283 (71,235) 1,781 (6,279) (252) 319,125
Net income -- -- 18,758 -- -- -- -- 18,758
Purchase of treasury stock (150,468 shares) -- -- -- (4,909) -- -- -- (4,909)
Exercise of stock options -- -- (478) 1,344 -- -- -- 866
Tax benefits related to vested BRP stock and
stock options exercised -- 526 -- -- -- -- -- 526
Adjustment of securities available for sale
to market, net of tax -- -- -- -- 506 -- -- 506
Cash dividends declared -- -- (3,847) -- -- -- -- (3,847)
Amortization of award of ESOP stock -- -- -- -- -- 243 -- 243
Amortization of award of BRP stock -- -- -- -- -- -- 238 238
Balance at June 30, 1997 $ 157 181,196 228,716 (74,800) 2,287 (6,036) (14) 331,506
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
(Unaudited)
Increase in cash and cash equivalents
Cash flows from operating activities:
Net income $ 18,758 15,546
Reconciliation of net income to net cash provided by operating activities:
Depreciation and lease amortization 1,566 1,290
Goodwill amortization 1,747 1,472
Net amortization of premiums and accretion of discounts on securities 499 685
Amortization of award of ESOP and BRP stock 481 677
Net gain on security transactions (255) (5)
Net gain on sale of real estate owned (172) (192)
Origination of loans receivable for sale (4,351) (11,473)
Proceeds from sale of loans receivable 8,863 16,831
Provision for loan losses 3,600 2,850
Writedown of real estate owned 170 364
Net decrease (increase) in accrued interest receivable (1,874) 179
Net decrease (increase) in other assets (11,185) 5,751
Net increase in accrued income taxes payable 5,576 388
Net increase (decrease) in other liabilities and obligation under capital lease (3,418) 9,299
Net cash provided by operating activities 20,005 43,662
Cash flows from investing activities:
Net cash used by acquisition activity -- (54,437)
Proceeds from the sale of securities available for sale -- 22,985
Proceeds from the maturity or call of securities available for sale 94,491 112,181
Proceeds from the maturity or call of investment securities 32,122 40,719
Proceeds from the partial recovery of Nationar investment 252 --
Purchase of securities available for sale (137,157) (44,627)
Purchase of investment securities (15,374) (25,179)
Purchase of loans receivable (91,134) (58,608)
Net decrease (increase) in loans receivable 35,763 (10,530)
Redemption (purchase) of Federal Home Loan Bank stock (4,495) 2,912
Proceeds from the sale of real estate owned 3,312 2,564
Capital expenditures (3,041) (817)
Net cash used by investing activities (85,261) (12,837)
Cash flows from financing activities:
Net decrease in deposits (26,615) (12,481)
Net increase (decrease) in escrow accounts (1,854) 1,290
Net increase (decrease) in short-term borrowed funds and repurchase agreements 70,581 (20,075)
Proceeds from long-term debt -- 30,000
Repayment of long-term debt (10,000) --
Proceeds from capital securities 50,000 --
Purchase of treasury stock (4,909) (15,097)
Dividends paid (3,881) (3,025)
Cash proceeds from the exercise of stock options 866 335
Net cash provided (used) by financing activities 74,188 (19,053)
Net increase in cash and cash equivalents 8,932 11,772
Cash and cash equivalents at beginning of period 68,883 105,002
Cash and cash equivalents at end of period $ 77,815 116,774
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 $ 64,133 60,758
Income taxes 6,407 8,569
Supplemental schedule of noncash investing and financing activities:
Net reduction in loans resulting from transfers to real estate owned 2,600 3,226
Net unrealized loss on securities available for sale 734 (9,670)
Tax benefits related to vested BRP stock and stock options 526 400
Acquisition activity:
Fair value of noncash assets acquired -- 408,693
Fair value of liabilities assumed -- 354,256
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 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 six months ended June 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. Pending Acquisition
On January 24, 1997, the Bank entered into a purchase agreement
with KeyBank National Association (New York) relating to deposit
liabilities of approximately $530 million and 35 New York State
banking offices currently operated by KeyBank (the "KeyBank
Transaction"). The offices are located in northern New York, the
greater Hudson Valley, and the Binghamton area. The Company
intends to establish as a new subsidiary a New York chartered
commercial bank, ALBANK Commercial, which will act under the
agreement to pay a deposit premium of approximately 7% and will
have the option to purchase approximately $53 million in small
business, consumer and mortgage loans. The KeyBank Transaction,
the establishment of ALBANK Commercial and the related
registration of the Company as a bank holding company are
subject to approval by bank regulatory authorities. Following
receipt of those approvals, the two companies currently
anticipate closing the transaction in the Fall of 1997.
NOTE 3. Corporation-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust
On June 6, 1997, the Company, through a subsidiary trust formed
for the sole purpose of issuing capital securities, issued
$50,000,000 in 9.27% Capital Securities due June 6, 2027.
Proceeds of this issue will be used for general corporate
purposes. In October 1996, the Federal Reserve Board approved
Tier I capital treatment for this type of capital security which
provides the Company with a method of funding Tier I capital
that is tax deductible. The proceeds to the Trust are 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 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
interest payments for up to five years under certain conditions.
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 annual 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 the 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",
"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").
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 June 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 Britain, 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 educational programs provided
by local organizations in these areas, and will spend another
$350,000, primarily in the form of services, for the Bank's
homebuyer 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 fighting
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 June 30, 1997, were $77.8 million, an increase of
$8.9 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 June 30, 1997, was 23.16%.
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 June 30, 1997, the Bank's capital exceeded each of the
capital requirements of the OTS. At June 30, 1997, the Bank's
tangible and core capital levels were both $256.3 million (7.23%
of total adjusted assets) and its risk-based capital level was
$282.1 million (12.80% 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 June 30, 1997, total assets equaled $3.602 billion, an
increase of $96.1 million (3%) 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 $660.8
million at June 30, 1997, increased $42.9 million (7%) from
year-end 1996 as purchases of $137.6 million exceeded proceeds
from maturities, payments and calls of $94.7 million.
Investment securities declined $16.7 million (15%) and totaled
$92.9 million at June 30, 1997, as proceeds of $32.1 million
exceeded additions to the portfolio of $15.4 million. Loans
receivable of $2.613 billion at June 30, 1997, increased $46.5
million (2%) from year-end 1996 as mortgage and other loan
originations of $219.7 million and $37.0 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. Other
assets of $38.3 million increased $10.9 million (40%) primarily
due to a $10.3 million receivable established for the maturity
of an investment on June 30, 1997. The $10.3 million and related
interest was received on the next business day. Total
liabilities increased $33.7 million (1%) and equaled $3.221
billion at June 30, 1997. Total deposits of $2.987 billion
declined $26.6 million (1%) as an increase of $4.4 million (1%)
in interest-bearing transaction accounts was more than offset by
declines in savings accounts, time accounts, and noninterest
checking accounts of $23.4 million (3%), $5.2 million and $2.4
million (2%), respectively. Borrowings increased $60.6 million
(84%) to total $133.0 million at June 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 $5.1 million (128%) to total $9.0
million at June 30, 1997, due mainly to the timing of the
required federal and state estimated income tax payments.
Stockholders' equity of $331.5 million increased $12.4 million
(4%) from $319.1 million at year-end 1996. Increases included
net income of $18.8 million, stock option exercises of $0.9
million and net unrealized appreciation in the securities
available for sale portfolio of $0.5 million since December 31,
1996. Other increases were the result of amortization and tax
benefits related to ESOP and BRP stock of $0.2 million and $0.7
million, respectively. Offsetting these increases were purchases
of treasury stock amounting to $4.9 million and cash dividends
declared during the first half of 1997 of $3.8 million.
Book value per common share increased to $25.85 per share at
June 30, 1997, from $24.72 per share at December 31, 1996. The
increase is a combined result of an increase in stockholders'
equity of $12.4 million (4%) to $331.5 million at June 30, 1997,
and a reduction in shares outstanding as additional stock was
purchased under the Company's ongoing repurchase program. At
June 30, 1997, the Holding Company held 2,872,644 shares of its
common stock as treasury stock compared with 2,786,737 at
year-end 1996. During the first half of 1997 the Holding Company
acquired 150,468 shares pursuant to its repurchase program at a
cost of $4.9 million and distributed 64,561 shares to fulfill
stock option exercises. At June 30, 1997, the ratio of equity to
assets was 9.20%, which compared with 9.10% at December 31, 1996.
Nonperforming assets decreased $0.8 million (2%) to total $33.0
million at June 30, 1997, compared with $33.8 million as of
December 31, 1996. Nonperforming loans declined $0.2 million
(1%) from year-end 1996 and totaled $29.7 million at June 30,
1997. The reduction in nonperforming loans reflects mainly a
decline of $3.2 million (30%) in accruing loans 90 days or more
delinquent, offset by an increase of $3.0 million (16%) in
nonaccrual loans. The ratio of nonperforming assets to total
assets at June 30, 1997, was 0.91% compared with 0.96% at
December 31, 1996. The ratio of nonperforming loans to loans
receivable was 1.13% at June 30, 1997, compared with 1.16% at
December 31, 1996.
Comparisons of Operating Results for the Three and Six Months
Ended June 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 six months ended June 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>
<CAPTION>
Three months ended June 30, 1997
compared with
Three months ended June 30, 1996
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income (In thousands) (Unaudited)
Mortgage loans, net (1) $ 4,857 (286) 4,571
Other loans, net (1) 2,238 (202) 2,036
Securities available for sale (642) 84 (558)
Investment securities (655) 101 (554)
Federal funds sold (334) 26 (308)
Securities purchased under
agreement to resell (732) 19 (713)
Stock in Federal Home Loan Bank 69 (14) 55
Total 4,801 (272) 4,529
Interest Expense
Deposits:
Savings accounts (2) (359) (45) (404)
Transaction accounts (3) 253 231 484
Certificate accounts 1,242 76 1,318
Short-term borrowed funds and
repurchase agreements 1,046 9 1,055
Long-term debt (136) 4 (132)
Total 2,046 275 2,321
Change in net interest income $ 2,755 (547) 2,208
Six months ended June 30, 1997
compared with
Six months ended June 30, 1996
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income (In thousands) (Unaudited)
Mortgage loans, net (1) $ 10,052 (1,146) 8,906
Other loans, net (1) 4,285 (525) 3,760
Securities available for sale (2,417) (27) (2,444)
Investment securities (1,260) 208 (1,052)
Federal funds sold (484) 18 (466)
Securities purchased under
agreement to resell (1,357) (94) (1,451)
Stock in Federal Home Loan Bank 108 10 118
Total 8,927 (1,556) 7,371
Interest Expense
Deposits:
Savings accounts (2) (627) (152) (779)
Transaction accounts (3) 560 490 1,050
Certificate accounts 2,239 (976) 1,263
Short-term borrowed funds and
repurchase agreements 1,605 18 1,623
Long-term debt (144) 6 (138)
Total 3,633 (614) 3,019
Change in net interest income $ 5,294 (942) 4,352
(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>
<CAPTION>
Three Months Ended June 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) $ 2,084,423 42,072 8.08 % $ 1,843,887 37,501 8.14 %
Other loans, net (1) 498,843 11,427 9.18 401,327 9,391 9.38
Securities available for sale 638,717 10,045 6.29 679,611 10,603 6.24
Investment securities 103,817 1,728 6.66 143,413 2,282 6.37
Federal funds sold 901 13 5.30 24,198 321 5.32
Securities purchased under
agreement to resell 440 6 5.70 50,000 719 5.79
Stock in Federal Home Loan Bank 21,408 327 6.11 16,913 272 6.47
Total interest-earning assets 3,348,549 65,618 7.84 3,159,349 61,089 7.74
Noninterest-earning assets 181,337 170,425
Total assets $ 3,529,886 $ 3,329,774
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 825,982 5,976 2.90 % $ 875,610 6,380 2.93 %
Transaction accounts (3) 503,609 3,365 2.68 464,423 2,881 2.49
Certificate accounts 1,585,214 21,458 5.43 1,493,433 20,140 5.42
Short-term borrowed funds and
repurchase agreements 78,653 1,095 5.55 3,976 40 4.30
Long-term debt 20,061 274 5.47 30,000 406 5.44
Total interest-bearing liabilities 3,013,519 32,168 4.28 2,867,442 29,847 4.19
Noninterest-bearing demand deposits 101,287 77,275
Noninterest-bearing liabilities 75,388 64,724
Total liabilities 3,190,194 3,009,441
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust 13,736 --
Stockholders' equity 325,956 320,513
Total liabilities and
stockholders' equity $ 3,529,886 $ 3,329,954
Net interest income and
net interest spread $ 33,450 3.56 % $ 31,242 3.55 %
Net interest-earning assets and
net interest margin $ 335,030 3.99 % $ 291,907 3.94 %
Interest-earning assets to
interest-bearing liabilities 1.11 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>
<TABLE>
<CAPTION>
Six Months Ended June 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) $ 2,086,737 84,113 8.07 % $ 1,837,727 75,207 8.19 %
Other loans, net (1) 489,668 22,283 9.16 395,800 18,523 9.38
Securities available for sale 626,989 19,513 6.22 704,659 21,957 6.23
Investment securities 105,638 3,490 6.61 144,054 4,542 6.31
Federal funds sold 508 14 5.33 18,102 480 5.33
Securities purchased under
agreement to resell 221 6 5.70 50,000 1,457 5.86
Stock in Federal Home Loan Bank 20,017 629 6.28 16,593 511 6.20
Total interest-earning assets 3,329,778 130,048 7.82 3,166,935 122,677 7.75
Noninterest-earning assets 181,692 169,276
Total assets $ 3,511,470 $ 3,336,211
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 828,460 11,938 2.91 % $ 871,845 12,717 2.93 %
Transaction accounts (3) 501,524 6,745 2.71 458,335 5,695 2.50
Certificate accounts 1,578,992 42,344 5.41 1,496,103 41,081 5.52
Short-term borrowed funds and
repurchase agreements 71,731 1,959 5.48 12,990 336 5.21
Long-term debt 21,221 576 5.47 26,539 714 5.41
Total interest-bearing liabilities 3,001,928 63,562 4.27 2,865,812 60,543 4.25
Noninterest-bearing demand deposits 101,360 75,637
Noninterest-bearing liabilities 77,213 73,226
Total liabilities 3,180,501 3,014,675
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust 6,906 --
Stockholders' equity 324,063 321,536
Total liabilities and
stockholders' equity $ 3,511,470 $ 3,336,211
Net interest income and
net interest spread $ 66,486 3.55 % $ 62,134 3.50 %
Net interest-earning assets and
net interest margin $ 327,850 3.97 % $ 301,123 3.91 %
Interest-earning assets to
interest-bearing liabilities 1.11 x 1.11 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 June 30, 1997 compared with 1996
Net income for the quarter ended June 30, 1997, was $9.4
million, an increase of $1.6 million (21%) from the comparable
quarter last year. Primary and fully diluted earnings per share
were $0.68 for the second quarter of 1997, up from $0.54 per
share a year ago, representing a 26% increase. 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. Net interest income increased $2.2 million (7%) and
totaled $33.5 million for the second quarter of 1997.
Noninterest income increased $0.4 million (13%) and totaled $3.5
million, while noninterest expense increased $0.5 million (2%)
and totaled $20.2 million. Return on average equity and return
on average assets for the second quarter of 1997 were 11.62% and
1.07%, respectively. For the comparable 1996 period, return on
average equity was 9.83%, while return on average assets was
0.95%.
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 second quarter
of 1997 core net income totaled $9.3 million. Excluded from 1997
core net income was a partial recovery of the 1995 Nationar
investment write-off which totaled $0.2 million after tax ($0.3
million before tax) and amounted to $0.01 per share. For the
second quarter of 1996 there were no such adjustments to net
income necessary to determine core net income. 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 June 30, 1997, was
$10.5 million or $0.75 per share on a fully diluted basis and
$0.76 per share on a primary basis. Cash net income for the
quarter ended June 30, 1996, was $9.1 million or $0.63 per share
on a both primary and fully diluted basis. Cash return on
average tangible equity was 14.81% compared with 12.95% for the
same period last year; cash return on average assets rose to
1.19% from 1.10% in 1996.
Interest income for the three months ended June 30, 1997,
totaled $65.6 million, an increase of $4.5 million (7%) from
1996's second quarter that was a combined result of a $189.2
million (6%) rise in average interest-earning assets to $3.349
billion and a 10 basis point (1%) increase in the average rate
earned to 7.84%. Interest income on mortgage loans increased
$4.6 million (12%) and totaled $42.1 million as a 6 basis point
(1%) decline in the average rate earned was more than offset by
a $240.5 million (13%) rise in the average balance. The average
balance increased primarily as a result of approximately $108
million in balances acquired from Green Mountain in September
1996. Similarly, interest income on other loans was $11.4
million, an increase of $2.0 million (22%), as the average rate
earned declined 20 basis points (2%) and the average balance
increased $97.5 million (24%). The average balance of the
Company's loans increased even though loan originations totaled
$148.5 million in the second quarter of 1997 compared with
$168.4 million in the second quarter of 1996, a decrease of
$19.9 million (12%). Offsetting the increased income on loans
discussed previously was a decline in interest income on
securities available for sale, which totaled $10.0 million,
of $0.6 million (5%). This decline occurred as a decrease
in the average amount invested of $40.9 million (6%) was
partially offset by an increase in the average rate earned
of 5 basis points (1%). Interest income on investment securities
of $1.7 million was $0.6 million (24%) lower than the comparable
1996 period as a decline in the average balance invested of
$39.6 million (28%) more than offset an increase in the average
rate earned of 29 basis points (5%). Declines in interest income
on federal funds sold of $0.3 million (96%) and securities
purchased under agreement to resell of $0.7 million (99%) were
the result of similar percentage declines in the average amounts
invested.
Interest expense for the quarter ended June 30, 1997, amounted
to $32.2 million, $2.1 million (7%) more than the corresponding
quarter of last year as the combined result of a $156.0 million
(5%) increase in average interest-bearing liabilities to $3.014
billion and a 9 basis point (2%) increase in the average rate
paid to 4.28%. The increase in average interest-bearing deposits
of $81.3 million (3%) to $2.915 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 $49.6 million (6%) and
average rate paid of 3 basis points (1%) resulted in a decrease
of $0.4 million (6%) in interest expense compared with the
second quarter of 1996. Transaction account average balances
grew $39.2 million (8%) and rates paid increased by 19 basis
points (8%) resulting in an increase in related interest expense
of $0.5 million (17%) to $3.4 million. Interest expense on
certificate accounts increased $1.3 million (7%) and totaled
$21.5 million as the combined result of a $91.8 million (6%)
increase in average balance and a 1 basis point increase in the
average rate paid. Interest expense on short-term borrowings
totaled $1.1 million as a result of a $74.7 million increase
to $78.7 million in average balance coupled with a 125 basis
point (29%) increase in the average rate paid. The percentage
increase in the average rate paid on short-term borrowings was
due to changes in the composition of various debt instruments
outstanding during the respective quarterly periods. Interest
expense on long-term debt was $0.3 million, a decrease of $0.1
million (33%) that resulted from a $9.9 million (33%) decline
in the average balance and a 3 basis point (1%) increase in
the average rate paid.
Net interest income for the three months ended June 30, 1997,
totaled $33.5 million, $2.2 million (7%) greater than the $31.2
million reported for the comparable quarter a year ago. The
increase in net interest income occurred as a result of a rise
of $189.2 million (6%) in interest-earning assets which exceeded
an increase of $156.0 million (5%) in interest-bearing
liabilities, coupled with increases in net interest spread and
margin. The net interest spread of 3.56% and the net interest
margin of 3.99% for the quarter ended June 30, 1997, were 1 and
5 basis points, respectively, higher than the results recorded
in the comparable quarter a year ago.
Six Months Ended June 30, 1997 compared with 1996
Net income of $18.8 million for first half of 1997, represented
an increase of $3.2 million (21%) from the comparable 1996
period. Primary and fully diluted earnings per share were $1.35
for the six months ended June 30, 1997, up 26% from $1.07 per
share reported in 1996. The 1997 results of operations include
the impact of the September 1996 acquisition of Green Mountain.
Net interest income increased $4.4 million (7%) and totaled
$66.5 million for the first half of 1997. Noninterest income of
$6.8 million increased $0.7 million (11%) compared with 1996.
Noninterest expense increased $0.6 million (2%) and totaled
$40.0 million for the first half of 1997. Return on average
equity and return on average assets for the first six months of
1997 were 11.67% and 1.08%, respectively compared with 9.72% and
0.94% in 1996.
Core net income for the first half of 1997 excludes the $0.2
million after tax, partial recovery of the 1995 Nationar
write-off. For the first half of 1997, core net income was $18.6
million or $1.34 per share on a primary and fully diluted basis,
compared with $15.5 million or $1.07 per share for 1996. Cash
net income for the six months ended June 30, 1997, was $21.2
million compared with $18.1 million for 1996. Earnings per share
based on cash net income were $1.52 on a fully diluted basis and
$1.53 on a primary basis for the first half of 1997 compared
with $1.25 on both a primary and fully diluted basis for 1996.
Cash return on average tangible equity was 15.20% compared with
12.83% for the same period last year; cash return on average
assets rose to 1.22% from 1.09% in 1996.
Interest income for the first half of 1997 equaled $130.0
million, $7.4 million (6%) higher than the corresponding period
of 1996. The increase resulted as average interest-earning
assets rose $162.8 million (5%), primarily as a result of
approximately $108 million in loans received in the Green
Mountain acquisition, and totaled $3.330 billion for the six
months ended June 30, 1997, while the average rate earned
increased 7 basis points (1%) to 7.82%. Interest income on
mortgage loans increased $8.9 million (12%) and totaled $84.1
million as a $249.0 million (14%) increase in average amount
invested was partially reduced by a 12 basis point (1%) decline
in the average rate earned. An increase in the average balance
of other loans of $93.9 million (24%) offset with a 22 basis
point (2%) decline in the average rate earned resulted in an
increase in interest income of $3.8 million (20%). Average loan
balances outstanding continued to expand despite a $6.8 million
(3%) decrease in loan originations which totaled $256.7 million
in the first half of 1997 compared with $263.5 million generated
in the comparable period of 1996. Interest income on securities
available for sale declined $2.4 million (11%) as a result of
decreases in the average amount invested and average rate earned
of $77.7 million (11%) and 1 basis point, respectively. Interest
income on investment securities dropped $1.1 million (23%) as a
decline in the average amount invested of $38.4 million (27%)
was partially offset by an increase in the average rate paid of
30 basis points (5%). The average amount invested in federal
funds sold declined $17.6 million 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 half of 1996 resulted in a decline in
related interest income of $1.5 million.
Interest expense for the first half of 1997 was $63.6 million,
an increase of $3.2 million (5%) from 1996. The increase was the
combined result of increases in average balance and average rate
paid of $141.4 million (5%) and 2 basis points (1%),
respectively. Interest expense on savings accounts declined $0.8
million (6%) as a decline in the average balance of $43.4
million (5%) combined with a 2 basis point (1%) drop in the
average rate paid. A $1.1 million (18%) increase in interest
expense on transaction accounts resulted from a $43.2 million
(9%) increase in average balance and a 21 basis point (8%)
increase in the average rate paid. The average balance of
certificate accounts increased $82.9 million (6%), while the
average rate paid declined 11 basis points (2%) resulting in a
$1.3 million (3%) increase in related interest expense. Interest
expense on short-term borrowed funds increased $1.6 million
(483%) as an increase in average balance of $58.7 million (452%)
combined with a 27 basis point (5%) increase in the average rate
paid.
Net interest income for the first half of 1997 increased $4.4
million (7%) and equaled $66.5 million. The increase in net
interest income arose as a widening net interest spread and
margin of 5 basis points (1%) and 6 basis points (2%),
respectively, combined with an increase in net average
interest-earning assets of $26.7 million (9%).
Provision for Loan Losses
The provision for loan losses amounted to $1.8 million and $3.6
million for the quarter and six months ended June 30, 1997,
respectively, compared with $1.4 million and $2.9 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 $26.0 million (0.99% of loans receivable and 87.54% of
nonperforming loans) at June 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 half of 1997 was the net result of a provision
for loan losses of $3.6 million reduced by net chargeoffs of
$1.7 million.
Noninterest Income
Noninterest income totaled $3.5 million and $6.8 million for the
three and six months ended June 30, 1997, respectively,
increases of $0.4 (13%) and $0.7 (11%) from the comparable
periods last year. Service charges on deposit accounts which
totaled $1.6 million for the quarter and $3.1 million for the
six months ended June 30, 1997, increased $0.2 million (18%) and
$0.4 million (16%) 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 of $0.3 million for the
quarter and six months ended June 30, 1997, resulted from an
April 1997 partial recovery of the Nationar investment that was
written off in 1995. Brokerage and insurance commissions
increased $0.1 million (13%) for the six month period and were
essentially flat for the three month period ended June 30, 1997,
as compared with the comparable 1996 period.
Noninterest Expense
Noninterest expense increased $0.5 million (2%) to $20.2 million
for the three months ended June 30, 1997, compared with $19.7
million for the same period in 1996. For the first half of 1997
noninterest expense of $40.0 million compared with $39.4 million
in 1996, an increase of $0.6 million (2%). Compensation and
employee benefits totaled $9.9 million for the quarter and $19.9
million for the six months ended June 30, 1997, increases of
$0.4 million (4%) and $0.9 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 expanded services, and
the effect of annual merit increases beginning in March. The net
increase in salaries expense was somewhat reduced by declines
in expenses incurred for temporary help for both the second
quarter and the first half of 1997 by $0.1 million (63%) and
$0.2 million (66%), respectively.
Net occupancy expense for the second quarter of 1997 increased
$0.2 million (8%) to $2.4 million primarily as a combined result
of increased depreciation of branches acquired from Green
Mountain as well as rental expenses relating to the expanded
branch network. Similarly, for the first six months of 1997 net
occupancy expense increased $0.3 million (7%). Increased
furniture, fixtures and equipment expense of $0.4 million (31%)
and $0.7 million (27%) for the three and six months ended June
30, 1997, is primarily the result of depreciation of equipment
used to assimilate branches acquired into the Bank's data
processing system.
FDIC deposit insurance premiums declined $0.8 million (69%) for
the three months ended June 30, 1997, and $1.6 million (69%) for
the six months ended June 30, 1997, compared with the previous
year. At June 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 $0.065 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 half of 1997 and were effectively zero for the first half
of 1996.
Professional, legal and other fees totaled $0.9 million for the
second quarter of 1997 and $1.7 million for the first half of
1997, increases of $0.2 million (26%) and $0.4 million (28%),
respectively. The increases were primarily related to legal fees.
Telephone, postage and printing expense declined slightly in the
second quarter and the first half of 1997, as compared to the
prior year and totaled $1.0 million and $2.2 million,
respectively. The Company was able to offset additional expenses
related to the operation of an expanded Marble Division with
managed cost reductions in this area.
The increases in goodwill amortization of $0.1 million (19%) for
the three months ended June 30, 1997 and $0.3 million (19%) for
the six months ended June 30, 1997, were related to the
amortization of goodwill resulting from the Green Mountain
acquisition.
Capital securities expense for 1997 totaled $0.3 million and is
related to the corporation-obligated mandatorily redeemable capital
securities of a subsidiary trust issued on June 6, 1997.
Other noninterest expense of $2.8 million for the three months
ended June 30, 1997, represented a decrease of $0.3 million (9%)
below prior year levels. For the first half of 1997 other
noninterest expense declined $0.6 million (9%) and totaled $5.3
million. These declines occurred primarily as a result of
reductions of other real estate expense of $0.2 million (39%)
and $0.4 million (39%) for the three and six month periods,
respectively and a reduction of $0.1 million (44%) in insurance
premiums realized in the first half of 1997.
The ratios of noninterest expense, excluding capital securities
expense, to average assets were 2.26% and 2.28% on an annualized
basis for the three and six months ended June 30, 1997, compared
with 2.37% and 2.36% for the same periods last year. The ratios
of noninterest expense net of noninterest income, excluding net
securities transactions and capital securities expense, to average
assets were 1.89% and 1.91% on an annualized basis for the three
and six months ended June 30, 1997, respectively, compared with
2.00% for the comparable periods a year ago. The efficiency ratio
measures noninterest expense (excluding amortization of intangibles,
real estate owned related expense and capital securities expense)
as a percentage of net interest income plus noninterest income
(exclusive of net security transactions and real estate owned
related income). The efficiency ratios for the quarters ended
June 30, 1997 and 1996 were 51.11% and 53.94%, respectively.
While the efficiency ratios for the first half of 1997 and 1996
were 51.30% and 54.17%, respectively. Efficiency ratios for
thrift institutions in the $1-5 billion asset range, as reported
by SNL Securities, were 58.98% and 57.06% for the quarters ended
December 31, 1996 and March 31, 1997. The comparable ratios for
all thrifts in the above time periods were 60.63% and 58.96%,
respectively.
Income Tax Expense
Income tax expense for the three months ended June 30, 1997,
totaled $5.5 million, a $0.2 million (2%) increase over the same
period of the prior year. For the first half of 1997, income tax
expense was $10.9 million, an increase of $0.4 million (4%) from
the comparable 1996 period. The increases were due to a rise in
income before income taxes largely mitigated by a decrease in
the effective tax rate. The Company's effective tax rates for
the second quarter and first half of 1997 were 36.9% and 36.7%,
respectively, compared with 40.6% and 40.2% in 1996. The lower
effective tax rate 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
The annual meeting of the shareholders of the Holding Company
was held on May 21, 1997. Proxies were solicited with respect
to such meeting under Regulation 14A of the Securities and
Exchange Act of 1934 pursuant to Proxy materials dated April
12, 1997.
(a) The election of three directors for a term of three years
each. There were no votes in opposition to any of the
nominations.
Number of Number of
Affirmative Withheld
Votes Votes
John E. Maloy, Sr. 10,645,934 738,537
Henry M. Elliot, Jr. 10,630,823 753,648
Karen R. Hitchcock, Ph.D. 10,611,126 773,345
The term of office as a director of the following individuals
continued after the May 21, 1997 meeting:
Herbert G. Chorbajian
William J. Barr
Anthony P. Tartaglia, M.D.
Susan J. Stabile, Esq.
Francis L. McKone
(b) The ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December
31, 1997.
Number of Number of Number of
Affirmative Negative Withheld
Votes Votes Votes
11,207,050 109,481 67,940
(c) The stockholder proposal, opposed by the Board of
Directors, to recommend that the Board of Directors
immediately take steps necessary to actively seek a sale or
merger of the Company on terms that will maximize share value
for stockholders.
Number of Number of Number of
Affirmative Negative Withheld
Votes Votes Votes
1,603,216 7,220,444 438,926
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: August 14, 1997 BY: /s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 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 Six Months
Ended June 30, Ended June 30,
Exhibit 11.1 1997 1996 1997 1996
<S> <C> <C> <C> <C>
1. Net income $ 9,440,684 7,834,414 18,757,967 15,545,878
2. Weighted average common shares outstanding 12,796,835 13,509,270 12,822,629 13,579,636
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. 1,067,106 905,404 1,044,736 883,077
4. Total weighted average common shares and
common stock equivalents outstanding for
primary earnings per share computation 13,863,941 14,414,674 13,867,365 14,462,713
5. Primary earnings per share $ 0.68 0.54 1.35 1.07
6. Weighted average common shares outstanding 12,796,835 13,509,270 12,822,629 13,579,636
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. 1,096,052 905,404 1,105,810 887,149
8. Total weighted average common shares and
common stock equivalents outstanding for
fully diluted earnings per share computation 13,892,887 14,414,674 13,928,439 14,466,785
9. Fully diluted earnings per share $ 0.68 0.54 1.35 1.07
</TABLE>
[ARTICLE] 9
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] JUN-30-1997
[CASH] 77,815
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 660,836
[INVESTMENTS-CARRYING] 92,870
[INVESTMENTS-MARKET] 93,486
[LOANS] 2,612,869
[ALLOWANCE] 25,960
[TOTAL-ASSETS] 3,602,227
[DEPOSITS] 2,986,514
[SHORT-TERM] 112,927
[LIABILITIES-OTHER] 151,219
[LONG-TERM] 20,061
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 157
[OTHER-SE] 331,349
[TOTAL-LIABILITIES-AND-EQUITY] 3,602,227
[INTEREST-LOAN] 106,396
[INTEREST-INVEST] 23,003
[INTEREST-OTHER] 649
[INTEREST-TOTAL] 130,048
[INTEREST-DEPOSIT] 61,027
[INTEREST-EXPENSE] 63,562
[INTEREST-INCOME-NET] 66,486
[LOAN-LOSSES] 3,600
[SECURITIES-GAINS] 255
[EXPENSE-OTHER] 40,012
[INCOME-PRETAX] 29,640
[INCOME-PRE-EXTRAORDINARY] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 18,758
[EPS-PRIMARY] 1.35
[EPS-DILUTED] 1.35
[YIELD-ACTUAL] 3.97
[LOANS-NON] 22,272
[LOANS-PAST] 7,383
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 24,114
[CHARGE-OFFS] 2,535
[RECOVERIES] 781
[ALLOWANCE-CLOSE] 25,960
[ALLOWANCE-DOMESTIC] 21,226
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 4,734
</TABLE>
