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, 1998 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, 1998
Common Stock, Par $.01 13,281,770
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Earnings for the Three
Months Ended June 30, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Earning for the Six Months 4
Ended June 30, 1998 and 1997 (Unaudited)
Consolidated Statements of Financial Condition as
of June 30, 1998 (Unaudited) and December 31, 1997 5
Consolidated Statements of Changes in Stockholders' Equity for
the Six Months Ended June 30, 1998 and 1997 (Unaudited) 6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (Unaudited) 7
Notes to Unaudited Consolidated Interim Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Part II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
Exhibit Index 24
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
Three Months Ended
June 30,
1998 1997
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 45,033 42,072
Other loans 12,064 11,326
Securities available for sale 10,885 10,045
Investment securities 1,530 1,829
Federal funds sold 285 13
Securities purchased under agreement to resell 1,803 6
Federal Home Loan Bank Stock 463 327
Total interest income 72,063 65,618
Interest expense:
Deposits and escrow accounts 35,628 30,799
Short-term borrowed funds and repurchase agreements 329 1,095
Long-term debt 139 274
Total interest expense 36,096 32,168
Net interest income 35,967 33,450
Provision for loan losses 1,800 1,800
Net interest income after provision for loan losses 34,167 31,650
Noninterest income:
Service charges on deposit accounts 3,023 1,579
Net security transactions -- 255
Brokerage and insurance commissions 638 510
Other 1,928 1,165
Total noninterest income 5,589 3,509
Noninterest expense:
Compensation and employee benefits 11,411 9,891
Occupancy, net 2,679 2,439
Furniture, fixtures and equipment 1,877 1,648
Federal deposit insurance premiums 352 358
Professional, legal and other fees 843 862
Telephone, postage and printing 1,234 1,032
Goodwill amortization 1,578 873
Capital securities expense 1,171 325
Other 3,028 2,778
Total noninterest expense 24,173 20,206
Income before income taxes 15,583 14,953
Income tax expense 5,308 5,512
Net income $ 10,275 9,441
Basic earnings per share $ 0.79 0.74
Diluted earnings per share 0.74 0.69
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 90,721 84,113
Other loans 24,269 22,081
Securities available for sale 22,495 19,513
Investment securities 3,130 3,692
Federal funds sold 615 14
Securities purchased under agreement to resell 3,005 6
Federal Home Loan Bank Stock 929 629
Total interest income 145,164 130,048
Interest expense:
Deposits and escrow accounts 70,762 61,027
Short-term borrowed funds and repurchase agreements 668 1,959
Long-term debt 307 576
Total interest expense 71,737 63,562
Net interest income 73,427 66,486
Provision for loan losses 3,600 3,600
Net interest income after provision for loan losses 69,827 62,886
Noninterest income:
Service charges on deposit accounts 5,527 3,117
Net security transactions 93 255
Brokerage and insurance commissions 1,264 1,065
Other 3,550 2,329
Total noninterest income 10,434 6,766
Noninterest expense:
Compensation and employee benefits 23,064 19,858
Occupancy, net 5,412 4,991
Furniture, fixtures and equipment 3,688 3,174
Federal deposit insurance premiums 712 711
Professional, legal and other fees 1,649 1,719
Telephone, postage and printing 2,825 2,225
Goodwill amortization 3,149 1,747
Capital securities expense 2,343 325
Other 6,123 5,262
Total noninterest expense 48,965 40,012
Income before income taxes 31,296 29,640
Income tax expense 11,214 10,882
Net income $ 20,082 18,758
Basic earnings per share $ 1.56 1.48
Diluted earnings per share 1.46 1.37
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
June 30, December 31,
1998 1997
<S> <C> <C>
(Unaudited)
Assets
Cash and due from banks $ 84,393 97,389
Securities purchased under agreement to resell 125,000 75,000
Total cash and cash equivalents 209,393 172,389
Securities available for sale 719,807 768,517
Investment securities 94,101 94,971
Loans receivable 2,865,779 2,856,049
Less: allowance for loan losses 29,717 29,117
Loans receivable, net 2,836,062 2,826,932
Accrued interest receivable 27,149 27,837
Office premises and equipment, net 56,005 57,435
Federal Home Loan Bank Stock 25,864 21,408
Real estate owned 5,207 3,966
Goodwill 79,027 80,281
Other assets 78,253 29,361
$ 4,130,868 4,083,097
Liabilities
Deposits $ 3,505,324 3,483,791
Escrow accounts 25,154 21,172
Accrued income taxes payable 7,535 8,289
Short-term borrowed funds and repurchase agreements 78,105 68,747
Long-term debt 10,061 20,061
Obligation under capital lease 4,488 4,542
Other liabilities 70,756 66,882
Total liabilities 3,701,423 3,673,484
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust 50,000 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;
13,222,104 shares outstanding at June 30, 1998 and
12,906,845 shares outstanding at December 31, 1997 157 157
Additional paid-in capital 184,548 182,704
Retained earnings, substantially restricted 258,222 248,402
Treasury stock, at cost (2,475,396 shares at June
30, 1998 and 2,790,655 shares at December 31, 1997) (66,289) (73,200)
Accumulated other comprehensive income 7,592 6,578
Common stock acquired by employee stock ownership
plan ("ESOP") and bank recognition plan ("BRP") (4,785) (5,028)
Total stockholders' equity 379,445 359,613
$ 4,130,868 4,083,097
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands) (Unaudited)
<CAPTION>
Accumulated Common
Additional Other Stock Total
Comprehensive Common Paid-in Retained Treasury Comprehensive Acquired by Stockholders'
Income Stock Capital Earnings Stock Income ESOP&BRP Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1997
Balance at December 31, 1996 $ -- $ 157 180,670 214,283 (71,235) 1,781 (6,531) 319,125
Net income 18,758 -- -- 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 -- 506
Cash dividends declared -- -- -- (3,847) -- -- -- (3,847)
Amortization of award of ESOP & BRP stock -- -- -- -- -- -- 481 481
Balance at June 30, 1997 $ 19,264 $ 157 181,196 228,716 (74,800) 2,287 (6,050) 331,506
Six Months Ended June 30, 1998
Balance at December 31, 1997 $ -- $ 157 182,704 248,402 (73,200) 6,578 (5,028) 359,613
Net Income 20,082 -- -- 20,082 -- -- -- 20,082
Purchase of treasury stock (31,500 shares) -- -- -- -- (1,432) -- -- (1,432)
Transfer of unallocated BRP shares to
treasury stock (73,022 shares) -- -- -- (609) -- -- (609)
Exercise of stock options -- -- -- (5,179) 8,952 -- -- 3,773
Tax benefits related to vested BRP stock
and stock options exercised -- -- 1,844 -- -- -- -- 1,844
Adjustment of securities available for sale
to market, net of tax 1,014 -- -- -- -- 1,014 -- 1,014
Cash dividends declared -- -- -- (5,083) -- -- -- (5,083)
Amortization of award of ESOP & BRP stock -- -- -- -- -- -- 243 243
Balance at June 30, 1998 $ 21,096 $ 157 184,548 258,222 (66,289) 7,592 (4,785) 379,445
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Increase in Cash and Cash Equivalents
Cash flows from operating activities
Net income $ 20,082 18,758
Reconciliation of net income to net cash provided
(used) by operating activities:
Depreciation and lease amortization 3,938 1,566
Goodwill amortization 3,149 1,747
Amortization of capitalized costs related to
the issuance of capital securities 30 --
Net amortization of premiums and accretion of
discounts on securities 568 499
Amortization of award of ESOP and BRP stock 243 481
Net gain on security transactions (93) (255)
Net gain on sale of real estate owned (168) (172)
Net gain on sale of fixed assets (14) --
Origination of loans receivable for sale (1,585) (4,351)
Proceeds from sale of loans receivable 1,590 8,863
Provision for loan losses 3,600 3,600
Writedown of real estate owned 165 170
Net increase in accrued income taxes payable 1,090 5,576
Net increase in other assets (49,583) (11,185)
Net increase (decrease) in other cash flows 4,149 (5,292)
Net cash provided (used) by operating activities (12,839) 20,005
Cash flows from investing activities
Net cash provided by acquisition activity 27,423 --
Proceeds from the maturity or call of
securities available for sale 181,906 94,491
Proceeds from the maturity or call of
investment securities 25,896 32,122
Proceeds from the partial recovery of
Nationar investment 93 252
Purchase of securities available for sale (132,167) (137,157)
Purchase of investment securities (24,958) (15,374)
Purchase of loans receivable (85,040) (91,134)
Net decrease in loans receivable 69,335 35,763
Purchase of Federal Home Loan Bank stock (4,456) (4,495)
Proceeds from the sale of real estate owned 2,433 3,312
Capital expenditures (2,213) (3,041)
Net cash provided (used) by investing activities 58,252 (85,261)
Cash flows from financing activities
Net decrease in deposits (8,709) (26,615)
Net increase (decrease) in escrow accounts 3,982 (1,854)
Net increase in short-term borrowed funds
and repurchase agreements 9,358 70,581
Repayment of long-term debt (10,000) (10,000)
Proceeds from capital securities -- 50,000
Purchase of treasury stock (2,041) (4,909)
Dividends paid (4,634) (3,881)
Cash proceeds from the exercise of stock options 3,635 866
Net cash provided (used) by financing activities (8,409) 74,188
Net increase in cash and cash equivalents 37,004 8,932
Cash and cash equivalents at beginning of period 172,389 68,883
Cash and cash equivalents at end of period $ 209,393 77,815
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 $ 72,071 64,133
Income taxes 9,455 6,407
Supplemental schedule of noncash investing and
financing activities:
Net reduction in loans resulting from transfers
to real estate owned 3,671 2,600
Net unrealized gain on securities available
for sale 1,665 734
Tax benefits related to vested BRP stock and
stock options exercised 1,844 526
Acquisition activity:
Fair value of noncash assets acquired 2,868 --
Fair value of liabilities assumed 30,291 --
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
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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 1997 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 six months ended June 30, 1998,
are not necessarily indicative of results that may be expected for the entire
year ending December 31, 1998.
The unaudited consolidated interim financial statements include the accounts of
ALBANK Financial Corporation (the "Holding Company") and its three wholly owned
subsidiaries (collectively with the Holding Company, the "Company"), ALBANK, FSB
and subsidiaries, ALBANK Commercial and subsidiary and ALBANK Capital Trust I.
The accounting and reporting policies of the Company conform in all material
respects to generally accepted accounting principles and to general practice
within the banking industry. Certain prior period amounts have been reclassified
to conform to the current period classifications.
NOTE 2. Acquisitions
On January 23, 1998, ALBANK acquired two branch offices previously operated by
First Union National Bank, a subsidiary of First Union Corporation of Charlotte,
North Carolina. On May 1, 1998, one additional branch office was acquired from
First Union. All three of the branches are located in the greater Hudson Valley
area of New York State. These transactions involved $30.3 million in deposits.
NOTE 3. Merger Announcement
On June 15, 1998, ALBANK Financial Corporation, a Delaware corporation ("AFC")
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Charter One Financial, Inc., a Delaware corporation ("Charter One"), and Charter
Michigan Bancorp, Inc., a Delaware corporation ("Charter Michigan"). The Merger
Agreement provides for the merger of AFC with and into Charter Michigan (the
"Merger"), subject to, among other customary conditions, stockholder and
regulatory approvals. Pursuant to the Merger Agreement, at the effective time of
the Merger, each outstanding share of common stock of AFC would be converted
into 2.16 shares of common stock of Charter One. Such number of shares to be
adjusted to reflect a 5% stock dividend payable on September 30, 1998 to holders
of record on September 14, 1998.
NOTE 4. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and displaying comprehensive income and its
components. 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. In the case of the
Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains and losses on
securities available for sale for the period. Accumulated other comprehensive
income represents the net unrealized gains and losses on securities available
for sale as of the balance sheet dates indicated.
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NOTE 5. Earnings Per share
The following tables reconcile basic and diluted earnings per share
calculations:
<TABLE>
Weighted-
Net Average Per Share
(Dollars in thousands, except per share data) Income Shares Amount
<S> <C> <C> <C>
For the Three Months Ended June 30, 1998
Basic earnings per share $ 10,275 12,934,084 $ .79
Dilutive effect of stock options and grants 890,806
Diluted earnings per share $ 10,275 13,824,890 $ .74
For the Three Months Ended June 30, 1997
Basic earnings per share $ 9,441 12,722,324 $ .74
Dilutive effect of stock options and grants 932,174
Diluted earnings per share $ 9,441 13,654,498 $ .69
Weighted-
Net Average Per Share
(Dollars in thousands, except per share data) Income Shares Amount
For the Six Months Ended June 30, 1998
Basic earnings per share $ 20,082 12,890,212 $ 1.56
Dilutive effect of stock options and grants 881,280
Diluted earnings per share $ 20,082 13,771,492 $ 1.46
For the Six Months Ended June 30, 1997
Basic earnings per share $ 18,758 12,702,612 $ 1.48
Dilutive effect of stock options and grants 962,223
Diluted earnings per share $ 18,758 13,664,835 $ 1.37
</TABLE>
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ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
ALBANK Financial Corporation ("ALBANK", the "Company", the "Holding Company")
was formed as a savings and loan holding company under Delaware Law. On October
10, 1997, the Company became a bank holding company as a result of the formation
of ALBANK Commercial, a newly chartered New York commercial bank. The
information and unaudited consolidated interim financial statements in this
report include the accounts of ALBANK Financial Corporation; its wholly owned
subsidiaries, ALBANK, FSB and ALBANK Commercial, along with their related
subsidiaries; and its wholly owned business trust subsidiary, ALBANK Capital
Trust 1. The Company conducts its operations through a branch network of 109
offices in upstate New York, western Massachusetts and Vermont.
On April 1, 1992, ALBANK completed its public offering for 15,697,500 shares of
common stock at $10.00 per share, realizing net proceeds of $150.8 million after
expenses, and concurrently acquired ALBANK, FSB as part of its conversion from a
mutual to a stock form savings bank. ALBANK used $75.4 million of the net
proceeds to acquire all of the issued and outstanding stock of ALBANK, FSB. The
remaining net proceeds were used by the Company for general corporate purposes
which, to date, have included the repurchase of shares of ALBANK's common stock.
ALBANK's business currently consists primarily of the business of its
constituent financial institutions. ALBANK, FSB was organized as the second
mutual savings bank in New York State on March 24, 1820, and is currently the
oldest operating savings bank in the state. On June 30, 1982, ALBANK, FSB
converted to a federally chartered mutual savings bank. ALBANK, FSB's principal
business has been and continues to be attracting retail and corporate deposits
and investing those deposits, together with funds generated from operations and
borrowings, in various loan products and investment securities. With regard to
loans, ALBANK, FSB originates and purchases primarily single-family, owner
occupied, adjustable-rate mortgage loans. ALBANK, FSB also provides Savings
Bank Life Insurance. Additionally, through ALVEST Financial Services, Inc., a
wholly owned brokerage and insurance subsidiary of ALBANK Commercial, ALBANK
offers a wide range of financial products and services. ALBANK Commercial's
business consists primarily of attracting deposits from retail and corporate
customers and municipal/public entities and investing those deposits together
with funds available from operations, in various loan products and investment
securities.
ALBANK is a legal entity separate and distinct from ALBANK, FSB and ALBANK
Commercial. The principal sources of the Company's revenues are dividends and
interest derived from its investments and dividends the Company receives from
ALBANK, FSB and, in the future, from ALBANK Commercial.
As a bank holding company, ALBANK is subject to the regulation and supervision
of the Federal Reserve Board under the Bank Holding Company Act of 1956 and must
file reports with the Federal Reserve Board. Prior to its registration as a
bank holding company in late 1997, ALBANK, as a savings and loan holding
company, was subject to the regulation of the Office of Thrift Supervision
("OTS") under the Savings and Loan Holding Company Act. As a bank holding
company, ALBANK is no longer subject to holding company regulation by the OTS.
ALBANK, FSB, as a federally chartered savings bank, is subject to comprehensive
regulation, examination and supervision by the OTS as its primary federal
regulator and by the FDIC as the administrator of the deposit insurance funds.
ALBANK, FSB's deposit accounts are insured by the FDIC, principally through the
Savings Association Insurance Fund. As a New York chartered commercial bank,
ALBANK Commercial is subject to comprehensive regulation, examination and
supervision by the New York Superintendent of Banks and the New York State
Banking Department under the New York Banking Law. As a state-chartered bank
that is not a member of the Federal Reserve System, ALBANK Commercial's primary
federal regulator is the FDIC. ALBANK Commercial's deposit accounts are insured
by the FDIC through the Bank Insurance Fund. ALBANK, FSB must file reports with
the OTS and the FDIC and ALBANK Commercial must file reports with the New York
Superintendent of Banks and with the FDIC concerning their activities and
financial condition and must obtain regulatory approvals prior to entering into
certain transactions, including mergers with, or acquisitions of, other
financial institutions. ALBANK, FSB also is a member of the Federal Home Loan
Bank of New York. Both institutions are subject to certain limited regulation by
the Federal Reserve Board.
The Company'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 Company'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 Company's operating expenses principally consist of employee
compensation and benefits, federal deposit insurance premiums, occupancy expense
and other general and administrative expenses. The Company's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of the regulatory authorities.
Liquidity and Capital Resources
The Company's 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.
ALBANK, FSB is required to maintain minimum levels of liquid assets as
promulgated by its primary regulator, the OTS. 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 4%.
ALBANK, FSB's liquidity ratio at June 30, 1998, was 24.69%.
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, 1998, were $209.4 million, an increase of
$37.0 million (21%) from $172.4 million at December 31, 1997.
At the time of its conversion to stock form, ALBANK, FSB 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.
As of June 30, 1998, ALBANK's leverage ratio, Tier 1 risk-based ratio and total
risk-based ratio were 8.51%, 13.18% and 14.33%, respectively. ALBANK
Commercial's leverage ratio, Tier 1 risk-based ratio and total risk-based ratio
were 5.07%, 12.30% and 12.99%, respectively. ALBANK FSB's tangible capital
ratio, core ("leverage") ratio, Tier 1 risk-based ratio and total risk-based
ratio were 6.95%, 6.95%, 11.01% and 12.22%, respectively.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulatory authorities concerning capital
components, risk weightings and other factors. Management believes that ALBANK,
ALBANK, FSB and ALBANK Commercial met all pertinent regulatory capital adequacy
requirements at June 30, 1998.
<PAGE>
Financial Condition
On June 30, 1998, total assets equaled $4.131 billion, an increase of $47.8
million from year-end 1997. Securities available for sale decreased $48.7
million (6%) and totaled $719.8 million at June 30, 1998, as proceeds from
maturities, payments and calls of $181.9 million exceeded purchases of $132.2
million. On June 30, 1998, loans receivable totaled $2.866 billion, $9.7 million
more than at December 31, 1997, as originations of $180.6 million exceeded loan
satisfactions along with normal loan principal repayments and transfers to other
real estate. Other assets at June 30, 1998, reflect the purchase of $50 million
of single-premium bank owned life insurance, whereby the Company is the
beneficiary of life insurance on certain of its officers and employees. Cash and
due from banks dropped $13.0 million (13%) while securities purchased under
agreement to resell advanced $50.0 million (67%) during the first half of 1998.
Total liabilities increased $27.9 million from December 31, 1997, and totaled
$3.701 billion at June 30, 1998. Total deposits of $3.505 billion increased
$21.5 million from year-end 1997. Increases in money market accounts of $55.6
million (16%), noninterest bearing checking accounts of $8.4 million (4%) and
interest bearing checking accounts of $1.1 million outpaced declines in savings
accounts and time accounts of $27.8 million (3%) and $15.8 million (1%),
respectively. The majority of the increase in money market accounts resulted
from municipal deposits obtained since December 31, 1997. Escrow accounts of
$25.2 million increased $4.0 million (19%) as a result of normal seasonal
activity during the first six months of 1998. Total borrowings were virtually
unchanged from year-end 1997, while other liabilities rose $3.9 million (6%) to
$70.8 million largely due to increases in outstanding checks.
Stockholders' equity of $379.4 million increased $19.8 million (6%) from $359.6
million at year-end 1997. Increases due to net income of $20.1 million, an
increase of $1.0 million in accumulated other comprehensive income (representing
net appreciation in the securities available for sale portfolio), tax benefits
related primarily to stock option exercises of $1.8 million and net stock option
activity of $3.8 million were partially offset by declines due to treasury stock
activity of $2.0 million and dividends declared of $5.1 million.
The increase in book value per common share to $28.70 at June 30, 1998, from
$27.86 at December 31, 1997, was primarily the result of the $19.8 million (6%)
increase in stockholders' equity to $379.4 million at June 30, 1998. At June 30,
1998 the Holding Company held 2,475,396 shares of its common stock as treasury
stock compared with 2,790,655 at year-end 1997. During 1998 the Company acquired
104,522 shares and issued 419,781 shares to fulfill stock option exercises. At
June 30, 1998, the Company's ratio of equity to assets was 9.19% compared with
8.81% at December 31, 1997.
Nonperforming assets declined $0.5 million (1%) to total $35.3 million at June
30, 1998, compared with $35.8 million at December 31, 1997. Real estate owned
increased $1.2 million (31%) to equal $5.2 million, while nonperforming loans
dropped $1.7 million (5%) to $30.1 million at June 30, 1998. The decline in
nonperforming loans reflects a $1.3 million (19%) decline in accruing loans 90
or more days delinquent and a $0.4 million (2%) reduction in nonaccrual loans.
The ratio of nonperforming assets to total assets was 0.85% at June 30, 1998 and
0.88% at December 31, 1997. The ratio of nonperforming loans to loans receivable
was 1.05% at June 30, 1998, compared with 1.11% at December 31, 1997.
<PAGE>
Comparisons of Operating Results for the Three and Six Months Ended June 30,
1998 and 1997
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, 1998, compared with the corresponding periods 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)
Three Months Ended June 30, 1998
compared with
Three Months Ended June 30, 1997
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income
Mortgage loans, net (1) $ 4,788 (1,827) 2,961
Other loans, net (1) 788 (50) 738
Securities available for sale 1,006 (166) 840
Investment securities (358) 59 (299)
Federal funds sold 273 (1) 272
Securities purchased under
agreement to resell 1,796 1 1,797
Federal Home Loan Bank Stock 75 61 136
Total 8,368 (1,923) 6,445
Interest Expense
Deposits:
Savings accounts (2) (118) (585) (703)
Transaction accounts (3) 1,146 11 1,157
Certificate accounts 4,106 269 4,375
Short-term borrowed funds and
repurchase agreements (631) (135) (766)
Long-term debt (138) 3 (135)
Total 4,365 (437) 3,928
Change in net interest income $ 4,003 (1,486) 2,517
(1) Net of unearned discounts, premiums and related deferred loan fees and 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>
<PAGE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Rate/Volume Analysis
(In thousands) (Unaudited)
<CAPTION>
Six Months Ended June 30, 1998
compared with
Six Months Ended June 30, 1997
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income
Mortgage loans, net (1) $ 9,330 (2,722) 6,608
Other loans, net (1) 2,040 148 2,188
Securities available for sale 2,816 166 2,982
Investment securities (766) 204 (562)
Federal funds sold 601 -- 601
Securities purchased under
agreement to resell 2,998 1 2,999
Federal Home Loan Bank Stock 163 137 300
Total 17,182 (2,066) 15,116
Interest Expense
Deposits:
Savings accounts (2) (213) (1,007) (1,220)
Transaction accounts (3) 2,057 (229) 1,828
Certificate accounts 8,277 850 9,127
Short-term borrowed funds and
repurchase agreements (1,076) (215) (1,291)
Long-term debt (274) 5 (269)
Total 8,771 (596) 8,175
Change in net interest income $ 8,411 (1,470) 6,941
(1) Net of unearned discounts, premiums and related deferred loan fees and 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>
<PAGE>
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 June 30,
1998 1997
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Mortgage loans, net (1) $2,329,243 45,033 7.73% $2,084,423 42,072 8.08%
Other loans, net (1) 526,759 12,064 9.11 492,357 11,326 9.22
Securities available for sale 703,599 10,885 6.19 638,717 10,045 6.29
Investment securities 89,308 1,530 6.85 110,303 1,829 6.63
Federal funds sold 21,110 285 5.41 901 13 5.30
Securities purchased under
agreement to resell 121,703 1,803 5.86 440 6 5.70
Federal Home Loan Bank Stock 25,864 463 7.19 21,408 327 6.11
Total interest-earning assets 3,817,586 72,063 7.54 3,348,549 65,618 7.84
Noninterest-earning assets 287,700 181,337
Total assets $4,105,286 $3,529,886
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 809,459 5,273 2.61% $ 825,982 5,976 2.90%
Transaction accounts (3) 674,509 4,522 2.69 503,609 3,365 2.68
Certificate accounts 1,885,083 25,833 5.50 1,585,214 21,458 5.43
Short-term borrowed funds and
repurchase agreements 27,457 329 4.75 78,653 1,095 5.55
Long-term debt 10,061 139 5.53 20,061 274 5.47
Total interest-bearing liabilities 3,406,569 36,096 4.25 3,013,519 32,168 4.28
Noninterest-bearing demand deposits 189,766 101,287
Noninterest-bearing liabilities 88,036 75,388
Total liabilities 3,684,371 3,190,194
Corporation-obligated manditorily
redeemable capital securities of
subsidiary trust 50,000 13,736
Stockholders' equity 370,915 325,956
Total liabilities and
stockholders' equity $4,105,286 $3,529,886
Net interest income and
net interest spread $35,967 3.29% $33,450 3.56%
Net interest-earning assets and
net interest margin $ 411,017 3.75% $ 335,030 3.99%
Interest-earning assets to
interest-bearing liabilities 1.12 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 and 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>
<PAGE>
<TABLE>
Six Months Ended June 30,
1998 1997
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Mortgage loans, net (1) $2,324,071 90,721 7.80% $2,086,737 84,113 8.07%
Other loans, net (1) 527,510 24,269 9.20 483,151 22,081 9.20
Securities available for sale 716,757 22,495 6.28 626,989 19,513 6.22
Investment securities 89,903 3,130 6.96 112,155 3,692 6.58
Federal funds sold 22,817 615 5.43 508 14 5.33
Securities purchased under
agreement to resell 101,796 3,005 5.87 221 6 5.70
Federal Home Loan Bank Stock 24,682 929 7.59 20,017 629 6.28
Total interest-earning assets 3,807,536 145,164 7.62 3,329,778 130,048 7.82
Noninterest-earning assets 278,785 181,692
Total assets $4,086,321 $3,511,470
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 813,461 10,718 2.66% $ 828,460 11,938 2.91%
Transaction accounts (3) 659,089 8,573 2.62 501,524 6,745 2.71
Certificate accounts 1,882,217 51,471 5.51 1,578,992 42,344 5.41
Short-term borrowed funds and
repurchase agreements 27,851 668 4.82 71,731 1,959 5.48
Long-term debt 11,221 307 5.51 21,221 576 5.47
Total interest-bearing liabilities 3,393,839 71,737 4.26 3,001,928 63,562 4.27
Noninterest-bearing demand deposits 189,093 101,360
Noninterest-bearing liabilities 86,405 77,213
Total liabilities 3,669,337 3,180,501
Corporation-obligated manditorily
redeemable capital securities of
subsidiary trust 50,000 6,906
Stockholders' equity 366,984 324,063
Total liabilities and
stockholders' equity $4,086,321 $3,511,470
Net interest income and
net interest spread $73,427 3.36% $66,486 3.55%
Net interest-earning assets and
net interest margin $ 413,697 3.82% $ 327,850 3.97%
Interest-earning assets to
interest-bearing liabilities 1.12 x 1.11x
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 and 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>
<PAGE>
Net Income and Interest Analysis
Three Months Ended June 30, 1998 compared with 1997
Net income for the quarter ended June 30, 1998, was $10.3 million, an increase
of $0.8 million (9%) from the comparable quarter last year. Basic and diluted
earnings per share were $0.79 and $0.74, respectively for the second quarter of
1998, up from $0.74 and $0.69 per share, respectively, a year ago. The 1998
results of operations include the impact of the November 1997 acquisition of 35
branch offices from KeyBank. Net interest income increased $2.5 million (8%) and
totaled $36.0 million for the second quarter of 1998. Noninterest income
increased $2.1 million (59%) and totaled $5.6 million, while noninterest expense
increased $4.0 million (20%) and totaled $24.2 million. Return on average equity
and return on average assets for the second quarter of 1998 were 11.11% and
1.00%, respectively. For the comparable 1997 period, return on average equity
was 11.62%, while return on average assets was 1.07%. Return on average
stockholders' equity was lower in 1998 because average stockholders' equity
between the two quarters was up 14% while income grew at a 9% rate. The
reduction in return on average assets is primarily a reflection of the leveraged
nature of the KeyBank branch acquisition which increased deposits by
approximately $540 million.
"Core net income" excludes income or expense amounts (net of income taxes)
included in net income of a nonrecurring nature. For the second quarter of 1998
core net income of $10.3 million was unchanged from net income, while 1997 core
net income totaled $9.3 million. Core net income for 1997 excludes the after-tax
effect of an April 1997 partial recovery ($0.2 million) of the 1995 Nationar
write-off. Core return on average equity for the second quarter of 1998 was
11.11% compared with 11.42% for the same period last year; core return on
average assets of 1.00% compared with 1.05% in 1997.
"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, 1998, was $12.2 million or $0.88 per share
on a diluted basis. Cash net income for the quarter ended June 30, 1997, was
$10.5 million or $0.77 per share on a diluted basis. Cash return on average
tangible equity for the second quarter of 1998 was 16.76% compared with 14.81%
for the same period last year; cash return on average assets totaled 1.19% for
both the 1997 and 1998 second quarters.
Interest income for the three months ended June 30, 1998, totaled $72.1 million,
an increase of $6.4 million (10%) from 1997's second quarter which was the net
result of a $469.0 million (14%) rise in average interest-earning assets to
$3.818 billion and a 30 basis point (4%) decrease in the average rate earned to
7.54%. The above mentioned increase in average earning assets resulted primarily
from growth in the mortgage loan portfolio. Interest income on mortgage loans
increased $3.0 million (7%) to $45.0 million as a 35 basis point (4%) decline in
the average rate earned was more than offset by a $244.8 million (12%) rise in
the average balance. The average balance increased as a result of strong loan
origination activity since the second quarter of 1997. Interest income on other
loans was $12.1 million, an increase of $0.7 million (7%), as the average rate
earned declined by 11 basis points while the average balance invested rose $34.4
million (7%) primarily due to loans acquired from KeyBank. Interest income on
securities available for sale increased $0.8 million (8%) and totaled $10.9
million for the current quarter. The net increase was the result of a rise in
the average amount invested of $64.9 million (10%) and a lower average rate
earned of 10 basis points (2%). Interest income on investment securities of $1.5
million was $0.3 million (16%) lower than the comparable 1997 period as a
decline in the average balance invested of $21.0 million (19%) more than offset
an increase in the average rate earned of 22 basis points (3%). Interest income
on federal funds sold rose $0.3 million as balances averaged $20.2 million
during 1998's second quarter compared with $0.9 million during the second
quarter of 1997 and the average yield earned climbed 11 basis points (2%). An
increase in interest income on securities purchased under agreement to resell of
$1.8 million was the product of $121.7 million on average invested during the
second quarter of 1998 at an average yield of 5.86% compared with $0.4 million
at an average yeild of 5.07% during the second quarter of 1997. The above
increases in the average balance of federal funds sold and securities purchased
under agreement to resell were the direct result of funds received in the
November 1997 KeyBank branch acquisition. Interest income on Federal Home Loan
Bank Stock rose $0.1 million (42%) to $0.5 million as a $4.5 million (21%)
increase in average balance combined with a 108 basis point (18%) rise in the
average rate earned.
Interest expense for the quarter ended June 30, 1998, amounted to $36.1 million,
$3.9 million (12%) more than the corresponding quarter of last year as the net
result of a $393.1 million (13%) increase in average interest-bearing
liabilities to $3.407 billion and a 3 basis point drop in the average rate paid
to 4.25%. At the date of acquisition, interest-bearing liabilities acquired in
the KeyBank branch acquisition totaled approximately $469 million, while
noninterest-bearing liabilities acquired were approximately $71 million.
Declines in savings account average balances of $16.5 million (2%) and in the
average rate paid of 29 basis points (10%) resulted in a decrease of $0.7
million (12%) in interest expense compared with the second quarter of 1997.
Interest-bearing transaction account average balances grew $170.9 million (34%)
while rates paid increased by one basis point resulting in an increase in
related interest expense of $1.2 million (34%) to $4.5 million. Interest expense
on certificate accounts increased $4.4 million (20%) to $25.8 million as the
combined result of a $299.9 million (19%) increase in average balances and a 7
basis point (1%) rise in the average rate paid. Interest expense on short-term
borrowings declined $0.8 million (70%) as a result of a $51.2 million (65%)
decrease in average balances to $27.5 million coupled with an 80 basis point
(14%) decline in the average rate paid. The decline in average rate paid
occurred as over 80% of the average short-term borrowings for the second quarter
of 1998 were in comparatively lower rate retail repurchase agreements compared
with 4% in 1997's comparable quarter. Interest expense on long-term debt was
$0.1 million, a decrease of $0.1 million (49%) that was the net result of a
$10.0 million (50%) decline in the average balance and a 6 basis point (1%)
increase in the average rate paid.
Net interest income for the three months ended June 30, 1998, totaled $36.0
million, $2.5 million (8%) greater than the $33.5 million reported for the
comparable quarter a year ago. The increase in net interest income occurred as a
result of a rise of $469.0 million (14%) in interest-earning assets which
exceeded an increase of $393.1 million (13%) in interest-bearing liabilities.
The net interest spread of 3.29% was 27 basis points (8%) lower than the results
recorded in the comparable quarter a year ago as the rate earned on interest-
earning assets decreased by 30 basis points (4%), while the rate paid on
interest-bearing liabilities declined by only 3 basis points. The net interest
margin for the second quarter of 1998 totaled 3.75% and was 24 basis points (6%)
lower than that reported for the second quarter of 1997.
Six Months Ended June 30, 1998 compared with 1997
Net income of $20.1 million for first half of 1998, represented an increase of
$1.3 million (7%) from the comparable 1997 period. Basic and diluted earnings
per share were $1.56 and $1.46, respectively for the six months ended June 30,
1998, up 5% and 7%, respectively from $1.48 and $1.37 per share amounts reported
in 1997. The 1998 results of operations include the impact of the November 1997
acquisition of 35 branch offices from KeyBank. Net interest income increased
$6.9 million (10%) and totaled $73.4 million for the first half of 1998.
Noninterest income of $10.4 million increased $3.7 million (54%) from 1997
levels. Noninterest expense rose $9.0 million (22%) and totaled $49.0 million
for the first half of 1998. Return on average equity and return on average
assets for the first six months of 1998 were 11.04% and 0.99% compared with
11.67% and 1.08% in 1997.
Core net income for the first half of 1998 and 1997 excludes, respectively, a
$0.1 million and a $0.2 million after-tax, partial recovery of the 1995 Nationar
write-off. For the first half of 1998, core net income was $20.0 million or
$1.45 per share on a diluted basis, compared with $18.6 million or $1.36 per
share in 1997. Cash net income for the six months ended June 30, 1998, was $23.8
million compared with $21.2 million for 1997. Diluted earnings per share based
on cash net income were $1.73 for the first half of 1998 compared with $1.55 for
1997. Cash return on average tangible equity was 16.73% compared with 15.20% for
the same period last year; cash return on average assets was 1.17% versus 1.22%
in 1997.
Interest income for the first half of 1998 equaled $145.2 million, $15.1 million
(12%) higher than the corresponding period of 1997. The increase was the net
result of a rise in average interest-earning assets of $477.8 million (14%) to
$3.808 billion and a reduction in the average rate earned of 20 basis points
(3%) to 7.62%. The aforementioned increase in average earning assets resulted
primarily from growth in the mortgage loan portfolio. Interest income on
mortgage loans increased $6.6 million (8%) and totaled $90.7 million as a $237.3
million (11%) increase in average amount invested was partially reduced by a 27
basis point (3%) decline in the average rate earned. The average balance
increased as a result of strong loan origination activity since the second
quarter of 1997. A rise in the average balance of other loans of $44.4 million
(9%), due primarily to loans acquired from KeyBank, resulted in an increase in
interest income of $2.2 million (10%). Interest income on securities available
for sale increased $3.0 million (15%) as a result of the higher average amount
invested and average rate earned of $89.8 million (14%) and 6 basis points (1%),
respectively. Interest income on investment securities dropped $0.6 million
(15%) as a decline in the average amount invested of $22.3 million (20%) was
partially offset by an increase in the average rate earned of 38 basis points
(6%). Interest income on federal funds sold rose $0.6 million as balances
averaged $22.3 million higher during the six months ended June 30, 1998,
compared with 1997 and the average yield increased 10 basis points (2%). An
increase in interest income on securities purchased under agreement to resell of
$3.0 million was the product of $101.8 million on average invested during the
six months ended June 30, 1998, at an average yield of 5.87%. The above
increases in the average balance of federal funds sold and securities under
agreement to resell were the direct result of funds received in the November
1997 KeyBank branch acquisition. Interest income on Federal Home Loan Bank Stock
rose $0.3 million (48%) to $0.9 million as a $4.7 million (23%) increase in
average balance combined with a 131 basis point (21%) rise in the average rate
earned.
Interest expense for the first half of 1998 was $71.7 million, an increase of
$8.2 million (13%) from 1997. The increase was generally the result of increases
in average balance of $391.9 million (13%) while the average rate paid declined
one basis point. Interest expense on savings accounts declined $1.2 million
(10%) as a decline in the average balance of $15.0 million (2%) combined with 25
basis point (9%) drop in the average rate paid. A $1.8 million (27%) increase in
interest expense on transaction accounts resulted from a $157.6 million (31%)
increase in average balance reduced by a 9 basis point (3%) drop in the average
rate paid. The average balance of certificate accounts increased $303.2 million
(19%), and the average rate paid rose 10 basis points (2%) resulting in a $9.1
million (22%) increase in related interest expense. Interest expense on short-
term borrowed funds dropped $1.3 million (66%) as a reduction in average balance
of $43.9 million (61%) combined with a 66 basis point (12%) drop in the average
rate paid. Interest expense on long-term debt was $0.3 million, a decrease of
$0.3 million (47%) that was the net result of a $10.0 million (47%) decline in
the average balance and a 4 basis point increase in the average rate paid.
Net interest income for the first half of 1998 increased $6.9 million (10%) and
equaled $73.4 million. The higher level of net interest income occurred despite
a narrowing of net interest spread and margin of 19 basis points (5%) and 15
basis points (4%), respectively, due to an increase in net interest-earning
assets of $85.8 million (26%).
Provision for Loan Loss
The provision for loan losses amounted to $1.8 million and $3.6 million for the
quarter and six months ended June 30, 1998, respectively, and equaled the
amounts recorded in the corresponding periods in 1997. The Company 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 Company's loan portfolio and changes in
appraised values of collateral as well as general economic conditions. The
Company's allowance for loan losses totaled $29.7 million (1.04% of loans
receivable and 98.84% of nonperforming loans) at June 30, 1998, compared with
$29.1 million (1.02% of loans receivable and 91.52% of nonperforming loans) at
December 31, 1997. The increase in the allowance for loan losses of $0.6 million
(2%) was the net result of a $1.8 million provision for loan losses and net
charge-offs of $1.2 million incurred during the six months ended June 30, 1998.
Noninterest Income
Noninterest income of $5.6 million for the second quarter of 1998 increased $2.1
million (59%) over 1997's second quarter while noninterest income of $10.4
million for the first half of 1998 was up 54% or $3.7 million. This result was
due to ALBANK Commercial's noninterest income of $0.8 million for the quarter
and $1.7 million for the six month period combined with increased fees charged
on certain ALBANK, FSB deposit services, as well as income earned on bank-owned
life insurance. Service charges on deposit accounts totaled $3.0 million for the
quarter and $5.5 million for the year, increases of $1.4 million (91%) and $2.4
million (77%), respectively, over the comparable periods for 1997. The increase
for the quarter was split about evenly between deposit service fees generated by
ALBANK Commercial and increases in certain ALBANK, FSB deposit service charges
which took effect in April 1998, while on a year-to-date basis, the relationship
of these items was approximately two to one. There was no net security
transaction income in the second quarter of 1998, but net security transaction
income of $0.1 million and $0.3 million for the first half of 1998 and 1997,
respectively, was primarily attributable to the partial recoveries of the
Nationar investment written off in 1995. Other noninterest income of $1.9
million for the quarter and $3.6 million for the year increased $0.8 million
(65%) and $1.2 million (52%), respectively, primarily as a result of $0.7
million and $1.0 million in quarterly and year-to-date earnings on bank-owned
life insurance.
Noninterest Expense
Noninterest expense for the three and six month periods ended June 30, 1998, was
$24.2 million and $49.0 million, respectively, increases of $4.0 million (20%)
and $9.0 million (22%) over the comparable periods last year. The increases are
primarily related to expenses incurred for the operation of ALBANK Commercial,
including the amortization of goodwill generated by the November 1997
acquisition of branches from KeyBank. In spite of the above increases in expense
the Company's efficiency ratios improved modestly from 51.11% to 50.61% for the
three months ended June 30, 1998 compared with 1997, while the ratio from the
six month period was 50.99% compared with 51.30% in 1997.
Compensation and employee benefits for 1998 increased $1.5 million (15%) to
$11.4 million for the second quarter and $3.2 million (16%) to $23.1 million for
the first half of the year as expenses incurred to staff branches and support
operations for ALBANK Commercial combined with the impact of annual merit
increases which became effective in March.
Increases in net occupancy expense of $0.2 million (10%) for the second quarter
and $0.4 million (8%) for the first six months of 1998 reflected decreases in
property taxes on certain ALBANK, FSB properties which were more than offset by
expenses from ALBANK Commercial of $0.3 million for the second quarter and $0.7
million for the year.
Furniture, fixtures and equipment expense for the current quarter and six month
period of $1.9 million and $3.7 million increased $0.2 million (14%) and $0.5
million (16%) compared with 1997 as higher depreciation charges of $0.3 million
for the quarter and $0.6 million for the six months that resulted from data
processing hardware and software upgrades were somewhat offset by lower repair
and maintenance expenses.
Federal deposit insurance expense and professional, legal and other fees of $0.4
million and $0.8 million for the second quarter and $0.7 million and $1.6
million for the first half of 1998, respectively, were at comparable levels to
the same periods last year.
Telephone, postage and printing expense for the second quarter increased $0.2
million (20%) over the prior year to $1.2 million. For the first six months,
telephone, postage and printing increased $0.6 million (27%) to $2.8 million.
For the second quarter, the increase is primarily attributable to telephone
expenses, particularly the expenses associated with operating the expanded
branch network to include ALBANK Commercial branches. On a year-to-date basis,
in addition to telephone expense which was up almost $0.3 million, postage
expense rose $0.2 million due primarily to the first quarter 1998 mailing of
notices related to the previously discussed deposit service fee increases.
The increase in goodwill amortization of $0.7 million (81%) to $1.6 million for
the three months ended June 30, 1998, and $1.4 million (80%) to $3.1 million for
the six months ended June 30, 1998, resulted from the KeyBank branch acquisition
in November 1997 and three branches acquired from First Union National Bank, two
in January 1998 and a third in May 1998.
Capital securities expense for the three and six months ended June 30, 1998,
totaled $1.2 million and $2.3 million, respectively. The expense is attributable
to the corporation-obligated mandatorily redeemable capital securities of
subsidiary trust issued on June 6, 1997.
Other noninterest expense of $3.0 million for the second quarter and $6.1
million for the first half of 1998 increased $0.3 million (9%) and $0.9 million
(16%), respectively, over comparable periods for the previous year. Expenses
related to foreclosed real estate ("ORE") were up $0.1 million for the current
quarter and $0.3 million year-to-date; these results were directly attributable
to the December 1996 loan sale which temporarily lowered 1997 ORE costs. The
balance of the increases in other expense was generally related to the operation
of ALBANK Commercial.
Income Tax Expense
Income tax expense for the second quarter of 1998 was $5.3 million, a decrease
of $0.2 million (4%) from the second quarter of 1997. Income tax expense for the
first six months of 1998 was $11.2 million compared with $10.9 million for the
same period last year, an increase of $0.3 million (3%). The second quarter
overall effective income tax rate of 34.1% compares with 36.9% for the same
quarter last year while the overall effective tax rates for the first six months
of 1998 and 1997 were 35.8% and 36.7%, respectively. Income generated by bank-
owned life insurance policies exempt from both Federal and State income taxes,
second quarter additions to the portfolio of projects yielding Federal income
tax credits, and residual tax benefits recognized from the December 1997
liquidation of an ALBANK, FSB subsidiary were the primary reasons for the
reduction in the overall effective income tax rates compared with the previous
year.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is 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 19, 1998. 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 3, 1998.
(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
Herbert G. Chorbajian 10,971,096 48,097
William J. Barr 10,966,965 52,228
Francis L. McKone 10,964,054 55,139
The term of office as a director of the following individuals continued
after the May 19, 1998, meeting:
Karen R. Hitchcock.
John E. Maloy, Sr.
John J. Nigro
Susan J. Stabile, Esq.
Anthony P. Tartaglia, M.D.
(b) The ratification of KPMG Peat Marwick LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998.
Number of Number of Number of
Affirmative Negative Abstain
Votes Votes Votes
10,916,439 28,822 73,932
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Regulation S-K Exhibit
Reference Number
2.1 Agreement and Plan of Merger, Dated as of June 15, 1998, by and
between ALBANK Financial Corporation, Charter One Financial, Inc.,
and Charter Michigan Bancorp, Inc. (incorporated herein be reference
to Exhibit 2.1 of ALBANK's Current Report on Form 8-K, filed on June
30, 1998, SEC File No. 0-19843).
2.2 Stock Option Agreement, dated as of June 15, 1998, between Charter
One Financial Corporation and ALBANK Financial Corporation
(incorporated herein be reference to Exhibit 2.2 of ALBANK's Current
Report on Form 8-K, filed on June 30, 1998, SEC File No. 0-19843).
2.3 Supplemental Letter Agreement dated June 15, 1998 among ALBANK
Financial Corporation, Charter One Financial, Inc. and Charter
Michigan Bancorp, Inc. (incorporated herein be reference to Exhibit
2.3 of ALBANK's Current Report on Form 8-K, filed on June 30, 1998,
SEC File No. 0-19843).
ALBANK Financial Corporation agrees to provide a copy of all omitted
schedules to any such agreement to the Commission upon request.
11.1 Statement regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
Current Report dated June 30, 1998, indicating that ALBANK Financial
Corporation and Charter One Financial, Inc. had entered into an agreement
under the terms of which ALBANK would be merged into a wholly owned
subsidiary of Charter One.
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 12, 1998 BY: /s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 12, 1998 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
Statement Regarding Computation of Per Share Earnings
Exhibit 11.1
See Footnote 5 of the Consolidated Unaudited Interim Financial Statements for
tables which reconcile basic and diluted earnings per share calculations.
<PAGE>
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