UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 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 October 30, 1998
Common Stock, Par $.01 13,440,134
<PAGE>
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 September 30, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Earning for the Nine Months
Ended September 30, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Financial Condition as
of September 30, 1998 (Unaudited) and December 31, 1997 5
Consolidated Statements of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 1998 and 1997 (Unaudited) 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 22
<PAGE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 45,083 43,874
Other loans 12,409 11,134
Securities available for sale 11,359 10,617
Investment securities 1,491 1,541
Federal funds sold 168 23
Securities purchased under agreement to resell 1,865 --
Federal Home Loan Bank Stock 482 333
Total interest income 72,857 67,522
Interest expense:
Deposits and escrow accounts 35,800 30,880
Short-term borrowed funds and repurchase agreements 597 1,844
Long-term debt 333 281
Total interest expense 36,730 33,005
Net interest income 36,127 34,517
Provision for loan losses 1,800 1,800
Net interest income after provision for loan losses 34,327 32,717
Noninterest income:
Service charges on deposit accounts 2,990 1,661
Net security transactions -- 19
Brokerage and insurance commissions 547 557
Other 2,040 1,052
Total noninterest income 5,577 3,289
Noninterest expense:
Compensation and employee benefits 10,503 10,145
Occupancy, net 2,707 2,476
Furniture, fixtures and equipment 1,907 1,664
Federal deposit insurance premiums 346 345
Professional, legal and other fees 844 672
Telephone, postage and printing 1,256 1,085
Goodwill amortization 1,582 872
Capital securities expense 1,171 1,170
Other 3,122 2,693
Total noninterest expense 23,438 21,122
Income before income taxes 16,466 14,884
Income tax expense 5,625 5,506
Net income $ 10,841 9,378
Basic earnings per share $ 0.81 0.73
Diluted earnings per share 0.78 0.68
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
(Unaudited)
Interest income:
Mortgage loans $ 135,804 127,987
Other loans 36,678 33,214
Securities available for sale 33,854 30,130
Investment securities 4,621 5,234
Federal funds sold 783 37
Securities purchased under agreement to resell 4,870 6
Federal Home Loan Bank Stock 1,411 962
Total interest income 218,021 197,570
Interest expense:
Deposits and escrow accounts 106,562 91,907
Short-term borrowed funds and repurchase agreements 1,265 3,803
Long-term debt 640 857
Total interest expense 108,467 96,567
Net interest income 109,554 101,003
Provision for loan losses 5,400 5,400
Net interest income after provision for loan losses 104,154 95,603
Noninterest income:
Service charges on deposit accounts 8,517 4,778
Net security transactions 93 274
Brokerage and insurance commissions 1,811 1,622
Other 5,590 3,381
Total noninterest income 16,011 10,055
Noninterest expense:
Compensation and employee benefits 33,567 30,003
Occupancy, net 8,119 7,467
Furniture, fixtures and equipment 5,595 4,838
Federal deposit insurance premiums 1,058 1,056
Professional, legal and other fees 2,493 2,391
Telephone, postage and printing 4,081 3,310
Goodwill amortization 4,731 2,619
Capital securities expense 3,514 1,495
Other 9,245 7,955
Total noninterest expense 72,403 61,134
Income before income taxes 47,762 44,524
Income tax expense 16,839 16,388
Net income $ 30,923 28,136
Basic earnings per share $ 2.37 2.21
Diluted earnings per share 2.23 2.06
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
<CAPTION>
September 30, December 31,
1998 1997
<S>
(Unaudited)
Assets <C> <C>
Cash and due from banks $ 76,501 97,389
Federal funds sold 28,000 --
Securities purchased under agreement to resell 125,000 75,000
Total cash and cash equivalents 229,501 172,389
Securities available for sale 698,992 768,517
Investment securities 76,101 94,971
Loans receivable 2,911,756 2,856,049
Less: allowance for loan losses 30,475 29,117
Loans receivable, net 2,881,281 2,826,932
Accrued interest receivable 26,489 27,837
Office premises and equipment, net 54,790 57,435
Federal Home Loan Bank Stock 25,864 21,408
Real estate owned 5,643 3,966
Goodwill 77,445 80,281
Other assets 80,746 29,361
$4,156,852 4,083,097
Liabilities
Deposits $3,525,928 3,483,791
Escrow accounts 8,558 21,172
Accrued income taxes payable 9,626 8,289
Short-term borrowed funds and repurchase agreements 29,276 68,747
Long-term debt 35,061 20,061
Obligation under capital lease 4,459 4,542
Other liabilities 100,648 66,882
Total liabilities 3,713,556 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;
13,384,214 shares outstanding at September 30, 1998 and
12,906,845 shares outstanding at December 31, 1997 157 157
Additional paid-in capital 185,621 182,704
Retained earnings, substantially restricted 264,001 248,402
Treasury stock, at cost (2,313,286 shares at September
30, 1998 and 2,790,655 shares at December 31, 1997) (62,473) (73,200)
Accumulated other comprehensive income 10,652 6,578
Common stock acquired by employee stock ownership plan
("ESOP") and bank recognition plan ("BRP") (4,662) (5,028)
Total stockholders' equity 393,296 359,613
$4,156,852 4,083,097
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
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>
Nine Months Ended September 30, 1997
Balance at December 31, 1996 $ -- $ 157 180,670 214,283 (71,235) 1,781 (6,531) 319,125
Net income 28,136 -- -- 28,136 -- -- -- 28,136
Purchase of treasury stock (154,468 shares) -- -- -- -- (5,057) -- -- (5,057)
Exercise of stock options -- -- -- (528) 2,394 -- -- 1,866
Tax benefits related to vested BRP stock
and stock options exercised -- -- 1,658 -- -- -- -- 1,658
Adjustment of securities available for sale
to market, net of tax 3,349 -- -- -- -- 3,349 -- 3,349
Cash dividends declared -- -- -- (6,163) -- -- -- (6,163)
Amortization of award of ESOP & BRP stock -- -- -- -- -- -- 598 598
Balance at September 30, 1997 $ 31,485 $ 157 182,328 235,728 (73,898) 5,130 (5,933) 343,512
Nine Months Ended September 30, 1998
Balance at December 31, 1997 $ -- $ 157 182,704 248,402 (73,200) 6,578 (5,028) 359,613
Net income 30,923 -- -- 30,923 -- -- -- 30,923
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 -- -- -- (7,434) 12,768 -- -- 5,334
Tax benefits related to vested BRP stock
and stock options exercised -- -- 2,917 -- -- -- -- 2,917
Adjustment of securities available for sale
to market, net of tax 4,074 -- -- -- -- 4,074 -- 4,074
Cash dividends declared -- -- -- (7,890) -- -- -- (7,890)
Amortization of award of ESOP & BRP stock -- -- -- -- -- -- 366 366
Balance at September 30, 1998 $ 34,997 $ 157 185,621 264,001 (62,473) 10,652 (4,662) 393,296
See accompanying Notes to Unaudited Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Increase (decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income $ 30,923 28,136
Reconciliation of net income to net cash provided
by operating activities:
Depreciation and lease amortization 5,917 4,857
Goodwill amortization 4,731 2,619
Amortization of capitalized costs related to
the issuance of capital securities 38 14
Net amortization of premiums and accretion of
discounts on securities 756 703
Amortization of award of ESOP and BRP stock 366 1,185
Net gain on security transactions (93) (274)
Net gain on sale of real estate owned (320) (229)
Origination of loans receivable for sale (2,777) (5,405)
Proceeds from sale of loans receivable 2,631 10,239
Provision for loan losses 5,400 5,400
Writedown of real estate owned 261 219
Net increase in accrued income taxes payable 4,254 10,664
Net increase in other assets (52,115) (2,062)
Net increase in other cash flows 32,819 25,995
Net cash provided by operating activities 32,791 82,061
Cash flows from investing activities
Net cash provided by acquisition activity 27,423 --
Proceeds from the sale of
securities available for sale -- 10,519
Proceeds from the maturity or call of
securities available for sale 242,234 163,563
Proceeds from the maturity or call of
investment securities 43,919 55,377
Proceeds from the partial recovery of
Nationar investment 93 252
Purchase of securities available for sale (166,816) (273,762)
Purchase of investment securities (24,958) (20,369)
Purchase of loans receivable (140,616) (211,728)
Net decrease in loans receivable 76,025 50,271
Purchase of Federal Home Loan Bank stock (4,456) (4,495)
Proceeds from the sale of real estate owned 4,132 4,120
Capital expenditures (2,991) (5,918)
Net cash provided (used) by investing activities 53,989 (232,170)
Cash flows from financing activities
Net increase (decrease) in deposits 11,895 (44,503)
Net increase (decrease) in escrow accounts (12,614) (19,485)
Net increase (decrease) in short-term borrowed
funds and repurchase agreements (39,471) 176,147
Proceeds (Repayment) of long-term debt 15,000 (10,000)
Proceeds from capital securities -- 50,000
Purchase of treasury stock (2,041) (5,057)
Dividends paid (7,404) (8,117)
Cash proceeds from the exercise of stock options 4,967 1,866
Net cash provided (used) by financing activities (29,668) 140,851
Net increase (decrease) in cash and cash equivalents 57,112 (9,258)
Cash and cash equivalents at beginning of period 172,389 68,883
Cash and cash equivalents at end of period $ 229,501 59,625
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 $ 108,237 96,882
Income taxes 13,967 6,549
Supplemental schedule of noncash investing and
financing activities:
Net reduction in loans resulting from transfers
to real estate owned 5,750 3,235
Net unrealized gain on securities available
for sale 6,740 5,312
Tax benefits related to vested BRP stock and
stock options exercised 2,917 1,658
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.
</TABLE>
<PAGE>
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 nine months ended September 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. Pending Merger
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"). When the Merger is completed, each outstanding share of common stock
of AFC will be converted into 2.268 shares of common stock of Charter One. The
merger has received all of the required regulatory approvals. Shareholder
meetings of both AFC and Charter One are scheduled for November 13, 1998 to vote
on the merger. Assuming that shareholders of both companies approve the
transaction, a closing is expected as of November 30, 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.
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 September 30, 1998
Basic earnings per share $ 10,841 13,304,398 $ .81
Dilutive effect of stock options and grants 649,588
Diluted earnings per share $ 10,841 13,953,986 $ .78
For the Three Months Ended September 30, 1997
Basic earnings per share $ 9,378 12,768,030 $ .73
Dilutive effect of stock options and grants 931,416
Diluted earnings per share $ 9,378 13,699,446 $ .68
Weighted-
Net Average Per Share
(Dollars in thousands, except per share data) Income Shares Amount
For the Nine Months Ended September 30, 1998
Basic earnings per share $ 30,923 13,029,295 $ 2.37
Dilutive effect of stock options and grants 842,047
Diluted earnings per share $ 30,923 13,871,342 $ 2.23
For the Nine Months Ended September 30, 1997
Basic earnings per share $ 28,136 12,724,491 $ 2.21
Dilutive effect of stock options and grants 954,568
Diluted earnings per share $ 28,136 13,679,059 $ 2.06
</TABLE>
<PAGE>
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, that was
established in anticipation of the November 1997 acquisition of 35 KeyBank
commercial bank branch offices. 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.
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 and ALBANK Commercial are members of the
Federal Home Loan Bank of New York (the "FHLBNY"). Both institutions are also
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 September 30, 1998, was 21.51%.
The Company's most liquid assets are cash and cash equivalents and highly liquid
short-term investments. The levels of these assets are dependent on the
Company's operating, financing and investing activities during any given period.
Cash and cash equivalents at September 30, 1998, were $229.5 million, an
increase of $57.1 million (33%) 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 September 30, 1998, ALBANK's leverage ratio, Tier 1 risk-based ratio and
total risk-based ratio were 8.71%, 13.41% and 14.56%, respectively. ALBANK
Commercial's leverage ratio, Tier 1 risk-based ratio and total risk-based ratio
were 5.99%, 13.32% and 13.93%, respectively. ALBANK FSB's tangible capital
ratio, core ("leverage") ratio, Tier 1 risk-based ratio and total risk-based
ratio were 7.19%, 7.19%, 11.34% and 12.58%, 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 Commercial and ALBANK, FSB met all pertinent regulatory capital adequacy
requirements at September 30, 1998.
Financial Condition
On September 30, 1998, total assets equaled $4.157 billion, an increase of $73.8
million (2%) from year-end 1997. Securities available for sale decreased $69.5
million (9%) and totaled $699.0 million at September 30, 1998, as proceeds from
maturities, payments and calls of $236.3 million exceeded purchases of $166.8
million. On September 30, 1998, loans receivable totaled $2.912 billion, $55.7
million (2%) more than at December 31, 1997, as originations of $480.6 million
exceeded loan satisfactions along with normal loan principal repayments and
transfers to other real estate. Other assets at September 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 $20.9 million (21%) while federal
funds sold and securities purchased under agreement to resell advanced $28.0
million (from zero at year-end 1997) and $50.0 million (67%), respectively,
compared with the year-end balances.
Total liabilities increased $40.1 million (1%) from December 31, 1997, and
totaled $3.714 billion at September 30, 1998. Total deposits of $3.526 billion
increased $42.1 million (1%) from year-end 1997. Increases in money market
accounts of $93.4 million (26%) and certificate accounts of $18.9 million (1%)
outpaced declines in savings accounts of $62.7 million (8%), and other deposit
accounts of $7.5 million (2%). The majority of the increase in money market and
certificate accounts resulted from municipal deposits obtained since December
31, 1997. Escrow accounts of $8.6 million decreased $12.6 million (60%)
primarily as a result of September property tax payment activity. Short-term
borrowed funds and repurchase agreements declined $39.5 million (57%) primarily
due to repayment of short-term advances from the FHLBNY. Long-term debt rose $15
million as the net result of third quarter advances of long-term debt from the
FHLBNY of $25 million as reduced by first quarter repayments of $10 million.
Other liabilities were up $33.8 million (50%) to $100.6 million largely due to
increases in outstanding checks, including escrow disbursement checks.
Stockholders' equity of $393.3 million increased $33.7 million (9%) from $359.6
million at year-end 1997. Increases due to net income of $30.9 million, an
increase of $4.1 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 $2.9 million and net stock option
activity of $5.3 million were partially offset by declines due to treasury stock
activity of $2.0 million and dividends declared of $7.9 million.
The increase in book value per common share to $29.39 at September 30, 1998,
from $27.86 at December 31, 1997, was primarily the result of the $33.7 million
(9%) increase in stockholders' equity to $393.3 million at September 30, 1998.
At September 30, 1998 the Holding Company held 2,313,286 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 581,891 shares to fulfill stock
option exercises. At September 30, 1998, the Company's ratio of equity to assets
was 9.46% compared with 8.81% at December 31, 1997.
Nonperforming assets declined $3.4 million (9%) to total $32.4 million at
September 30, 1998, compared with $35.8 million at December 31, 1997. Real
estate owned increased $1.7 million (42%) to equal $5.6 million, while
nonperforming loans dropped $5.1 million (16%) to $26.8 million at September 30,
1998. The decline in nonperforming loans reflects a slight $0.2 million (3%)
increase in accruing loans 90 or more days delinquent which was more than offset
by a $5.3 million (22%) reduction in nonaccrual loans. The ratio of
nonperforming assets to total assets was 0.78% at September 30, 1998 and 0.88%
at December 31, 1997. The ratio of nonperforming loans to loans receivable was
0.92% at September 30, 1998, compared with 1.11% at December 31, 1997.
<PAGE>
Comparisons of Operating Results for the Three and Nine Months Ended September
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
nine months ended September 30, 1998, compared with the corresponding period of
the prior year.
Analysis of Changes in Net Interest Income
The tables below present the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume) and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARIES
Rate/Volume Analysis
(In thousands) (Unaudited)
<CAPTION>
Three Months Ended September 30, 1998
compared with
Three Months Ended September 30, 1997
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income
Mortgage loans, net (1) $ 3,300 (2,091) 1,209
Other loans, net (1) 1,614 (339) 1,275
Securities available for sale 708 34 742
Investment securities (95) 45 (50)
Federal funds sold 145 -- 145
Securities purchased under
agreement to resell 1,865 -- 1,865
Federal Home Loan Bank Stock 76 73 149
Total 7,613 2,278 5,335
Interest Expense
Deposits:
Savings accounts(2) (197) (525) (722)
Transaction accounts (3) 1,525 497 2,022
Certificate accounts 3,730 (110) 3,620
Short-term borrowed funds and
repurchase agreements (1,065) (182) (1,247)
Long-term debt 57 (5) 52
Total 4,050 (325) 3,725
Change in net interest income $ 3,563 (1,953) 1,610
(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>
Nine Months Ended September 30, 1998
compared with
Nine Months Ended September 30, 1997
Increase (Decrease)
Due to
Volume Rate Net
<S> <C> <C> <C>
Interest Income
Mortgage loans, net (1) $ 12,601 (4,784) 7,817
Other loans, net (1) 3,661 (197) 3,464
Securities available for sale 3,520 204 3,724
Investment securities (855) 242 (613)
Federal funds sold 746 -- 746
Securities purchased under
agreement to resell 4,864 -- 4,864
Federal Home Loan Bank Stock 238 211 449
Total 24,775 (4,324) 20,451
Interest Expense
Deposits:
Savings accounts (2) (411) (1,531) (1,942)
Transaction accounts (3) 3,599 251 3,850
Certificate accounts 12,009 738 12,747
Short-term borrowed funds and
repurchase agreements (2,139) (399) (2,538)
Long-term debt (215) (2) (217)
Total 12,843 (943) 11,900
Change in net interest income $ 11,932 (3,381) 8,551
(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 September 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) $ 2,347,840 45,083 7.68% $ 2,179,034 43,874 8.05%
Other loans, net (1) 549,148 12,409 8.91 478,056 11,134 9.26
Securities available for sale 719,077 11,359 6.32 674,267 10,617 6.30
Investment securities 87,232 1,491 6.84 92,848 1,541 6.64
Federal funds sold 12,267 168 5.44 1,692 23 5.31
Securities purchased under
agreement to resell 125,000 1,865 5.84 -- -- --
Federal Home Loan Bank Stock 25,864 482 7.38 21,408 333 6.23
Total interest-earning assets 3,866,428 72,857 7.51 3,447,305 67,522 7.82
Noninterest-earning assets 287,452 180,531
Total assets $ 4,153,880 $ 3,627,836
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 793,675 5,211 2.61% $ 821,692 5,933 2.87%
Transaction accounts (3) 713,435 5,140 2.86 494,967 3,118 2.50
Certificate accounts 1,853,415 25,449 5.45 1,581,869 21,829 5.47
Short-term borrowed funds and
repurchase agreements 46,860 597 4.99 128,990 1,844 5.61
Long-term debt 24,191 333 5.46 20,061 281 5.56
Total interest-bearing liabilities 3,431,576 36,730 4.25 3,047,579 33,005 4.29
Noninterest-bearing demand deposits 198,374 108,557
Noninterest-bearing liabilities 89,046 85,002
Total liabilities 3,718,996 3,241,138
Corporation-obligated mandatorily
redeemable capital securities of
subsidiary trust 50,000 50,000
Stockholders' equity 384,884 336,698
Total liabilities and
stockholders' equity $ 4,153,880 $ 3,627,836
Net interest income and
net interest spread $ 36,127 3.26% $ 34,517 3.53%
Net interest-earning assets and
net interest margin $ 434,852 3.74% $ 399,726 4.03%
Interest-earning assets to
interest-bearing liabilities 1.13 x 1.13 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>
Nine Months Ended September 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) $ 2,332,081 135,804 7.76% $ 2,117,841 127,987 8.06%
Other loans, net (1) 534,802 36,678 9.53 481,434 33,214 9.22
Securities available for sale 717,539 33,854 6.29 642,921 30,130 6.25
Investment securities 89,003 4,621 6.92 105,649 5,234 6.61
Federal funds sold 19,262 783 5.44 907 37 5.32
Securities purchased under
agreement to resell 109,615 4,870 5.86 146 6 5.70
Federal Home Loan Bank Stock 25,080 1,411 7.52 20,486 962 6.26
Total interest-earning assets 3,827,382 218,021 7.59 3,369,384 197,570 7.82
Noninterest-earning assets 281,706 181,301
Total assets $ 4,109,088 $ 3,550,685
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts (2) $ 806,793 15,929 2.64% $ 826,180 17,871 2.89%
Transaction accounts (3) 677,403 13,713 2.71 499,314 9,863 2.64
Certificate accounts 1,872,511 76,920 5.49 1,579,962 64,173 5.43
Short-term borrowed funds and
repurchase agreements 34,257 1,265 4.92 91,027 3,803 5.54
Long-term debt 15,592 640 5.49 20,830 857 5.50
Total interest-bearing liabilities 3,406,556 108,467 4.26 3,017,313 96,567 4.28
Noninterest-bearing demand deposits 192,221 103,785
Noninterest-bearing liabilities 87,295 79,838
Total liabilities 3,686,072 3,200,936
Corporation-obligated mandatorily
redeemable capital securities of
subsidiary trust 50,000 21,429
Stockholders' equity 373,016 328,320
Total liabilities and
stockholders' equity $ 4,109,088 $ 3,550,685
Net interest income and
net interest spread $ 109,554 3.33% $ 101,003 3.54%
Net interest-earning assets and
net interest margin $ 420,826 3.80% $ 352,071 3.99%
Interest-earning assets to
interest-bearing liabilities 1.12 x 1.12 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>
Net Income and Interest Analysis
Three Months Ended September 30, 1998 compared with 1997
Net income for the quarter ended September 30, 1998, was $10.8 million, an
increase of $1.5 million (16%) from the comparable quarter last year. Basic and
diluted earnings per share were $0.81 and $0.78, respectively, for the third
quarter of 1998, up from $0.73 and $0.68 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
$1.6 million (5%) and totaled $36.1 million for the third quarter of 1998.
Noninterest income increased $2.3 million (70%) to $5.6 million, while
noninterest expense also increased $2.3 million (11%) totaling $23.4 million.
Return on average equity and return on average assets for the third quarter of
1998 were 11.17% and 1.04%, respectively. For the comparable 1997 period, return
on average equity was 11.05%, while return on average assets was 1.03%.
"Core net income" excludes income or expense amounts (net of income taxes)
included in net income of a nonrecurring nature. For the third quarter of 1998
core net income of $10.8 million was unchanged from net income, as was 1997's
core net income which totaled $9.4 million.
"Cash net income" is defined as core net income plus amortization of goodwill
and costs associated with certain stock-related employee benefit plans. Cash net
income for the quarter ended September 30, 1998, was $12.7 million or $0.91 per
share on a diluted basis. Cash net income for the quarter ended September 30,
1997, was $10.6 million or $0.77 per share on a diluted basis. Cash return on
average tangible equity for the third quarter of 1998 was 16.49% compared with
14.20% for the same period last year; cash return on average assets was 1.22%
versus 1.16% for the third quarter of 1997.
Interest income for the three months ended September 30, 1998, totaled $72.9
million, an increase of $5.3 million (8%) from 1997's third quarter which was
the net result of a $419.1 million (12%) rise in average interest-earning assets
to $3.866 billion and a 31 basis point (4%) decrease in the average rate earned
to 7.51%. A significant portion of the above mentioned increase in average
earning assets resulted from growth in the mortgage loan portfolio. Interest
income on mortgage loans increased $1.2 million (3%) to $45.1 million as a 37
basis point (5%) decline in the average rate earned was more than offset by a
$168.8 million (8%) rise in the average balance. The average balance increased
as a result of strong loan origination activity since the third quarter of 1997.
Interest income on other loans was $12.4 million, an increase of $1.3 million
(11%), as the average rate earned declined by 35 basis points while the average
balance invested rose $71.1 million (15%) primarily due to loans acquired from
KeyBank. Interest income on securities available for sale increased $0.7 million
(7%) and totaled $11.4 million for the current quarter. The increase was the
result of a rise in the average amount invested of $44.8 million (7%) and a 2
basis point increase in the average rate earned. Interest income on investment
securities of $1.5 million was $0.1 million (3%) lower than the comparable 1997
period as a decrease in the average balance invested of $5.6 million combined
with an increase in the average rate earned of 20 basis points (3%). Interest
income on federal funds sold rose $0.1 million as balances averaged $12.3
million during 1998's third quarter compared with $1.7 million during the third
quarter of 1997, and the average yield earned climbed 13 basis points (2%). An
increase in interest income on securities purchased under agreement to resell of
$1.9 million was the product of $125.0 million on average invested during the
third quarter of 1998 at an average yield of 5.84%. 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 (44%) to $0.5 million as a $4.5 million (21%) increase in average
balance combined with a 115 basis point (18%) rise in the average rate earned.
Interest expense for the quarter ended September 30, 1998, amounted to $36.7
million, $3.7 million (11%) more than the corresponding quarter of last year as
the net result of a $384.0 million (13%) increase in average interest-bearing
liabilities to $3.432 billion and a 4 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 $28.0 million (3%) and in the
average rate paid of 26 basis points (9%) resulted in a decrease of $0.7 million
(12%) in interest expense compared with the third quarter of 1997. Interest-
bearing transaction account average balances grew $218.5 million (44%) while
rates paid increased by 36 basis points (14%) resulting in an increase in
related interest expense of $2.0 million (65%) to $5.1 million. Interest expense
on certificate accounts increased $3.6 million (17%) to $25.4 million primarily
as a result of a $271.5 million (17%) increase in average balances. Interest
expense on short-term borrowings declined $1.2 million (68%) as an $82.1 million
(64%) decrease in average balances to $46.9 million combined with a 62 basis
point (11%) decline in the average rate paid. The decline in average rate paid
occurred as over 60% of the average short-term borrowings for the third 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
$0.3 million for both quarters as a net result of a $4.1 million (21%) rise in
the average balance and a 10 basis point (2%) drop in the average rate paid.
Net interest income for the three months ended September 30, 1998, totaled $36.1
million, $1.6 million (5%) greater than the $34.5 million reported for the
comparable quarter a year ago. The net interest spread of 3.26% 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 31 basis points (4%),
while the rate paid on interest-bearing liabilities declined by only 4 basis
points (1%). The net interest margin for the third quarter of 1998 totaled
3.74%, 29 basis points (7%) lower than that reported for the third quarter of
1997.
Nine Months Ended September 30, 1998 compared with 1997
Net income of $30.9 million for first nine months of 1998 represented an
increase of $2.8 million (10%) from the comparable 1997 period. Basic and
diluted earnings per share were $2.37 and $2.23, respectively for the nine
months ended September 30, 1998, up 7% and 8%, respectively from $2.21 and $2.06
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 $8.6 million (8%) and totaled $109.6 million for the
first nine months of 1998. Noninterest income of $16.0 million increased $6.0
million (59%) from 1997 levels. Noninterest expense rose $11.3 million (18%) and
totaled $72.4 million for the first nine months of 1998. Return on average
equity and return on average assets for the first nine months of 1998 were
11.08% and 1.01% compared with 11.46% and 1.06% in 1997.
Core net income for the first nine months 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 nine months of 1998, core net income
was $30.9 million or $2.23 per share on a diluted basis, compared with $28.1
million or $2.05 per share in 1997.
Cash net income for the nine months ended September 30, 1998, was $36.5 million
compared with $31.8 million for 1997. Diluted earnings per share based on cash
net income were $2.63 for the first nine months of 1998 compared with $2.32 for
1997. Cash return on average tangible equity was 16.65% compared with 14.85% for
the same period last year; cash return on average assets was 1.19% versus 1.20%
in 1997.
Interest income for the first nine months of 1998 equaled $218.0 million, $20.5
million (10%) higher than the corresponding period of 1997. The increase was the
net result of a rise in average interest-earning assets of $458.0 million (14%)
to $3.827 billion and a reduction in the average rate earned of 23 basis points
(3%) to 7.59%. The aforementioned increase in average earning assets resulted
primarily from growth in the mortgage loan portfolio. Interest income on
mortgage loans increased $7.8 million (6%) and totaled $135.8 million as a
$214.2 million (10%) increase in average amount invested was partially reduced
by a 30 basis point (4%) decline in the average rate earned. The average balance
increased as a result of strong loan origination activity since the third
quarter of 1997. A rise in the average balance of other loans of $53.4 million
(11%), due primarily to loans acquired from KeyBank, resulted in an increase in
interest income of $3.5 million (10%). Interest income on securities available
for sale increased $3.7 million (12%) as a result of the higher average amount
invested and average rate earned of $74.6 million (12%) and 4 basis points (1%),
respectively. Interest income on investment securities dropped $0.6 million
(12%) as a decline in the average amount invested of $16.6 million (12%) was
partially offset by an increase in the average rate earned of 31 basis points
(5%). Interest income on federal funds sold of $0.8 million reflected an average
investment of $19.3 million and an average rate earned of 5.44%; balances
invested in 1997 were insignificant. An increase in interest income on
securities purchased under agreement to resell of $4.9 million was the product
of $109.6 million on average invested during the nine months ended September 30,
1998, at an average yield of 5.86%, compared with only a nominal amount so
invested in the 1997 period. 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 $0.4 million (47%) to $1.4
million as a $4.6 million (22%) increase in average balance combined with a 126
basis point (20%) rise in the average rate earned.
Interest expense for the first nine months of 1998 was $108.5 million, an
increase of $11.9 million (12%) from 1997. The increase was generally the result
of increases in average balance of $389.2 million (13%) while the average rate
paid declined two basis points. Interest expense on savings accounts declined
$1.9 million (11%) as a decline in the average balance of $19.4 million (2%)
combined with a 25 basis point (9%) drop in the average rate paid. A $3.9
million (39%) increase in interest expense on transaction accounts resulted from
a $178.1 million (36%) increase in average balance coupled with a 7 basis point
(3%) rise in the average rate paid. The average balance of certificate accounts
increased $292.5 million (19%), and the average rate paid rose 6 basis points
(1%) resulting in a $12.7 million (20%) increase in related interest expense.
Interest expense on short-term borrowed funds dropped $2.5 million (67%) as a
reduction in average balance of $56.8 million (62%) combined with a 62 basis
point (11%) drop in the average rate paid. Interest expense on long-term debt
was $0.6 million, a decrease of $0.2 million (25%) that was the net result of a
$5.2 million (25%) decline in the average balance and a 1 basis point decrease
in the average rate paid.
Net interest income for the first nine months of 1998 increased $8.6 million
(8%) and equaled $109.6 million. The higher level of net interest income
occurred despite a narrowing of net interest spread and margin of 21 basis
points (6%) and 19 basis points (5%), respectively, due to an increase in net
interest-earning assets of $68.8 million (20%).
Provision for Loan Loss
The provision for loan losses amounted to $1.8 million and $5.4 million for the
quarter and nine months ended September 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 $30.5 million (1.05% of loans
receivable and 113.87% of nonperforming loans) at September 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 $1.4
million (5%) was the net result of a $5.4 million provision for loan losses and
net charge-offs of $4.0 million incurred during the nine months ended September
30, 1998.
Noninterest Income
Noninterest income of $5.6 million for the third quarter of 1998 increased $2.3
million (70%) over 1997's third quarter while noninterest income of $16.0
million for the first nine months of 1998 was up 59% or $6.0 million. This
result was due to ALBANK Commercial's noninterest income of $0.9 million for the
quarter and $2.5 million for the nine month period combined with increased fees
charged on certain ALBANK, FSB deposit services, as well as income earned on
bank-owned life insurance and gains on sales of other real estate. Service
charges on deposit accounts totaled $3.0 million for the quarter and $8.5
million for the year-to-date, increases of $1.3 million (80%) and $3.7 million
(78%), respectively, over the comparable periods for 1997. The increase for the
quarter as well as year-to-date 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. There was no net security
transaction income in the third quarter of 1998, but net security transaction
income of $0.1 million and $0.3 million for the first nine months of 1998 and
1997, respectively, was primarily attributable to the partial recoveries of the
Nationar investment written off in 1995. Other noninterest income of $2.0
million for the quarter and $5.6 million for the year-to-date increased $1.0
million (94%) and $2.2 million (65%), respectively, primarily as a result of
$0.7 million and $1.7 million in quarterly and year-to-date earnings on
bank-owned life insurance and an increase in gains on third quarter sales of
other real estate of approximately $0.1 million.
Noninterest Expense
Noninterest expense for the three and nine month periods ended September 30,
1998, was $23.4 million and $72.4 million, respectively, increases of $2.3
million (11%) and $11.3 million (18%) over the comparable periods last year. The
increases are primarily related to expenses incurred due to 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 ratio excluding capital
securities expense improved from 49.12% to 48.54% for the three months ended
September 30, 1998 compared with 1997, while the ratio from the nine month
period was 50.13% compared with 50.56% in 1997.
Compensation and employee benefits for 1998 increased $0.4 million (4%) to $10.5
million for the third quarter and $3.6 million (12%) to $33.6 million for the
first nine months of the year as expenses incurred to staff branches and support
operations for ALBANK Commercial and the impact of annual merit increases which
became effective in March were offset partly by a modest reduction in operations
staff.
Increases in net occupancy expense of $0.2 million (9%) for the third quarter
and $0.7 million (9%) for the first nine 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 third quarter and $1.0
million for the year.
Furniture, fixtures and equipment expense for the third quarter and nine month
period of $1.9 million and $5.6 million increased $0.2 million (15%) and $0.8
million (16%), respectively, compared with 1997 due to higher depreciation
charges that resulted from data processing hardware and software upgrades.
Federal deposit insurance expense of $0.3 million for the third quarter and $1.1
million for the first nine months of 1998, respectively, were at comparable
levels to the same periods last year. Professional, legal and other fees
increased $0.2 million (26%) and $0.1 million (4%) over the amounts recorded in
1997's third quarter and the nine month period ended September 30, 1997,
primarily as a result of increased fees charged on correspondent bank accounts.
Telephone, postage and printing expense for the third quarter increased $0.2
million (16%) over the prior year to $1.3 million. For the first nine months,
this expense category rose $0.8 million (23%) to $4.1 million. For the third
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 $0.4 million, postage expense rose $0.3
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 September 30, 1998, and $2.1 million (81%) to $4.7
million for the nine months ended September 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 nine months ended September 30,
1998, totaled $1.2 million and $3.5 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 $3.1 million for the third quarter and $9.2 million
for the first three quarters of 1998 increased $0.4 million (16%) and $1.3
million (16%), respectively, over comparable periods for the previous year.
Expenses related to advertising were up $0.1 million for the third quarter and
$0.3 million year-to-date; expenses related to other real estate for the third
quarter were essentially unchanged from 1997 while on a year-to-date basis these
expenses were up $0.3 million. The balance of the increases in other expense was
generally related to the operation of ALBANK Commercial, including increases in
transportation expense and computer processing expense of $0.1 million each for
the third quarter and $0.2 million each for the year-to-date.
Income Tax Expense
Income tax expense for the third quarter of 1998 was $5.6 million, an increase
of $0.1 million from the third quarter of 1997. Income tax expense for the first
nine months of 1998 was $16.8 million compared with $16.4 million for the same
period last year, an increase of $0.4 million (3%). The third quarter overall
effective income tax rate of 34.2% compares with 37.0% for the same quarter last
year while the overall effective tax rates for the first nine months of 1998 and
1997 were 35.3% and 36.8%, respectively. Income generated by bank-owned life
insurance policies exempt from both Federal and State income taxes, third
quarter additions to the portfolio of projects yielding low income housing and
historic preservation 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.
<PAGE>
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. Other Information
None.
Item 5. 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 by
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 October 28, 1998, detailing financial information
for ALBANK Financial Corporation for the quarter ended September 30,
1998, as presented in a press release of October 19, 1998.
Current Report dated November 10, 1998, describing the terms of an
ALBANK Financial Corporation special dividend, as presented in a press
release of November 3, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALBANK Financial Corporation
(Registrant)
DATE: November 12, 1998 BY: /s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 12, 1998 BY: /s/ Richard J. Heller
Richard J. Heller
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
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>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 59,625
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 722,245
<INVESTMENTS-CARRYING> 80,849
<INVESTMENTS-MARKET> 75,904
<LOANS> 2,710,411
<ALLOWANCE> 26,458
<TOTAL-ASSETS> 3,716,954
<DEPOSITS> 2,968,626
<SHORT-TERM> 218,493
<LIABILITIES-OTHER> 166,262
<LONG-TERM> 20,061
0
0
<COMMON> 157
<OTHER-SE> 343,355
<TOTAL-LIABILITIES-AND-EQUITY> 3,716,954
<INTEREST-LOAN> 161,201
<INTEREST-INVEST> 35,364
<INTEREST-OTHER> 1,005
<INTEREST-TOTAL> 197,570
<INTEREST-DEPOSIT> 91,907
<INTEREST-EXPENSE> 96,567
<INTEREST-INCOME-NET> 101,003
<LOAN-LOSSES> 5,400
<SECURITIES-GAINS> 274
<EXPENSE-OTHER> 61,134
<INCOME-PRETAX> 44,524
<INCOME-PRE-EXTRAORDINARY> 28,136
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,136
<EPS-PRIMARY> 2.21<F1>
<EPS-DILUTED> 2.06
<YIELD-ACTUAL> 3.99
<LOANS-NON> 23,808
<LOANS-PAST> 7,905
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,114
<CHARGE-OFFS> 4,003
<RECOVERIES> 947
<ALLOWANCE-CLOSE> 26,458
<ALLOWANCE-DOMESTIC> 21,963
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,495
<FN>
<F1>EPS PRIMARY TAG REPRESENTS EPS BASIC
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 76,501
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 153,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 698,992
<INVESTMENTS-CARRYING> 76,101
<INVESTMENTS-MARKET> 77,767
<LOANS> 2,911,756
<ALLOWANCE> 30,475
<TOTAL-ASSETS> 4,156,852
<DEPOSITS> 3,525,928
<SHORT-TERM> 29,276
<LIABILITIES-OTHER> 173,291
<LONG-TERM> 35,061
0
0
<COMMON> 157
<OTHER-SE> 393,139
<TOTAL-LIABILITIES-AND-EQUITY> 4,156,852
<INTEREST-LOAN> 172,482
<INTEREST-INVEST> 38,475
<INTEREST-OTHER> 7,064
<INTEREST-TOTAL> 218,021
<INTEREST-DEPOSIT> 106,562
<INTEREST-EXPENSE> 108,467
<INTEREST-INCOME-NET> 109,554
<LOAN-LOSSES> 5,400
<SECURITIES-GAINS> 93
<EXPENSE-OTHER> 72,403
<INCOME-PRETAX> 47,762
<INCOME-PRE-EXTRAORDINARY> 30,923
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,923
<EPS-PRIMARY> 2.37<F1>
<EPS-DILUTED> 2.23
<YIELD-ACTUAL> 3.80
<LOANS-NON> 19,261
<LOANS-PAST> 7,503
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 29,117
<CHARGE-OFFS> 4,841
<RECOVERIES> 799
<ALLOWANCE-CLOSE> 30,475
<ALLOWANCE-DOMESTIC> 19,284
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,191
<FN>
<F1>EPS PRIMARY TAG REPRESENTS EPS BASIC
</TABLE>
