SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-60230
Albion Banc Corp.
(Exact name of registrant as specified in its charter)
Delaware 16-1435160
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
48 North Main Street, Albion, New York 14411-0396
(Address of principal executive offices) (Zip Code)
(716) 589-5501
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports 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.
X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of November 1,1998
Common Stock, $.01 par value 791,553 shares
ALBION BANC CORP.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Financial Condition
September 30, 1998 (unaudited)and December 31, 1997 1
Consolidated Statement of Income (unaudited)
Three months ended September 30, 1998 and 1997 2
Consolidated Statement of Income (unaudited)
Nine months ended September 30, 1998 and 1997 3
Consolidated Statement of Comprehensive Income (unaudited) 4
Three and nine months ended September 30, 1998 and 1997
Consolidated Statement of Cash Flows (unaudited) 5
Nine months ended September 30, 1998 and 1997
Notes to Consolidated Financial Information 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
Part II. Other Information 16
Signatures 17
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
September 30, December 31,
1998 1997
Assets (unaudited)
Cash and due from banks $ 1,516,158 $ 1,539,966
Federal funds sold 2,140,000 2,850,000
Investment securities:
Available for sale 4,338,702 4,034,900
Held to maturity (fair value of
$4,206,212 and $6,883,000, respectively) 4,152,239 6,833,577
Loans held for sale 123,167 550,340
Loans 57,668,757 52,743,312
Less-Allowance for loan losses (275,837) (276,300)
Net Loans 57,392,920 52,467,012
Accrued interest receivable 405,047 411,638
Federal Home Loan Bank (FHLB)stock, at cost 528,800 500,000
Premises and equipment, net 2,231,260 2,350,964
Other assets 199,126 180,852
Total Assets $73,027,419 $71,719,249
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 2,512,147 $ 2,395,245
Interest-bearing 53,675,564 52,514,936
Total deposits 56,187,711 54,910,181
FHLB advances and other borrowings 9,176,936 9,200,526
Advances from borrowers for taxes & insurance 477,535 891,392
Other liabilities 812,951 562,318
Total Liabilities $66,655,133 $65,564,417
Shareholders' Equity:
Preferred stock, $.01 par value
500,000 shares authorized, none outstanding
Common stock, $.0033 par value
3,000,000 shares authorized, 791,553 and
789,258 shares issued, respectively 2,643 2,631
Capital surplus 2,406,177 2,383,434
Retained earnings 4,187,352 3,986,735
Treasury stock, 39,105 shares, at cost (221,595) (221,595)
Unearned ESOP shares (35,947) (44,638)
Accumulated other comprehensive income 33,656 48,265
Total Shareholders' Equity 6,372,286 6,154,832
Total Liabilities and Shareholders'
Equity $73,027,419 $71,719,249
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
September 30,
1998 1997
Interest income:
Interest and fees on loans $1,159,461 $1,059,649
Interest on investment securities
and federal funds sold 185,556 275,903
Total interest income 1,345,017 1,335,552
Interest expense:
Interest on deposits 595,836 603,452
Interest on borrowed funds 156,511 145,171
Total interest expense 752,347 748,623
Net interest income 592,670 586,929
Provision for loan losses 21,000 9,000
Net interest income after
provision for loan losses 571,670 577,929
Noninterest income:
Gain on sale of loans and real estate owned 1,398 0
Other noninterest income 82,864 90,514
Total noninterest income 84,262 90,514
Noninterest expense:
Salaries and employee benefits 251,884 209,581
Occupancy expenses 99,381 99,578
Deposit insurance premiums 8,530 11,710
Professional fees 23,891 24,560
Data processing fees 47,764 48,735
Other operating expenses 70,372 118,450
Total noninterest expense 501,822 512,614
Income before income tax expense 154,110 155,829
Income tax expense 60,000 62,570
Net income $ 94,110 $ 93,259
Basic earnings per common share $0.13 $0.13
Diluted earnings per common share $0.12 $0.12
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP
CONSOLIDATED STATEMENT OF INCOME (unaudited)
Nine Months Ended
September 30,
1998 1997
Interest income:
Interest and fees on loans $3,384,763 $3,085,984
Interest on investment securities
and federal funds sold 623,646 745,404
Total interest income 4,008,409 3,831,388
Interest expense:
Interest on deposits 1,805,423 1,686,336
Interest on borrowed funds 449,470 435,779
Total interest expense 2,254,893 2,122,115
Net interest income 1,753,516 1,709,273
Provision for loan losses 43,000 26,414
Net interest income after
provision for loan losses 1,710,516 1,682,859
Noninterest income:
Gain on sale of loans and real estate owned 16,798 40,717
Other noninterest income 262,190 247,760
Total noninterest income 278,988 288,477
Noninterest expense:
Salaries and employee benefits 704,882 682,594
Occupancy expenses 312,475 266,834
Deposit insurance premiums 25,720 34,419
Professional fees 81,718 85,532
Data processing fees 146,193 144,880
Other operating expenses 251,421 321,823
Total noninterest expense 1,522,409 1,536,082
Income before income tax expense 467,095 435,254
Income tax expense 180,750 178,533
Net income 286,345 256,721
Basic earnings per common share $0.39 $0.36
Diluted earnings per common share $0.37 $0.34
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
September 30,
1998 1997
Net income $ 94,110 $ 93,259
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during period 0 4,856
Less: reclassification adjustments for gains
included in net income 0 0
Other comprehensive gain 0 4,856
Comprehensive income $ 94,110 $ 98,115
Nine Months Ended
September 30,
1998 1997
Net income $286,345 $256,721
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding (losses) gains arising
during period (14,609) 20,192
Less: reclassification adjustments for gains
included in net income 0 0
Other comprehensive (loss) gain (14,609) 20,192
Comprehensive income $271,736 $276,913
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net Income $ 286,345 $ 256,721
Depreciation, amortization and accretion 246,745 102,520
Provision for loan losses 43,000 26,414
Net gain on sale of mortgage loans (16,798) (6,717)
Net gain on sale of real estate owned 0 (34,492)
ESOP expense 25,368 35,487
Originations of loans held for sale (945,721) (394,096)
Proceeds from sale of loans held for sale 1,390,516 506,570
Changes in operating assets and liabilities-
(Increase)Decrease in other assets (11,683) 22,375
Increase in other liabilities 257,898 78,394
Net cash provided by operating activities $1,275,670 $ 593,176
Cash flows from investing activities:
Proceeds from the sale of foreclosed real estate 0 254,586
Proceeds from maturities of investment securities
held to maturity 2,627,622 3,323,386
Proceeds from maturities and calls of investment
securities available for sale 1,149,416 628,281
Purchases of investment securities held to maturity 0 (4,600,364)
Purchases of investment securities
available for sale (1,493,899) 0
Net increase in loans receivable (4,968,908) (2,866,287)
Purchase of FHLB stock (28,800) (50,000)
Net purchase of fixed assets (57,504) (414,082)
Net cash used in investing activities (2,772,073) (3,724,480)
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts
and money market accounts (711,943) 530,117
Net (decrease) increase in time deposits 1,989,473 5,842,346
Proceeds from FHLB and other borrowings 1,000,000 4,000,000
Payment on FHLB advances and other borrowings (1,023,590) (4,018,661)
Net increase in advances from borrowers for
taxes and insurance (413,857) (408,103)
Proceeds from exercise of stock options 7,649 0
Dividends paid (85,137) (115,332)
Net cash provided by financing activities 762,595 5,830,367
Net (decrease) increase in cash and cash equivalents (733,808) 2,699,053
Cash and cash equivalents at beginning of period 4,389,966 2,125,929
Cash and cash equivalents at end of period $3,656,158 $4,824,982
Cash paid during the period for:
Interest $2,267,083 $2,151,726
Income taxes 5,000 68,000
The accompanying notes are an integral part of these consolidated financial
statements.
ALBION BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
SEPTEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION:
The unaudited interim financial information includes the accounts of Albion Banc
Corp. (the "Company", Albion Federal Savings and Loan Association (the
"Association") and New Frontier of Albion Corp. ("New Frontier"). The financial
information has been prepared in accordance with the Summary of Significant
Accounting Policies as outlined in the Company's Annual Report for the year
ended December 31, 1997, and in the opinion of management, contains all
adjustments necessary to present fairly the Company's financial position as
of September 30, 1998 and December 31, 1997, and its results of operations
and comprehensive income for the three month and nine month period ended
September 30, 1998 and 1997. All adjustments made to the unaudited interim
financial information were of a recurring nature.
NOTE 2 - COMPREHENSIVE INCOME:
In the first quarter, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company has chosen to
disclose comprehensive income in a separate statement, in which
the components of comprehensive income are displayed net of income taxes.
The following table sets forth the related tax effects allocated to each
element of comprehensive for the three months and nine months ended September
30, 1998 and 1997:
Three months ended September 30, 1998
Before-tax Tax Net-of-Tax
Amount Expense Amount
Unrealized gains on
securities:
Unrealized holding gains
arising during period $ 0 $ 0 $ 0
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized gain 0 0 0
Other comprehensive gain $ 0 $ 0 $ 0
Three months ended September 30, 1997
Before-tax Tax Net-of-Tax
Amount Expense Amount
Unrealized gains on
securities:
Unrealized holding gains
arising during period $ 8,084 $ (3,228) $ 4,856
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized gains 8,084 (3,228) 4,856
Other comprehensive income $ 8,084 $ (3,228) $ 4,856
Nine months ended September 30, 1998
Before-tax Tax Net-of-Tax
Amount Benefit Amount
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (24,268) $ 9,659 $(14,609)
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized loss (24,268) 9,659 (14,609)
Other comprehensive loss $ (24,268) $ 9,659 $(14,609)
Nine months ended September 30, 1997
Before-tax Tax Net-of-Tax
Amount Expense Amount
Unrealized gains on
securities:
Unrealized holding gains
arising during period $ 31,023 $(10,831) $ 20,192
Less: reclassification
adjustment for gains
realized in net income 0 0 0
Net unrealized gain 31,023 (10,831) 20,192
Other comprehensive income $ 31,023 $(10,831) $ 20,192
The following table sets forth the components of accumulated other comprehensive
income for the nine months ended September 30, 1998 and 1997:
Nine Months Ended
September 30,
1998 1997
Beginning balance $48,265 $55,615
Unrealized (losses) gains on securities, net (14,609) 20,192
Ending balance $33,656 $75,807
Note 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
The amortized cost and estimated market value of investment securities available
for sale are as follows:
September 30, 1998 December 31, 1997
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $4,282,609 $4,338,702 $3,954,539 $4,034,900
Note 4 - INVESTMENT SECURITIES HELD TO MATURITY:
The amortized cost and estimated market value of investment securities held to
maturity are as follows:
September 30, 1998 December 31, 1997
Amortized Market Amortized Market
Cost Value Cost Value
Mortgage-backed securities $4,152,239 $4,206,212 $5,832,311 $5,882,700
U.S. Agencies 0 0 1,001,266 1,000,300
$4,152,239 $4,206,212 $6,833,577 $6,883,000
NOTE 5 - LOANS RECEIVABLE:
Loans consist of the following:
September 30, December 31,
1998 1997
Real estate loans:
Secured by one-to-four family residences $47,665,101 $42,473,738
Secured by other properties 1,800,139 2,203,839
Construction loans 491,689 413,200
49,956,929 45,090,777
Other loans:
Automobile loans 93,211 100,607
Home improvement loans 7,508,257 7,152,228
Other 808,052 688,245
8,409,520 7,941,080
Less:
Undisbursed portion of loans (759,684) (327,480)
Net deferred loan origination costs 61,992 38,935
Allowance for loan losses (275,837) (276,300)
(973,529) (564,845)
$57,392,920 $52,467,012
NOTE 6 - ALLOWANCE FOR LOAN LOSSES:
An analysis of changes in the allowance for loan losses is as follows:
Nine-months ended
September 30,
1998 1997
Balance at beginning of period $276,300 $305,900
Provision expense 43,000 26,414
Net (charge-offs) (43,463) (62,123)
Balance at end of period $275,837 $270,191
NOTE 7 - EARNINGS PER SHARE:
Earnings per share was calculated as follows:
Three-months ended
September 30, 1998
Per-Share
Income Shares Amount
Basic EPS $ 94,110 740,216 $ .13
Effect of Dilutive Securities:
Options 26,529
Diluted EPS $ 94,110 766,745 $ .12
Nine-months ended
September 30, 1998
Per-Share
Income Shares Amount
Basic EPS $286,345 739,342 $ .39
Effect of Dilutive Securities:
Options 29,750
Diluted EPS $286,345 769,092 $ .37
ALBION BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
Financial Condition
Total assets of Albion Banc Corp. were $73.0 million as of September 30, 1998,
an increase of $1.3 million or 1.8% over total assets as of December 31, 1997.
Deposits, the Company's primary source of funds, increased $1.3 million or 2.3%
to $56.2 million at September 30, 1998. Borrowings from the Federal Home Loan
Bank of New York were $9.0 million at September 30, 1998, unchanged from the
$9.0 million at December 31, 1997.
Investment securities available for sale, primarily mortgage-backed securities,
increased from $4.0 million at December 31, 1997 to $4.3 million at September
30, 1998. This increase can be attributed to the purchase of $1.5 million
of mortgage-backed securities during the first quarter and the normal principal
paydowns of this type of security.
Investment securities held to maturity, primarily mortgage-backed securities and
U.S. agency securities decreased from $6.8 million at December 31, 1997 to $4.2
million at September 30, 1998. This decrease can be attributed to the normal
principal paydowns of mortgage-backed securities without replacement and the
call of a $1.0 million U.S. agency security.
Total loans receivable as of September 30, 1998 were $57.7 million, an increase
of $5.0 million over total loans receivable at December 31, 1997. The majority
of this increase occurred in real estate loans, primarily one-to-four family
properties. Real estate loans secured by one-to-four family properties increased
by $5.3 million while real estate loans secured by other properties, including
construction loans as of September 30, 1998, decreased by $.3 million during the
period.
Deposits increased $1.3 million from $54.9 million at December 31, 1997 to $56.2
million at September 30, 1998. Noninterest-bearing deposits increased $116,902
or 4.9% and interest-bearing deposits increased $1.2 million or 2.2%.
The Company's shareholders' equity increased $217,454 or 3.5%, from $6,154,832
at December 31, 1997 to $6,372,286 at September 30, 1998. This increase is due
primarily to earnings in the first three quarters and the resulting increase in
equity, offset by cash dividends on common stock of $85,137. The Company's
equity as a percentage of total assets at September 30, 1998 was 8.7% and
exceeded all regulatory requirements.
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers' credit needs. The Company's
principal sources of funds are customer deposits, advances from the Federal Home
Loan Bank of New York and principal and interest payments on loans, mortgage-
backed securities and investments. Under current federal regulations, Albion
Federal is required to maintain specified liquid assets in an amount equal to at
least 4% of its net withdrawable liabilities plus short-term borrowings. The
Company has generally maintained liquidity levels well above those required by
regulation. At September 30, 1998, the Association's liquidity ratio was 20.5%,
exceeding the minimum required. Federal funds sold at September 30, 1998
amounted to $2,140,000. These funds are available immediately to meet upcoming
obligations. During the period, the Company did not sell any investments prior
to maturity and did not transfer any securities between its available for sale
and held to maturity categories.
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997
Net Income. Net income of $286,345 for the nine months ended September 30, 1998
represents an increase of $29,624, or 11.5% from the $256,721 earned in the
comparable period ended September 30, 1997.
Net Interest Income. Net interest income increased to $1,753,516 for the nine
months ended September 30, 1998, up 2.6% from $1,709,273 earned during the nine
month period ended September 30, 1997. This increase is due primarily to growth
in the balance sheet, primarily real estate loans. The Company's net interest
margin declined during the period, from 3.56% at September 30, 1997 to 3.35% at
September 30, 1998, however the increase in loan volume offset the decline.
Total interest income increased 4.6% or $177,021 during the period while total
interest expense increased 6.3% or $132,778.
Provision for Loan Losses. The provision for possible loan losses, the charge
to earnings for potential credit losses associated with lending activities, was
$43,000 for the nine months ended September 30, 1998, an increase of $16,586
from the comparable period in 1997. Management charges earnings for an amount
necessary to maintain the allowance for possible loan losses at a level
considered adequate to absorb potential losses in the loan portfolio. The level
of the allowance is based on management's evaluation of individual loans, past
loan loss experience, the assessment of prevailing conditions and anticipated
economic conditions and other relevant factors. The allowance for possible loan
losses of the Association at September 30, 1998 was $275,837 or .48% of total
loans, compared to $276,300, or .52% of total loans at December 31, 1997. The
level of nonperforming assets increased from $276,267 at December 31, 1997 to
325,963 at September 30, 1998. Also, the ratio of allowance for loan losses to
nonaccrual loans was 84.6% at September 30, 1998 as compared to 100.0% at
December 31, 1997. The increase in the provision during the period was due
primarily to the deterioration in credit quality of three one-to-four family
properties. Although the Association believes its allowance for loan losses is
at a level which it considers to be adequate to provide for losses, there can be
no assurances such losses will not exceed the estimated amounts.
Noninterest Income. Noninterest income for the nine month period ended
September 30, 1998 was $278,988 compared with $288,477 during the same period in
the prior year. However, included in September 30, 1997 was $34,000 of
nonrecurring loan recovery income related to profits on the sale of real estate
owned. Recurring noninterest income increased from $247,760 at September 30,
1997 to $262,189 at September 30, 1998. This increase was attributable to
increased fee income from depository transaction accounts and fee income from
New Frontier of Albion Corp.
Noninterest Expense. Noninterest expense for the nine month period ended
September 30, 1998 was $1,522,409, a slight decrease from the $1,536,082
recorded for the same period in the prior year. This decrease is a result of
decreased other operating expenses of $70,402 or 21.9%. In 1997, other
operating expenses included a nonrecurring charge of $41,642 for expenses
related to the conversion to our in-house data processing system. This decrease
was partially offset by increased salaries and employee benefits expense of
$22,288 or 3.3%; and occupancy expenses of $45,641 or 17.1%;. These increases
were primarily the result of inflationary increases in salaries and emloyee
benefits and depreciation expenses related to computer equipment and software
purchased for our in-house data processing system.
Income Taxes. The provision for income taxes increased to $180,750 for the nine
months ended September 30, 1998 from $178,533 for the nine months ended
September 30, 1997, primarily as a result of increased taxable income.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
Net Income. Net income of $94,110 for the three months ended September 30, 1998
represents an increase of $851 or .9% from the $93,259 earned in the comparable
period ended September 30, 1997.
Net Interest Income. Net interest income increased slightly to $592,670 for the
three months ended September 30, 1998, up .98% from $586,929 earned during the
three month period ended September 30, 1997. This increase is primarily due to
growth in the balance sheet, primarily loans. The Company's net interest margin
declined during the period, from 3.56% at September 30, 1997 to 3.35% at
September 30, 1998, however the increase in loan volume offset the decline.
Total interest income increased .71% or $9,465 during the period while total
interest expense increased .50% or $3,724.
Provision for Loan Losses. The provision for possible loan losses, the charge
to earnings for potential credit losses associated with lending activities, was
$21,000 for the three months ended September 30, 1998, an increase of $12,000
from the comparable period in 1997.
Noninterest Income. Noninterest income for the three month period ended
September 30, 1998 was $84,262 compared with $90,514 during the same period in
the prior year. This decrease was attributable primarily to decreased fee
income from New Frontier of Albion Corp., primarily as a result of slower mutual
fund and annuity sales during the period. These decreases however, were offset
by increased fee income from depository transaction accounts.
Noninterest Expense. Noninterest expense for the three month period ended
September 30, 1998 was $501,822 a decrease of 2.1% from the $512,614 recorded
for the same period in the prior year. This decrease is a result of decreased
other operating expenses of $48,078 or 40.6%. This decrease was partially
offset by increases in salaries and employee benefits of $42,303 or 20.1%.
Income Taxes. The provision for income taxes decreased to $60,000 for the three
months ended September 30, 1998 from $62,570 for the three months ended June 30,
1997.
Year 2000 Issues.
The year 2000 problem("Y2K"), which is common to most companies, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the year 2000
approaches. The Y2K issue affects the entire banking industry because of the
industries reliance on computers and other equipment that use computer chips and
may have significant effects on banking customers, bank regulators and the
general economy.
In 1997, management of the Company established a Y2K Plan to prevent or mitigate
adverse effects of the Y2K issue on the Company and its customers. Goals of the
Y2K Plan include; identifying risks, testing data processing and other systems
and equipment used by the Company, informing customers of Y2K issues and risks,
establishing a contingency plan for operating if Y2K issues cause important
systems or equipment to fail, implementing changes necessary to achieve Y2K
compliance and verifying that these changes are effective. The Board of
Directors reviews progress under the plan each quarter.
Management designed the Y2K Plan to comply with the requirements for Y2K efforts
established by the Office of Thrift Supervision, the primary federal regulator
of the Company. The Office of Thrift Supervision has performed Y2K examinations
of the Company's Y2K Plan and the Company's progress in implementing the plan.
Federal regulations prevent the Company from disclosing the results of Y2K
examinations by banking regulators. The examinations do not represent approval
or certification of a Company's Y2K plans or efforts.
The Company continues to implement the Y2K Plan. The Company has met its Y2K
goals to date and believes that it will continue to meet the goals of the Y2K
Plan. As of September 30, 1998, the Company had completed an assessment of its
systems to identify the systems that could be affected by the Y2K issue, had
implemented its customer awareness program, had begun development of the Y2K
contingency plan and was in the process of testing and implementing necessary
changes in hardware and software. The Y2K contingency plan calls for the
Company to manually process bank transactions and to use other data processing
methods in the event that Y2K effort of the Company and its data service
providers are not successful. Delays in processing banking transactions would
result if the Company were required to use manual processing or other methods
instead of its normal computer processes. These delays could disrupt the normal
business activities of the Company and its customers. The Company must assure
that the computer systems it uses to process transactions are Y2K ready in order
to avoid these disruptions.
All of the Company's applications used in operations are purchased from outside
vendors. These vendors are responsible for maintenance of their systems and
modifications to become year 2000 compliant. In June 1997, the Company
converted its data processing to an in-house client-server system, which is
reported to be year 2000 compliant. The supplier of the software has performed
extensive testing and has assured the Company that it is year 2000 compliant.
At the time of the data processing conversion, the majority of the Company's
computer hardware was upgraded to meet the new system requirements and meet year
2000 compliance. The Company and the supplier are in the process of testing
hardware and software and will continue to do so into the year 2000. The
Company's plan includes obtaining certification from third parties and testing
all of the impacted applications.
At this time, the Company believes that the cost of resolving Y2K issues will
not be material to the Company's business, operations, liquidity, capital
resources or financial condition, based on information developed to date and
communications from data processing suppliers. The Company estimates that its
total cash outlays in connection with Y2K compliance will be approximately
$10,000, excluding costs of Company employees involved in Y2K compliance
activities. To the extent that costs are incurred related to the year 2000
problem, they will be expensed.
Although the Company has completed an assessment of Y2K effects on its current
commercial lending and other customers, the actual effects on individual,
corporate and governmental customers of the Company and on governmental
authorities that regulate the Company and its subsidiaries and any resulting
consequences to the Company, cannot be determined with any assurance. The
Company's belief that it and its primary suppliers of data processing services
will achieve Y2K compliance, are based on a number of assumptions and on
statements made by third parties and are subject to uncertainty. The Company
also is not able to predict the effects, if any, on the Company, financial
markets or society in general of the public's reaction to to Y2K. Because of
this uncertainty and reliance upon assumptions and statements of third parties,
the Company cannot be assured that the results of its Y2K Plan will be achieved.
Management believes, however, that the Company will be able to accomplish its
Y2K goals and that the Company will be able to continue providing financial
services to its customers into the year 2000 and beyond.
New Accounting Pronouncement. In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. SFAS No. 133
must be adopted by the Company in the first quarter of 2000, but may be adopted
in any earlier fiscal quarter and is not to be applied retroactively. When
adopted, this Statement is not expected to have a material impact on the results
of operations or financial position of the Company. Management has not yet
determined when it will adopt the provisions of this Statement.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Periodically, there have been various claims and lawsuits involving
the Company, mainly as a defendant, such as claims to enforce
liens, condemnation proceedings on properties in which the Company
holds security interests, claims involving the making and servicing
of real property loans and other issues incident to the Company's
business. The Company is not a party to any pending legal
proceedings that it believes would have a material adverse effect
on the financial condition or operation of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
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 therunto duly authorized.
Albion Banc Corp.
(Registrant)
Dated: November 1, 1998 \s\Jeffrey S. Rheinwald
Jeffrey S. Rheinwald
President and C.E.O.
Dated: November 1, 1998 \s\John S. Kettle
John S. Kettle
Senior VP and Treasurer
Dated: November 1, 1998 \s\Mark F. Reed
Mark F. Reed
Vice President and C.F.O.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,516,158
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,140,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,338,702
<INVESTMENTS-CARRYING> 4,152,239
<INVESTMENTS-MARKET> 4,206,212
<LOANS> 57,791,924
<ALLOWANCE> (275,837)
<TOTAL-ASSETS> 73,027,419
<DEPOSITS> 56,187,711
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 1,290,486
<LONG-TERM> 8,176,936
0
0
<COMMON> 2,643
<OTHER-SE> 6,369,643
<TOTAL-LIABILITIES-AND-EQUITY> 73,027,419
<INTEREST-LOAN> 3,384,763
<INTEREST-INVEST> 623,646
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,008,409
<INTEREST-DEPOSIT> 1,805,423
<INTEREST-EXPENSE> 449,470
<INTEREST-INCOME-NET> 1,753,516
<LOAN-LOSSES> 43,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,522,409
<INCOME-PRETAX> 467,095
<INCOME-PRE-EXTRAORDINARY> 467,095
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286,345
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 3.35
<LOANS-NON> 344,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 276,300
<CHARGE-OFFS> 43,463
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 275,837
<ALLOWANCE-DOMESTIC> 275,837
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
