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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION NO. 333-68813
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TROY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
TROY SAVINGS BANK 401(K) SAVINGS PLAN (Co-Registrant)
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DELAWARE 6712 16-1559508
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
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32 SECOND STREET
TROY, NEW YORK 12180
(518) 270-3313
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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DANIEL J. HOGARTY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TROY FINANCIAL CORPORATION
32 SECOND STREET
TROY, NEW YORK 12180
(518) 270-3313
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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STUART G. STEIN, ESQUIRE JOSEPH A. MULDOON, JR., ESQUIRE
ROGER A. SEIKEN, ESQUIRE MULDOON, MURPHY & FAUCETTE
HOGAN & HARTSON L.L.P. 5101 WISCONSIN AVENUE, N.W.
555 THIRTEENTH STREET, N.W. WASHINGTON, D.C. 20016
WASHINGTON, D.C. 20004 (202) 362-0840
(202) 637-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock, par value 12,139,011 shares(2) $10.00 $121,390,110 $33,747(2)
$.0001 per share...........
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401(k) Savings Plan 4,688,841(3) -- -- --
Participation Interest.....
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(1) Estimated solely for purposes of computing the registration fee.
(2) A total of $4,592 of additional fees are paid herewith to reflect the
addition of 1,651,586 shares being registered.
(3) The amount of assets available for investment as of January 26, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1999
PROSPECTUS SUPPLEMENT
TROY FINANCIAL CORPORATION
THE TROY SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
This prospectus supplement is provided to participants in The Troy Savings
Bank 401(k) Savings Plan in RSI Retirement Trust. The Troy Savings Bank is
converting to a stock savings bank and will become a subsidiary of Troy
Financial Corporation. Troy Financial is offering its common stock to depositors
with subscription rights, and will offer its common stock in a community
offering.
You may direct the trustee of the plan to purchase common stock in the
conversion with amounts allocated to your accounts under the plan. Since the
plan's trustee actually purchases the common stock, you would acquire only a
participation interest in the shares of our common stock and would not own the
common stock directly.
This prospectus supplement provides detailed information about the plan,
and should be read carefully and in conjunction with the prospectus, which is
attached.
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PLEASE READ THE RISK FACTORS BEGINNING ON PAGE OF THE PROSPECTUS BEFORE
INVESTING IN COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE NEW YORK
SUPERINTENDENT OF BANKS NOR THE NEW YORK STATE BANKING DEPARTMENT HAS APPROVED
OR DISAPPROVED OF THE COMMON STOCK OR THE PARTICIPATION INTERESTS IN THE 401(K)
SAVINGS PLAN OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS OR THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PARTICIPATION INTERESTS IN THE 401(K) SAVINGS PLAN ARE NOT DEPOSITS OR
ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE 401(K) SAVINGS PLAN'S ENTIRE
INVESTMENT IN THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
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, 1999.
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TABLE OF CONTENTS
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PAGE
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NOTICE TO PLAN PARTICIPANTS................................. S-2
THE OFFERING................................................ S-2
Securities Offered........................................ S-2
Election to Purchase Common Stock in the Conversion;
Priorities............................................. S-3
Value of Participation Interests.......................... S-3
Method of Directing Transfer.............................. S-3
Time for Directing Transfer............................... S-4
Irrevocability of Transfer Direction...................... S-4
Direction to Purchase Common Stock after the Conversion... S-4
Purchase Price of Common Stock............................ S-4
Nature of a Participant's Interest in the Common Stock.... S-4
Voting Rights of Common Stock............................. S-5
DESCRIPTION OF THE PLAN..................................... S-5
Introduction.............................................. S-5
Eligibility and Participation............................. S-5
Contributions Under the Plan.............................. S-6
Limitations on Contributions.............................. S-6
Investments of Contributions.............................. S-7
Benefits Under the Plan................................... S-10
Distributions from the Plan............................... S-10
Administration of the Plan................................ S-12
Reports to Plan Participants.............................. S-12
Plan Administrator........................................ S-12
Amendment and Termination................................. S-13
Merger, Consolidation or Transfer......................... S-13
Federal Income Tax Consequences........................... S-13
ERISA and Other Qualifications............................ S-15
SEC Reporting and Short-Swing Profit Liability............ S-15
LEGAL OPINIONS.............................................. S-16
INVESTMENT ELECTION FORM.................................... Si-1
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NOTICE TO PLAN PARTICIPANTS
As a 401(k) Savings Plan participant, you can invest all or a portion of
your account balance in one of seven investment funds. Troy Savings has now
established the Troy Stock Fund as an additional investment option under the
plan. The Troy Stock Fund will be invested in our common stock. This prospectus
supplement, and the accompanying prospectus, have been distributed to you so
that you can make an informed decision whether to invest any of your account
balance in the Troy Stock Fund. If plan trustee is unable to use the full amount
allocated by you to purchase common stock in the conversion, then you may either
elect alternative investments from among the other seven funds offered, or
direct the trustee to hold the funds transferred to the Troy Stock Fund and
purchase common stock in the open market. The other seven funds in which you may
invest are:
(1) Core Equity Fund;
(2) Emerging Growth Equity Fund;
(3) Value Equity Fund;
(4) Intermediate-Term Bond Fund;
(5) Actively Managed Bond Fund;
(6) International Equity Fund; and
(7) Short-Term Investment Fund.
THE OFFERING
SECURITIES OFFERED
The securities offered are participation interests in the plan. Following
the conversion, the plan may acquire up to shares of common stock
as part of the conversion. The common stock acquired by the plan will be held in
the Troy Stock Fund.
Information about the plan is contained in this prospectus supplement and
information about the conversion and the financial condition, results of
operations and business of Troy Financial and Troy Savings is contained in the
attached prospectus. The address of the principal executive office of Troy
Financial and Troy Savings is 32 Second Street, Troy, New York 12180. The
telephone number is (518) 270-3313.
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ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
Under the plan, you may invest your account balance, in multiples of 5%,
among eight investment alternatives, including the Troy Stock Fund. The trustee
of the Troy Stock Fund will purchase common stock in the conversion according to
your directions. IF THE CONVERSION IS OVERSUBSCRIBED AND THE TRUSTEE IS UNABLE
TO USE YOUR FULL ACCOUNT BALANCE TO PURCHASE COMMON STOCK THEN YOU MAY EITHER
ELECT ALTERNATIVE INVESTMENTS FROM AMONG THE OTHER SEVEN FUNDS, OR DIRECT THE
TRUSTEE TO PURCHASE COMMON STOCK IN THE OPEN MARKET. If you do not direct the
investment of your account balance, then your account balance will remain in the
other investment funds according to your prior instructions. If you have never
made an investment election, then your account balance will be invested in the
Short-Term Investment Fund.
PRIORITIES
We are offering our common stock in a subscription offering according to
the following priorities:
- accounts at Troy Savings with balances of at least $100 at June 30, 1997.
- our employee stock ownership plan.
- Depositors with accounts at Troy Savings with balances of at least $100
at December 31, 1998, who did not hold deposit accounts at Troy Savings
with balances of at least $100 on June 30, 1997. We may sell any
remaining shares in a community offering.
If you fall into one of the above three categories, then you may use funds
in your accounts to pay for the common stock being acquired. In addition, even
if you do not fall into one of the above three categories you may still be able
to use your funds to pay for common stock being acquired in the community
offering or through open market purchases. In that case, our common stock will
be placed in your Troy Stock Fund account within the plan. Your funds that are
not transferred to the Troy Stock Fund will remain in the other investment funds
as directed by you.
VALUE OF PARTICIPATION INTERESTS
The assets of the plan were valued at approximately $ as of
, 1998, and you were informed of the value of your beneficial
interest in the plan. The value of the assets of the plan represents the market
value, as of , 1998, of all participant accounts and any earnings or
losses on those accounts, less prior account withdrawals and loans.
HOW TO DIRECT A TRANSFER BETWEEN ACCOUNTS
The last page of this prospectus supplement contains an investment election
form, by which you can direct that any of your funds in the plan be transferred
to the Troy Stock Fund, in multiples of 5%. If you wish to transfer all or part
of your accounts to the Troy Stock Fund, then you should indicate that decision
on the investment election form. The investment election form must be returned
to Evelyn A. Morris, Vice President/Director of Human Resources of Troy Savings
by 5 p.m., , 1999. If you do not wish to make any election, then no
action need be taken.
DEADLINE FOR DIRECTING A TRANSFER BETWEEN ACCOUNTS
The deadline for submitting the investment election form to Evelyn A.
Morris is 5 p.m., , 1999.
YOUR DECISION TO TRANSFER FUNDS TO THE TROY STOCK FUND IS IRREVOCABLE
Your direction to transfer amounts to the Troy Stock Fund is irrevocable.
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DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the conversion, you will be able to direct that a percentage of your
interest in the plan be transferred to the Troy Stock Fund, as well as to any of
the seven investment funds available under the plan. These transfers must be in
multiples of 5%, from 5% to 100%.
You may also direct that your future contributions to the plan be invested
among any of the eight funds, including the Troy Stock Fund, in multiples of 5%.
You may not change your allocation more than once per quarter, although your
election to invest in the Troy Stock Fund during the conversion will not be
considered to be your quarterly allocation election. If you are one of our
officers, directors and principal stockholders then special restrictions may
apply to you.
PURCHASE PRICE OF THE COMMON STOCK
The funds transferred to the Troy Stock Fund for the purchase of common
stock in the conversion will be used by the trustee to order common stock. The
price paid for the common stock by the trustee will be $10.00 per share, which
is the same price paid by all other purchasers who purchase common stock in the
conversion.
Common stock purchased by the trustee after the conversion will be acquired
in open market transactions.
THE NATURE OF YOUR INTEREST IN THE COMMON STOCK
The common stock will be held in the name of the trustee for the Troy Stock
Fund. Common stock acquired at your direction will be allocated to your account
under the plan. Therefore, earnings in your account should not be affected by
the investment designations, including investments in common stock, of other
plan participants.
VOTING RIGHTS OF COMMON STOCK
The trustee for the Troy Stock Fund generally will vote the common stock
held by it as directed by you and the other plan participants with interests in
the Troy Stock Fund. With respect to each matter as to which you have a right to
vote, you will be allocated voting instruction rights reflecting your
proportionate interest in the Troy Stock Fund. The number of shares of common
stock held in the Troy Stock Fund that are voted in the affirmative and negative
on each matter will be proportionate to the number of affirmative and negative
instruction votes of you and the other plan participants.
DESCRIPTION OF THE PLAN
INTRODUCTION
The plan was established on April 1, 1989, and is a cash or deferred
arrangement established under Section 401(a) and Section 401(k) of the Internal
Revenue Code. The Internal Revenue Service has determined that the plan and its
related trust are qualified under the Internal Revenue Code.
Troy Savings intends that the plan, in operation, will comply with the
requirements under the Internal Revenue Code. Troy Savings will adopt any
amendments to the plan necessary to ensure the qualified status of the plan
under the Internal Revenue Code and applicable regulations.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OR ERISA. The plan is an individual
account plan, other than a money purchase pension plan, within the meaning of
ERISA. Thus, the plan is subject to all of the provisions of Title I, Protection
of Employee Benefit Rights, and Title II, Amendments to the Internal Revenue
Code Relating to Retirement Plans, of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA which by their terms do not apply to an
individual account plan, other than a money purchase pension plan. The plan is
not subject to Title IV, Plan Termination Insurance, of ERISA. The
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funding requirements contained in Title IV of ERISA are not applicable to
participants or beneficiaries under the plan.
REFERENCE TO THE FULL TEXT OF THE PLAN. The following statements are
summaries of some of the provisions of the plan. They are not complete and are
qualified in their entirety by the full text of the plan. You may obtain a
complete copy of the plan from the plan administrator, Attn: Evelyn A. Morris,
Vice President/Director of Human Resources of Troy Savings, 433 River Street,
Troy, New York 12180. The plan administrator's telephone number is (518)
270-3255. You are urged to read carefully the full text of the plan.
ELIGIBILITY AND PARTICIPATION IN THE PLAN
Generally, salaried or commissioned employees, of Troy Financial, Troy
Savings and their subsidiaries are eligible to join the plan upon reaching age
21 and completing a 365-day period of employment, beginning on the date of hire.
Employees compensated on an hourly, daily, fee or retainer basis, leased
employees and employees covered by a collective bargaining agreement, which does
not expressly provide for participation in the plan, are not eligible to join
the plan.
As of December 31, 1998, there were approximately employees eligible
to participate in the plan, and employees had elected to participate in the
plan by making salary deferred contributions.
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CONTRIBUTIONS UNDER THE PLAN
PLAN CONTRIBUTIONS. Under the plan, you are permitted to defer a part of
your base salary, on a pre-tax basis, up to the lesser of 15% of your annual
base salary, expressed in terms of whole percentages, or the applicable limit
under the Internal Revenue Code, which is $10,000 for 1999. Under the Internal
Revenue Code, the pre-tax base could be increased to the lesser of 25% of your
annual base salary or the $10,000 limit. For purposes of the plan, base salary
means your regular base pay, including salary, draw against commissions,
before-tax contributions made to the plan during the year and wages and wage
continuation payments. Base salary excludes overtime, bonuses, expense
allowances, severance pay, fees and any other special or supplemental
compensation. In 1999, the maximum amount of base salary that can be used for
any purpose under the plan is $160,000. This limitation is established by the
Internal Revenue Service, and is subject to increase to account for changes in
the cost of living.
You may elect to modify the amount contributed to the plan once in any
calendar quarter effective the first payroll period following 10 days after you
submit written notice to the plan administrator or as soon as possible
thereafter. Special restrictions here may also apply to you if you are subject
to Section 16 of the Securities Exchange Act of 1934.
EMPLOYER CONTRIBUTIONS. For 1998 and prior years, Troy Savings matched 50%
of a participant's pre-tax contributions, up to a maximum of 3% of the
participant's base salary. The matching contributions, including any earnings,
are not taxed so long as the funds remain in the plan. Matching contributions
are also subject to change, as well as vesting requirements. Following the
conversion, we intend to discontinue making matching contributions.
LIMITATIONS ON CONTRIBUTIONS
LIMITATION ON EMPLOYEE SALARY DEFERRALS. The annual amount of deferred base
salary, when aggregated with any elective deferrals under a simplified employee
pension plan or a tax-deferred annuity, may not exceed the limitation contained
in the Internal Revenue Code, as adjusted. The limitation for 1999 is $10,000.
Contributions in excess of this limitation or excess deferrals will be included
in the participant's gross income for federal income tax purposes in the year
made. In addition, any excess deferral will again be subject to federal income
tax when distributed by the plan to the participant, unless the excess deferral,
together with any income allocable to it, is distributed not later than the
first April 15th following the close of the taxable year in which the excess
deferral is made. Any income on the excess deferral that is distributed not
later than that date will be treated, for federal income tax purposes, as earned
and received by the participant in the taxable year in which the distribution is
made.
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. The plan provides that the
amount of contributions and forfeitures allocated to each participant's account
during any year may not exceed the lesser of $30,000 or 25% of the participant's
base salary for the year. In addition, annual additions are limited to the
extent necessary to prevent contributions on behalf of any employee from
exceeding the employee's combined plan limit. This limit takes into account the
contributions and benefits made on behalf of an employee to all plans of Troy
Savings or Troy Financial. To the extent that these limitations have been
exceeded with respect to a participant, the plan administrator shall use the
excess amounts in the next limitation year, and succeeding limitation years, if
necessary, to reduce participant contributions and employer matching
contributions for that participant if the participant is an eligible employee,
as defined in the plan, during the next limitation year. If the participant is
not an eligible employee, the plan administrator can allocate and reallocate the
excess amounts in the next limitation year, and succeeding limitation years, if
necessary, to all participants then actively participating in the plan.
LIMITATION ON CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES. The Internal
Revenue Code limits the amount of salary deferral contributions and matching
contributions that may be made to the
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plan in any year on behalf of highly compensated employees in relation to the
amount of salary deferral contributions made by or on behalf of all other
employees eligible to participate in the plan. Specifically, the actual deferral
percentage, which is the average of the actual deferral ratios, expressed as a
percentage, of each eligible employee's salary deferral contribution if any, for
the year over the employee's compensation, for the highly compensated employees
must meet either of the following tests: (1) the actual deferral percentage of
the eligible highly compensated employees is not more than 125% of the actual
deferral percentage of all other eligible employees for the prior year, or (2)
the actual deferral percentage of the eligible highly compensated employees is
not more than 200% of the actual deferral percentage of all other eligible
employees for the prior year, and the excess of the actual deferral percentage
for the eligible highly compensated employees over the actual deferral
percentage of all other eligible employees for the prior year is not more than
two percentage points. Similarly, the actual contribution percentage, which is
the average of the actual contribution ratios, expressed as a percentage of each
eligible employee's matching contributions, if any, for the year over the
employee's compensation, of the highly compensated employees must meet either of
the following tests: (a) the actual contribution percentage of the eligible
highly compensated employees is not more than 125% of the actual contribution
percentage of all other eligible employees for the prior year, or (b) the actual
contribution percentage of the eligible highly compensated employees is not more
than 200% of the actual contribution percentage of all other eligible employees
for the prior year, and the excess of the actual contribution percentage for the
eligible highly compensated employees over the actual contribution percentage of
all other employees for the prior year is not more than two percentage points.
In general, beginning in 1999, a highly compensated employee includes any
employee, who, (1) during the year or the preceding year, was at any time a 5%
owner of the employer's stock, or (2) for the preceding year received base
salary from an employer in excess of $80,000 in 1999, and, if the employer
elects for a year, was in the group consisting of the top 20% of employees when
ranked on the basis of base salary paid during the year. The dollar amounts set
forth above are adjusted annually to reflect increases in the cost of living.
To prevent the disqualification of the plan, any amount contributed by
highly compensated employees that exceeds the actual deferral percentage
limitation in any year, together with any income allocable, must be distributed
to such highly compensated employees before the close of the following year.
Moreover, Troy Savings will be subject to a 10% excise tax on any excess
contributions unless the excess contributions, together with any income
allocable, either are re-characterized or are distributed before the close of
the first 2 1/2 months following the year to which such excess contributions
relate. In addition, to avoid disqualification of the plan, any contributions by
highly compensated employees that exceed the average contribution limitation in
any year, together with any income allocable, must be distributed to such highly
compensated employees before the close of the following year. However, the 10%
excise tax will be imposed on Troy Savings with respect to any excess aggregate
contributions, unless those amounts, plus any income allocable thereto, are
distributed within 2 1/2 months following the close of the year in which they
arose.
INVESTMENTS OF CONTRIBUTIONS
All amounts credited to participants' accounts under the plan are held in a
trust fund which is administered by the trustee appointed by Troy Savings' Board
of Trustees.
Prior to the conversion, participants could direct the investment of their
accounts into the seven funds.
The plan now provides that, in addition to the seven funds, a participant
may direct the trustee to invest all or a portion of his or her account in the
Troy stock fund. A participant may elect to have both past contributions and
earnings, as well as future contributions to the participant's accounts invested
in either the Troy stock fund or among the other seven funds. Transfers of past
contributions and the earnings do not affect the investment mix of future
contributions. Participants may transfer past contributions from one fund to
another not more than once in any calendar quarter by submitting a request to
the plan administrator at least 10 days prior to the date the transfer is to be
made. All transfers
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must be made in multiples of 5%. Participants may also change the investment of
future contributions not more than once in any calendar quarter by submitting a
request to the plan administrator at least 10 days prior to the date the change
is to take effect. The change in future allocations will become effective as of
the first payroll period following the participant's written notice to the plan
administrator, or as soon as possible thereafter.
The value of a participant's accounts under the plan will reflect the
investment performance of the fund or funds in which the participant is
invested. Each fund is valued daily. For purposes of allocations, all assets of
the trust are valued at fair market value.
A. PREVIOUS FUNDS.
Prior to the conversion, contributions under the plan have been invested in
seven funds. The following table provides performance data for the seven funds,
based on information provided to us by RSI Retirement Trust.
NET INVESTMENT PERFORMANCE FOR PERIODS ENDED DECEMBER 31, 1998
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FUND 12 MONTHS 3 YEARS 5 YEARS 10 YEARS
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(1) Core Equity Fund......................... % % % %
(2) Emerging Growth Equity Fund..............
(3) Value Equity Fund........................
(4) Intermediate-Term Bond Fund..............
(5) Actively Managed Bond Fund...............
(6) International Equity Fund................
(7) Short-Term Investment Fund...............
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The following is a description of each of the seven funds:
CORE EQUITY FUND. This fund seeks capital appreciation and income and
invests in a broadly diversified group of high quality, large capitalization
companies exhibiting sustainable growth in earnings and dividends. It is
expected that the variability of returns, or risk, for this fund will
approximate that of the Standard and Poor's 500 stock index over time.
EMERGING GROWTH EQUITY FUND. This fund seeks capital appreciation and
income by investing primarily in stocks of smaller companies with
higher-than-average earnings and dividend growth potential. The fund will
generally have a higher degree of risk and price volatility than the portfolios
of the Core Equity Fund and the Value Equity Fund.
VALUE EQUITY FUND. This fund seeks capital appreciation and income and
invests heavily in out-of-favor stocks of financially sound companies that are
selling at unjustifiably low market valuations based on price/earnings ratios,
price-to-book ratios and other indicators. The results achieved by this fund may
be more volatile than the results produced by the Standard and Poor's 500 stock
index.
INTERMEDIATE-TERM BOND FUND. This fund seeks principal appreciation and
income and invests in high quality fixed-income vehicles that mature within 10
years or have expected average lives of 10 years or less. At least 65% of its
assets must be invested in securities issued or backed by the United States
government, or its agencies or instrumentalities. The returns of this fund are
expected to be less volatile than the returns produced by the Lehman Brothers
Government/Corporate Bond Index.
ACTIVELY MANAGED BOND FUND. This fund invests in high quality fixed income
securities and seeks both principal appreciation and income. The maturity
structure of this fund is expected to vary substantially based on the perceived
relative attractiveness of different areas of the fixed income market. At least
65% of its assets must be invested in securities issued or backed by the United
States government, or its agencies or
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instrumentalities. The returns of this fund are expected to reflect the
variability of returns produced by the Lehman Brothers Government/Corporate Bond
Index.
INTERNATIONAL EQUITY FUND. This fund seeks capital appreciation and income
by investing in stocks of companies headquartered in foreign countries. Each
selection is based on companies whose current prices do not reflect the true
earnings potential and therefore, are selling at undervalued prices, indicated
by unjustifiably low price-to-book ratios, price/earnings ratios, and other
indicators. Investments in foreign markets with unacceptable political or
economic risks are avoided. Holdings are concentrated in the larger markets of
Europe, Australia and the Far East. In addition, the portfolio manager will
invest in emerging markets, as opportunities arise and, in smaller
capitalization issues up to 15% of total portfolio assets. This fund generally
carries a higher degree of risk and price volatility than the Core Equity Fund
and the Value Equity Fund, but less than the Emerging Growth Equity Fund. Total
net return, including adjustments for currency price changes, should exceed the
Lipper International Mutual Funds Average measured over a period of three to
five years.
SHORT-TERM INVESTMENT FUND. This fund focuses on preservation of principal
while producing a competitive money market return.
B. THE TROY STOCK FUND.
The Troy Stock Fund will consist of investments in our common stock made
during and after the conversion. After the conversion, the trustee for the Troy
Stock Fund will, to the extent practicable, use all amounts held by it in the
Troy Stock Fund, including cash dividends, if any, paid on our common stock held
in the Troy Stock Fund, to purchase shares of our common stock. The trustee will
make all purchases at prevailing market prices. Under certain circumstances, the
trustee may be required to limit the daily volume of shares purchased. Pending
investment in our common stock, assets held in the Troy Stock Fund may be placed
in Troy Savings deposit accounts and other short-term investments.
The expenses of managing plan funds, including investment management fees,
commissions, and other transaction costs, are charged against the assets of the
total applicable fund. A participant's account will be adjusted to reflect
changes in the value of the shares of common stock resulting from stock
dividends, stock splits and similar changes, if any.
As of the date of this prospectus supplement, no common stock has been
issued or is outstanding and there is no established market for our common
stock. Accordingly, there is no record of the historical performance of the Troy
Stock Fund. Performance depends upon a number of factors, including our
financial condition and profitability and the market conditions for our common
stock generally.
AN INVESTMENT IN THE TROY STOCK FUND INVOLVES RISKS. FOR A DISCUSSION OF
THESE RISKS FACTORS, SEE PAGE OF THE PROSPECTUS. THE PERFORMANCE OF THE TROY
STOCK FUND AND AMOUNTS IN THE TROY STOCK FUND OR ANY OF THE OTHER PLAN FUNDS ARE
NOT GUARANTEED BY TROY SAVINGS, THE PLAN OR US. THE TROY STOCK FUND IS NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
S-9
<PAGE> 12
BENEFITS UNDER THE PLAN
VESTING. You, at all times, have a fully vested, nonforfeitable right to
your before-tax contributions, after-tax contributions and rollover
contributions and their earnings under the plan. You are vested in any matching
contributions and earnings according to the following schedule:
<TABLE>
<CAPTION>
VESTED
YEARS OF SERVICE PERCENTAGE
---------------- ----------
<S> <C>
less than 2 years........................................... 0%
2 years but less than 3 years............................... 20%
3 years but less than 4 years............................... 40%
4 years but less than 5 years............................... 60%
5 years but less than 6 years............................... 80%
6 or more years............................................. 100%
</TABLE>
You will also be 100% vested in matching contributions and earnings,
regardless of years of employment, upon your retirement, permanent disability or
death.
DISTRIBUTIONS FROM THE PLAN
FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS ON YOUR
RIGHT TO WITHDRAW AMOUNTS HELD FOR YOUR BENEFIT UNDER THE PLAN PRIOR TO YOUR
TERMINATION OF EMPLOYMENT. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED
ON WITHDRAWALS MADE PRIOR TO YOUR ATTAINMENT OF AGE 59 1/2, REGARDLESS OF
WHETHER THE WITHDRAWAL OCCURS DURING OR AFTER TERMINATION OF YOUR EMPLOYMENT.
CIRCUMSTANCES WHEN DISTRIBUTIONS ARE MADE. The plan is designed to provide
you with a source of retirement income. Accordingly, benefits are normally paid
at retirement. The plan, however, has provisions for distributions to commence
at a variety of times depending upon the circumstances.
Retirement. Normal retirement under the plan occurs on the later of the
date that you attain age 65 or the date in which you complete five years of
service beginning on the date you first became eligible to participate in the
plan. If, however, you are eligible for an early retirement benefit under a
defined benefit retirement plan, then you may choose to retire under the plan
earlier than at normal retirement. If you retire before age 55 and do not roll
over your account balance to a rollover individual retirement account or IRA or
a subsequent employer's qualified plan, then you may have to pay a 10% federal
excise tax on the taxable portion of the distribution in addition to other
federal, state and local income taxes applicable to all distributions. If you
work past age 65, then your distributions will generally be deferred at least
until the actual retirement date.
Disability. You can receive a distribution if you become disabled while an
active employee. For purposes of the plan, you are considered disabled if you
become eligible for benefits under a long term disability plan.
Death. The full value of your plan accounts, less any outstanding loans,
will be paid if you die. To receive this payment, your beneficiary must first
provide the plan administrator with proper documentation, such as a death
certificate. If there is no beneficiary or contingent beneficiary on record,
then payment will be made to your estate.
Termination of Employment. If you terminate employment for any reason
before retirement, then your contributions will automatically end. If you
terminate employment and receive a distribution before age 55 and do not roll
over the distribution to a rollover IRA or a subsequent employer's qualified
plan, then you will have to pay a 10% federal excise tax on the taxable portion
of the distribution in addition to other federal, state and local income taxes
applicable to all distributions.
WHEN AND HOW DISTRIBUTIONS ARE MADE. Distributions from the plan are
usually made in one cash payment and are generally taxable as ordinary income in
the year in which the payment is made. However,
S-10
<PAGE> 13
the portion of the distribution that is a return of your after-tax contributions
is not taxable since you already paid tax on it. The earnings on after-tax
contributions are taxable as ordinary income in the year in which the earnings
are paid to you.
If you terminate employment for any reason and the value of your plan
accounts is $5,000 or less and you have not elected an optional form of payment,
then you will receive a single cash payment as soon as administratively possible
after termination. If you retire on or after the normal retirement age and the
value of your plan accounts exceeds $5,000 and you have not elected an optional
form of payment, then you will receive a single cash payment as soon as
administratively possible after termination. If you terminate for any reason
before normal retirement age, the value of your vested plan accounts is $5,000
or less and you have not elected an optional form of payment, then you will
receive a single cash payment as soon as administratively possible after
attaining normal retirement age.
OPTIONAL FORMS OF PAYMENT. You have the option to elect to receive the
following optional forms of payment:
(a) Single Cash Payment. This option is available regardless of the
value of your plan accounts. If you terminate employment for reasons other
than death, then you may elect to receive the value of your vested plan
accounts as a single cash payment any date up to 13 months after
termination.
(b) Installment Payments. This option is available if the value of
your plan accounts exceeds $5,000. This option is only available if your
reason for termination of employment is due to retirement or disability.
You may elect to receive the value of your accounts in installments, up to
a maximum payment period of 10 years. The maximum payment period, however,
cannot exceed your life expectancy and the life expectancy of your
beneficiary. You decide when the installments commence, although,
generally, you must begin to receive payments no later than the first day
of April following the year in which you attain age 70 1/2. Each
installment amount will be based on the number of payments then remaining
and the current value of your accounts.
(c) Direct Transfers to an IRA or Another Qualified Plan. This option
is available regardless of the value of your plan accounts. You may, at
least 10 days prior to the date on which the benefit is scheduled to be
paid, request that the value of your accounts be made payable to the
trustee or custodian of an IRA, or the trustee of another qualified pension
or profit-sharing plan, provided that the other plan permits receipt
thereof.
DISTRIBUTIONS FOLLOWING YOUR DEATH. If you die before receiving the entire
value of your plan accounts, then payments will be made to your beneficiary or
contingent beneficiary as follows:
(1) If you had not made a valid election as to how payments are to be
made, then a single cash payment will be made as soon as administratively
possible following death.
(2) If you had made a valid election to receive a deferred single cash
payment, a single cash payment will generally be made as of the date you
had elected to receive the payment. However, there are certain situations
when a single cash payment may be made as of another date: (a) if your
beneficiary is your spouse and death occurs before age 70 1/2, then payment
to your spouse will be made no later than the date you would have attained
age 70 1/2; (b) if your beneficiary is your spouse and you die on or after
age 70 1/2, then payment to your spouse will be made as soon as
administratively possible following death; and (c) if your beneficiary is
not your spouse, then payment to your beneficiary will be made within one
year of the date of your death.
S-11
<PAGE> 14
(iii) If you are receiving installment payments and die before receipt
of all the installments, then your beneficiary or contingent beneficiary
will continue to receive the installments in the same manner as before
death. Payments will continue until all installments paid equal the number
of installment payments that you had elected to receive.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge or otherwise dispose of any rights to benefits payable
under the plan will be void.
ADMINISTRATION OF THE PLAN
TRUSTEE. The trustee of the plan is the named fiduciary of the plan for
purposes of ERISA.
The trustee is appointed by the Board of Trustees of Troy Savings to serve
at its pleasure. The current trustee of the plan is the RSI Retirement Trust.
However, is being appointed as trustee for the Troy Stock Fund.
As used in the prospectus supplement, trustee refers to both RSI Retirement
Trust and .
The trustee receives, holds and invests the contributions to the plan in
trust and distributes the account balances according to the terms of the plan
and the directions of the plan administrator. The trustee is responsible for
investment of the assets of the trust.
REPORTS TO PLAN PARTICIPANTS
The trustee will furnish to each participant a statement each quarter
showing, as of the statement date, how much each participant has in the plan,
the participant's investment allocations, and the value of the participant's
accounts in the plan.
PLAN ADMINISTRATOR
Pursuant to the terms of the plan, the plan is administered by the plan
administrator. Currently, the plan administrator is Troy Savings. Ms. Evelyn A.
Morris, Vice President/Director of Human Resources of Troy Savings is the
representative for the plan administrator. The address and telephone number of
the plan administrator is c/o The Troy Savings Bank, 433 River Street, Troy, New
York 12180; (518) 270-3255. The plan administrator is responsible for
maintaining the plan's records, determining eligibility to participate,
forwarding all appropriate forms to the trustee, notifying participants
regarding claims for benefits, and generally acting in good faith and in the
plan's interest. The plan administrator is also responsible for interpretation
of the provisions of the plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the plan,
and preparation and filing of all returns and reports relating to the plan which
are required to be filed with the U.S. Department of Labor and the Internal
Revenue Service, and for all disclosures required to be made to participants,
beneficiaries and others under ERISA.
AMENDMENT AND TERMINATION
Troy Savings intends to continue the plan indefinitely. Nevertheless, Troy
Savings may terminate the plan at any time. If the plan is terminated then
regardless of other provisions in the plan, each employee affected by the
termination will have a fully vested interest in his or her accounts. Troy
Savings reserves the right to make any amendments to the plan which do not cause
any part of the trust to be used for, or diverted to, any purpose other than the
exclusive benefit of participants or their beneficiaries. Troy Savings may,
however, make any amendment it determines necessary or desirable, with or
without retroactive effect, to comply with ERISA.
S-12
<PAGE> 15
MERGER, CONSOLIDATION OR TRANSFER
If the plan merges or consolidates with another plan, or the assets are
transferred to another plan, the plan requires that each participant, if either
the plan or an other plan then terminated receives a benefit immediately after
the merger, consolidation or transfer which is equal to or greater than the
benefit he or she would have been entitled to receive immediately before the
merger, consolidation or transfer if the plan had then terminated.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of some of the federal income tax aspects
of the plan which are of general application under the Internal Revenue Code and
is not intended to be a complete description of the federal income tax
consequences of participating in or receiving distributions from the plan.
Statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws. Participants are urged to consult
their tax advisors with respect to any distribution from the plan and
transactions involving the plan.
The plan is qualified under the Internal Revenue Code and the related trust
is exempt from tax under the Internal Revenue Code. A plan that is qualified
under these sections of the Internal Revenue Code is afforded special tax
treatment which includes the following: (1) Troy Savings is allowed an immediate
tax deduction for the amount contributed to the plan each year; (2) Participants
pay no current income tax on amounts contributed by Troy Savings on their
behalf; and (3) earnings of the plan are not subject to taxes currently, thus
permitting the tax-deferred accumulation of income and gains on investments. The
plan will be administered to comply in operation with the requirements of the
Internal Revenue Code as of the applicable effective date of any change in the
law. Troy Savings expects to adopt any amendments to the plan that may be
necessary to maintain the qualified status of the plan.
Assuming that the plan is administered in accordance with the requirements
of the Internal Revenue Code, participation in the plan under existing federal
income tax laws will have the following effects:
(a) Amounts contributed to a participant's account and any investment
earnings are not includable in a federal taxable income until such
contributions or earnings are actually distributed or withdrawn from the
plan. Special tax treatment may apply to the taxable portion of any
distribution that includes common stock or qualifies as a lump sum
distribution.
(b) Income earned on assets held by the trust will not be taxable to
the trust.
LUMP SUM DISTRIBUTION. A distribution from the plan to a participant or the
beneficiary of a participant will qualify as a lump sum distribution if it is
made: (i) within one year of the death of a participant or beneficiary, (ii) on
account of the participant's death, disability or separation from service, or
after the participant attains age 59 1/2, and (iii) consists of the balance to
the credit of the participant under this plan and all other profit sharing
plans, if any, maintained by Troy Savings. The portion of any lump sum
distribution that is required to be included in the participant's or
beneficiary's taxable income for federal income tax purposes consists of the
entire amount of such lump sum distribution less the amount of after-tax
contributions, if any, made by the participant to any other profit sharing plan
maintained by Troy Savings which is included in such distribution.
AVERAGING RULES. The portion of the total taxable amount of a lump sum
distribution that is attributable to participation after 1973 in the plan or in
any other profit-sharing plan maintained by Troy Savings will be taxable
generally as ordinary income for federal income tax purposes. However, for tax
years beginning before year 2000, a participant who has completed at least five
years of participation in the plan before the taxable year in which the
distribution is made, or a beneficiary who receives a lump sum distribution on
account of the participant's deaths regardless of the period of the
participant's participation in the plan or any other profit-sharing plan
maintained by Troy Savings, may elect to have the ordinary income portion of
such lump sum distribution taxed according to a special averaging rule. The
election of the special averaging rules may apply only to one lump sum
distribution received by the participant or beneficiary, provided the amount
S-13
<PAGE> 16
is received on or after the participant turns age 59 1/2 and the recipient
elects to have any other lump sum distribution from a qualified plan received in
the same taxable year taxed under the special averaging rule. Under a special
grandfather rule, individuals who turned age 50 by 1985 may elect to have their
lump sum distribution taxed under either the five-year averaging rule or under
the prior law 10-year averaging rule. The special five-year average rule was
repealed for tax years beginning after 1999.
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a lump sum distribution
includes common stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to the common stock. The
tax basis of common stock to the participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the common
stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
common stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such common stock. Any gain on a subsequent or other
taxable disposition of the common stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the common stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of the distribution to the extent allowed by law.
CONTRIBUTION TO ANOTHER QUALIFIED PLAN OR TO AN IRA. A participant may
defer federal income taxation of all or any portion of the total taxable amount
of a lump sum distribution. Including the proceeds from the sale of any common
stock included in the lump sum distribution to the extent that the amount, or a
portion is contributed, within 60 days after the date of its receipt by the
participant, to another qualified plan or to an IRA. If less than the total
taxable amount of a lump sum distribution is contributed to another qualified
plan or to an IRA within the applicable 60-day period, the amount not so
contributed must be included in the participant's income for federal income tax
purposes and will not be eligible for the special averaging rules or for capital
gains treatment. Additionally, a participant may defer the federal income
taxation of any portion of an amount distributed from plan on account of the
participant's disability or separation from service, generally, if the amount is
distributed within one taxable year of the participant, and the amount is
contributed, within 60 days after the date of its receipt by the participant, to
an IRA.
Effective January 1, 1993, participants have the right to elect to have the
trustee transfer all or any portion of an eligible rollover distribution
directly to another plan qualified under the Internal Revenue Code or to an IRA.
If the participant does not elect to have an eligible rollover distribution
transferred directly to another qualified plan or to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An eligible rollover distribution means any amount
distributed from the plan except: (1) a distribution that is (a) one of a series
of substantially equal periodic payments made, not less frequently than
annually, over the participant's life or the joint life of the participant and
the participant's designated beneficiary, or (b) for a specified period of 10
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law.
The beneficiary of a participant who is the participant's surviving spouse
also may defer federal income taxation of all or any portion of a distribution
from the plan to the extent that such amount, or a portion, is contributed
within 60 days after the date of its receipt by the surviving spouse, to an IRA.
If all or any portion of the total taxable amount of a lump sum distribution is
contributed by the surviving spouse of a participant to an IRA within the
applicable 60-day period, any subsequent distribution from the IRA will not be
eligible for the special averaging rules or for capital gains treatment. Any
amount received by the participant's surviving spouse that is not contributed to
another qualified plan or to an IRA within the applicable 60-day period, and any
amount received by a nonspouse beneficiary will be included in such
beneficiary's income for federal tax purposes in the year in which it is
received.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A participant who receives a
distribution from the plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the
S-14
<PAGE> 17
distribution. The 10% additional income tax will not apply, however, to the
extent the distribution is rolled over into an IRA or another qualified plan or
the distribution is
(a) made to a beneficiary, or to the estate or a participant, on or after
the death of the participant,
(b) attributable to the participant's being disabled within the meaning of
the Internal Revenue Code,
(c) part of a series of substantially equal periodic payments, not less
frequently than annually, made for the life or life expectancy of the
participant or the joint lives or joint life expectancies of the
participant and his beneficiary,
(d) made to the participant after separation from service on account of
early retirement under the plan after attainment of age 55,
(e) made to pay medical expenses to the extent deductible for federal
income tax purposes,
(f) payments made to an alternate payee pursuant to a qualified domestic
relations order, or
(g) made to effect the distribution of excess contributions or excess
deferrals.
ERISA AND OTHER QUALIFICATIONS
As noted above, the plan is subject to certain provisions of ERISA and has
received a favorable determination that it is qualified under the Internal
Revenue Code.
The foregoing is only a brief summary of the federal income tax aspects of
the plan and is not intended to be a complete description of the federal income
tax consequences of participating in or receiving distributions from the plan.
Accordingly, you are urged to consult a tax advisor concerning the federal,
state and local tax consequences of participating in and receiving distributions
from the plan.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Securities Exchange Act of 1934 imposes reporting and
liability requirements on officers, directors and persons beneficially owning
more than 10% of the equity securities of public companies. Section 16(a)
requires the filing of reports of beneficial ownership of such equity
securities. Within 10 days of becoming a person subject to the reporting
requirements of Section 16(a), a Form 3 reporting initial beneficial ownership
must be filed. Changes in beneficial ownership must be reported on a Form 4
within 10 days after the end of the month in which a change occurs. Annual
statements of beneficial ownership must be filed on a Form 5 within 45 days
after the close of the fiscal year, unless the person has previously reported
such information on Form 4. Certain discretionary transactions in and beneficial
ownership of the common stock through the Troy Stock Fund by officers, directors
and persons beneficially owning more than 10% of the common stock must be
reported by such individuals.
In addition to the reporting requirements described above, Section 16(b)
provides for the recovery by us of profits realized by an officer, director or
any person beneficially owning more than 10% of our common stock, resulting from
certain purchases and sales of our common stock within any six-month period.
The Securities and Exchange Commission has adopted rules that provide
exemption from the profit recovery provisions of Section 16(b) for
participant-directed employer security transactions within an employee benefit
plan, such as the plan, if certain requirements are met. These requirements
generally involve restrictions upon the timing of elections to acquire or
dispose of employer securities for the accounts of Section 16(b) persons.
Except for distributions of common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, under the plan, Section 16(b) persons are required to hold shares of
common stock distributed from the plan for six months following distribution and
are prohibited from directing additional purchases of units within the Troy
Stock Fund for six months after receiving such a distribution.
S-15
<PAGE> 18
LEGAL OPINIONS
The legality of the common stock will be passed upon for Troy Savings and
by Hogan & Hartson L.L.P., Washington, D.C., special counsel to Troy Savings and
Troy Financial.
S-16
<PAGE> 19
THE TROY SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
INVESTMENT ELECTION FORM
Name of Participant (Last, First, MI):
------------------------------------
Social Security Number:
--------------------------
OVERVIEW: In connection with the conversion of The Troy Savings Bank to a
stock savings bank, the Troy Savings Bank 401(k) Savings Plan in RSI Retirement
Trust has been amended so that you may direct the trustee of the plan to
purchase common stock of Troy Financial Corporation, the bank holding company
for Troy Savings, with amounts allocated to your accounts under the plan. The
plan would invest in common stock through the Troy Stock Fund. Since the plan
actually purchases the common stock, you would acquire only a participation
interest in the common stock and would not own common stock directly. This
investment election form enables you make an initial election to direct that all
or a portion of your accounts under the plan be invested in the Troy Stock Fund.
This investment election form also enables you to provide alternative investment
instructions to the trustee if the conversion is oversubscribed and the total
amount allocated to your accounts cannot be used by the trustee to purchase
common stock. Finally, this investment election form enables you to direct the
investment of your future contributions to the savings plan.
INSTRUCTIONS: To transfer all or a portion of your accounts under the plan
to the Troy Stock Fund, you should complete and file this form with Evelyn A.
Morris, Vice President/Director of Human Resources of The Troy Savings Bank, no
later than 5:00 p.m., , 1999. A REPRESENTATIVE FOR THE PLAN
ADMINISTRATOR WILL RETAIN THE ORIGINAL COPY OF THIS FORM AND RETURN A COPY TO
YOU. If you need assistance in completing this form, please contact Evelyn A.
Morris at (518) 270-3255. If you do not complete and return this form to Evelyn
A. Morris by 5:00 p.m., , 1999, the funds in your accounts under the
plan will continue to be invested according to your prior investment direction,
or according to the terms of the plan if no investment direction has been
provided.
INVESTMENT DIRECTIONS.
A. I hereby authorize the plan administrator to direct the trustee to sell
the units currently credited to my accounts under the plan, and to purchase
units in the Troy Stock Fund. Transfers of units from existing investment
accounts must be in multiples of 5%, and cannot exceed 100%. Purchases of units
in the Troy Stock Fund will always be 100%:
<TABLE>
<CAPTION>
SELL UNITS FROM
----------------------------------------------------------------------------
<S> <C>
SELL ---% of (1): Core Equity Fund
SELL ---% of (2): Emerging Growth Equity Fund
SELL ---% of (3): Value Equity Fund
SELL ---% of (4): Intermediate-Term Bond Fund
SELL ---% of (5): Actively Managed Bond Fund
SELL ---% of (6): International Equity Fund
SELL ---% of (7): Short-Term Investment Fund
</TABLE>
B. Did you have deposit accounts with The Troy Savings Bank containing
balances of at least $100 on:
<TABLE>
<S> <C>
June 30, 1997?......................................... [ ] Yes [ ] No
December 31, 1998?..................................... [ ] Yes [ ] No
</TABLE>
C. If the conversion is oversubscribed and the trustee is unable to use the
full amount allocated by you to purchase common stock in the conversion, then
the trustee should:
(choose only one option)
[ ] . . . Elect alternative investments from among the other seven funds
offered: (chose multiples of 5% up to a total 100%)
Si-1
<PAGE> 20
<TABLE>
<C> <S>
---% in (1): Core Equity Fund
---% in (2): Emerging Growth Equity Fund
---% in (3): Value Equity Fund
---% in (4): Intermediate-Term Bond Fund
---% in (5): Actively Managed Bond Fund
---% in (6): International Equity Fund
---% in (7): Short-Term Investment Fund
or
</TABLE>
[ ] . . . Hold the funds transferred to the Troy Stock Fund and purchase
common stock in the open market after the conversion. I understand that the open
market purchase prices may be higher, lower or the same as the $10.00 per share
conversion purchase price.
D. I hereby authorize the plan administrator to invest all future
contributions, matching funds and any earnings among the following eight funds
offered, in multiples of 5% up to a total of 100%:
<TABLE>
<C> <S>
---% in (1): Core Equity Fund
---% in (2): Emerging Growth Equity Fund
---% in (3): Value Equity Fund
---% in (4): Intermediate-Term Bond Fund
---% in (5): Actively Managed Bond Fund
---% in (6): International Equity Fund
---% in (7): Short-Term Investment Fund
---% in (8): Troy Stock Fund
or
</TABLE>
[ ] . . . I do not wish to make a change in my future investment decision.
Accordingly, please invest all my future contributions, matching funds and any
earnings according to my prior investment directions.
ACKNOWLEDGMENT OF PARTICIPANT: I understand that this investment election
form is subject to all of the terms and conditions of the 401(k) Savings Plan. I
acknowledge that I have received a copy of the prospectus and the prospectus
supplement, and have read those materials.
Signature of Participant: Date:
---------------------- ------------------
THE PARTICIPATION INTERESTS REPRESENTED BY THE COMMON STOCK OFFERED HEREBY
ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE NOT
GUARANTEED BY TROY FINANCIAL OR TROY SAVINGS. THE COMMON STOCK IS SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF INVESTMENT.
FOR ADMINISTRATOR'S USE ONLY
This change will become effective on:
<TABLE>
<S> <C>
- ----------------------------------------------------------- ------------------------------
Plan Administrator or Representative Date Received
</TABLE>
Si-2
<PAGE> 21
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1999
PROSPECTUS
TROY FINANCIAL CORPORATION
(PROPOSED HOLDING COMPANY FOR THE TROY SAVINGS BANK)
10,200,500 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
The Troy Savings Bank is converting to the stock form of organization. As
part of this conversion, Troy Savings will become a subsidiary of Troy Financial
Corporation. Troy Financial is offering its common stock to depositors with
subscription rights. The offering will terminate at p.m., New York
time, on , 1999. There also will be a community offering. Troy
Financial anticipates that its common stock will be quoted on the Nasdaq Stock
Market National Market under the symbol "TRYF." Please read this prospectus for
additional information on how to purchase stock. You can call the Troy
Conversion Center at 1-800- for further assistance.
- --------------------------------------------------------------------------------
TERMS OF OFFERING
<TABLE>
<S> <C> <C>
- - Price Per Share $ 10.00
Number of Shares Offered up - to 10,200,500
- - Amount of Common Stock Offered $ 102,005,000
Estimated Underwriting Discounts, Commissions and Other
- - Expenses $ 2,468,000
- - Estimated Net Proceeds to Troy Financial Corporation $ 99,537,000
</TABLE>
------------------------
PLEASE READ THE RISK FACTORS ON PAGE BEFORE SUBSCRIBING FOR ANY COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE NEW YORK
SUPERINTENDENT OF BANKS NOR THE NEW YORK STATE BANKING DEPARTMENT HAS APPROVED
OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL INVESTED.
------------------------
Sandler O'Neill & Partners, L.P. will use its best efforts to help us sell
at least 7,539,500 shares of common stock but is not required to sell any
specific amount of common stock.
------------------------
SANDLER O'NEILL & PARTNERS, L.P.
, 1999
<PAGE> 22
[MAP/PICTURE OF HEADQUARTERS -- MUSIC HALL]
<PAGE> 23
QUESTIONS AND ANSWERS
The following are frequently asked questions. References in this document
to "we," "us," "our," and "Troy Financial" refer to Troy Financial Corporation
and, in some cases, to both Troy Financial Corporation and The Troy Savings
Bank. References to Troy Savings refer to The Troy Savings Bank.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering up to 10,200,500 shares of common stock at $10.00 per share.
We must sell at least 7,539,500 shares. Without notice to you, we may sell up
to 11,730,575 shares.
Q: WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A: Yes, you can sell your stock unless you are one of our officers, directors or
trustees. However, you cannot be sure that someone will want to buy your
stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY GOVERNMENT
AGENCY?
A. No. Unlike insured deposit accounts at Troy Savings, your stock will not be
insured or guaranteed by the FDIC or any other government agency.
Q: HOW MUCH STOCK MAY I ORDER?
A: There are limits on how much stock you can order. These limits are discussed
in this prospectus and on the stock order form.
Q. WHEN IS THE DEADLINE TO ORDER STOCK?
A. We must receive your signed order form with payment no later than p.m.,
New York time, on , 1999.
Q: HOW DO I PURCHASE THE STOCK?
A: First, you should read this prospectus. Then, complete and return the
enclosed stock order and certification form, together with your payment.
Q. CAN I CHANGE MY MIND AFTER I ORDER STOCK?
A. No. After we receive your order form and payment, you may not cancel or
modify your order.
Q: HOW CAN I PAY FOR THE STOCK?
A: You have three options: (1) pay cash if it is delivered to us in person; (2)
send us a check or money order; or (3) authorize a withdrawal from your
deposit account at Troy Savings, without any penalty for early withdrawal.
Please do not send cash in the mail.
Q: WILL I RECEIVE INTEREST ON MY PAYMENT?
A. Yes. Payments will be placed in an interest bearing account at Troy Savings,
and will earn interest at our passbook rate. Depositors who authorize a
withdrawal from their accounts at Troy Savings will continue to receive
interest on their accounts until the funds are withdrawn.
1
<PAGE> 24
Q. CAN I PAY FOR STOCK USING FUNDS IN MY INDIVIDUAL RETIREMENT ACCOUNT OR IRA AT
TROY SAVINGS?
A. No. You cannot pay for stock with your IRA at Troy Savings. You may, however,
establish a self-directed IRA with an outside trustee to pay for stock using
your IRA funds. Please call our Conversion Center at 1-800- to get
more information. Please understand that this process takes time, so please
make arrangements as soon as possible.
Q: WHAT HAPPENS IF THERE IS NOT ENOUGH STOCK TO FILL ALL ORDERS?
A: You may not receive any or all of the stock that you ordered.
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS?
A: For answers to your other questions please read this prospectus. You can also
call the Troy Conversion Center at 1-800- , Monday through Friday,
between the hours of 10:00 a.m. and 4:00 p.m. You may also write to:
Troy Conversion Center
Troy, New York
Please note that the Troy Conversion Center will be closed for bank
holidays. TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS
PRIOR TO , 1999, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE
DAYS PRIOR TO , 1999 OR HAND DELIVERED ANY LATER THAN TWO DAYS PRIOR
TO , 1999.
2
<PAGE> 25
SUMMARY
This summary highlights information from this prospectus and does not
contain all the information that you need to know before making an informed
investment decision. Therefore, you should read this entire prospectus.
This prospectus contains forward-looking statements and information
relating to Troy Financial and Troy Savings. The words "believes," "expects,"
"may," "will," "should," "projected," "contemplates," "anticipates" or similar
terminology are intended to identify forward-looking statements. These
statements are based on the beliefs of management as well as assumptions made
using information currently available to management. Because these statements
reflect the current views of management concerning future events, these
statements involve risks, uncertainties and assumptions. Therefore, actual
future results may differ significantly from the results discussed in the
forward-looking statements. Some of the factors that may cause a different
outcome are discussed in the Risk Factors section beginning on page .
THE COMPANIES
TROY FINANCIAL CORPORATION
32 Second Street
Troy, New York 12180
(518) 270-3133
Troy Financial Corporation was established in December 1998 to be the bank
holding company for The Troy Savings Bank, and has not engaged in any
significant business to date. Please see pages .
THE TROY SAVINGS BANK
32 Second Street
Troy, New York 12180
(518) 270-3133
Troy Savings is a community oriented bank headquartered in Troy, New York.
Troy Savings, which was chartered in 1823, provides full service banking to
individuals, families and businesses throughout the six New York State Counties
of Albany, Saratoga, Schenectady, Warren, Washington and Rensselaer, the county
in which Troy is located. Since the mid-1980s, the strategy of Troy Savings has
been to provide a wide variety of financial products and services to attract
customers. In addition to offering traditional banking products and services,
Troy Savings and its subsidiaries offer trust, insurance, investment management
and brokerage services to meet the financial needs of a diverse customer base.
At September 30, 1998, Troy Savings had total assets of $716.6 million, deposits
of $578.2 million and equity of $71.0 million. Please see pages .
Troy Savings also is home to the renowned Troy Savings Bank Music Hall, a
1,200 seat facility located on the upper floors of the headquarters of Troy
Savings. The Music Hall has been an integral part of the Troy community since it
opened in 1875. Troy Savings is committed to ensuring that the Music Hall is
available to its patrons and the community, fulfilling the purpose designated by
its founders.
COMMITMENT TO OUR COMMUNITY
To further its commitment to its community, Troy Savings established the
Troy Savings Bank Charitable Foundation in fiscal 1998. Troy Savings contributed
$1.0 million in cash, and entered into a binding commitment to make a total of
$4.0 million in additional scheduled payments to this foundation in fiscal years
1999, 2000 and 2001.
At the same time, Troy Savings established the Troy Savings Bank Music Hall
Foundation. During fiscal 1999, Troy Savings plans to contribute the Troy
Savings Bank Music Hall to this foundation. The cost of this contribution is
estimated at $300,000.
3
<PAGE> 26
Troy Savings intends to establish the Troy Savings Bank Community
Foundation during fiscal 1999, and, immediately following the offering, we plan
to contribute up to $2.9 million of our common stock to this foundation. All
three of these foundations are and will be dedicated to charitable and
educational purposes.
THE CONVERSION
The Board of Trustees of Troy Savings adopted a plan to convert Troy
Savings to a stock savings bank. As part of that plan, we are offering our
common stock in a subscription offering to depositors and Troy Savings' employee
stock ownership plan. At the same time, we will offer our common stock in a
community offering. We will sell our stock first in the subscription offering,
and we may sell any remaining shares in the community offering. We will use a
portion of the proceeds from the offering to acquire Troy Savings. Please see
pages .
PERSONS WHO CAN ORDER STOCK IN THE SUBSCRIPTION OFFERING
The following persons and benefit plan, in the order of priority listed,
are eligible to order our stock in the subscription offering:
1. Depositors with accounts at Troy Savings with balances of at least $100
on June 30, 1997.
2. Our employee stock ownership plan which will provide retirement benefits
to our employees.
3. Depositors with accounts at Troy Savings with balances of at least $100
on December 31, 1998, who did not hold deposit accounts at Troy Savings
with balances of at least $100 on June 30, 1997.
YOU MAY NOT SELL OR GIVE AWAY YOUR SUBSCRIPTION RIGHTS
If you order stock, you will be required to state that you are purchasing
the stock for yourself and that you have no agreement or understanding to sell
or give away your rights. We intend to take legal action against anyone who
sells or gives away their subscription rights. We will not accept your order if
we have reason to believe that you sold or gave away your subscription rights.
Please see pages .
THE OFFERING OF OUR STOCK
We are offering between 7,539,500 and 10,200,500 shares of common stock at
a price of $10.00 per share. This range is based on our market value as
determined by FinPro, Inc., an independent appraisal firm experienced in
appraisals of converting savings banks. Without notice to you, we may be
required to sell up to 11,730,575 shares. Our Board of Trustees determined the
$10.00 price per share. If our market value changes to either below $75,395,000
or above $117,305,750, we will notify you and provide you with the opportunity
to modify or cancel your order. Please see pages .
DETERMINATION OF OUR MARKET VALUE
FinPro has estimated that our market value at January 29, 1999, is between
$75,395,000 and $102,005,000. This results in an offering of between 7,539,500
and 10,200,500 shares of stock at an offering price of $10.00 per share.
FinPro's estimate of our market value was based in part upon our financial
condition and operation and the effect of the additional capital raised in this
offering.
Two of the factors that FinPro considered in determining our market value
were the price-to-book ratio and the price/earnings or P/E ratio. The
price-to-book ratio represents the price per share of stock relative to its book
value per share. In our case, based on stockholders' equity per share of $15.15,
our price-to-book ratio would be 66.01% as of September 30, 1998 if we sell
10,200,500 shares at $10 per share.
The price/earnings or P/E ratio represents the price per share of stock
divided by earnings or net income per share. In our case, for the year-ended
September 30, 1998, our P/E ratio, as adjusted to reflect the issuance of our
stock in the offering and the elimination of a one-time recognition by Troy
Savings of a $2.7 million charitable contribution expense, net of taxes, in
fiscal 1998, would be 31.52x, assuming the
4
<PAGE> 27
issuance of 10,200,500 shares of stock at $10 per share. See "Comparison of
Valuation and Pro Forma Information With or Without the Contribution to the
Community Foundation" on pages and .
TERMINATION OF THE OFFERING
The subscription offering will terminate at p.m., New York time, on
, 1999. The community offering is expected to terminate at the same
time, but may be extended without notice, until , 1999, unless a
later date is approved by the New York Superintendent of Banks and the FDIC.
Please see pages .
5
<PAGE> 28
MARKET FOR OUR COMMON STOCK
We are a new company and have never issued stock. Although there is no
existing market for our stock, we anticipate having our stock quoted on the
Nasdaq Stock Market National Market under the symbol "TRYF." Please see pages
.
PAYMENT OF DIVIDENDS ON OUR STOCK
Our Board of Directors will have the authority to declare dividends on our
common stock, subject to both legal requirements and the availability of funds.
At this time, no decision has been made whether to pay dividends. That decision
will depend upon many factors, including earnings and capital. Please see pages
.
USE OF THE PROCEEDS FROM THE SALE OF OUR STOCK
We will use approximately half of the net proceeds to purchase Troy
Savings. We intend to use the remainder of the net proceeds to fund a loan to
our employee stock ownership plan and for general corporate purposes. We also
plan to establish or acquire a commercial bank.
IMPORTANT RISKS IN PURCHASING AND OWNING OUR STOCK
Before you decide to purchase any stock, you should read the entire
prospectus, including the Risk Factors on pages through . OUR COMMON STOCK
IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND IS
SUBJECT TO INVESTMENT RISK, INCLUDING LOSS OF THE PRINCIPAL INVESTED.
6
<PAGE> 29
$2.9 MILLION CHARITABLE CONTRIBUTION OF STOCK WILL DILUTE STOCKHOLDERS' EQUITY
AND VOTING INTERESTS
Following the offering, we plan to contribute up to $2.9 million of our
common stock to the Troy Savings Bank Community Foundation. As a result of our
contribution, persons purchasing shares in the offering will have their
ownership and voting interests diluted by as much as 2.73%. Please see pages .
OUR OFFICERS AND EMPLOYEES WILL RECEIVE BENEFITS FOLLOWING THE OFFERING
We intend to adopt the following benefit plans:
- Long-term Equity Compensation Plan. This plan, subject to stockholder
approval, will provide for grants of options and shares of restricted
stock to directors, officers, employees and independent contractors. We
anticipate that 1,048,653 shares would be reserved for issuance under
stock options and we intend to make grants of 419,461 shares of restricted
stock. Grants of options and restricted stock will be at no cost to the
recipients. The exercise price of options will be the fair market value of
the stock at the time of grant.
- Employee Stock Ownership Plan. This plan intends to subscribe for up to
838,922 shares of stock in the offering, or purchase shares in the open
market. Stock distributed to employees under this plan will be at no cost
to the employees.
- Supplemental Retirement and Benefit Restoration Plan. This plan will
provide selected executive officers additional retirement benefits that we
cannot provide under tax-qualified retirement plans.
- Employment Agreements, Employment Protection Agreements and Employee
Severance Compensation Plans. We intend to enter into agreements with six
officers that may provide for payments and benefits upon their termination
of employment and upon a change of control. Troy Financial's employee
compensation severance plan may provide eligible employees with severance
pay benefits upon termination of employment after a change of control.
The following table presents our estimate of the value of shares to be
issued under the stock benefit plans, assuming shares are allocated to
participants in the plans at $10.00 per share.
7
<PAGE> 30
<TABLE>
<CAPTION>
ESTIMATED VALUE
OF SHARES
---------------
<S> <C>
Employee stock ownership plan............................... $ 8,389,220
Long-term equity compensation plan:
Management recognition plan............................... $ 4,194,610
Stock option plan......................................... --
-----------
$12,583,830
===========
</TABLE>
VOTING CONTROL OF EXECUTIVE OFFICERS AND TRUSTEES
Executive officers and trustees of Troy Savings and parties related to them
propose to purchase $4,250,000, or 4.05%, of our stock. These proposed purchases
and the potential acquisitions of our stock through our employee stock ownership
plan and the long-term equity compensation plan could result in our management
having voting control of approximately 26.0% of our stock. Please see page .
8
<PAGE> 31
RISK FACTORS
An investment in our common stock involves risks. To understand these risks
and to evaluate an investment in our common stock, you should read this entire
prospectus, including the following risk factors.
THE MARKET VALUE OF YOUR STOCK MAY BE NEGATIVELY IMPACTED BY POOR EARNINGS
Poor earnings likely will have a negative impact on share value. Factors
which will reduce our earnings include:
- Charitable Contributions. In fiscal 1999, we expect to incur
contribution expenses attributable to the contribution of common stock and
The Troy Savings Bank Music Hall to charitable foundations. The
approximately $3.2 million contribution expense, assuming the sale of
10,200,500 shares and a cost of $10.00 per share, will be partially offset
by approximately $1.3 million of tax benefits from the contributions.
- Increase in Loan Loss Provisions. A future increase in Troy Savings'
provision for loan losses would negatively impact earnings. The greater
the loan loss provision, the lower our earnings will be for that fiscal
year.
Earnings in 1998 and 1997 were adversely affected by an increase in the
provisions for loan losses. Troy Savings' provisions for loan losses in
fiscal years 1998 and 1997 were $4.1 million and $3.9 million,
respectively, as compared to $928,000 for fiscal 1996. As a result of the
trends in Troy Savings' loan portfolio, including the current level of
non-performing loans and net charge-offs, as well as consideration of the
general economic trends in Troy Savings' market area, we anticipate that
the provision for loan losses will continue in the current range through
at least fiscal 1999. There can be no assurances, however, that Troy
Savings' loan losses will not exceed its allowance for loan losses or
that its provisions will not increase in future periods, thereby
impacting our earnings. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Results of Operations"
beginning on page .
- Decline in Real Estate Values. Based on charge off levels, loan
appraisal reports and its knowledge of the market area, management
believes that portions of its market area show signs of declining or
stagnant real estate values. As a result since 1997, Troy Savings has
experienced increased loan charge-offs and high delinquency and
non-performing loan levels. Troy Savings has taken steps to address this
situation, including increased loan loss provisions. As discussed in
detail under "Management's Discussion And Analysis Of Financial Condition
And Results Of Operations" below, management anticipates that the current
net charge-off levels may continue through fiscal 1999.
If the real estate values in portions of our market area worsen, we may
continue to see increasing charge-off levels. This would have an adverse
impact on our financial condition and earnings.
- Stock Based Benefit Plans. We will record compensation expense equal to
the average fair value of shares committed to be released to employees
from our employee stock ownership plan. Therefore, if our stock price
increases, our compensation expense will increase, and our earnings will
be negatively impacted. See "Pro Forma Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Impact of
Accounting Pronouncements."
In addition, granting shares of stock under our stock based plans will
increase our compensation expense because these grants are expensed over the
vesting period, based upon the market value of the stock at the date of the
grant. See "Pro Forma Data" and "Management -- Benefits -- Management
Recognition Plan."
IF WE DO NOT DEPLOY OUR NEW CAPITAL EFFECTIVELY, OUR RETURN ON EQUITY MAY
NEGATIVELY IMPACT YOUR STOCK PRICE
The offering will increase our equity position significantly and we may not
be able to deploy this increased capital immediately. Our ability to profitably
leverage our new capital will be significantly affected by industry competition
for loans and deposits. Until we can leverage our increased capital to grow the
9
<PAGE> 32
interest-earning assets, we expect our return on equity to be below the industry
average, which may negatively impact our stock price.
THE YEAR 2000 PROBLEM COULD NEGATIVELY IMPACT OUR CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Failure of any of Troy Savings' critical systems, significant credit
customers' systems, key servicers' systems, or the public infrastructure may
result in Troy Savings not being able to do normal business and service its
customers. If this occurs, we likely would experience a negative impact on
earnings. We may also receive adverse publicity and customer reaction, all of
which could decrease shareholder value. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness
Disclosure Statement," beginning on page .
VOTING CONTROL AND ANTI-TAKEOVER PROVISIONS MAY PREVENT TRANSACTIONS YOU WANT
The purchases of common stock by board members and by management, the
contribution of stock to the charitable foundation as well as the provisions of
law, our certificate of incorporation and our contracts may increase the ability
of management to control us, and make it difficult and expensive for someone to
pursue a takeover attempt of us. This could reduce the trading price of our
stock, or could result in our stockholders receiving less for their shares than
otherwise might be available in the event of an acquisition of us. Control by
management also could enable the trustees and executive officers to prevent the
approval of matters that stockholders may deem to be in their best interest. See
"Restrictions on Acquisition of Troy Financial Corporation -- Restrictions in
Troy Financial's Certificate of Incorporation and Bylaws -- Stockholder Vote
Required to Approve Business Combination with Interested Stockholders" and
"Management of Troy Savings -- Benefit Plans."
YOU COULD HAVE DIFFICULTY SELLING YOUR STOCK IF AN ACTIVE TRADING MARKET DOES
NOT DEVELOP
Because we are a new company, there is no market for our stock. Unless an
active and liquid trading market develops, you may not be able to sell your
shares. We have applied to have our stock quoted on the Nasdaq Stock Market
National Market under the symbol "TRYF." In addition, Sandler O'Neill has agreed
to act as a market maker for our stock, and to assist in securing additional
market makers to do the same. See "Market for Common Stock" on page .
10
<PAGE> 33
TROY FINANCIAL CORPORATION
Troy Financial Corporation is a newly formed Delaware corporation
registered with the Board of Governors of the Federal Reserve System as a bank
holding company for The Troy Savings Bank. We have not engaged in any
significant business to date, and, in the future, our primary business will be
the business of Troy Savings. As a bank holding company, we are subject to
regulation by the Federal Reserve. Our executive offices are located at 32
Second Street, Troy, New York 12180, and our telephone number is (518) 270-3313.
THE TROY SAVINGS BANK
The Troy Savings Bank is a community oriented mutual savings bank
headquartered in Troy, New York. Originally chartered in 1823, Troy Savings
offers full service banking to individuals, families and businesses throughout
the six New York State Counties of Albany, Saratoga, Schenectady, Warren,
Washington and Rensselaer, the county in which Troy, New York is located.
The goal of Troy Savings is to be the primary source of financial products
and services for its customers. Troy Savings' business strategy is to serve as a
community-based, full service financial services firm offering a wide variety of
banking products and services, as well as trust, insurance, investment
management and brokerage services, to a diverse customer base. At September 30,
1998, Troy Savings had total assets of $716.6 million, including $465.6 million
of total loans, total deposits of $578.2 million and equity of $71.0 million.
Troy Savings is subject to regulation, examination and supervision by the
Federal Deposit Insurance Corporation and the New York State Banking Department.
Troy Savings is a member of the Federal Home Loan Bank System, and deposits at
Troy Savings are insured by the Federal Deposit Insurance Corporation to the
maximum extent provided by law. The executive offices of Troy Savings are
located at 32 Second Street, Troy, New York 12180, and its telephone number is
(518) 270-3313.
11
<PAGE> 34
RECENT DEVELOPMENTS
The following table sets forth consolidated financial and other data of the
Troy Savings at and for the periods indicated. Data at and for the year ended
September 30, 1998 should be read in conjunction with the audited Consolidated
Financial Statements of Troy Savings and Notes presented elsewhere in this
prospectus. Data presented for the three months ended December 31, 1998 are not
necessarily indicative of the results of operations for the year ending
September 30, 1999.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
1998 1998
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA
Total assets................................................ $738,685 $716,649
Loans receivable, net....................................... 479,221 457,321
Securities available for sale (fair value).................. 198,156 197,758
Securities held to maturity (amortized cost)................ 2,856 3,483
Deposits.................................................... 588,493 578,202
Borrowings.................................................. 58,384 47,464
Total equity................................................ 71,717 71,029
ASSET QUALITY RATIOS:
Nonperforming loans to total loans.......................... 2.07% 2.50%
Nonperforming assets to total assets........................ 1.62% 1.89%
Allowance for loan losses to total loans.................... 1.84% 1.77%
Allowance for loan losses to non-performing loans........... 88.87% 70.91%
REGULATORY CAPITAL RATIOS:
Leverage capital............................................ 9.88% 9.89%
Tier I risk-based capital................................... 13.53% 14.02%
Risk-based capital.......................................... 14.79% 15.27%
OTHER DATA:
Full-service banking offices................................ 14 14
Number of deposit accounts.................................. 74,810 70,057
FOR THE THREE MONTHS
ENDED DECEMBER 31,
----------------------------------
1998 1997
--------------- ----------------
(IN THOUSANDS)
SELECTED OPERATING DATA
Interest and dividend income................................ $ 12,167 $ 12,056
Interest expense............................................ 6,200 5,989
-------- --------
Net interest income before provision for possible loan
losses................................................. 5,967 6,067
Provision for loan losses................................... 812 1,011
-------- --------
Net interest income after provision for loan losses....... 5,155 5,056
Total other operating income................................ 623 649
Total other operating expense............................... 4,841 5,437
-------- --------
Income before income tax expense............................ 937 268
Income tax expense.......................................... 234 67
-------- --------
Net income................................................ $ 703 $ 201
======== ========
</TABLE>
12
<PAGE> 35
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED DECEMBER 31,
-----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA
PERFORMANCE RATIOS:
Return on average assets.................................. .39% .12%
Return on average equity.................................. 3.94% 1.12%
Average interest earning assets to average interest
bearing liabilities.................................... 114.11% 113.72%
Net interest rate spread.................................. 3.10% 3.39%
Net interest rate margin.................................. 3.61% 3.90%
Efficiency ratio.......................................... 72.01% 76.67%
Operating expenses to average assets ratio................ 2.64% 3.11%
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
Assets at December 31, 1998 increased $22.0 million, or 3.1%, as compared
to September 30, 1998. The increase was primarily attributable to an increase in
the origination of real estate loans and commercial business loans funded by
deposit inflows and Federal Home Loan Bank advances. Real estate loans increased
by $11.2 million, or 3.0%, from $378.7 million at September 30, 1998, to $389.9
million at December 31, 1998, primarily due to a $13.1 million increase in the
origination of commercial real estate loans, a $4.9 million increase in the
origination of residential real estate loans, which was offset by a $6.8 million
decline in construction loans. Commercial business loans increased by $13.5
million to $58.6 million at December 31, 1998, compared to $45.2 million at
September 30, 1998. Consumer loans decreased by $2.1 million, or 4.9%, to $39.9
million at December 31, 1998, from $42 million at September 30, 1998, primarily
due to principal payments in excess of originations for auto and unsecured
loans.
Deposit balances at December 31, 1998 increased $10.3 million, or 1.8% over
September 30, 1998 amounts. The overall increase in deposits is primarily
attributable to a $6.8 million increase in demand deposits and a $5.6 million
increase in interest-bearing checking, offset by a $3.8 million decrease in
certificate of deposits. Borrowed funds increased at December 31, 1998 as
management utilized borrowings as a funding source for commercial real estate
loans.
Total equity at December 31, 1998 increased compared to September 30, 1998
due to net income and a reduction in net unrealized gain on securities available
for sale, net of tax, of $15,000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997
Net income for the three months ended December 31, 1998 increased $503,000,
or 251%, as compared to the three months ended December 31, 1997. The increase
was attributable to a $199,000 decrease in provision for loan losses and a
$596,000 decrease in other operating expense, primarily due to a $218,000
decrease in real estate owned expense and a $424,000 decrease in advertising
expenses as a result of the Bank's decision to utilize a direct mail marketing
strategy. The decreases in expenses were partially offset by a $100,000 decrease
in net interest income, which resulted from an increase in the average balance
of interest-bearing liabilities and a 46 basis point decrease in the average
yield on interest-earning assets, and a $168,000 increase in income tax expense.
The increase in interest income was primarily the result of a $72 million
increase in the average balance of securities available for sale which offset a
37 basis point decline in the average yield on loans. Interest expense on
borrowings increased for the three months ended December 31, 1998 compared to
the same period in 1997, reflecting higher average balances due to management's
decision to utilize borrowings to fund it's asset growth, primarily through the
purchase of shorter term government agency securities available for sale and
longer term commercial real estate loans.
13
<PAGE> 36
Interest expense on deposits decreased for the three months ended December
31, 1998 as a result of a 33 basis point decrease in the average rate paid on
savings balances to 2.97% for the three months ended December 31, 1998 from
3.30% for the three months ended December 31, 1997 and a 27 basis point decrease
in the average rate paid on certificate of deposits to 5.36% for the three
months ended December 31, 1998 from 5.63% for the three months ended December
31, 1997.
Non-interest income decreased slightly for the three months ended December
31, 1998 from the three months ended December 31, 1997 as a result of a $74,000
decrease in nonrecurring miscellaneous income which was offset by a $47,000
increase in Trust fees. Non-interest expense decreased for the three months
ended December 31, 1998 from the three months ended December 31, 1997, primarily
from a $218,000 decrease in real estate owned expense and a $424,000 decrease in
advertising expense. This decrease was partially offset by a $50,000 increase in
computer charges, primarily maintenance costs and costs related to the migration
to a new platform system with our existing computer service provider.
14
<PAGE> 37
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary financial and other information about Troy Savings is
derived from Troy Savings' audited consolidated financial statements for each of
the five fiscal years ending September 30, 1998, 1997, 1996, 1995 and 1994.
Because this information is only a summary, you should read it in conjunction
with Troy Savings' consolidated financial statements and related notes beginning
on page F-1, and with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section beginning on page .
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
- --------------------------------------
Total assets.......................... $716,649 $662,448 $657,524 $629,652 $607,259
Loans receivable, net................. 457,321 468,160 451,822 408,615 381,828
Securities available for sale (fair
value).............................. 197,758 117,552 148,917 44,725 75,335
Securities held to maturity (amortized
cost)............................... 3,483 4,000 4,515 102,096 93,519
Deposits.............................. 578,202 572,397 564,606 552,462 535,903
Borrowings............................ 47,464 4,728 9,899 842 1,581
Total equity.......................... 71,029 71,542 67,408 62,782 55,426
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
- --------------------------------------
Interest and dividend income.......... $48,030 $48,287 $46,862 $44,578 $39,129
Interest expense...................... 24,193 23,351 23,017 20,883 17,591
-------- -------- -------- -------- --------
Net interest income................. 23,837 24,936 23,845 23,695 21,538
Provision for loan losses............. 4,050 3,900 928 965 1,930
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................. 19,787 21,036 22,917 22,730 19,608
Operating income:
Service charges on deposits......... 858 822 802 809 787
Loan servicing fees................. 432 460 443 430 441
Trust income........................ 459 362 293 234 106
Net gains from securities sales or
calls............................ 8 4 1 34 136
Net gains (losses) from mortgage
loan sales....................... 76 14 (14) 18 172
Other income........................ 719 1,075 1,340 784 998
-------- -------- -------- -------- --------
Total other operating
income.................... 2,552 2,737 2,865 2,309 2,640
Other operating expenses:
Compensation and employee
benefits......................... 10,218 9,573 9,009 7,596 6,984
Occupancy........................... 2,101 2,089 1,956 1,519 1,317
Furniture, fixtures, and
equipment........................ 1,080 901 961 884 523
Computer charges.................... 1,424 1,322 1,248 1,221 1,208
Professional, legal, and other
fees............................. 924 726 658 670 605
Other real estate owned expense
(income)......................... 1,087 380 499 (1,343) 528
Printing, postage and telephone..... 614 559 543 521 438
Contribution expense................ 4,759 102 479 90 89
Other expenses...................... 2,884 2,887 2,845 3,918 3,122
-------- -------- -------- -------- --------
Total other operating
expenses.................. 25,091 18,539 18,198 15,076 14,814
Income (loss) before income tax
(benefit) expense................ (2,752) 5,234 7,584 9,963 7,434
Income tax (benefit) expense.......... (1,874) 1,576 2,506 2,895 3,335
-------- -------- -------- -------- --------
Net income (loss)..................... $ (878)(1) $ 3,658 $ 5,078 $ 7,068 $ 4,099
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 38
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDING SEPTEMBER 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER
DATA
- -------------------------------------
PERFORMANCE RATIOS:
Return (loss) on average assets.... (0.13)%(2) 0.55% 0.79% 1.15% 0.69%
Return (loss) on average equity.... (1.20)(2) 5.22 7.84 11.97 7.63
Average equity to average total
assets.......................... 10.80 10.57 10.05 9.56 9.02
Equity to total assets............. 9.91 10.80 10.25 9.97 9.13
Average interest earning assets to
average interest bearing
liabilities..................... 113.96 112.29 110.80 110.12 109.24
Net interest rate spread(3)........ 3.32 3.50 3.49 3.65 3.47
Net interest rate margin(4)........ 3.84 3.96 3.90 4.01 3.75
Efficiency ratio(5)................ 87.44(2) 65.48 66.27 63.22 59.42
Operating expenses to average
assets ratio.................... 3.54(2) 2.74 2.75 2.66 2.40
ASSET QUALITY RATIOS:
Nonperforming loans to total
loans........................... 2.50 1.84 2.74 2.85 3.18
Nonperforming assets to total
assets.......................... 1.89 1.72 2.28 2.22 2.80
Allowance for loan losses to total
loans........................... 1.77 1.35 0.94 1.04 1.09
Allowance for loan losses to
non-performing loans............ 70.91 73.77 34.49 36.54 34.16
REGULATORY CAPITAL RATIOS:
Leverage capital................... 9.89 10.64 10.20 9.83 9.04
Tier I risk-based capital.......... 14.02 15.01 14.48 15.21 15.15
Risk-based capital................. 15.27 16.37 15.41 16.27 16.30
OTHER DATA:
Full-service banking offices....... 14 13 13 13 11
Number of deposit accounts......... 70,057 70,185 71,458 72,531 68,649
</TABLE>
- ---------------
(1) In fiscal 1998, Troy Savings recorded a pre-tax contribution expense of $4.5
million or $2.7 million on an after-tax basis. This expense was based upon a
$1.0 million cash contribution and $4.0 million binding, irrevocable
commitment to a charitable foundation. If this expense had not been
incurred, Troy Savings' net income would have been approximately $1.8
million, instead of a net loss of $878,000.
(2) During fiscal 1998, Troy Savings contributed $1.0 million in cash and
entered into a binding, irrevocable commitment to make a total of $4.0
million in scheduled payments to a charitable foundation. The scheduled
payments will occur in each of fiscal years 1999, 2000 and 2001. In
connection with the cash contribution and binding, irrevocable commitment,
Troy Savings incurred a pre-tax contribution expense of $4.5 million or $2.7
million on an after tax basis. See "Summary -- The Troy Savings Bank
Community Foundation." Excluding the $4.5 million contribution expense, Troy
Savings would have had the following performance ratios for the fiscal year
ended September 30, 1998:
<TABLE>
<S> <C>
Return on average assets.................................... .27%
Return on average equity.................................... 2.49
Efficiency ratio............................................ 71.22
Operating expenses to average assets ratio.................. 2.88
</TABLE>
(3) Net interest rate spread represents the difference between the tax effected
yield on average interest earning assets and the rate on average interest
bearing liabilities.
(4) Net interest rate margin represents the tax effected net interest income as
a percentage of average interest earning assets.
(5) The efficiency ratio represents operating expenses less other real estate
owned expense, divided by recurring revenues, such as net interest income on
a tax effected basis and non-interest income, excluding gains and losses on
securities.
13
<PAGE> 39
USE OF PROCEEDS
After deduction of expenses, we estimate the proceeds from the sale of our
common stock to be between $73.2 million and $99.5 million, depending upon the
number of shares sold. If our appraised market value increases and we are
required to sell 11,730,575 shares of stock, then we estimate the net proceeds
to be $114.7 million. We will use approximately 50% of the net proceeds to
acquire Troy Savings. Based on anticipated net proceeds of $73.2 million to
$99.5 million, we expect to utilize between $36.6 million and $49.8 million for
that purpose.
We also intend to use a portion of the remainder of those net proceeds to
fund a loan to our employee stock ownership plan to enable the plan to purchase
our stock. The plan will purchase our stock in the subscription offering, or in
the open market to the extent stock is not available due to oversubscription. We
expect the plan to acquire 8% of the sum of the amount of common stock sold in
the stock offering and contributed to the newly formed charitable foundation.
Assuming that we sell 7,539,500 shares and contribute 73,153 shares to the
charitable foundation, based on the minimum of our appraised market value or
estimated price range, or sell 10,200,500 shares and contribute 286,030 shares
to the charitable foundation based on the maximum of our estimated price range,
the amount of our loan to the employee stock ownership plan would be $6.1
million or $8.4 million, respectively. If our appraised market value is
increased and we sell 11,730,575 shares of stock and contribute 408,436 shares
to the charitable foundation, then our loan would be $9.7 million. We expect the
term of the loan to be between 10 and 15 years at an interest rate of
approximately %.
If we establish a long-term equity compensation plan, we may choose to fund
the plan with cash to enable the plan to purchase shares of our stock. At this
time, we have not made a determination regarding the funding of that benefit
plan. We will invest the remaining net proceeds in short-term securities and
deposit accounts, and otherwise use those proceeds for general corporate
purposes.
We also plan to establish or acquire a commercial bank and trust company
that can accept municipal deposits to complement Troy Savings' municipal
investment activities. If we establish a new bank, we plan to invest at least
approximately $2 million of capital. This capital infusion would still count as
our capital on a consolidated basis. If we acquire a bank, the cost will depend
primarily upon the value of the assets and liabilities of the specific bank to
be acquired. In addition, we may also consider acquisitions of other financial
services firms and/or branch offices, although at this time, we do not have any
current arrangements, understandings or agreements regarding any transactions.
Troy Savings will use the funds it receives from us to fund the operation
of its business, including making loans and purchasing securities. The
additional funds in Troy Savings will count as regulatory capital and therefore
will support future growth of Troy Savings' total assets.
DIVIDEND POLICY
Following the stock offering, our Board of Directors will have the
authority to declare dividends on our common stock. This authority, however, is
subject to statutory and regulatory requirements. Our Board of Directors may
consider a policy of paying cash dividends on our stock, although no decision
has been made at this time.
The determination of whether to declare dividends will depend upon a number
of factors, including the amount of net proceeds from the stock offering that we
retain, investment opportunities available to us or Troy Savings, capital
requirements, regulatory limitations, our consolidated financial condition and
results of operations, tax considerations and general economic conditions.
Consequently, there can be no assurance that we will pay dividends. In addition,
if we do pay dividends, we may reduce or eliminate them in the future. Special
cash dividends, stock dividends or returns of capital may be paid in addition
to, or in lieu of, regular cash dividends.
Our ability to pay dividends will depend, in part, upon receipt of
dividends from Troy Savings. Initially, we will have no source of funds for
dividends, other than dividends that we receive from Troy Savings and
14
<PAGE> 40
the net proceeds of the stock offering that we retain and any earnings thereon.
In addition, we are subject to the requirements of Delaware corporate law which
generally limits dividends to an amount equal to the excess of our net assets,
or the amount by which our total assets exceed total liabilities, over statutory
capital, or if there is no such excess, to net profits for the current and/or
immediately preceding fiscal year. Likewise, our ability to pay dividends may
also be restricted by minimum capital requirements imposed by federal capital
guidelines. See "Regulation and Supervision."
Under the New York Banking Law, dividends may be declared and paid by Troy
Savings only out of its net profits. Under New York Banking Law, the term "net
profits" includes the remainder of all earnings from current operations plus
actual recoveries on loans and investments and other assets, after deducting
from the total thereof all current operating expenses, actual losses, accrued
dividends on preferred stock, if any, and all federal and state taxes. The
approval of the New York Superintendent of Banks is required if the total of all
dividends declared in any calendar year will exceed net profits for that year
plus the retained net profits of the preceding two years, less any required
transfer to surplus or a fund for the retirement of any preferred stock. In
addition, no dividends may be declared, credited or paid if the effect thereof
would cause Troy Savings' capital to be reduced below the amount required by the
New York Superintendent of Banks or the Federal Deposit Insurance Corporation.
For the two years ended September 30, 1998, Troy Savings had net profits, less
required transfers to surplus, of $2.8 million.
The availability of funds for the payment of dividends by Troy Savings may
also be limited by the establishment of a liquidation account in connection with
Troy Savings' change from a mutual to stock form savings bank. See "The
Conversion -- Liquidation Rights." Moreover, any payment of dividends by Troy
Savings to us, to the extent it constituted a distribution from Troy Savings'
bad debt reserves for federal income tax purposes, would require a payment of
taxes at the then-current tax rate by Troy Savings on the amount of earnings
removed from the reserves for such distribution. Troy Savings has no current
intention of making any distribution that would create a federal tax liability.
See "Taxation."
MARKET FOR THE COMMON STOCK
We are a new company, having been formed in December 1998. Because we have
never issued any stock, there is no existing market for our stock. We
anticipate, however, having our stock quoted on the Nasdaq Stock Market National
Market under the symbol "TRYF" upon completion of the stock offering and
compliance with certain other criteria, including, among other things, the
presence of at least three market makers for our stock.
Sandler O'Neill has agreed to act as a market maker for our stock, and to
assist in securing additional market makers to do the same. A public trading
market having the desirable characteristics of depth, liquidity and orderliness
depends upon the presence in the marketplace of both willing buyers and sellers
at any given time. Accordingly, there can be no assurance that an active and
liquid market for our stock will develop or be maintained or that resales of our
stock can be made at or above the purchase price. See "The Conversion -- Number
of Shares to be Issued."
15
<PAGE> 41
REGULATORY CAPITAL COMPLIANCE
At September 30, 1998, Troy Savings exceeded all regulatory capital
requirements. See "Regulation and Supervision -- Federal Regulation of Troy
Savings -- Capital Requirements." Set forth below is a summary of Troy Savings'
compliance with regulatory capital standards as of September 30, 1998, on a
historical and pro forma basis, assuming that the indicated number of shares
were sold as of such date at $10.00 per share, and using the assumptions
contained under the caption "Pro Forma Data," including receipt by Troy Savings
of 50% of the net proceeds from the conversion.
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
---------------------------------------
MINIMUM MIDPOINT
HISTORICAL 7,539,500 SHARES 8,870,000 SHARES
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital(1)....................... $ 71,029 9.91% $ 98,492 13.24% $103,353 13.80%
Leverage (Tier I) capital(2):
Leverage capital(3).............. 70,114 9.89 97,577 13.25 102,438 13.82
Leverage capital
requirement(4)................. 28,357 4.00 29,456 4.00 29,650 4.00
-------- ----- -------- ----- -------- -----
Excess........................... 41,757 5.89 68,121 9.25 72,788 9.82
Tier I risk-based capital(3)..... 70,114 14.02 97,577 18.98 102,438 19.84
Tier I risk-based capital
requirement(4)................. 20,011 4.00 20,560 4.00 20,657 4.00
-------- ----- -------- ----- -------- -----
Excess........................... 50,103 10.02 77,017 14.98 81,781 15.84
Risk-based capital(2):
Total risk-based capital(3)(5)... 76,368 15.27 103,831 20.20 108,692 21.05
Total risk-based capital
requirement.................... 40,022 8.00 41,120 8.00 41,315 8.00
-------- ----- -------- ----- -------- -----
Excess........................... 36,346 7.27 62,711 12.20 67,377 13.05
Total assets.......................... 716,649 744,112 748,973
Adjusted assets(6).................... 708,935 736,398 741,259
Risk-weighted assets.................. 500,274 514,005 516,436
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
---------------------------------------
ADJUSTED
MAXIMUM MAXIMUM
10,200,500 SHARES 11,730,575 SHARES
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
GAAP capital(1)....................... $108,214 14.38% $113,804 14.99%
Leverage (Tier I) capital(2):
Leverage capital(3).............. 107,299 14.38 112,889 15.02
Leverage capital
requirement(4)................. 29,845 4.00 30,068 4.00
-------- ----- -------- -----
Excess........................... 77,454 10.38 82,821 11.02
Tier I risk-based capital(3)..... 107,299 20.68 112,889 21.64
Tier I risk-based capital
requirement(4)................. 20,755 4.00 20,866 4.00
-------- ----- -------- -----
Excess........................... 86,544 16.68 92,023 17.64
Risk-based capital(2):
Total risk-based capital(3)(5)... 113,553 21.88 119,143 22.84
Total risk-based capital
requirement.................... 41,509 8.00 41,733 8.00
-------- ----- -------- -----
Excess........................... 72,044 13.88 77,410 14.84
Total assets.......................... 753,834 759,424
Adjusted assets(6).................... 746,120 751,710
Risk-weighted assets.................. 518,866 521,662
</TABLE>
- ---------------
(1) Total equity as calculated under generally accepted accounting principles
("GAAP"), expressed as a percentage of total assets.
(2) Leverage (Tier I) capital levels are shown as a percentage of total adjusted
quarterly average assets, and risk-based capital levels are calculated on
the basis of a percentage of risk-weighted assets, each as defined in
Federal Deposit Insurance Corporation regulations. See "Regulation and
Supervision -- Federal Regulation of Troy Savings -- Capital Requirements."
(3) Pro forma capital levels assume receipt by Troy Savings of 50% of the net
proceeds from the shares of common stock sold at the minimum, midpoint,
maximum and maximum plus 15% of the estimated price range. These levels
assume funding by Troy Savings of the Management Recognition Plan ("MRP")
equal to 4% of the common stock issued, including shares contributed to the
Troy Savings Bank Community Foundation ("Community Foundation"), and funding
of the Employee Stock Ownership Plan ("ESOP") to enable the ESOP to purchase
8% of the common stock issued, including the shares contributed to the
Community Foundation, valued at the minimum, midpoint, maximum and maximum
plus 15% of the estimated price range.
(4) The current leverage capital requirement is 3% of total adjusted assets for
savings banks that receive the highest supervisory ratings for safety and
soundness and that are not experiencing or anticipating significant growth.
The current leverage capital ratio applicable to all other savings banks is
4% to 5%. See "Regulation and Supervision -- Federal Regulation of Troy
Savings -- Capital Requirements."
(5) Assumes the net proceeds are invested in assets that carry a risk-weighting
of 50%.
(6) Adjusted assets represent average assets of Troy Savings for the fourth
quarter of fiscal 1998, less its goodwill at September 30, 1998.
16
<PAGE> 42
CAPITALIZATION
The following table presents the historical capitalization of Troy Savings
at September 30, 1998, and the pro forma consolidated capitalization of Troy
Financial at the minimum, the midpoint, the maximum and the maximum plus 15% of
the estimated price range, after giving effect to the conversion, including the
shares contributed to the Troy Savings Bank Community Foundation ("Community
Foundation"), based upon the sale of the number of shares indicated in the table
at $10.00 per share and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
11,730,575
7,539,500 8,870,000 10,200,500 SHARES
BANK SHARES SHARES SHARES (MAXIMUM,
HISTORICAL (MINIMUM) (MIDPOINT) (MAXIMUM) PLUS 15%)
---------- --------- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................................. $578,202 $578,202 $578,202 $578,202 $578,202
======== ======== ======== ======== ========
Total deposits and borrowed funds................... $625,666 $625,666 $625,666 $625,666 $625,666
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock ($.0001 par value) 15,000,000 shares
authorized; none to be issued......................... $ -- $ -- $ -- $ -- $ --
Common stock ($.0001 par value) 60,000,000 shares
authorized; shares to be issued as reflected(2)....... -- 1 1 1 1
Additional paid-in-capital(3)........................... -- 73,926 88,157 102,396 118,767
Retained earnings(4).................................... 70,622 70,622 70,622 70,622 70,622
Net unrealized gain on securities available for sale,
net of taxes.......................................... 407 407 407 407 407
Less:
Expense of contribution to Community Foundation(5)...... -- (732) (1,792) (2,860) (4,084)
Plus:
Estimated tax benefit of contribution to Community
Foundation(6)......................................... -- 256 627 1,001 1,429
Less:
Common stock acquired by the ESOP(7).................... -- (6,090) (7,239) (8,389) (9,711)
Common stock acquired by the MRP(8)..................... -- (3,045) (3,620) (4,195) (4,856)
-------- -------- -------- -------- --------
Total Stockholders' Equity.......................... $ 71,029 $135,345 $147,163 $158,983 $172,575
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of common stock that may be reserved for
issuance pursuant to the long-term equity compensation plan and includes
shares contributed to the Community Foundation.
(3) The additional paid-in capital amounts do not correspond to the estimated
net proceeds of the stock offering because the amounts reflect both the
offering expenses and the additional capital from the shares to be issued to
the Community Foundation.
(4) See "Dividend Policy" and "Regulation and Supervision -- Federal Regulation
of Troy Savings -- Dividend Restrictions" regarding restrictions on future
dividend payments and "The Conversion -- Liquidation Rights" regarding the
liquidation account to be established upon conversion.
(5) The amount of the contribution of common stock to the Community Foundation
will be recognized as an expense in the fiscal quarter in which the
contribution is made, which is expected to be the second quarter of fiscal
1999. No effect has been given to Troy Financial's intended contribution of
the Troy Savings Bank Music Hall to the Music Hall Foundation. The cost of
such contribution is estimated at $300,000 in fiscal 1999. See "The
Conversion -- The Troy Savings Bank Community Foundation."
(6) Represents the estimated tax benefit of the contribution of common stock to
the Community Foundation based on an assumed 35% tax rate and a $10.00 per
share price. The recognition of the tax benefit is limited to 10% of Troy
Financial's estimated taxable income in fiscal 1999 and during the five-year
carry forward period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Comparison of Financial Condition at
September 30, 1998 and September 30, 1997" and "-- Comparison of Results of
Operations for the Years Ended September 30, 1998 and September 30,
1997 -- Non-interest Expense."
(7) Assumes that 8% of the number of shares of common stock sold in the
conversion, including the shares contributed to the Community Foundation,
will be purchased by the ESOP. The funds used to acquire the ESOP shares
will be borrowed from Troy Financial. Troy Savings intends to make
contributions to the ESOP sufficient to service and ultimately retire the
ESOP's debt over a 10-15 year period. Also assumes that a number of shares
equal to 4% of the number of shares of common stock sold in the conversion,
including the shares contributed to the Community Foundation, will be
acquired by the MRP following stockholder ratification of such plan after
completion of the conversion. In the event that the MRP is funded by the
issuance of authorized but unissued shares, the interest of existing
stockholders would be diluted by approximately 3.85%. At this time, no
decision has been made concerning the ultimate funding of the MRP. The
amount to be borrowed by the ESOP and the common stock acquired by the MRP
are reflected as a reduction of stockholders' equity. See "Management of
Troy Savings Bank."
17
<PAGE> 43
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds available
for investment are currently estimated to be between $64.1 million and $87.0
million (or $100.1 million if the estimated price range is increased by 15%)
based upon the following assumptions: (a) 100% of the shares of common stock
will be sold at the beginning of the period in the subscription offering to
Eligible Account Holders (as defined under "The Conversion -- Subscription
Offering and Subscription Rights"), Supplemental Eligible Account Holders (as
defined under "The Conversion -- Subscription Offering and Subscription Rights")
and the Employee Stock Ownership Plan ("ESOP"); (b) Sandler O'Neill will receive
a fee equal to 1.10% of the aggregate purchase price of the shares sold in the
subscription offering, except that no fee will be paid with respect to an
estimated 500,000 shares purchased by the trustees, officers and other employees
of Troy Savings and Troy Financial and members of their immediate families, as
well as the shares purchased by the ESOP; (c) conversion expenses, excluding the
marketing fees paid to Sandler O'Neill, will be approximately $1.5 million; (d)
Troy Financial will contribute from authorized but unissued shares to the
Community Foundation an amount of common stock valued at $10 per share equal to
the difference between 8.0% of the gross proceeds from the common stock sold in
the conversion and $5.3 million, the amount of total contribution committed or
anticipated to be contributed to the Charitable Foundation; and (e) 50% of such
net proceeds will be used by Troy Financial to purchase all of the capital stock
of Troy Savings, and the remaining net proceeds were retained by Troy Financial.
Pro forma consolidated net income of Troy Financial for the year ended
September 30, 1998 has been calculated as if the common stock has been sold at
the beginning of the period and the net proceeds, less the proceeds used to fund
the ESOP loan and purchase the Management Recognition Plan ("MRP") shares, were
invested by Troy Savings and Troy Financial at the beginning of the period.
The assumed return of 4.29% (2.79% after tax) is based upon the yield of
one-year U.S. Government Treasury Securities as of the end of the period
indicated. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
common stock, as adjusted to give effect to the purchase of shares by the ESOP
and the MRP and the effect of the contribution of shares to the Community
Foundation. Pro forma stockholders' equity amounts have been calculated as if
the common stock had been sold at the beginning of the period, and no effect has
been given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. The pro forma data does not reflect the
anticipated contribution of the Troy Savings Bank Music Hall ("Music Hall") to
the Music Hall Foundation in fiscal 1999. The pro forma data also do not reflect
the effect of withdrawals from deposit accounts for the purchase of common stock
by Troy Savings' depositors.
The assumptions of net proceeds represent management's estimate as to the
distribution of stock orders in the conversion. Although fixed expenses are
estimated to be $1.5 million, actual conversion expenses may be more or less
than those estimated, and the total fees paid to Sandler O'Neill and other
brokers will vary depending upon the categories of purchasers, market conditions
and other factors.
The following pro forma data summarize historical data of Troy Savings and
pro forma data of Troy Financial at or for the year ended September 30, 1998,
based on the assumptions set forth above and in the pro forma data and should
not be used as a basis for projections of market value of the common stock
following the conversion. The pro forma data below give effect to the MRP, which
is expected to be adopted by Troy Financial following the conversion and
presented to stockholders for approval at a meeting of stockholders to be held
no earlier than six months after completion of the conversion. See Footnote 6 to
the tables and "Management of Troy Savings Bank -- Benefit Plans." No effect has
been given in the tables to the possible issuance of additional shares under
options pursuant to the Long-Term Equity Compensation Plan ("Equity Compensation
Plan"), nor does stockholders' equity as presented give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of Troy Savings, to the possible recapture of the base year tax bad
debt reserve and other factors. See Footnote 9 to the tables below and "The
Conversion -- Liquidation Rights" and "Management of Troy Savings
Bank -- Benefit Plans." The total number of shares to be issued in the
18
<PAGE> 44
conversion may be increased or decreased significantly, or the price per share
decreased, to reflect changes in market or financial conditions prior to
completion of the conversion. However, if the gross proceeds of the common stock
sold in the conversion are below $75.4 million (the minimum of the estimated
price range) or more than $117.3 million (the maximum plus 15% of the estimated
price range), subscribers will be offered the opportunity to modify or cancel
their subscriptions. See "The Conversion -- Number of Shares to be Issued."
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
MAXIMUM
MINIMUM MIDPOINT MAXIMUM PLUS 15%
7,539,500 8,870,000 10,200,500 11,730,575
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT
$10.00 PER $10.00 PER $10.00 PER $10.00 PER
SHARE SHARE SHARE SHARE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Gross proceeds............................. $ 75,395 $ 88,700 $102,005 $117,306
Plus: Shares contributed to Community
Foundation(1)....................... 732 1,792 2,860 4,084
--------- -------- -------- --------
Pro forma market capitalization............ $ 76,127 $ 90,492 $104,865 $121,390
========= ======== ======== ========
Gross proceeds............................. $ 75,395 $ 88,700 $102,005 $117,306
Less: Estimated expenses.............. (2,200) (2,334) (2,468) (2,622)
--------- -------- -------- --------
Estimated net conversion proceeds.......... 73,195 86,366 99,537 114,684
Less: ESOP shares(5).................. (6,090) (7,239) (8,389) (9,711)
Less: MRP shares(6)................... (3,045) (3,620) (4,195) (4,856)
--------- -------- -------- --------
Estimated proceeds available for
investment(2)............................ $ 64,060 $ 75,507 $ 86,953 $100,117
========= ======== ======== ========
Net income:
Historical............................ $ (878) $ (878) $ (878) $ (878)
Historical, as adjusted(3)............ 1,822 1,822 1,822 1,822
Pro forma adjustments:
Net earnings from proceeds(4)......... 1,787 2,107 2,426 2,793
ESOP, after taxes(5).................. (396) (471) (545) (631)
MRP, after taxes(6)................... (396) (471) (545) (631)
--------- -------- -------- --------
Pro forma net income(1)(6)............ $ 117 $ 287 $ 458 $ 653
========= ======== ======== ========
Pro forma net income, as
adjusted(3)......................... $ 2,817 $ 2,987 $ 3,158 $ 3,353
========= ======== ======== ========
Per share net income(7):
Historical............................ $ (0.12) $ (0.10) $ (0.09) $ (0.08)
Historical, as adjusted(3)............ 0.26 0.22 0.19 0.16
Pro forma adjustments:
Net earnings from proceeds(4)......... 0.25 0.25 0.25 0.25
ESOP, after taxes(5).................. (0.06) (0.06) (0.06) (0.06)
MRP, after taxes(6)................... (0.06) (0.06) (0.06) (0.06)
--------- -------- -------- --------
Pro forma net income per
share(5)(6)(8)...................... $ 0.01 $ 0.03 $ 0.04 $ 0.05
========= ======== ======== ========
Pro forma net income per share, as
adjusted(3)(5)(6)(8)................ $ 0.39 $ 0.35 $ 0.32 $ 0.29
========= ======== ======== ========
</TABLE>
19
<PAGE> 45
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
MAXIMUM
MINIMUM MIDPOINT MAXIMUM PLUS 15%
7,539,500 8,870,000 10,200,500 11,730,575
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT
$10.00 PER $10.00 PER $10.00 PER $10.00 PER
SHARE SHARE SHARE SHARE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Stockholders' equity(9):
Historical............................ $ 71,029 $ 71,029 $ 71,029 $ 71,029
Pro forma adjustments:
Estimated net conversion proceeds... 73,195 86,366 99,537 114,684
Plus: Shares issued to Community
Foundation.......................... 732 1,792 2,860 4,084
Less: Cost of contribution to
Community Foundation, net of
estimated tax
benefit(10)......................... (476) (1,165) (1,859) (2,655)
Less common stock acquired by:
ESOP(5)............................... (6,090) (7,239) (8,389) (9,711)
MRP(6)................................ (3,045) (3,620) (4,195) (4,856)
--------- -------- -------- --------
Pro forma stockholders' equity(8)..... $ 135,345 $147,163 $158,983 $172,575
========= ======== ======== ========
Per share stockholders' equity(7)(9):
Historical............................ $ 9.33 $ 7.85 $ 6.77 $ 5.85
Pro forma adjustments:
Estimated net conversion proceeds..... 9.61 9.54 9.49 9.45
Plus: Shares issued to Community
Foundation.......................... 0.10 0.20 0.27 0.34
Less: Cost of contribution to
Community Foundation, net of
estimated tax
benefit(10)......................... (0.06) (0.13) (0.18) (0.22)
ESOP(5)............................... (0.80) (0.80) (0.80) (0.80)
MRP(6)................................ (0.40) (0.40) (0.40) (0.40)
--------- -------- -------- --------
Pro forma stockholders' equity per
share(6)(8)........................... $ 17.78 $ 16.26 $ 15.15 $ 14.22
========= ======== ======== ========
Offering price to pro forma net income per
share (historical base).................. 1,000.00x 333.33x 250.00x 200.00x
Offering price to pro forma net income per
share, as adjusted....................... 25.78x 28.82x 31.52x 34.28x
Pro forma offering price per share to
stockholders' equity per share(6)(8)..... 56.24% 61.50% 66.01% 70.32%
</TABLE>
- ---------------
(1) Troy Financial intends to contribute an additional number of shares of
common stock valued at $10 per share and equal to the difference between 8%
of the gross proceeds from the common stock sold in the conversion and $5.3
million. See "The Conversion -- Establishment of the Community Foundation."
The contributed shares will not add to gross proceeds because nominal
consideration will be received by Troy Financial for those shares. However,
since such shares are issued and outstanding, they are included in Troy
Financial's market capitalization. The amount of the contribution will be
recognized as an expense in the quarter in which the contribution is made
to the Community Foundation, which is expected to be the second quarter of
fiscal 1999. The pro forma net income data does not reflect such
non-recurring expense.
(2) Reflects a reduction to net proceeds for the cost of the ESOP and the MRP
(assuming stockholder ratification of the MRP is received) which it is
assumed will be funded from the net conversion proceeds.
(3) Historical net income, as adjusted, historical net income per share, as
adjusted, pro forma net income, as adjusted, and pro forma net income per
share, as adjusted, eliminate the impact of Troy Savings' one-
20
<PAGE> 46
time recognition of the $2.7 million contribution expense, net of taxes, in
fiscal 1998. See "Summary -- The Troy Savings Bank Community Foundation."
After adjustment to eliminate this $2.7 million contribution expense, Troy
Savings had adjusted historical net income of $1.8 million. The per share
amounts vary according to the amount of common stock sold by Troy Financial
in the conversion.
(4) The pro forma after-tax yield on the net proceeds for Troy Financial and
Troy Savings is assumed to be 2.789%, assuming a combined federal and state
income tax rate of 35%.
(5) It is assumed that: (i) 8% of the number of shares of common stock sold in
conversion, including shares contributed to the Community Foundation, will
be purchased by the ESOP; (ii) the funds used to acquire such shares will
be borrowed by the ESOP from the net conversion proceeds retained by Troy
Financial; (iii) Troy Savings intends to make contributions to the ESOP in
amounts at least equal to the principal and interest requirement of the
debt; and (iv) payment of the ESOP debt is based upon equal installments of
principal and interest over a 10 year period. Assuming Troy Financial makes
the ESOP loan, however, interest income earned by Troy Financial on the
ESOP debt will offset the interest expense for ESOP contributions paid by
Troy Savings. Accordingly, the compensation expense to Troy Financial on a
consolidated basis will be related to the allocations of earned ESOP shares
which will be based on the number of shares committed to be released to
participants for the year at the average market value of the shares during
the year, net of the related tax effects. The amount of ESOP debt is
reflected as a reduction of stockholders' equity. In the event that the
ESOP were to receive a loan from an independent third party, both ESOP
expense and earnings on the net conversion proceeds retained by Troy
Financial would be expected to increase. The ESOP expense has been
calculated assuming no appreciation in the fair market value of the stock.
(6) Adjustments to both stockholders' equity and net income have been made to
give effect to an open market purchase (based upon an assumed purchase
price of $10.00 per share) following conversion by the trust under the MRP
(assuming stockholders ratify the Equity Compensation Plan and the MRP is
funded with cash to purchase shares of common stock) of an amount of shares
equal to 4% of the number of shares of common stock sold in the conversion,
including the shares contributed to the Community Foundation, for the
benefit of certain directors, officers and employees. It is assumed that
the sale of the shares to the trust under the MRP occurred at the beginning
of the period. If funds are used by the trust under the MRP to purchase the
shares, such funds will be contributed by Troy Financial if stockholders
ratify the Equity Compensation Plan following the conversion. Therefore,
this funding is assumed to reduce the proceeds available for reinvestment.
For financial accounting purposes, the fair value of the MRP shares at the
grant date will be recorded as a compensation expense over the period of
the vesting. Grants of shares under the MRP are assumed to vest in equal
annual installments over the five years following stockholder ratification.
However, recipients who fail to maintain continuous service with Troy
Financial or its subsidiaries will forfeit unvested shares. Alternatively,
the MRP may issue authorized but unissued shares of common stock from Troy
Financial. No determination has been made at this time concerning how Troy
Financial will fund the MRP. Such funding may be from unauthorized, but
unissued shares of common stock. In the event that MRP grants are made from
authorized but unissued shares in an amount equal to 4% of the number of
shares of common stock sold in the conversion, including the shares
contributed to the Community Foundation, the interests of existing
stockholders would be diluted by approximately 3.85%. In that case and
assuming all MRP shares are outstanding, for the year ended September 30,
1998, pro forma net income per share would be $0.03, $0.04, $0.06 and $0.07
and pro forma stockholders' equity per share would be $17.10, $15.64,
$14.58 and $13.67 in each case at the minimum, midpoint, maximum and
maximum plus 15% of the estimated price range, respectively.
(7) Per share amounts have been computed as if the shares of common stock
indicated had been outstanding at the beginning of the period shown. All
per share data also assumes that the shares of common stock contributed to
the Community Foundation and the MRP shares are outstanding. Pursuant to
SOP 93-6, only the ESOP shares committed to be released are considered
outstanding for the purposes of the net income per share calculations.
However, all ESOP shares have been considered outstanding for purposes of
computing stockholders' equity per share.
21
<PAGE> 47
(8) No effect has been given to the shares to be reserved for issuance pursuant
to options under the proposed Equity Compensation Plan which is expected to
be adopted by Troy Financial following the conversion, subject to
stockholder approval. In the event authorized but unissued shares in an
amount equal to 10% of the number of shares of common stock sold in the
conversion, including the shares contributed to the Community Foundation,
are covered by options granted under the Equity Compensation Plan, at
$10.00 per share, the interests of existing stockholders would be diluted
as follows: pro forma net income per share for the year ended September 30,
1998, would be $0.01, $0.03, $0.04 and $0.05, and pro forma stockholders'
equity per share would be $17.07, $15.69, $14.69 and $13.83 in each case at
the minimum, midpoint, maximum and maximum plus 15% of the estimated price
range, respectively. Troy Financial may purchase shares in the open market
for the Equity Compensation Plan following stockholder approval of such
plan. To the extent the entire 10% of the shares to be reserved for
issuance under the Equity Compensation Plan are obtained through open
market purchases at a price of $10.00 per share, proceeds available for
reinvestment in the above calculations would be reduced by $7.6 million,
$9.0 million, $10.5 million and $12.1 million at the minimum, midpoint,
maximum and maximum plus 15% of the estimated price range, respectively. No
determination has been made at this time concerning how Troy Financial will
supply shares for issuance under the Equity Compensation Plan. See
"Management of Troy Savings -- Benefit Plans."
(9) Stockholders' equity represents the difference between the stated amounts
of Troy Savings' assets (generally based on historical cost) and
liabilities computed in accordance with generally accepted accounting
principles. The amounts shown do not reflect the effect of the Liquidation
Account which will be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders in the conversion, or the
federal income tax consequences of the recapture of Troy Savings' bad debt
reserves for income tax purposes which would be required in the unlikely
event of liquidation. See "The Conversion -- Liquidation Rights" and
"Regulation and Supervision" and "Taxation." The amounts shown for
stockholders' equity do not represent fair market values or amounts, if
any, distributable to stockholders in the unlikely event of liquidation.
(10) Troy Financial will recognize as an expense the amount of its contribution
of common stock to the Community Foundation in the fiscal quarter in which
such contribution is made, which is expected to be the second quarter of
fiscal 1999. To the extent that the value of such contribution exceeds 10%
of Troy Financial's estimated taxable income in fiscal 1999 and during the
five-year carry forward period, Troy Financial would not be entitled to
recognize a tax benefit. The figures shown reflect the estimated tax
benefit that is anticipated to be realized by Troy Financial because of
such contribution, based upon anticipated future taxable income, and
assuming a 35% tax rate and a $10.00 per share price.
22
<PAGE> 48
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT CONTRIBUTION TO THE COMMUNITY FOUNDATION
If Troy Financial does not contribute common stock to the Community
Foundation, FinPro, Inc. has estimated that the amount of common stock offered
for sale in the conversion would increase by 330,000 shares at the midpoint of
the estimated price range. Under such circumstances, pro forma stockholders'
equity of Troy Financial would be approximately $149.6 million, at the midpoint,
which is approximately $2.5 million greater than what the pro forma
stockholders' equity of Troy Financial would be if the contribution to the
Community Foundation is made. In preparing this estimate, it has been assumed
that the pro forma offering price to pro forma stockholders' equity ratio and
pro forma offering price to pro forma net income per share ratio, as adjusted,
would be approximately the same under both the current appraisal and the
estimate of the value of Troy Financial without the contribution at the midpoint
of the estimated price range. Further, assuming the midpoint of the estimated
price range, pro forma stockholders' equity and pro forma net income per share,
as adjusted, at and for the period ended September 30, 1998, would be $16.26 and
$0.36, respectively, at the midpoint of the estimated price range, assuming no
contribution to the Community Foundation, and $16.26 and $0.35, respectively,
with the contribution to the Community Foundation. The pro forma offering price
to pro forma stockholders' equity ratio and the pro forma offering price to pro
forma net income per share ratio, as adjusted, at and for the period ended
September 30, 1998 are 62% and 28x, respectively, at the midpoint of the
estimated price range, assuming no contribution and are 62% and 29x,
respectively, with the contribution. The adjusted figures eliminate the impact
of Troy Savings' one-time recognition of the $2.7 million contribution expense,
net of taxes, in fiscal 1998. The $1.0 million cash contribution and the present
value of the $4.0 million in future cash commitments to the Troy Savings Bank
Charitable Foundation were expensed in fiscal 1998. Accordingly, the after-tax
impact was reflected in Troy Savings' September 30, 1998 equity. FinPro's
valuations, both with and without the common stock contribution to the Community
Foundation, are based on Troy Savings' equity of $71.0 million at September 30,
1998. No different treatment is accorded the contribution or commitments to the
Troy Savings Bank Charitable Foundation under either valuation. There is no
assurance that in the event the contribution to the Community Foundation is not
made that the appraisal prepared at that time would conclude that the pro forma
market value of Troy Financial would be the same as that estimated herein.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum
plus 15% of the estimated price range, respectively, based on the assumptions
set forth in "Pro Forma Data".
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MIDPOINT
------------------------ ------------------------
WITH THE WITHOUT THE WITH THE WITHOUT THE
COMMUNITY COMMUNITY COMMUNITY COMMUNITY
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
(7,539,500 (7,820,000 (8,870,000 (9,200,000
SHARES) SHARES) SHARES) SHARES)
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Estimated offering amount....................... $ 75,395 $ 78,200 $ 88,700 $ 92,000
Pro forma market capitalization................. 76,127 78,200 90,492 92,000
Total assets.......................... 780,965 783,236 792,783 795,240
Total liabilities..................... 645,620 645,620 645,620 645,620
Pro forma stockholders' equity.................. 135,345 137,616 147,163 149,620
Pro forma consolidated net income............... 117 166 287 359
Pro forma consolidated net income, as
adjusted...................................... 2,817 2,866 2,987 3,059
Pro forma stockholders' equity per share........ 17.78 17.59 16.26 16.26
Pro forma consolidated net income per share..... 0.01 0.02 0.03 0.04
Pro forma consolidated net income per share,
as adjusted................................... 0.39 0.39 0.35 0.36
</TABLE>
23
<PAGE> 49
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MIDPOINT
------------------------ ------------------------
WITH THE WITHOUT THE WITH THE WITHOUT THE
COMMUNITY COMMUNITY COMMUNITY COMMUNITY
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
(7,539,500 (7,820,000 (8,870,000 (9,200,000
SHARES) SHARES) SHARES) SHARES)
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Pro Forma Pricing Ratios:
Offering price as a percent of pro forma
stockholders' equity per share........... 56.24% 56.85% 61.50% 61.50%
Offering price to pro forma net income per
share.................................... 1,000.00 500.00 333.33 250.00
Offering price to pro forma net income per
share, as adjusted....................... 25.78 25.32 28.82 27.91
Pro forma market capitalization to
assets................................... 9.75% 9.98% 11.41% 11.57%
Pro Forma Financial Ratios:
Return on assets........................... 0.01% 0.02% 0.04% 0.05%
Return on assets, as adjusted.............. 0.36% 0.37% 0.38% 0.38%
Return on stockholders' equity............. 0.09% 0.12% 0.20% 0.24%
Return on stockholders' equity, as
adjusted................................. 2.08% 2.08% 2.03% 2.04%
Stockholders' equity to assets............. 17.33% 17.57% 18.56% 18.81%
</TABLE>
<TABLE>
<CAPTION>
AT THE MAXIMUM AT THE MAXIMUM PLUS 15%
------------------------- -------------------------
WITH THE WITHOUT THE WITH THE WITHOUT THE
COMMUNITY COMMUNITY COMMUNITY COMMUNITY
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
(10,200,500 (10,580,500 (11,730,575 (12,167,000
SHARES) SHARES) SHARES) SHARES)
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Estimated offering amount....................... $102,005 $105,800 $117,306 $121,670
Pro forma market capitalization................. 104,865 105,800 121,390 121,670
Total assets.......................... 804,603 807,244 818,195 821,049
Total liabilities..................... 645,620 645,620 645,620 645,620
Pro forma stockholders' equity.................. 158,983 161,624 172,575 175,429
Pro forma consolidated net income............... 458 550 653 769
Pro forma consolidated net income, as
adjusted...................................... 3,158 3,250 3,353 3,469
Pro forma stockholders' equity per share........ 15.15 15.27 14.22 14.42
Pro forma consolidated net income per share..... 0.04 0.05 0.05 0.06
Pro forma consolidated net income per share, as
adjusted...................................... 0.32 0.33 0.29 0.31
Pro Forma Pricing Ratios:
Offering price as a percent of pro forma
stockholders' equity per share........... 66.01% 65.49% 70.32% 69.35%
Offering price to pro forma net income per
share.................................... 250.00 200.00 200.00 166.67
Offering price to pro forma net income per
share, as adjusted....................... 31.52x 30.21x 34.28x 32.55x
Pro forma market capitalization to
assets................................... 13.03% 13.11% 14.84% 14.82%
Pro Forma Financial Ratios:
Return on assets........................... 0.06% 0.07% 0.08% 0.09%
Return on assets, as adjusted.............. 0.39% 0.40% 0.41% 0.42%
Return on stockholders' equity............. 0.29% 0.34% 0.38% 0.44%
Return on stockholders' equity, as
adjusted................................. 1.99% 2.01% 1.94% 1.98%
Stockholders' equity to assets............. 19.76% 20.02% 21.09% 21.37%
</TABLE>
- ---------------
NM -- Not Meaningful
24
<PAGE> 50
THE TROY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Troy Savings for each of
the years in the three-year period ended September 30, 1998 have been audited by
KPMG LLP, independent public accountants, whose report thereon appears on page
F-2 of this Prospectus. These statements should be read in conjunction with the
other financial statements and notes thereto beginning on page F-1 of this
Prospectus.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans............................. $38,842 $39,050 $36,413
Securities available for sale:
Taxable........................................... 4,121 7,262 8,521
Tax exempt........................................ 2,214 119 --
------- ------- -------
6,335 7,381 8,521
Investment securities.................................. 300 353 410
Federal funds sold..................................... 2,553 1,503 1,518
------- ------- -------
Total interest and dividend income................ 48,030 48,287 46,862
------- ------- -------
Interest expense:
Deposits and escrows................................... 23,339 22,812 22,557
Short-term borrowings.................................. 33 271 230
Long-term debt......................................... 821 268 230
------- ------- -------
Total interest expense............................ 24,193 23,351 23,017
------- ------- -------
Net interest income............................... 23,837 24,936 23,845
Provision for loan losses................................... 4,050 3,900 928
------- ------- -------
Net interest income after provision for loan
losses.......................................... 19,787 21,036 22,917
------- ------- -------
Non-interest income:
Service charges on deposits............................ 858 822 802
Loan servicing fees.................................... 432 460 443
Trust income........................................... 459 362 293
Net gains from securities sales or calls............... 8 4 1
Net gains (losses) from mortgage loan sales............ 76 14 (14)
Other income........................................... 719 1,075 1,340
------- ------- -------
Total non-interest income......................... 2,552 2,737 2,865
------- ------- -------
Non-interest expense:
Compensation and employee benefits..................... 10,218 9,573 9,009
Occupancy.............................................. 2,101 2,089 1,956
Furniture, fixtures and equipment...................... 1,080 901 961
Computer charges....................................... 1,424 1,322 1,248
Professional, legal and other fees..................... 924 726 658
Printing, postage and telephone........................ 614 559 543
Other real estate owned................................ 1,087 380 499
Contribution expense................................... 4,759 102 479
Other.................................................. 2,884 2,887 2,845
------- ------- -------
Total non-interest expense........................ 25,091 18,539 18,198
------- ------- -------
Income (loss) before income tax expense (benefit)........... (2,752) 5,234 7,584
Income tax expense (benefit)................................ (1,874) 1,576 2,506
------- ------- -------
Net income (loss)........................................... $ (878) $ 3,658 $ 5,078
======= ======= =======
</TABLE>
25
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Troy Financial Corporation has not engaged in any significant business to
date. Troy Financial was established in December 1998 as a Delaware corporation
to be the bank holding company for The Troy Savings Bank upon the conversion. In
the future, Troy Financial's primary business will be the business of Troy
Savings. The following discussion focuses on the factors affecting the
consolidated financial condition of Troy Savings as of September 30, 1998 and
1997 and the results of operations for each of the years in the three year
period ended September 30, 1998. Net interest income and net interest margin are
presented on a fully taxable equivalent basis. The consolidated financial
statements and related notes should be read in conjunction with this discussion.
MANAGEMENT STRATEGY
Troy Savings' business strategy is to serve as a community based, full
service financial services firm by offering a wide variety of business and
retail banking products, and trust, insurance and investment services to its
potential and existing customers throughout its six county market area. In the
future, Troy Financial intends to establish or acquire a commercial bank and
trust company that can accept municipal deposits to complement Troy Savings'
municipal investment activities. In addition, Troy Savings may also open new
branches to better serve its existing customers and to increase its market
share, especially in those areas in which Troy Savings originates residential
mortgage loans. Troy Savings believes that its relationships to its communities
and its operation as a full service community bank distinguish it from its
competitors and provide it with a competitive advantage.
Historically, Troy Savings has operated as a traditional thrift by making
residential mortgage loans and taking customers' deposits. In recent years, Troy
Savings has emphasized more commercial banking strategies including the
origination of commercial real estate loans and, to a lesser but increasing
extent, commercial business and consumer loans in its market area. In addition
to its lending program, Troy Savings also purchases securities, including U.S.
government securities and agency obligations. Troy Savings' primary sources of
funds are deposits and borrowings. Troy Savings seeks to continue to manage its
growth strategy, emphasizing asset quality and maintenance of favorable interest
rate margins. See "Business of The Troy Savings Bank."
MANAGEMENT OF INTEREST RATE RISK
Interest rate risk is the most significant market risk affecting Troy
Savings. Other types of market risk, such as movements in foreign currency
exchange rates and commodity prices, do not arise in the normal course of Troy
Savings' business operations. Interest rate risk can be defined as an exposure
to a movement in interest rates that could have an adverse effect on Troy
Savings' net interest income. Interest rate risk arises naturally from the
imbalance in the repricing, maturity and/or cash flow characteristics of assets
and liabilities.
A significant portion of Troy Savings' loans are adjustable or variable
rate which could result in reduced levels of interest income during periods of
falling rates. For example, in periods of falling interest rates, prepayments of
loans typically increase, which would lead to reduced net interest income if
such proceeds could not be reinvested at a comparable spread. Also in a falling
rate environment, certain categories of deposits may reach a point where market
forces prevent further reduction in the interest rate paid on those instruments.
Generally, during extended periods when short term and long term interest rates
are relatively close (i.e. a flat yield curve), net interest margins could
become smaller, thereby reducing net interest income. The net effect of these
circumstances is reduced interest income, offset only by a nominal decrease in
interest expense, thereby narrowing the net interest margin.
The principal objectives of Troy Savings' interest rate risk management
program are to (i) measure, monitor, evaluate and develop strategies in response
to the interest rate risk profile inherent in Troy Savings'
26
<PAGE> 52
consolidated balance sheet accounts, (ii) determine the appropriate level of
risk given Troy Savings' business strategy, operating environment, capital and
liquidity requirements, and performance objectives and (iii) manage the risk
consistent with Troy Savings' guidelines. Through such management, Troy Savings
seeks to reduce the vulnerability of its operations to changes in interest rates
by matching the maturities of Troy Savings' assets with those of Troy Savings'
liabilities and off-balance sheet financial instruments.
The responsibility for balance sheet risk management oversight is the
function of Troy Savings' Asset/ Liability Management Committee ("ALCO"). Troy
Savings' ALCO reviews Troy Savings' asset/liability policies and interest rate
risk position. Troy Savings' ALCO is chaired by Troy Savings' chief financial
officer, and includes Troy Savings' President, Trust and Investment Officer and
other members of Troy Savings' senior management team. The ALCO meets at least
monthly to review consolidated balance sheet structure, formulate strategy in
light of expected economic conditions and review performance against guidelines
established to control exposure to the various types of inherent risk, and
reports Troy Savings' interest rate risk position to Troy Savings' Board of
Directors on a quarterly basis. Troy Savings' ALCO considers variability of net
interest income under various rate scenarios. The ALCO also evaluates the
overall risk profile and determines actions to maintain and achieve a posture
consistent with policy guidelines. Troy Savings, of course, cannot predict the
future movement of interest rates, and such movement could have an adverse
impact on Troy Savings' consolidated financial condition and results of
operations.
In recent years, Troy Savings has primarily utilized the following
strategies to manage interest rate risk: (i) emphasizing the origination of
adjustable rate residential mortgage loans, and to a lesser extent commercial
real estate, commercial business and consumer loans; (ii) selling substantially
all of its fixed rate residential mortgage loans in the secondary market; (iii)
utilizing FHLB advances to better structure the maturities of its interest rate
sensitive liabilities; and (iv) investing in short-term securities which
generally bear lower yields, compared to longer-term investments, but which
better position Troy Savings for increases in interest rates. In addition,
although Troy Savings has generally sold all of its 15- and 30-year conforming
fixed rate mortgage loans into the secondary mortgage market, beginning in late
fiscal 1998, Troy Savings determined to hold in its loan portfolio substantially
all of its 15-year fixed rate mortgage loans.
In order to reduce the interest rate risk associated with the portfolio of
conventional mortgage loans held for sale, as well as outstanding loan
commitments and uncommitted loan applications with rate lock agreements which
are intended to be held for sale, Troy Savings enters into agreements to sell
loans in the secondary market to unrelated investors on a loan-by-loan basis,
and may also enter into option agreements. At September 30, 1998, Troy Savings
had mandatory commitments and cancelable options to sell fixed rate mortgage
loans at set prices amounting to approximately $25.0 million.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are interest rate
sensitive and by monitoring an institution's interest rate sensitivity "gap." An
asset or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest
earning assets maturing or repricing within a specific time period and the
amount of interest bearing liabilities maturing or repricing within that same
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. Accordingly,
during a period of rising interest rates, a negative gap would tend to affect
net interest income adversely. Conversely, during a period of falling interest
rates, a negative gap position would tend to result in an increase in net
interest income.
The following table ("Gap table") sets forth the amounts of interest
earning assets and interest bearing liabilities, which are outstanding as of
September 30, 1998, and which are anticipated by Troy Savings, based on certain
assumptions, to reprice or mature in each of the future time periods shown.
Except as stated below, the amount of assets and liabilities shown which reprice
or mature during a particular period were determined based on the earlier of
term to repricing or the term to repayment of the asset or liability. The Gap
table is intended to provide an approximation of the projected repricing of
assets and liabilities at September 30,
27
<PAGE> 53
1998 on the basis of contractual maturities, anticipated prepayments of loans
and scheduled rate adjustments within a three-month period and subsequent
selected time intervals.
The loan amounts in the Gap table reflect principal balances expected to be
reinvested and/or repriced as a result of contractual amortization and
anticipated early payoffs of adjustable rate loans and fixed rate loans, and as
a result of contractual rate adjustments on adjustable rate loans. For
residential mortgage loans, projected prepayment rates were assumed to range
from 6% to 15% annually. NOW and Super NOW accounts are assumed to decay 60% in
the three months or less category and 40% in the more than one year to three
years category. Money market accounts are all included in the three months or
less category. Savings accounts are assumed to decay at 6.25%, 6.25%, 12.5%, 50%
and 25% for the periods of three months or less, three months to six months, six
to twelve months, one to three years, and three to five years, respectively.
Prepayment and deposit decay rates can have a significant impact on Troy
Savings' estimated gap.
The fair value of loans is calculated based on discounted cash flows for
performing loans and either recent external appraisals or discounted cash flows
for nonperforming loans. The fair value of debt and equity securities, including
mortgage-backed securities, is based on quoted market prices. If quoted market
prices are not available, the fair value is determined by reference to quoted
market prices for securities with similar characteristics. The fair value of
deposits with no stated maturity is regarded to be the amount payable on demand
at September 30, 1998. The fair value of time deposits is based on the
discounted value of contractual cash flows. the fair value of FHLB advances is
based upon the discounted value of contractual cash flows using the rates
currently offered for similar long-term debt issues. While management believes
such assumptions to be reasonable, there can be no assurance that assumed
prepayment rates and decay rates will approximate actual future loan repayment
and deposit withdrawal activity. See "Business of The Troy Savings
Bank -- Lending Activities," "Business of The Troy Savings Bank -- Securities"
and "Business of The Troy Savings Bank -- Sources of Funds."
28
<PAGE> 54
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------------------------------------------------------------------
MORE MORE MORE
THAN THREE THAN SIX THAN ONE
THREE MONTHS MONTHS YEAR
MONTHS AVERAGE TO SIX AVERAGE TO ONE AVERAGE TO THREE AVERAGE
OR LESS RATE MONTHS RATE YEAR RATE YEARS RATE
-------- ------- ---------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Real estate loans:
Residential mortgage.................. $ 23,372 7.90 $ 15,999 8.04 $ 35,151 8.10 $ 16,778 7.72
Commercial mortgage................... 16,545 8.43 14,932 8.28 11,862 7.92 33,572 8.90
Construction.......................... 10,052 8.35 -- -- --
Total real estate loans........... 49,969 8.17 30,931 8.16 47,013 8.05 50,350 8.51
Commercial business................... 22,348 8.34 1,618 7.84 2,917 7.70 13,134 7.84
Home equity lines of credit........... 8,575 8.25 -- -- --
Other consumer loans.................. 2,686 9.75 2,546 8.25 5,685 8.25 14,203 8.35
-------- ---- -------- ---- -------- ---- -------- ----
Total loans....................... 83,578 8.27 36,095 8.15 55,615 8.06 77,687 8.37
Loans held for sale................... 11,096 7.27 -- -- --
Federal funds sold.................... 5,585 5.47 -- -- --
Debt and equity securities (at
amortized cost)..................... 60,574 5.46 78,190 5.06 18,825 5.75 22,032 6.26
Mortgage-backed securities............ 153 7.65 153 7.65 306 7.65 1,183 7.65
-------- ---- -------- ---- -------- ---- -------- ----
Total interest earning assets..... $160,986 $113,438 $ 74,746 $100,902
======== ======== ======== ========
Interest bearing Liabilities:
Deposits:
NOW and Super NOW accounts............ 45,717 2.20 -- -- 30,478 2.20
Money market accounts................. 15,708 3.09 -- -- --
Savings accounts...................... 12,407 3.30 12,407 3.30 24,814 3.30 99,255 3.30
Time deposit accounts................. 56,241 5.63 71,777 5.30 66,737 5.40 55,527 5.72
Escrow accounts......................... 1,900 2.11 -- -- --
FHLB advances........................... 108 5.89 110 5.89 225 5.89 3,497 5.89
Securities sold under agreements to
repurchase............................ 2,524 3.21 -- -- --
-------- ---- -------- ---- -------- ---- -------- ----
Total interest bearing
liabilities..................... $134,605 $ 84,294 $ 91,776 $188,757
======== ======== ======== ========
Interest rate sensitivity gap............. $ 26,381 $ 29,144 $(17,030) $(87,855)
======== ======== ======== ========
Cumulative interest rate sensitivity
gap..................................... $ 26,381 $ 55,525 $ 38,495 $(49,360)
======== ======== ======== ========
Cumulative interest rate sensitivity gap
as a percentage of total assets......... 3.68% 7.75% 5.37% (6.89)%
Cumulative interest rate sensitivity gap
as a percentage of total interest
earning assets.......................... 3.86% 8.13% 5.63% (7.23)%
Cumulative interest earning assets as a
percentage of cumulative interest
bearing liabilities..................... 119.60% 125.37% 112.39% 90.12%
<CAPTION>
AT SEPTEMBER 30, 1998
------------------------------------------------------------------------------------
MORE MORE
THAN THREE THAN FIVE
YEARS YEARS MORE
TO FIVE AVERAGE TO 10 AVERAGE THAN 10 AVERAGE FAIR
YEARS RATE YEARS RATE YEARS RATE TOTAL VALUE
---------- ------- --------- ------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Real estate loans:
Residential mortgage.................. $ 15,111 7.59 $24,902 7.69 $71,198 6.65 $202,511 $203,571
Commercial mortgage................... 41,608 8.41 39,618 8.17 8,049 7.99 166,186 169,325
Construction.......................... -- -- -- 10,052 10,052
Total real estate loans........... 56,719 8.19 64,520 7.98 79,247 6.79 378,749 382,948
Commercial business................... 5,139 8.00 -- -- 45,156 45,228
Home equity lines of credit........... -- -- -- 8,575 8,575
Other consumer loans.................. 8,325 8.43 -- -- 33,445 33,306
-------- ---- ------- ---- ------- ---- -------- --------
Total loans....................... 70,183 8.21 64,520 7.98 79,247 6.79 465,925 470,057
Loans held for sale................... -- -- -- 11,096 11,096
Federal funds sold.................... -- -- -- 5,585 5,585
Debt and equity securities (at
amortized cost)..................... 12,939 6.22 318 6.45 2,087 6.92 194,965 195,538
Mortgage-backed securities............ 840 7.65 1,561 7.87 1,400 7.25 5,596 5,841
-------- ---- ------- ---- ------- ---- -------- --------
Total interest earning assets..... $ 83,962 $66,399 $82,734 $683,167 $688,117
======== ======= ======= ======== ========
Interest bearing Liabilities:
Deposits:
NOW and Super NOW accounts............ -- -- -- 76,195 76,195
Money market accounts................. -- -- -- 15,708 15,708
Savings accounts...................... 49,626 3.30 -- -- 198,509 198,509
Time deposit accounts................. 3,637 5.70 2,755 5.60 -- 256,674 258,254
Escrow accounts......................... -- -- -- 1,900 1,900
FHLB advances........................... 10,000 6.03 31,000 5.74 -- 44,940 44,940
Securities sold under agreements to
repurchase............................ -- -- -- 2,524 2,524
-------- ---- ------- ---- ------- ---- -------- --------
Total interest bearing
liabilities..................... $ 63,263 $33,755 $ -- $596,450 $598,030
======== ======= ======= ======== ========
Interest rate sensitivity gap............. $ 20,699 $32,644 $82,734 $ 86,717
======== ======= ======= ========
Cumulative interest rate sensitivity
gap..................................... $(28,661) $ 3,983 $86,717 $ 86,717
======== ======= ======= ========
Cumulative interest rate sensitivity gap
as a percentage of total assets......... (4.00)% 0.56% 12.10% 12.10%
Cumulative interest rate sensitivity gap
as a percentage of total interest
earning assets.......................... (4.20)% 0.58% 12.69% 12.69%
Cumulative interest earning assets as a
percentage of cumulative interest
bearing liabilities..................... 94.91% 100.67% 114.54% 114.54%
</TABLE>
29
<PAGE> 55
Certain shortcomings are inherent in the method of analysis presented in
the Gap table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types of assets may lag behind changes in
market rates. Additionally, certain assets such as adjustable rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels may deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to make
scheduled payments on their adjustable rate loans may decrease in the event of
an interest rate increase.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Total assets at September 30, 1998 were $716.6 million, up $54.2 million,
or 8.2%, from $662.4 million at September 30, 1997. This increase was primarily
in the securities available for sale portfolio which increased by $80.2 million,
or 68.2%, from $117.6 million at September 30, 1997 to $197.8 million at
September 30, 1998. This increase was partially offset by a $10.8 million
reduction in loans receivable, net. The growth in securities available for sale
was primarily funded by a $40.6 million increase in borrowings, and proceeds
from the redemption and maturity of federal funds sold and other short-term
securities.
Troy Savings' cash and cash equivalents, which consists of federal funds
sold and cash and due from banks, decreased $24.6 million from $42.5 million at
September 30, 1997 to $17.9 million at September 30, 1998. This decrease was due
to Troy Savings' investment of these funds into higher yielding securities
available for sale.
Troy Savings' $10.8 million decrease in loans receivable, net, was
primarily due to a 5.6%, or $12.1 million, decrease in residential real estate
loans and a 10.0%, or $18.4 million, decrease in commercial real estate loans.
The reduction in Troy Savings' residential real estate portfolio was primarily
caused by a change in market demand for Troy Savings' mortgage loan products. In
recent years until fiscal 1998, Troy Savings' mortgage customers generally
sought adjustable rate loans because such loans tended to offer lower interest
rates relative to fixed rate loans. Troy Savings generally retains adjustable
rate mortgage loans in its portfolio. In fiscal 1998, however, as long-term
interest rates declined to levels approaching short-term rates, Troy Savings'
mortgage customers generally sought fixed rate loans. Because it had been Troy
Savings' policy generally to sell all of its 15- and 30-year conforming fixed
rate mortgage loans in the secondary market, Troy Savings' residential loan
portfolio decreased during fiscal 1998. Troy Savings' origination of commercial
real estate loans remained relatively stable in fiscal 1998 as compared to
fiscal 1997 ($27.4 million in fiscal 1998, compared to $30.6 million in fiscal
1997), and the decline in the portfolio can be attributed primarily to the
payoff of five loans, totaling $17.4 million. In contrast to the decline in real
estate loans, from fiscal year end 1997 to fiscal year end 1998, Troy Savings'
commercial business loan portfolio increased 50.7%, or $15.2 million, and Troy
Savings' consumer loan portfolio increased 38.1%, or $11.6 million. The increase
in commercial business loans, which generally are secured by non-real estate
business assets, was a result of Troy Savings' effort to increase the
origination of such loans as part of Troy Savings' emphasis on commercial
banking activities, and because such loans generally have higher interest rates
than Troy Savings' other loan products. The increase in consumer loans was
primarily the result of a direct marketing loan campaign initiated during the
latter half of fiscal 1998, as well as an increased demand for consumer loans
due to aggressive marketing by Troy Savings and an overall decrease in the
interest rates for such loans resulting from a general decline in market
interest rates. In the future, Troy Savings expects to continue emphasizing the
origination of commercial real estate loans, commercial business loans and
consumer loans, although there can be no assurance that Troy Savings will
succeed in increasing the level of such loan originations.
The allowance for loan losses is established through a provision for loan
losses charged to earnings based on Troy Savings' evaluation of risks inherent
in its entire loan portfolio. Such evaluation, which includes a review of all
loans for which full collectibility may not be reasonably assured, considers the
market value of the underlying collateral, growth and composition of the loan
portfolio, delinquency trends, adverse situations that may affect borrowers'
abilities to repay, prevailing economic conditions and trends and
30
<PAGE> 56
other factors that warrant recognition in providing for an adequate allowance
for loan losses. See "Business of The Troy Savings Bank -- Lending
Activities -- Allowance for Loan Losses."
While Troy Savings believes it uses the best information available to
determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination. Management believes
its allowance for loan losses is adequate at September 30, 1998, however, future
adjustments could be necessary and Troy Savings' results of operations could be
adversely affected if circumstances differ substantially from the assumptions
used in the determination of the allowance for loan losses. The allowance for
loan losses increased from $6.4 million at September 30, 1997 to $8.3 million at
September 30, 1998. This increase is the result of a $4.1 million provision for
loan losses in fiscal 1998, offset by $2.2 million in net charge-offs for the
same period. At September 30, 1998 the allowance for loan losses equaled 70.9%
of total non-performing loans, down slightly from 73.8% at September 30, 1997.
The balance of the allowance is maintained at a level which is, in management's
judgment, representative of the amount of risk inherent in Troy Savings' loan
portfolio. See "Business of The Troy Savings Bank -- Lending
Activity -- Allowance for Loan Losses."
Troy Savings' securities available for sale portfolio increased from $117.6
million at September 30, 1997 to $197.8 million at September 30, 1998. This
increase was primarily attributable to a $59.6 million increase in U.S.
government securities and agency obligations and a $30.8 million increase in
obligations of state and political subdivisions. Troy Savings used its FHLB
borrowings to fund approximately half of the increase in its securities
available for sale portfolio in order to leverage itself and take advantage of
higher yielding securities, while maintaining liquidity as part of its
asset/liability management program.
Troy Savings' total liabilities increased 9.3% from $590.9 million at
September 30, 1997 to $645.6 million at September 30, 1998. Most of this
increase was attributable to a $40.6 million increase in FHLB borrowings.
Deposits remained relatively stable at $578.2 million at September 30, 1998,
compared to $572.4 million at September 30, 1997. During fiscal 1998, Troy
Savings entered into a binding, irrevocable commitment to make a total of $4.0
million in scheduled payments to the Charitable Foundation. The scheduled
payments will occur in each of fiscal years 1999, 2000 and 2001. The present
value of the $4.0 million commitment results in a $3.5 million contribution
payable liability. In addition, Troy Savings' securities sold under agreement to
repurchase increased by $2.2 million, and Troy Savings' other liabilities and
accrued expenses increased by $1.6 million during fiscal 1998, primarily due to
increases in accruals for post-retirement benefits, trade accounts payable,
deferred compensation and mortgage servicing related liabilities.
ANALYSIS OF NET INTEREST INCOME
Troy Savings' earnings are dependent largely on its net interest income,
which is the difference between the amount that Troy Savings receives from its
interest earning assets and the amount that Troy Savings pays out on its
interest bearing liabilities.
Average Balance Sheet. The following table sets forth certain information
relating to Troy Savings' interest earning assets and interest bearing
liabilities for the periods indicated. The yields and rates were derived by
dividing tax effected interest income or interest expense by the average balance
of assets or liabilities, respectively, for the periods shown. A federal
incremental tax rate of 34% and a New York State incremental tax rate of 9.0%
were used to calculate tax exempt income on a tax equivalent basis. Average
balances were computed based on average monthly balances. Management believes
that the use of average monthly balances instead of daily balances does not have
a material effect on the information presented. The
31
<PAGE> 57
yields on loans include deferred fees and discounts which are considered yield
adjustments. Non-accruing loans have been included in loan balances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Real estate loans:
Residential mortgage........ $208,520 $16,240 7.79% $210,501 $ 16,389 7.79% $199,367 $15,455 7.75%
Commercial mortgage......... 177,144 15,480 8.74 189,953 16,695 8.79 180,202 15,938 8.84
Construction................ 14,823 898 6.06 16,869 1,172 6.95 12,234 1,047 8.56
-------- ------- -------- -------- -------- -------
Total real estate
loans................. 400,487 32,618 8.14 417,323 34,256 8.21 391,803 32,440 8.28
Commercial business......... 37,234 3,211 8.62 25,964 2,287 8.81 21,242 1,932 9.10
Consumer loans:
Home equity lines of
credit.................. 9,160 792 8.65 9,572 824 8.61 9,014 798 8.85
Other consumer............ 20,525 1,694 8.25 18,920 1,484 7.84 10,510 983 9.35
-------- ------- -------- -------- -------- -------
Total consumer loans.... 29,685 2,486 8.37 28,492 2,308 8.10 19,524 1,781 9.12
-------- ------- -------- -------- -------- -------
Total loans............. 467,406 38,315 8.20 471,779 38,851 8.23 432,569 36,153 8.36
Loans held for sale........... 6,829 527 7.72 2,743 199 7.25 3,509 260 7.41
Securities held to maturity... 3,753 300 7.99 4,266 353 8.27 4,988 410 8.22
Securities available for sale
(amortized cost)
Taxable................... 69,171 4,121 5.96 121,483 7,262 5.98 142,758 8,521 5.97
Tax-exempt................ 55,996 3,286 5.87 3,195 184 5.76 -- -- --
-------- ------- ------ -------- -------- ------ -------- ------- ------
Total securities
available for sale
(amortized cost)...... 125,167 7,407 5.92 124,678 7,446 5.97 142,758 8,521 5.97
Federal funds sold and other
short-term investments...... 45,631 2,553 5.59 27,560 1,503 5.45 27,984 1,518 5.42
-------- ------- -------- -------- -------- -------
Total interest earning
assets................ 648,786 49,102 7.57 631,026 48,352 7.66 611,808 46,862 7.66
-------- ------- -------- -------- -------- -------
INTEREST BEARING LIABILITIES:
Deposits:
NOW and Super NOW accounts.. $ 77,010 $ 1,696 2.20% $ 71,581 $ 1,590 2.22% $ 69,908 $ 1,547 2.21%
Money market accounts....... 13,995 431 3.08 14,168 433 3.06 12,600 379 3.01
Savings accounts............ 195,177 6,451 3.31 201,612 6,647 3.30 206,719 6,798 3.29
Time deposit accounts....... 264,538 14,701 5.56 261,032 14,087 5.40 251,005 13,758 5.48
Escrow accounts............... 3,704 60 1.62 3,941 55 1.40 3,602 75 2.08
-------- ------- -------- -------- -------- -------
Total interest bearing
deposits.............. 554,424 23,339 4.21 552,334 22,812 4.13 543,834 22,557 4.15
-------- ------- -------- -------- -------- -------
Borrowings:
Securities sold under
agreement to repurchase... 1,222 33 2.70 704 29 4.12 386 13 3.37
Short-term borrowings....... -- -- -- 4,403 242 5.50 4,220 217 5.14
Long-term debt.............. 13,681 821 6.00 4,540 268 5.90 3,711 230 6.20
-------- ------- -------- -------- -------- -------
Total borrowings........ 14,903 854 5.73 9,647 539 5.59 8,317 460 5.53
-------- ------- -------- -------- -------- -------
Total interest bearing
liabilities........... 569,327 24,193 4.25 561,981 23,351 4.16 552,151 23,017 4.17
-------- ------- -------- -------- -------- -------
Net interest spread............. 3.32% 3.50% 3.49%
Net interest income/net interest
margin........................ 24,909 3.84% 25,001 3.96% 23,845 3.90%
Ratio of interest earning assets
to interest bearing
liabilities................... 113.96% 112.29% 110.80%
Tax equivalent adjustment....... 1,072 65 --
------- -------- -------
Net interest income as per
consolidated financial
statements.................... $23,837 $ 24,936 $23,845
======= ======== =======
</TABLE>
32
<PAGE> 58
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest earning assets
and interest bearing liabilities have affected Troy Savings' 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 year rate); (ii) changes attributable to changes
in rate (changes in rate multiplied by prior volume); and (iii) changes in
rate/volume (change in rate times the change in volume). 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.
Interest yields on loans include deferred fees and discounts, and all yields are
tax effected.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 YEAR ENDED SEPTEMBER 30, 1997
COMPARED TO COMPARED TO
YEAR ENDED SEPTEMBER 30, 1997 YEAR ENDED SEPTEMBER 30, 1996
-------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
-------------------- --------------------
VOLUME RATE NET VOLUME RATE NET
--------- ------- -------- --------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans:
Residential mortgage................................... $ (149) $ -- $ (149) $ 854 $ 80 $ 934
Commercial mortgage.................................... (1,120) (95) (1,215) 847 (90) 757
Construction........................................... (142) (132) (274) 247 (122) 125
------- ----- ------- ------- ----- -------
Total real estate loans............................ (1,411) (227) (1,638) 1,948 (132) 1,816
Commercial business.................................... 973 (49) 924 417 (62) 355
Consumer loans:
Home equity lines of credit.......................... (36) 4 (32) 47 (21) 26
Other consumer....................................... 132 78 210 660 (159) 501
------- ----- ------- ------- ----- -------
Total consumer loans............................... 96 82 178 707 (180) 527
------- ----- ------- ------- ----- -------
Total loans........................................ (342) (194) (536) 3,072 (374) 2,698
Loans held for sale...................................... 315 13 328 (55) (6) (61)
Securities held to maturity.............................. (41) (12) (53) (59) 2 (57)
Securities available for sale (amortized cost)
Taxable................................................ (3,117) (24) (3,141) (1,273) 14 (1,259)
Tax exempt............................................. 3,098 4 3,102 92 92 184
------- ----- ------- ------- ----- -------
Total securities available for sale (amortized
cost)............................................ 19 (20) (39) (1,181) 106 (1,075)
Federal funds sold and other short-term investments...... 1,011 39 1,050 (23) 8 (15)
------- ----- ------- ------- ----- -------
Interest earning assets............................ 924 (174) 750 1,754 (264) 1,490
Interest bearing liabilities:
Deposits:
NOW and Super NOW accounts............................. 120 (14) 106 36 7 43
Money market accounts.................................. (5) 3 (2) 48 6 54
Savings accounts....................................... (216) 20 (196) (172) 21 (151)
Time deposit accounts.................................. 189 425 614 511 (182) 329
Escrow accounts.......................................... (2) 7 5 7 (27) (20)
------- ----- ------- ------- ----- -------
Total interest bearing deposits.................... 86 441 527 430 (175) 255
Borrowings:
Securities sold under agreement to repurchase.......... 7 (3) 4 13 3 16
Short-term borrowings.................................. (121) (121) (242) 9 16 25
Long-term debt......................................... 548 5 553 49 (11) 38
------- ----- ------- ------- ----- -------
Total borrowings................................... 434 (119) 315 71 8 79
------- ----- ------- ------- ----- -------
Total interest bearing liabilities................. 520 322 842 501 (167) 334
------- ----- ------- ------- ----- -------
Net Interest Income.................................... $ 404 $(496) $ (92) $ 1,253 $ (97) $ 1,156
======= ===== ======= ======= ===== =======
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
General. Troy Savings had a net loss of $878,000 for the year ended
September 30, 1998, compared to net income of $3.7 million for the year ended
September 30, 1997. The 1998 net loss was primarily the result of a $4.8 million
contribution expense, $4.5 million of which was related to Troy Savings' cash
contribution and commitment to the Charitable Foundation. Also contributing to
the loss were increases in Troy Savings' other real estate owned expense and
compensation and employee benefits expense of $707,000
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and $645,000, respectively, for the year ended September 30, 1998. These
increased expenses were partially offset by a $3.5 million decrease in income
tax expense in fiscal 1998 as compared to fiscal 1997 primarily associated with
the tax benefit recorded in connection with Troy Savings' contribution and
binding, irrevocable commitment to the Charitable Foundation and otherwise
reduced income before taxes.
Net Interest Income. Troy Savings' tax equivalent net interest income for
the year ended September 30, 1998 was $24.9 million, down $92,000, compared to
the year ended September 30, 1997. This decrease was primarily the result of a
nine basis point decrease in yield on average interest earning assets and a nine
basis point increase in the rate paid on average interest bearing liabilities. A
$17.8 million increase in average interest earning assets, which exceeded the
$7.3 million increase in average interest bearing liabilities by $10.5 million,
partially offset the impact of the decline in yields on Troy Savings' interest
earning assets. Troy Savings' net interest margin for the year ended September
30, 1998 was 3.84%, down 12 basis points from 3.96% for the year ended September
30, 1997. The yield on average interest earning assets decreased from 7.66% to
7.57%, while the rate paid on average interest bearing liabilities increased
from 4.16% to 4.25%. The components which contributed to the changes in net
interest income and net interest margin are described below and are set forth in
the tabular presentation under the above heading "Rate/Volume Analysis."
Interest Income. Troy Savings' interest income for the year ended
September 30, 1998 was $49.1 million, up from $48.4 million for the year ended
September 30, 1997. Interest on loans decreased $536,000 from $38.9 million for
the year ended September 30, 1997 to $38.3 million for the year ended September
30, 1998. The average balance of loans decreased $4.4 million to $467.4 million,
and the average yield on loans also decreased three basis points from 8.23% to
8.20% for the year ended September 30, 1998. Tax equivalent interest income on
securities available for sale decreased by $39,000 and interest income on
investment securities held to maturity declined by $53,000 for the year ended
September 30, 1998. The average balance of securities available for sale
increased only slightly from $124.7 million for the year ended September 30,
1997 to $125.2 million for the year ended September 30, 1998. At the same time,
the tax effected average yield on securities available for sale decreased five
basis points from 5.97% to 5.92%. The interest income on federal funds sold
increased $1.0 million to $2.5 million, and the average balance of federal funds
sold and other short-term investments increased from $27.6 million to $45.6
million. Reductions in market interest rates throughout 1998 led to changes in
the mix of Troy Savings interest earning assets and changes in interest income.
Lower loan rates resulted in increased residential loan refinancings and fixed
rate loans. Because Troy Savings sells most of its fixed rate residential loans,
interest income on loans held for sale increased. The rate environment also
resulted in increased refinancings by commercial mortgage customers, some of
which refinanced with other institutions. Troy Savings sought to take advantage
of the interest rate environment by borrowing funds from the FHLB, and investing
in short-term investments, thereby increasing short-term interest income by $1.1
million. Troy Savings continued to invest in short term federal funds due to the
favorable short term interest rates offered by these instruments compared to
other comparable investment alternatives. The average yield on federal funds
sold and other short-term investments increased from 5.45% to 5.59%.
Interest Expense. Troy Savings' interest expense increased by $842,000 to
$24.2 million for the year ended September 30, 1998. The increase is
attributable to increased average balances and rates paid on deposits and
borrowings. The two largest categories of interest bearing deposits are savings
accounts and time deposits. Interest expense on savings accounts decreased by
$196,000 to $6.5 million for the year ended September 30, 1998, primarily due to
a $6.4 million decrease in the average balance of savings accounts. Interest on
time deposits for the year ended September 30, 1998 was $14.7 million, up
$614,000 from the year ended September 30, 1997. This increase was the result
primarily of a 16 basis point increase in the rates paid on these deposits and a
$3.5 million increase in the average balance of time deposits for the year ended
September 30, 1998. Interest expense on Troy Savings' NOW and money market
accounts was relatively flat, increasing only $104,000 from fiscal year end 1997
to fiscal year end 1998. The slight increase was attributable to a $5.3 million
increase in the average balances of these deposits accounts. Interest expense on
Troy Savings' borrowings increased $315,000 in fiscal 1998 compared to fiscal
1997. The increase is attributable to a $5.3 million increase in the average
balance of borrowings, coupled with a 14 basis point
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increase in the average rate paid on borrowings. The increase in borrowings
reflects Troy Savings' use of alternative funding sources in lieu of relatively
higher cost time deposit accounts.
Provision for Loan Losses. The provision for loan losses was $4.1 million
for fiscal 1998, compared to $3.9 million for fiscal 1997. Many of the adverse
credit quality trends noted in fiscal 1997 have continued into fiscal 1998, and
it is expected that these trends may continue through at least fiscal 1999.
During fiscal 1998, net loan charge-offs were $2.2 million, representing a 25.0%
increase from fiscal 1997, when net loan charge-offs were $1.8 million. In
addition, nonperforming loans increased from $8.7 million at September 30, 1997
to $11.6 million at September 30, 1998. This increase is consistent with the
trends noted at September 30, 1997 when significant increases in classified
loans and loans 60 to 89 days delinquent were noted. In determining the
appropriate provision for loan losses, management also considers general
economic conditions and real estate trends in Troy Savings' market area, both of
which can impact the inherent risk of loss in Troy Savings' current loan
portfolio. Management believes that there has been a general decline in the real
estate values in Troy Savings' market area, resulting in a decrease in the
values of the collateral securing much of Troy Savings' loan portfolio.
Management believes that this trend is reflected in the increased level of net
loan charge-offs experienced in fiscal years 1998 and 1997 compared to fiscal
years 1996, 1995 and 1994. In fiscal years 1998 and 1997, net loan charge-offs
as a percentage of average loans were .48% and .38%, respectively, as compared
to .21%, .22%, and .15% in fiscal years 1996, 1995, and 1994, respectively.
Accordingly, management anticipates that the current net charge-off levels may
continue through fiscal 1999. Based upon the reduction in classified and special
mention loans from $25.2 million at September 30, 1997 to $18.7 million at
September 30, 1998, and the reduction in loans 60-89 days past due, Troy Savings
has set its provision for loan losses in anticipation that this rate of increase
in nonperforming loans will not continue at its current pace. The increased
provision in recent years also reflects the change in the mix of assets in Troy
Savings' loan portfolio as commercial business loans and consumer loans have
increased as a percentage of total loans from 6.31% and 6.41%, respectively, at
September 30, 1997 to 9.70% and 9.02%, respectively, at September 30, 1998.
Non-interest Income. Troy Savings' non-interest income decreased by
$185,000 to $2.6 million for the year ended September 30, 1998. A $356,000
decrease in Troy Savings' other income and a $28,000 decrease in Troy Savings'
loan servicing fees contributed to Troy Savings' decline in non-interest income,
although such declines were partially offset by Troy Savings' trust income,
gains on the sale of mortgage loans and deposit service charges, which increased
by $97,000, $62,000 and $36,000, respectively, from fiscal 1997 to fiscal 1998.
Troy Savings' non-interest income in 1997 also includes a one-time $389,000
federal affordable housing award. Service charges on deposits increased due to
increases in demand deposit account balances and additional commercial
relationships. Trust income increased due to increases in assets under
management. These increases reflect Troy Savings' strategy of becoming a more
full service relationship institution. Gains on mortgage loan sales increased as
a result of the decline in mortgage rates and a corresponding increase in fixed
rate loans held for sale.
Non-interest Expense. Troy Savings' non-interest expense increased 35.3%
from $18.5 million for the year ended September 30, 1997 to $25.1 million for
the year ended September 30, 1998. The primary cause of this increase was a $4.8
million contribution expense, all but $306,000 of which was related to Troy
Savings' cash contribution and binding, irrevocable commitment to the Charitable
Foundation.
Immediately after completion of the conversion, in fiscal 1999, Troy
Financial intends to establish and contribute to the Community Foundation newly
issued shares of common stock in an amount equal to the difference between 8% of
the gross proceeds from the common stock sold in the conversion and the $5.3
million committed to the Charitable Foundation, which represents the $5.0
million cash contributions and the value of the Music Hall.
In connection with our contribution of common stock to the Community
Foundation, we will record an expense equal to the value of the contribution
during the quarter in which it is made, which we expect to be the second quarter
of fiscal 1999. In fiscal 1999, in addition to our intended contribution of
common stock to the Community Foundation, we also intend to contribute the Music
Hall to the Music Hall Foundation. We estimate the pre-tax cost of this
contribution to be $300,000. These contribution expenses are expected to be
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partially offset by a tax benefit related to the contributions. Under the
Internal Revenue Code ("IRC"), there is an annual charitable deduction
limitation of 10% of our annual (pre-contribution) taxable income. The non-
deductible part of our contribution expense, however, may be carried forward for
five years, subject to the annual 10% limitation. To the extent that our
charitable deductions exceed this 10% deduction limitation, based on estimated
future taxable income, we would not be able to recognize the full tax benefit
associated with our contributions. The contribution of common stock to the
Community Foundation is intended to allow our local communities to share in our
potential growth and any profitability over the long term.
Troy Financial's future contribution expense, subject to the funding of
these foundations, will decline as a result of these foundations. Beginning in
fiscal 1999, expenses associated with the Music Hall will be paid by the Music
Hall Foundation and not by Troy Financial or Troy Savings. In fiscal years 1998
and 1997, the
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direct costs paid by Troy Savings, excluding any allocated cost, associated with
operating the Music Hall were $78,000 and $88,000, respectively.
Also contributing to Troy Savings' increased non-interest expense for the
year ended September 30, 1998 was a $707,000 increase in other real estate owned
expense, a $645,000 increase in compensation and employee benefits expense, and
a $198,000 increase in professional, legal and other fees expense. The increase
in other real estate owned expense is attributable to losses on the disposals
of, and additional writedowns taken on, Troy Savings' foreclosed assets (other
real estate owned). The increase compensation expense was primarily related to
general merit increases for Troy Savings' employees during the year ended
September 30, 1998, and, to a lesser extent, increased staffing levels and
health insurance costs. The increase in professional, legal and other fees is a
result of additional services relating to establishment of the Charitable
Foundation, general business counseling and consulting costs, and costs
associated with Year 2000 issues and system conversions.
Income Taxes. For fiscal 1998, Troy Savings received a $1.9 million income
tax benefit, as compared to a $1.6 million income expense for the year ended
September 30, 1997. The reduction in income tax expense is primarily the result
of the fiscal 1998 pre-tax loss of $2.8 million as compared to the fiscal 1997
pre-tax income of $5.2 million. Also contributing to the change in income tax
expense was an increase in the level of investments in tax exempt securities
from an average investment of $3.2 million during fiscal 1997 to an average
investment of $56.0 million during fiscal 1998, the result of which was a
significant increase in tax exempt income.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996
General. Troy Savings' net income for the year ended September 30, 1997
was $3.7 million, a 28.0% decrease from net income of $5.1 million in fiscal
1996. The reduction in Troy Savings' net income was primarily the result of a
$3.0 million increase in the provision for loan losses in fiscal 1997, although
this increase was partially offset by a $1.1 million increase in Troy Savings'
net interest income.
Net Interest Income. Troy Savings' net interest income increased by $1.1
million from $23.8 million to $25.0 million for fiscal years 1996 and 1997,
respectively. The increase was primarily the result of a $19.2 million increase
in average interest earning assets from $611.8 million for the year ended
September 30, 1996 to $631.0 million for the year ended September 30, 1997.
Average interest bearing liabilities also increased by $9.8 million during this
same period. Troy Savings' net interest margin for the year ended September 30,
1997 was 3.96%, compared to 3.90% for the year ended September 30, 1996. During
fiscal 1997, the yield on average interest earning assets and the rate paid on
average interest bearing liabilities remained relatively constant.
Interest Income. Troy Savings' interest income for fiscal 1997 was $48.4
million, as compared to $46.9 million for fiscal 1996. The primary cause of this
increase was a $2.7 million increase on interest and fees from Troy Savings'
loans. During fiscal 1997, the average balance of loans increased $39.2 million
to $471.8 million, while the average yield on loans decreased from 8.36% to
8.23%. Troy Savings' interest income on securities available for sale decreased
by $1.1 million to $7.4 million for the year ended September 30, 1997. The
majority of the decrease in interest income on securities available for sale was
attributed to a $18.1 million decrease in the average balance of securities
available for sale, which decreased from $142.8 million for the year ended
September 30, 1996 to $124.7 million for the year ended September 30, 1997. Troy
Savings used proceeds from its maturing securities available for sale to fund
its loan growth.
Interest Expense. Troy Savings' interest expense increased slightly by
$334,000 during the year ended September 30, 1997 to $23.4 million. Most of this
increase was related to interest paid on Troy Savings' interest bearing
depository accounts. The two largest categories of interest bearing deposits are
savings accounts and time deposits. Although Troy Savings' interest expense on
savings accounts decreased by $151,000 for the year ended September 30, 1997,
primarily due to a decrease in the average balance of Troy Savings' savings
accounts, Troy Savings' interest expense on its time deposits for the year ended
September 30, 1997 increased by $329,000 to $14.1 million. This increase is the
result of an increase in the
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average balance of time deposits from $251.0 million in fiscal 1996 to $261.0
million in fiscal 1997, offset by an eight basis point reduction in the rates
paid on these deposits from 5.48% in fiscal 1996 to 5.40% in fiscal 1997.
Provision for Loan Losses. In fiscal 1997, there was evidence of increases
in the level of inherent risk in Troy Savings' loan portfolio. As a result of
this increased inherent risk, management increased Troy Savings' provision for
loan losses from $928,000 in fiscal 1996 to $3.9 million in fiscal 1997. The
increased inherent risk was manifested in a number of developments, ratios and
trends considered by management. Net loan charge-offs increased from $921,000 in
fiscal 1996, or .21% of average loans, to $1.8 million, or .38% of average
loans, in fiscal 1997. This increase in the level of net loan charge-offs also
represented a significant increase from Troy Savings' historical net loan
charge-off experience which was .22% and .15% of average loans in fiscal years
1995 and 1994, respectively. Similarly, loans 60 to 89 days past due increased
from $1.2 million at September 30, 1996 to $3.5 million at September 30, 1997,
and Troy Savings' classified and special mention loans increased from $18.9
million at September 30, 1996 to $25.2 million at September 30, 1997. Troy
Savings also began to change the mix of assets in Troy Savings' loan portfolio,
the result of which was an overall increase in the amount of loans with greater
credit risk. For example, commercial business loans increased from $24.8 million
at September 30, 1996 to $30.0 million at September 30, 1997, and consumer loans
increased from $22.5 million at September 30, 1996 to $30.4 million at September
30, 1997.
Non-interest Income. Troy Savings' non-interest income decreased by
$128,000 to $2.7 million for the year ended September 30, 1997. This decrease
was primarily caused by a $265,000 decrease in Troy Savings' other income,
although this decrease was partially offset by a $69,000 increase in Troy
Savings' trust income resulting from an increase in trust assets under Troy
Savings' management. In fiscal 1996, Troy Savings received $435,000 in
nonrecurring recoveries of previously charged-off investments. Troy Savings did
not have a similar recovery in fiscal 1997.
Non-interest Expense. Troy Savings' non-interest expense increased
$341,000 to $18.5 million for the year ended September 30, 1997. A $564,000
increase in compensation and employee benefits expense, primarily related to
general merit increases for Troy Savings' employees, and, to a lesser extent,
increases in pension, 401(k) and post-retirement benefits, was the primary cause
for the increase in non-interest expense, although this increase was offset by
$377,000 and $119,000 decreases in Troy Savings' contribution expense and other
real estate owned expense, respectively. Additional increases in non-interest
expense are attributable to increases in occupancy and computer charges.
Income Taxes. For fiscal 1997, Troy Savings incurred a $1.6 million income
tax expense, as compared to a $2.5 million income tax expense for fiscal 1996.
The reduction in income tax expense is primarily the result of a decrease in
pre-tax income from $7.6 million to $5.2 million for fiscal years 1996 and 1997,
respectively, as well as the recognition of a tax benefit associated with
certain changes in the tax laws of New York State.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is defined as the ability to generate cash flow to meet present
and future financial obligations and commitments. Troy Savings' liquid assets
include cash and cash equivalents, securities held to maturity, securities that
mature within one year and securities available for sale. At September 30, 1998,
Troy Savings' liquid assets as a percentage of deposits which have no withdrawal
restrictions, time deposits which mature within one year, and short-term
borrowings was 42%.
Troy Savings' primary sources of funds are borrowings and proceeds from the
redemption and maturity of federal funds sold and other short-term securities.
Troy Savings' primary cash outflows are new loan originations, purchases of
securities, and deposit withdrawals. Management monitors its liquidity position
on a daily basis. Although maturities and scheduled amortization of loans are a
predictable source of funds, deposit outflows, mortgage prepayments and mortgage
loan sales are greatly influenced by changes in interest rates, economic
conditions, and competitors.
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Troy Savings attempts to provide stable and flexible sources of funding
through the management of its liabilities, including core deposit products
offered through its branch network as well as FHLB advances. Management believes
that the level of Troy Savings' liquid assets combined with daily monitoring of
cash inflows and outflows provide adequate liquidity to fund outstanding loan
commitments, meet daily withdrawal requirements of Troy Savings' depositors, and
meet all other daily obligations of Troy Savings.
Consistent with its goals to operate a sound and profitable financial
organization, Troy Savings actively seeks to maintain a "well capitalized"
institution in accordance with regulatory standards. As of September 30, 1998
and 1997, total equity was $71.0 million and $71.5 million, respectively, or
9.9% and 10.8% of total assets at those respective dates. As of September 30,
1998, Troy Savings exceeded all of the capital requirements of the Federal
Deposit Insurance Corporation ("FDIC"). Troy Savings' regulatory capital ratios
at September 30, 1998 were as follows: Tier I (leverage) capital: 9.89%; Tier I
risk-based capital: 14.02%; and total risk based capital: 15.27%. The regulatory
capital minimum requirements to be considered "well capitalized" are 5.0%, 6.0%,
and 10.0%, respectively.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The "Year 2000" issue is the result of computer programs and equipment
which depend on "embedded chip" technology and software using two digits rather
than four digits to define the applicable year. For dates on or after January 1,
2000, software and hardware as well as embedded processors may not be able to
recognize or process dates correctly. This could result in system failures or
miscalculations causing disruption of operations, including, among other things,
system or equipment shutdowns, malfunctions or a temporary inability to process
transactions or engage in normal business activities.
Companies have been advised to determine whether and to what extent their
information technology and/or physical resources may be affected by Year 2000;
to replace, repair or retire the affected systems or assets; and to test the new
systems or assets to assure that they will not be adversely affected by Year
2000 (otherwise referred to as "Year 2000 compliant"), Further, any changes,
revisions or new components of systems or equipment configurations may prove to
be incompatible with those existing or upgraded. As a result, the testing of
changed components and of systems and subsystems as a whole, is critical, but
also time and resource consuming.
In order to protect the integrity of the banking system, the federal
banking regulatory authorities (collectively known as the Federal Financial
Institutions Examination Council, or "FFIEC") have (i) issued guidelines to
financial institutions for addressing the Year 2000 issues; (ii) set milestones
that financial institutions are expected to meet in becoming Year 2000
compliant; and (iii) established testing recommendations to assure timely
compliance. Troy Savings started its Year 2000 compliance plans in 1996, and has
followed the guidelines and recommendations of the FFIEC throughout its planning
and implementation process.
In order to address Troy Savings' particular Year 2000 issues, Troy Savings
commenced a Year 2000 remediation and compliance program (the "Year 2000
Project") managed by a project group consisting of representatives from all
business units and functional departments within Troy Savings. The Year 2000
Project is directed by a vice president who directly reports on the Year 2000
Project to the President/Chief Executive Officer of Troy Savings. The Year 2000
Project is overseen by the Board of Directors which receives quarterly reports
from the project group.
Troy Savings' inventory and assessment of all technologies, equipment and
third party providers began in 1996. Substantially all of Troy Savings' core
banking systems are outsourced or are purchased software packages. As a result,
much of the remediation and testing process is dependent upon the accuracy of
the work performed by vendors in certifying their systems. Further assessments
were performed to evaluate other systems, equipment, databases and third-party
interfaces which could be affected by Year 2000, or which could be incompatible
with Year 2000 upgrades of Troy Savings' core banking systems. Finally, Troy
Savings assessed its machinery, vaults, security systems, elevators, HVAC
systems, telephone, communications and any vendor supplied goods or services to
complete plans for remediation, repair or replacement where necessary, and has
monitored vendors' compliance programs against required standards.
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In 1996, Troy Savings negotiated the renewal of its data processing
contract for core banking systems with its third party service provider. In
October 1998, Troy Savings converted to that service provider's new platform of
software, hardware and operating systems which have been certified by the vendor
as Year 2000 compliant. Where other subsidiary systems are concerned, Troy
Savings has attempted to obtain all applicable warranties from the vendors or
service providers, and where appropriate, Troy Savings is arranging alternate
service or software providers in the way of contingency planning should the
primary vendor not provide timely and adequate solutions. Troy Savings, however,
does not have any control over the effectiveness of a vendor's systems, and
there can be no assurances that significant third party interfaces upon which
Troy Savings' systems rely will be Year 2000 compliant.
Troy Savings began testing certain in-house systems in October 1998, and
expects to perform all necessary testing of critical core banking systems by the
end of the first quarter of fiscal 1999. The economic cost of the Year 2000
Project includes not only direct incremental amounts expended by Troy Savings
for upgrading or replacing software, systems and equipment, but also the use of
internal resources devoted to the Year 2000 Project that would have otherwise
been devoted to other business opportunities. It is difficult to quantify the
economic costs of internal resources so re-directed.
Troy Savings estimates that it will make direct expenditures for the Year
2000 Project of approximately $2.5 million over the five year period 1996 to
2000. Although many of the hardware and equipment expenditures would have been
made as part of normal operations even without Year 2000, they are included in
the above estimate as the timing of those purchases and upgrades was accelerated
due to the Year 2000 Project. A substantial portion of the upgrades relate to a
new branch automation system which, although not considered by Troy Savings as
mission critical, has been accelerated. While these are estimates, Troy Savings
does not expect the costs of the Year 2000 Project to have a significant impact
on its consolidated financial condition and results of operations. Troy Savings
is currently soliciting contracts from independent information technology
consultants for the purpose of, among other things, verifying and validating
Troy Savings' risk and cost estimates, systems testing and contingency plans. As
of September 30, 1998, Troy Savings has spent approximately $173,000 on Year
2000-related matters.
The potential impact of Year 2000 on Troy Savings' customers, both
borrowers and depositors, has been examined. Troy Savings is aware that if
significant commercial borrowers suffer losses or illiquidity because of their
own Year 2000 problems, including those of others with whom they do business or
on whom they are dependent, Troy Savings may suffer losses from or experience
illiquidity. Troy Savings' standard loan documentation programs were revised to
take into account customers' Year 2000 compliance in evaluating and rating
credit risk. Loan documentation generally includes representations from
borrowers about Year 2000 readiness and provides the right to examine the
borrowers' systems and procedures in order to determine Year 2000 compliance.
Troy Savings believes that its Year 2000 Project will result in its core
banking systems' hardware, software, and firmware being tested and certified as
Year 2000 compliant by the end of the second quarter of fiscal 1999 so as to
ensure continuation of all aspects of its core business processes. For
non-mission critical systems, Troy Savings and its subsidiaries have developed
contingency plans for non-compliant systems. The contingency plans vary with the
affected systems.
Troy Savings is obtaining assurances that its primary vendors, key service
providers, and, as noted above, significant credit customers will also be Year
2000 compliant. Beginning in January 1999 and expected to continue throughout
the year, Troy Savings commenced testing and validating its vendors'
confirmations of Year 2000 compliance, except in situations involving
non-mission critical systems and processes or where contingency plans indicate
less than one day of interruptions before replacement, correction or changes are
possible. In those situations, Troy Savings will rely upon vendors'
confirmations. Troy Savings intends to pursue legal action against vendors in
situations where it is found that such vendors' representations concerning Year
2000 compliance are found to be false. Troy Savings is not aware of any
limitation that would preclude such actions. Contingency plans and alternative
arrangements have been made, or will be made in advance, wherever possible.
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Failure of Troy Savings' mission critical systems could impair the ability
of Troy Savings to do business and service its customers; failure of large or
numerous borrowers to repay their loans could impair Troy Savings' capital;
failure of utilities and the public infrastructure could adversely affect Troy
Savings' operations. Despite Troy Savings' efforts with respect to Year 2000
readiness, including its Year 2000 Project, there can be no assurance that
partial or total systems interruptions or business interruptions or the
associated costs would not have an adverse effect upon Troy Savings' business,
consolidated financial condition, results of operations and business prospects.
IMPACT ON INFLATION AND CHANGING PRICES
Troy Savings' consolidated financial statements are prepared in accordance
with generally accepted accounting principles which require the measurement of
financial condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increasing cost of
Troy Savings' operations. Unlike those of most industrial companies, Troy
Savings' assets and liabilities are nearly all monetary. As a result, interest
rates have a greater impact on Troy Savings' performance than do the effects of
general levels of inflation. In addition, interest rates do not necessarily move
in the direction, or to the same extent, as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1993, the AICPA issued Statement of Position 93-6 ("SOP 93-6"),
"Employers' Accounting for Employee Stock Ownership Plans," which is effective
for years beginning after December 15, 1993. SOP 93-6 requires the measure of
compensation expense recorded by employers for leveraged ESOPs to be the average
fair value of the ESOP shares. In connection with the conversion, Troy Savings
has established an ESOP which is expected to purchase 8% of the number of shares
of common stock sold in the conversion, including shares contributed to the
Charitable Foundation. Under SOP 93-6, Troy Financial will recognize a
compensation cost equal to the average fair value of the ESOP shares during the
periods in which they become committed to be released. Employers with internally
leveraged ESOPs, such as Troy Financial, will not report the loan receivable
from the ESOP as an asset and will not report the ESOP debt from the employer as
a liability. The effects of SOP 93-6 on Troy Financial's future results of
operations and financial condition cannot be determined at this time.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"). This statement establishes financial
accounting standards for stock-based employee compensation plans. SFAS No. 123
permits Troy Financial to choose either a new fair value based method or the
Accounting Principles Board ("APB") Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS No. 123 requires
pro forma disclosures of net income and earnings per share computed as if the
fair value based method had been applied in financial statements of companies
that follow accounting for such arrangements under APB Opinion 25. SFAS No. 123
applies to all stock-based employee compensation plans in which an employer
grants shares of its stock or other equity instruments to employees except for
employee stock ownership plans. SFAS No. 123 also applies to plans in which the
employer incurs liabilities to employees in amounts based on the price of the
employer's stock (e.g., stock option plans, stock purchase plans, restricted
stock plans and stock appreciation rights). This statement also specifies the
accounting for transactions in which a company issues stock options or other
equity for services provided by nonemployees or to acquire goods or services
from outside suppliers or vendors. Troy Financial expects to utilize the
intrinsic value based method prescribed by APB Opinion No. 25. Accordingly, the
impact of adopting this statement will not be material to Troy Financial's
consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
No. 128 establishes standards for computing and presenting earnings per share
("EPS"). This statement supersedes APB Opinion No. 15, "Earnings per Share" and
related interpretations. SFAS No. 128 replaces the presentation of primary EPS
with the presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of
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<PAGE> 67
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period.
Unvested restricted stock awards are considered outstanding common shares and
included in the computation of basic EPS as of the date that they are fully
vested. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Troy Financial will adopt this statement for all financial statements
after the conversion.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which establishes standards for disclosure about an
entity's capital structure. In accordance with SFAS No. 129, companies will be
required to provide in the financial statements a complete description of all
aspects of their capital structure, including call and put features, redemption
requirements and conversion options. The disclosures required by SFAS No. 129
are for financial statements for periods ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income. SFAS No. 130 states that comprehensive income includes the
reported net income of an enterprise adjusted for items that are currently
accounted for as direct entries to equity, such as the mark-to-market adjustment
on securities available for sale, foreign currency items and minimum pension
liability adjustments. This statement is effective for fiscal years beginning
after December 15, 1997. Troy Financial anticipates developing the required
information in accordance with this new statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting by public companies about operating segments of their business. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. This statement is effective for
periods beginning after December 15, 1997. At this time, Troy Financial does not
anticipate that the adoption of this statement will significantly impact its
financial reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post Retirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Post Retirement Benefits Other Than Pensions." SFAS No. 132
standardizes the disclosure requirements of SFAS No. 87 and SFAS No. 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other post retirement benefits. SFAS No. 132 is applicable to
all entities and addresses disclosure only. The statement does not change any of
the measurement or recognition provisions provided for in SFAS No. 87, SFAS No.
88 or SFAS No. 106. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. Troy Financial anticipates providing the required disclosures
in its September 30, 1999 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Troy Financial is currently evaluating the impact of this
statement on its consolidated financial statements.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Enterprise." This statement establishes criteria for
classification of securitized and retained mortgage-backed securities. Troy
Financial is currently evaluating the impact of this statement, which is
effective for fiscal quarters beginning after December 15, 1998, on its
consolidated financial statements.
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<PAGE> 68
BUSINESS OF TROY FINANCIAL CORPORATION
Troy Financial Corporation is a newly formed Delaware corporation that will
register with the Federal Reserve as the bank holding company for Troy Savings.
Troy Financial has not engaged in any significant business to date, and, in the
future, its primary business will be the business of Troy Savings.
Presently, Troy Financial has no plans to own or lease any property, but
will instead use the premises and equipment of Troy Savings. Troy Financial does
not intend to employ any persons other than certain officers of Troy Savings who
will not be separately compensated by Troy Financial. Troy Financial may utilize
the support staff of Troy Savings from time to time, if needed, and additional
employees will be hired as appropriate to the extent Troy Financial expands its
business in the future.
Troy Financial will be subject to regulation and supervision by the Federal
Reserve. See "Business of Troy Financial Corporation" and "Regulation and
Supervision -- Regulation of Troy Financial."
BUSINESS OF THE TROY SAVINGS BANK
GENERAL
The Troy Savings Bank is a community oriented savings bank headquartered in
Troy, New York and was originally chartered in 1823. As a full service financial
institution, Troy Savings places a particular emphasis on residential and
commercial real estate loan products, as well as retail and business banking
products and services. Troy Savings and its subsidiaries also offer a complete
range of trust, insurance and investments services, including securities
brokerage, annuity and mutual funds sales, money management and retirement plan
services, and other traditional investment/brokerage activities to individuals,
families and businesses throughout the six New York State Counties of Albany,
Saratoga, Schenectady, Warren, Washington and Rensselaer, the county in which
Troy, New York is located.
Troy Savings' goal is to be the primary source of financial products and
services for its business and retail customers. Troy Savings' business strategy
is to serve as a community based, full-service financial services firm by
offering a wide variety of business and retail banking products, and trust,
insurance, investment management and brokerage services to its potential and
existing customers throughout its market area. In addition, Troy Financial
intends to establish or acquire a commercial bank and trust company that can
accept municipal deposits to complement Troy Savings' municipal investment
activities. In the future, Troy Savings may open new branches to better serve
its existing customers and to increase its market share, especially in those
areas in which Troy Savings, through Family Mortgage Banking Co., Inc. ("FMB"),
its wholly owned subsidiary, originates residential mortgage loans. Whereas Troy
Savings' strategy since the mid-1980s has been to provide a wide variety of
financial products and services to attract an equally wide variety of customers,
Troy Savings also is now focusing on expanding each customer's relationship by
cross-selling multiple products and services.
Troy Savings delivers its products and services and interacts with its
customers primarily through its 14 branches and 15 proprietary automated teller
machines ("ATMs") and its 24-hour telephone banking service ("Time$aver"). Troy
Savings' branches are staffed by managers, branch operations supervisors and
customer sales and service representatives ("CSSRs") who are trained and
encouraged to market and service Troy Savings' products and services, including
those of Troy Savings' subsidiaries. See "-- Subsidiaries." Currently, Troy
Savings is processing, on average, approximately 25,000 transactions per month
at its ATMs and is handling approximately 2,500 calls monthly through Time$aver.
The typical retail banking customer of Troy Savings is 54 years of age, lives
within Troy Savings' six county market area, and has 1.7 accounts with an
aggregate deposit balance of approximately $13,800.
Troy Savings believes that its relationships to the communities it serves
distinguishes it from competitors, many of which are out-of-market financial
institutions with branches in Troy Savings' market area or local institutions
that have recently been acquired by larger out-of-market institutions. Troy
Savings has served individuals, families and businesses in its six county market
area for over 175 years, and Troy Savings maintains a highly visible role in its
communities by participating in and sponsoring charities and
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<PAGE> 69
charitable events. Many of Troy Savings' employees, including its senior
officers and department managers, serve on civic and community boards. The Troy
Savings Bank Music Hall, located in Troy Savings' headquarters building, hosts
many concerts and other events each year. Troy Savings' four most senior
officers, including the President and Chief Executive Officer, have been with
Troy Savings for a combined 55 years, and have worked in Troy Savings' market
area for over 90 years. Many of Troy Savings' officers have come to work for
Troy Savings after working for its competitors which were acquired by or merged
with out-of-market financial institutions.
Troy Savings is subject to regulation, examination and supervision by the
FDIC and the New York State Banking Department ("NYSBD"), and is a member of the
Federal Home Loan Bank System ("FHLB System"). Troy Savings' deposits are
insured by the FDIC to the maximum extent provided by law.
MARKET AREA
Troy Savings currently operates 14 full service banking offices, including
one branch in a local supermarket, in a six county market. Troy Savings' market
area has a combined population of approximately 900,000 and a median income of
approximately $32,000 according to the 1990 United States Census. Since 1990,
the population has increased by 2.05% and new home construction has increased at
an average annual rate of 14%, although prices of existing homes have generally
been declining in recent years. Albany, the state capital of New York, and
Saratoga, a major tourist area, are located within Troy Savings' market area.
The New York state government employs approximately 53,000 people in Troy
Savings' market area, and the 10 largest employers in Albany and Rensselaer
Counties employ almost 37,000 workers. Troy Savings' market area is located on
many major highway networks offering easy access to the east coast, New England,
the midwest and Canada, and is home to 19 colleges and universities. Since 1994,
the unemployment rate in Troy Savings' market area has decreased from 6.95% to a
current rate of 3.65%.
LENDING ACTIVITIES
Troy Savings focuses its lending activities primarily on the origination of
residential and commercial real estate loans, commercial business loans and
consumer loans. The types of loans that Troy Savings may originate are subject
to federal and state law and regulations. Interest rates charged by Troy Savings
on loans are affected principally by the demand for such loans, the supply of
money available for lending purposes and the rates offered by its competitors.
These factors are, in turn, affected by general and economic conditions,
monetary policies of the federal government, including the Federal Reserve,
legislative tax policies and governmental budget matters. All loan approval
decisions are made locally, by individual loan officers or loan committees,
depending upon the size of the loan, and Troy Savings responds to all loan
requests in a prompt and timely manner.
Loan Portfolio Composition. At September 30, 1998, Troy Savings' loan
portfolio, totaled $465.6 million, or 65.0% of total assets, and consisted
primarily of single family residential mortgage loans and commercial real estate
loans, as well as construction loans, commercial business loans and consumer
loans.
Troy Savings' portfolio of single family residential mortgage loans totaled
$202.5 million, or 43.5% of loans, and 28.3% of total assets, at September 30,
1998, and consisted primarily of fixed rate and adjustable rate loans secured by
detached, single family homes located in Troy Savings' market area, as well as
secured home equity and home improvement loans. As of September 30, 1998, Troy
Savings' largest single family residential mortgage loan had an outstanding
balance of $796,000. The typical residential mortgage loan held by Troy Savings
in its portfolio has an average principal balance of approximately $80,000 and a
loan-to-value ("LTV") ratio of 80%, secured by a detached, single family home.
Troy Savings' commercial real estate loan portfolio totaled $166.2 million,
or 35.7% and 23.2% of Troy Savings' loans, and total assets, respectively, at
September 30, 1998. Approximately 72.3% of the loans are secured by properties
located in Troy Savings' six county market area, and an additional 15.9% are
secured by properties located in the New York City area. Approximately 35.7% of
the properties securing the loans are apartment buildings and cooperatives,
32.9% are office buildings and warehouses and 16.0% are retail buildings. Troy
Savings' commercial real estate loans range in size from $1,000 to $4.5 million,
and the
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<PAGE> 70
median outstanding principal balance at September 30, 1998 was $207,374. The 20
largest commercial real estate loans range in size from $2.3 million to $4.5
million, and Troy Savings had 47 loans with outstanding balances of more than
$1.0 million at September 30, 1998. Troy Savings' largest commercial real estate
exposure at September 30, 1998 involving a single entity was $15.1 million,
excluding a $2.5 million personal line of credit, to a local real estate
developer and related real estate interests with whom Troy Savings has had a
seven year relationship.
Troy Savings' commercial business loan portfolio totaled $45.2 million, or
9.7% of Troy Savings' loans, and 6.3% of total assets, at September 30, 1998,
and includes fixed rate loans and adjustable rate lines of credit to a diverse
customer base which includes manufacturers, wholesalers, retailers, service
providers, educational institutions and government funded entities. Troy
Savings' commercial business loans range in size from $1,000 to $2.5 million,
with a median principal balance outstanding of $25,000 as of September 30, 1998.
Troy Savings' 20 largest commercial business loans at that date range in terms
of total exposure, including outstanding balances and unfunded commitments, from
$1.2 million to $8.0 million.
Troy Savings' consumer loan portfolio totaled $42.0 million, or 9.0% of
Troy Savings' loans, and 5.9% of total assets, at September 30, 1998. Troy
Savings' consumer loan portfolio includes home equity lines of credit, fixed
rate consumer loans, overdraft protection and Creative Loans, which start with a
modest below market interest rate that increases each year. Troy Savings' home
equity lines of credit and Creative Loans represented 20.4% and 31% of Troy
Savings' consumer loan portfolio, respectively, at September 30, 1998.
The following table sets forth the composition of Troy Savings' loan
portfolio, excluding loans held for sale, in dollar amounts and percentages of
the respective portfolios at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential mortgage................ $202,511 43.50% $214,638 45.23% $204,879 44.92%
Commercial.......................... 166,186 35.69 184,561 38.89 191,624 42.01
Construction........................ 10,052 2.16 15,508 3.27 12,999 2.85
-------- ------ -------- ------ -------- ------
Total real estate loans........ 378,749 81.35 414,707 87.39 409,502 89.78
Commercial business loans............... 45,156 9.70 29,961 6.31 24,762 5.43
Consumer loans:
Home equity lines of credit......... 8,575 1.84 9,883 2.08 9,387 2.06
Other consumer...................... 33,445 7.18 20,539 4.33 13,159 2.88
-------- ------ -------- ------ -------- ------
Total consumer loans........... 42,020 9.02 30,422 6.41 22,546 4.94
Net deferred loan fees and unearned
discount.............................. (344) (0.07) (501) (0.11) (684) (0.15)
-------- ------ -------- ------ -------- ------
Total loans.................... 465,581 100.00% 474,589 100.00% 456,126 100.00%
======== ====== ======== ====== ======== ======
Less:
Allowance for loan losses........... (8,260) (6,429) (4,304)
-------- -------- --------
Total loans receivable, net.... $457,321 $468,160 $451,822
======== ======== ========
</TABLE>
45
<PAGE> 71
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------
1995 1994
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
Residential mortgage................................... $193,720 46.92% $175,769 45.53%
Commercial............................................. 171,830 41.61 170,744 44.23
Construction........................................... 9,354 2.27 5,949 1.54
-------- ------ -------- ------
Total real estate loans........................... 374,904 90.80 352,462 91.30
Commercial business loans.................................. 19,038 4.61 16,046 4.16
Consumer loans:
Home equity lines of credit............................ 8,620 2.09 10,144 2.63
Other consumer......................................... 11,140 2.69 8,133 2.11
-------- ------ -------- ------
Total consumer loans.............................. 19,760 4.78 18,277 4.74
Net deferred loan fees and unearned discount............... (790) (0.19) (767) (0.20)
-------- ------ -------- ------
Total loans....................................... 412,912 100.00% 386,018 100.00%
======== ====== ======== ======
Less:
Allowance for loan losses.............................. (4,297) (4,190)
-------- --------
Total loans receivable, net....................... $408,615 $381,828
======== ========
</TABLE>
The following table sets forth, at September 30, 1998, the dollar amount of
all loans in Troy Savings' portfolio, excluding loans held for sale, and
contractually due after September 30, 1999, and whether such loans have fixed or
adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER
SEPTEMBER 30, 1999
----------------------
AMOUNT PERCENT
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed:
Residential mortgage................................... $126,805 31.57%
Commercial mortgage.................................... 82,320 20.50
Construction........................................... 3,643 .91
-------- ------
Total real estate loans........................... 212,768 52.98
Commercial business.................................... 15,804 3.94
Consumer:
Home equity lines of credit............................ -- --
Other consumer......................................... 20,009 4.98
-------- ------
Total consumer.................................... 20,009 4.98
-------- ------
Total fixed rate loans...................................... 248,581 61.90
Adjustable:
Residential mortgage................................... 74,949 18.67
Commercial mortgage.................................... 44,613 11.11
Construction........................................... -- --
-------- ------
Total real estate loans........................... 119,562 29.78
Commercial business.................................... 12,452 3.10
Consumer:
Home equity lines of credit............................ 8,575 2.14
Other consumer......................................... 12,376 3.08
-------- ------
Total consumer.................................... 20,951 5.22
Total adjustable rate loans................................. 152,965 38.10
-------- ------
Total loans................................................. $401,546 100.00%
======== ======
</TABLE>
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<PAGE> 72
Loan Maturity and Repricing. The following table shows the contractual
maturities of Troy Savings' loan portfolio at September 30, 1998. The table does
not include loans held for sale, prepayments or scheduled principal
amortization.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
REAL ESTATE LOANS HOME
--------------------------------------- EQUITY
RESIDENTIAL COMMERCIAL LINES OTHER
MORTGAGE COMMERCIAL CONSTRUCTION BUSINESS OF CREDIT CONSUMER TOTAL
----------- ---------- ------------ ---------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year................. $ 757 $ 39,253 $ 6,409 $16,900 $ -- $ 1,060 $ 64,379
After one year:
More than one year to five
years......................... 4,221 59,451 3,463 15,092 8,575 31,988 122,790
More than five years to ten
years......................... 18,403 42,697 180 8,587 -- 347 70,214
More than ten years to twenty
years......................... 52,035 24,592 -- 4,527 -- 50 81,204
More than twenty years.......... 127,095 193 -- 50 -- -- 127,338
-------- -------- ------- ------- ------ ------- --------
Total due after September
30, 1999.................. 201,754 126,933 3,643 28,256 8,575 32,385 401,546
-------- -------- ------- ------- ------ ------- --------
Total amount due.......... $202,511 $166,186 $10,052 $45,156 $8,575 $33,445 $465,925
======== ======== ======= ======= ====== ======= ========
Less:
Net deferred loan fees and
unearned discount............. (344)
Allowance for loans losses...... (8,260)
--------
Loans receivable, net......... $457,321
========
</TABLE>
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<PAGE> 73
Loan Originations and Sales. The following table sets forth Troy Savings'
loan originations, sales and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
HOME
REAL ESTATE EQUITY
--------------------------------------- COMMERCIAL LINE OF OTHER
RESIDENTIAL COMMERCIAL CONSTRUCTION BUSINESS CREDIT CONSUMER
----------- ---------- ------------ ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance as of September 30, 1995................. $199,557 $171,830 $ 9,354 $ 19,038 $ 8,620 $ 11,140
Add: Loan originations, other advances, and
purchases.................................. 47,928 25,443 18,692 51,975 1,291 6,435
Less: Principal repayments, sales,
charge-offs, transfers to OREO and other
reductions................................. (41,135) (5,649) (15,047) (46,251) (524) (4,416)
-------- -------- -------- -------- ------- --------
Balance as of September 30, 1996................. 206,350 191,624 12,999 24,762 9,387 13,159
Add: Loan originations, other advances, and
purchases.................................. 36,080 30,566 24,407 51,206 997 17,613
Less: Principal repayments, sales,
charge-offs, transfers to OREO and other
reductions................................. (24,089) (37,629) (21,898) (46,007) (501) (10,233)
-------- -------- -------- -------- ------- --------
Balance at September 30, 1997.................... 218,341 184,561 15,508 29,961 9,883 20,539
Add: Loan originations, other advances, and
purchases.................................. 79,360 27,432 24,662 78,619 507 19,987
Less: Principal repayments, sales,
charge-offs, transfers to OREO and other
reductions................................. (84,094) (45,807) (30,118) (63,424) (1,815) (7,081)
-------- -------- -------- -------- ------- --------
Balance at September 30, 1998.................... $213,607 $166,186 $ 10,052 $ 45,156 $ 8,575 $ 33,445
======== ======== ======== ======== ======= ========
<CAPTION>
NET
DEFERRED FEES
AND UNEARNED TOTAL
SUBTOTAL DISCOUNTS LOANS(1)
--------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of September 30, 1995................. $ 419,539 $(790) $ 418,749
Add: Loan originations, other advances, and
purchases.................................. 151,764 -- 151,764
Less: Principal repayments, sales,
charge-offs, transfers to OREO and other
reductions................................. (113,022) -- (113,022)
--------- ----- ---------
Balance as of September 30, 1996................. 458,281 (684) 457,597
Add: Loan originations, other advances, and
purchases.................................. 160,869 -- 160,869
Less: Principal repayments, sales,
charge-offs, transfers to OREO and other
reductions................................. (140,357) -- (140,357)
--------- ----- ---------
Balance at September 30, 1997.................... 478,793 (501) 478,292
Add: Loan originations, other advances, and
purchases.................................. 230,567 -- 230,567
Less: Principal repayments, sales,
charge-offs, transfers to OREO and other
reductions................................. (232,339) -- (232,339)
--------- ----- ---------
Balance at September 30, 1998.................... $ 477,021 $(344) $ 476,677
========= ===== =========
</TABLE>
- ---------------
(1) Total loans include loans held for sale of $11.1 million, $3.7 million, $1.5
million and $5.8 million for fiscal years 1998, 1997, 1996 and 1995,
respectively.
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<PAGE> 74
Troy Savings generally does not purchase loans from other financial
institutions. Troy Savings does, however, sell or enter into commitments to sell
certain of its fixed rate mortgage loans to FreddieMac, as well as to other
parties. Historically Troy Savings has generally sold substantially all of its
15- and 30-year conforming fixed rate mortgage loans into the secondary mortgage
market. During 1998 and 1997 Troy Savings sold $44.5 million and $13.4 million
of mortgage loans into the secondary mortgage market. In late fiscal 1998, Troy
Savings began to hold in its loan portfolio certain 15-year fixed rate mortgage
loans. In order to reduce the interest rate risk associated with mortgage loans
held for sale, as well as outstanding loan commitments and uncommitted loan
applications with rate lock agreements which are intended to be held for sale,
Troy Savings enters into formal commitments to sell loans in the secondary
market, and may also enter into option and delivery agreements. Troy Savings
typically retains servicing rights on loans sold in order to generate fee
income. As of September 30, 1998, Troy Savings was servicing mortgage loans for
others, with an aggregate outstanding principal balance of $195.7 million.
The following is a more detailed discussion of Troy Savings' current
lending practices.
Single family Residential Lending. During the year ending September 30,
1998, Troy Savings originated $79.4 million of single family residential real
estate loans. Substantially all of Troy Savings' residential mortgage loans were
originated through FMB, Troy Savings' mortgage banking subsidiary. FMB currently
employs six loan counselors who are responsible for developing Troy Savings'
mortgage business by meeting with referrals, networking with representatives of
the local real estate industry and sponsoring home buying seminars. In addition,
Troy Savings' CSSRs are trained to refer potential mortgage customers to FMB.
Although FMB meets with applicants and assists with the application process,
Troy Savings handles the processing, underwriting, funding and closing of all
residential mortgage loans. The single family residential mortgage loans not
originated through FMB generally are originated through independent mortgage
brokers or by Troy Savings.
Troy Savings currently offers a variety of fixed rate and adjustable rate
("ARMs") mortgage loans secured by one- to four-family residences located in
Troy Savings' six county market area. Troy Savings offers mortgage loans that
conform to FreddieMac guidelines, as well as jumbo loans (presently loans in
amounts over $227,150) and loans with other non-conforming features. Troy
Savings will underwrite a single family residential mortgage loan with an LTV
ratio of up to 95% with private mortgage insurance, and Troy Savings' fixed rate
mortgages generally have maturities of 10 to 30 years.
Troy Savings offers a variety of ARM programs based on market demand. Troy
Savings generally amortizes an ARM over 30 years. On select ARMs, Troy Savings
offers a conversion option, whereby the borrower, at his or her option, can
convert the loan to a fixed interest rate after a predetermined period of time,
generally 10 to 57 months. Interest rates are generally adjusted based on a
specified margin over the Constant Treasury Maturity Index. Interest rate
adjustments on such loans are limited to both annual adjustment caps and a
maximum adjustment over the life of the loan. The origination of ARMs, as
opposed to fixed rate loans, helps to reduce Troy Savings' exposure to increases
in interest rates. During periods of rising interest rates, however, ARMs may
increase credit risks not inherent in fixed rate loans, primarily because, as
interest rates rise, the underlying payments of the borrower rise, thereby
increasing the potential for default. The annual and lifetime adjustable caps do
however help to reduce such risks. The volume and type of ARMs originated
through FMB are affected by numerous market factors, including the level of
interest rates, competition, consumer preferences and the availability of funds.
At September 30, 1998, Troy Savings held $78.6 million of ARMs in its loan
portfolio, most of which were one-year ARMs.
Single family residential loans are generally underwritten according to
FreddieMac guidelines. Troy Savings requires borrower's who obtain mortgage
loans with an LTV ratio greater than 80% to obtain private mortgage insurance in
an amount sufficient to reduce Troy Savings' exposure to not more than 80% of
the lower of the purchase price or appraised value. In addition, Troy Savings
requires escrow accounts for the payment of taxes and insurance if the LTV ratio
exceeds 80%, but will permit borrowers to request an escrow account waiver if
the LTV ratio is less than 80%. Substantially all mortgage loans originated by
Troy Savings include due-on-transfer clauses which provide Troy Savings with the
contractual right to deem the loan immediately due and payable, in most
instances, if the borrower transfers ownership of the property without
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<PAGE> 75
Troy Savings' consent. Troy Savings' staff underwriters have authority to
approve loans in amounts up to $227,150. Loans between $227,150 and $1.0 million
require the approval of Troy Savings' Commercial Mortgage Credit Committee, and
loans in excess of $1.0 million require the approval of the Board of Trustee's
Loan Committee.
In an effort to help low and moderate income home buyers in Troy Savings'
communities, Troy Savings participates in residential mortgage programs and
products sponsored by the State of New York Mortgage Agency ("SONYMA") and the
Federal Housing Authority ("FHA"). SONYMA and FHA mortgage programs provide low
and moderate income households with smaller down payment and below-market loans.
Troy Savings typically sells the SONYMA loans back to SONYMA for sale in the
secondary market. Troy Savings is also a charter member of the Capital District
Affordable Housing Partnership, a local lending consortium which makes mortgage
funds available to home buyers who are unable to obtain conventional financing.
Troy Savings participates in the Capital District Community Loan and the FHLB
Home Buyer's Club. In the past five years, Troy Savings has also made available
to low-to-moderate income first-time home buyers over $15 million of
conventional no down payment mortgages for its loan portfolio.
To complement Troy Savings' portfolio of residential mortgage loan
products, Troy Savings also originates fixed rate home equity mortgage loans,
ranging in size from $7,000 to $100,000. These loans are secured by a first or
second mortgage on the owner-occupied property. During fiscal 1998, Troy Savings
originated $2.8 million of home equity mortgage loans. As of September 30, 1998,
the average size of Troy Savings' outstanding home equity mortgage loans in its
residential mortgage loan portfolio was $20,000.
Construction Lending. Troy Savings offers residential construction loans
to individuals who are constructing their own homes in Troy Savings' market
area. Generally, the builders utilized by Troy Savings' construction loan
borrowers are ones with whom Troy Savings is familiar and has a long-standing
relationship. Troy Savings' loan administration group monitors the periodic
disbursements of all construction loans, and before advances are made Troy
Savings' independent appraisers provide reports comparing the progress of the
construction to the preconstruction schedule. In many cases, Troy Savings
converts construction loans to traditional residential or commercial mortgage
loans, as the case may be, following completion of construction. As a result,
Troy Savings would report such loans as residential or commercial mortgage
loans, respectively. During the year ended September 30, 1998, Troy Savings
originated $24.7 million of construction loans. As of September 30, 1998, Troy
Savings had $10.1 million of commercial construction loans outstanding, or 2.16%
of Troy Savings' loans, and 1.4% of total assets.
Troy Savings' construction loans generally have terms of up to six months,
and require payments of interest only. If construction is not completed on
schedule, Troy Savings charges the borrower additional fees in connection with
an extension of the loan. Troy Savings' staff underwriters have approval
authority of up to $227,150. Loans in excess of $227,150 require approval of the
Commercial Mortgage Credit Committee, and loans in excess of $1.5 million
require approval of the Loan Committee of the Board of Trustees. Troy Savings
will not make construction loans in excess of $1.5 million, or greater than 95%
of the estimated cost of construction.
Construction lending generally involves greater credit risk than permanent
financing on owner-occupied real estate. The risk of loss is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction, compared to the estimated cost, including interest, of
construction, and the ability of the builder to complete the project. If the
estimate of the value proves to be inaccurate, then Troy Savings may be
confronted with a project that, when completed, has a value which is
insufficient to assure full repayment of the loan.
Troy Savings also makes construction loans on commercial real estate
projects where the borrowers are well known to Troy Savings, have the necessary
liquidity and financial capacity to support the projects through to completion,
and where the source of permanent financing, either Troy Savings or another
institution, can be verified. All commercial real estate construction lending is
done on a recourse basis. At September 30, 1998, Troy Savings had $10.1 million
in outstanding commercial real estate construction loans.
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<PAGE> 76
Commercial Real Estate Lending. Troy Savings originates commercial real
estate loans primarily in its six county market area, as well as New York City
and upstate New York, and to a lesser extent in other states. Approximately
15.9%, 2.8% and 9.0% of Troy Savings' commercial real estate loans are secured
by real estate located in New York City (primarily Manhattan, Brooklyn and the
Bronx), upstate New York and states other than New York, respectively. At
September 30, 1998, Troy Savings' commercial real estate loan portfolio by
sector is as follows: 35.7% in apartment buildings and cooperatives; 32.9% in
office and warehouse buildings; 16.0% in retail buildings; 2.8% in not for
profits; 4.7% in the hospitality industry (hotels and motels); and 7.9% in other
property types.
The volume of Troy Savings' commercial real estate lending has been
relatively consistent over the last three years. Troy Savings has originated
$27.4 million, $30.5 million, and $25.4 million of new loans in fiscal years
1998, 1997 and 1996, respectively. As part of Troy Savings' commercial real
estate lending marketing effort, Troy Savings' commercial real estate loan
officers call on prospective borrowers, follow-up on branch walk-ins and
referrals and interact with representatives of the local real estate industry.
In addition to developing business, Troy Savings' commercial real estate
loan officers are responsible for the underwriting of commercial real estate
loans. Troy Savings' underwriting standards focus on a review of the potential
borrower's cash flow, LTV ratios and rent-rolls, as well as the borrower's
leverage and working capital ratios, the real estate securing the loan, personal
guarantees and the borrowers' other on-going projects. In general, Troy Savings
seeks to underwrite loans with an LTV ratio of 75% or less, although under
certain circumstances it will accept an LTV ratio of up to 90%.
Troy Savings assigns each commercial real estate loan a risk rating which
focuses on the loan's risk of loss. Following the loan officer's initial
underwriting and preparation of a credit memorandum, the loan file is reviewed
by the Vice President and Director of Commercial Real Estate Lending who then
has authority to approve the loan if the loan amount is less than $100,000, in
the case of unsecured loans, and less than $227,150, in the case of loans
secured by commercial real estate. Unsecured loans between $100,000 and $1.5
million and secured loans between $227,000 and $1.5 million require approval of
Troy Savings' Commercial Mortgage Credit Committee. All loans in excess of $1.5
million require approval of the Loan Committee of the Board of Trustees.
The commercial real estate loan officers are also responsible for
monitoring Troy Savings' portfolio of commercial real estate loans on an
on-going basis, which includes reviewing annual financial statements,
verification that loan covenants have not been violated and property
inspections. In addition, Troy Savings employs an annual review process in which
an outside consultant, who was previously the director of commercial lending for
a large New York commercial bank, reviews 75% to 80% of Troy Savings' commercial
real estate portfolio to confirm Troy Savings' assigned risk rating and to
review Troy Savings' overall monitoring of the loan portfolio.
Commercial Business Lending. Since 1993, Troy Savings has actively sought
to originate commercial business loans in its market area. During the year-ended
September 30, 1998, Troy Savings originated $50.9 million commercial business
loans. Troy Savings' commercial loans generally range in size up to $2.5
million, and all of the borrowers are located within Troy Savings' market area.
Troy Savings offers both fixed rate loans, with terms ranging from three to
seven years, and adjustable rate lines of credit. As of September 30, 1998, 44%
of Troy Savings' outstanding commercial loan portfolio consisted of variable
rate loan products. As a general rule, Troy Savings sets the interest rates on
its loans based on Troy Savings' prime rate or other index rates, plus a
premium, and its variable-rate loans reprice at least every 90 days. Troy
Savings' commercial loans includes loans used for equipment financing, working
capital and accounts receivable, and some of Troy Savings' outstanding loans are
to a diverse customer base which includes manufacturers, wholesalers, retailers,
service providers, educational institutions and government funded entities.
Troy Savings solicits commercial loan business through its commercial loan
officers who call on potential borrowers and follow-up on referrals from other
Bank employees. The commercial loan officers market Troy Savings' commercial
loan products by focusing on Troy Savings' competitive pricing, Troy
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<PAGE> 77
Savings' reputation for service and Troy Savings' ties to the local business
communities. In many cases, Troy Savings' senior management, including the
President, will meet with prospective borrowers.
Troy Savings also has a small business lending program whereby Troy Savings
lends money to small, locally owned and operated businesses. During the
year-ending September 30, 1998, Troy Savings originated 146 new small business
loans of up to $50,000, and as of September 30, 1998, Troy Savings had over $2.3
million of such loans outstanding. Many of Troy Savings' small business loans
are secured by cash collateral or marketable securities or are guaranteed by the
Small Business Administration.
In addition to developing business, Troy Savings' commercial loan officers
are responsible for the underwriting of the commercial loans and the monitoring
of the ongoing relationship between the borrower and Troy Savings. Following the
loan officer's initial underwriting and preparation of a credit memorandum, the
potential loan is reviewed by the Vice President and Director of Commercial
Lending who then has authority to approve the loan if the loan amount is less
than $100,000. Loans between $100,000 and $1.0 million require approval of Troy
Savings' Commercial Loan Credit Committee, and loans in excess of $1.0 million
require approval of the Loan Committee of the Board of Trustees. Troy Savings'
underwriting standards focus on a review of the potential borrower's cash flow,
as well as the borrower's leverage and working capital ratios. To a lesser
extent, Troy Savings will consider the collateral securing the loan and whether
there is a personal guarantee on the loan.
To assist with the initial underwriting and ongoing maintenance of Troy
Savings' commercial loans, Troy Savings employs the same risk rating system as
is used by Troy Savings' commercial real estate loan department. See
"-- Commercial Real Estate Lending." At the time a loan is initially
underwritten, as well as every time a loan is reviewed, Troy Savings assigns a
risk rating.
Troy Savings monitors its commercial loan portfolio by closely watching all
loans with a risk rating which indicates certain adverse factors, such as debt
ratios or cash flow issues. In addition, Troy Savings receives delinquency
reports beginning on the 10th of every month. If a loan payment is more than 20
days late, then the commercial loan officer begins active loan management, which
initially will include calling the borrower or sending a written notice.
Moreover, because Troy Savings' lines of credit expire every 12 months, or five
months after the borrower's fiscal year end, and the borrower is required to
renew the line of credit at such time, Troy Savings, in effect, reunderwrites
the loan annually. Because a term loan often includes a line of credit, the
status of the borrower and loan is reviewed annually because of the line of
credit review. In all reviews, Troy Savings analyzes the borrower's most current
financial statements, and in some cases will visit the borrower or inspect the
borrower's business and properties.
Other Consumer Lending. In addition to Troy Savings' residential mortgage
and construction loans, Troy Savings offers a variety of other consumer credit
products, including home equity lines of credit, variable rate or Creative
Loans, fixed rate consumer loans and overdraft protection. The objective of Troy
Savings' consumer lending program is to maintain a profitable loan portfolio and
to serve the credit needs of Troy Savings' customers and the communities in
which it does business, while providing for adequate liquidity, diversification
and safe and sound banking practices.
Troy Savings offers home equity lines of credit in amounts up to $100,000.
The home equity lines of credit have fixed interest rates and are available only
if the LTV ratio is less than 80%. Troy Savings' Creative Loans begin with a
modest below market interest rate which increases each year, and are generally
secured by personal property and do not carry prepayment penalties. The average
balance on Troy Savings' Creative Loans for fiscal 1998 was $13.8 million.
Troy Savings' fixed rate consumer loans are typically made to finance the
purchase of new or used automobiles. In such cases, Troy Savings offers 100%
financing on new automobiles with terms available up to 60 months and 80%
financing on used automobiles with loan terms dependent upon the year of
vehicles. Troy Savings also offers unsecured lines of credit (overdraft
protection) to credit qualified depositors who maintain checking accounts with
Troy Savings. In addition to covering overdrafts on checking accounts, these
unsecured lines of credit are accessible to borrowers from ATMs throughout the
world.
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<PAGE> 78
Troy Savings markets its consumer credit products through its branches,
local advertisements and direct mailings. Applications can be completed at any
branch of Troy Savings, and in most cases, Troy Savings will respond to a
customer's completed credit application within 24 hours, including the funding
of the loan if the borrower is approved. Individual authority to approve
consumer loans varies by the amount of the loan and whether it is real estate
related. Consumer loans are underwritten according to Troy Savings' Consumer
Loans Underwriting practices, and loan approval is based primarily on review of
the borrower's employment status, credit report and credit score.
Loan Review. As part of the portfolio monitoring process, all commercial
business loans, regardless of size, and all commercial real estate loans over
$750,000 are subjected to an annual detailed loan review process. All classified
loans (see below) in both portfolios are subjected to this process quarterly.
Current financial information is analyzed and the loan rating is evaluated to
determine if it still accurately represents the level of risk posed by the
credit. These reviews are then reviewed by an outside consultant who opines on
the reasonability of the loan officers' conclusions with respect to the loan's
risk rating and the related allowance for loan loss, if any. For the classified
loans, these quarterly reviews and review by the consultant are complemented by
a quarterly loan officers' meeting with the consultant and Troy Savings' Chief
Credit Officer. The conclusions reached at these meetings become an integral
part of the quarterly analysis of loan loss reserve adequacy.
Delinquent Loans. It is the policy of the management of Troy Savings to
monitor Troy Savings' loan portfolio to anticipate and address potential and
actual delinquencies. The procedures taken by Troy Savings vary depending on the
type of loan.
With respect to single family residential mortgage loans and consumer
loans, when a borrower fails to make a payment on the loan, Troy Savings takes
immediate steps to have the delinquency cured and the loan restored to current
status. On the 15th of every month, the Credit Administration Department runs
delinquency reports. Troy Savings' collection manager and her staff then contact
the borrower by telephone to ascertain the reason for the delinquency and the
prospects of repayment. Written notices are also sent at that time. The borrower
is again contacted by telephone on the 20th and 26th of the month if payment has
not been received. After 30 days another notice is sent and the borrower is
reported as delinquent. The Credit Administration Department continues to call
the borrower, and if payment has not been received by the 60th day, then another
notice is sent informing the borrower that the loan must be brought current
within the next 30 days or foreclosure proceedings will be commenced. Generally,
Troy Savings does not accrue interest on loans more than 90 days past due. Troy
Savings' procedures for single family residential loans which have previously
been sold by Troy Savings but which Troy Savings currently services are
identical during the first 60 days. After 60 days, Troy Savings follows the
FreddieMac or applicable investor guidelines and timeframes regarding delinquent
loan accounts.
With respect to commercial real estate and commercial business loans, the
Credit Administration Department delivers delinquency reports to the respective
departments beginning on the 10th of every month. If a loan payment is more than
20 days late, then the loan officer begins active loan management.
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<PAGE> 79
The following table sets forth Troy Savings' delinquent loans at the dates
indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------------- -------------------------------------------
60-89 90 DAYS OR MORE 60-89 90 DAYS OR MORE
-------------------- -------------------- -------------------- --------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential mortgage............ 10 $ 710 42 $ 2,811 20 $1,500 36 $ 1,850
Commercial mortgage............. 2 342 8 6,194 2 2,027 9 4,004
Construction.................... -- -- -- -- -- -- -- --
-- ------ -- -------- -- ------ -- --------
Total real estate loans.... 12 1,052 50 9,005 22 3,527 45 5,854
-- ------ -- -------- -- ------ -- --------
Commercial business................. 3 11 5 215 -- -- 7 1,017
Consumer loans:
Home equity lines of credit..... -- -- 7 245 -- -- 4 180
Other consumer.................. 3 9 14 50 -- -- 9 41
-- ------ -- -------- -- ------ -- --------
Total consumer loans....... 3 9 21 295 -- -- 13 221
-- ------ -- -------- -- ------ -- --------
Total loans.............. 18 1,072 76 9,515 22 3,527 65 7,092
== ====== == ======== == ====== == ========
Total delinquent loans to total
loans............................. 2.27% 2.24%
======== ========
Total loans......................... $465,581 $474,589
======== ========
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------
60-89 90 DAYS OR MORE
-------------------- --------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
Residential mortgage............ 12 $ 657 41 $ 2,544
Commercial mortgage............. 3 448 19 7,627
Construction.................... -- -- -- --
-- ------ -- --------
Total real estate loans.... 15 1,105 60 10,171
-- ------ -- --------
Commercial business................. 1 20 10 287
Consumer loans:
Home equity lines of credit..... 3 58 2 98
Other consumer.................. 2 5 3 14
-- ------ -- --------
Total consumer loans....... 5 63 5 112
-- ------ -- --------
Total loans.............. 21 1,188 75 10,570
== ====== == ========
Total delinquent loans to total
loans............................. 2.58%
========
Total loans......................... $456,126
========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------------------------- -------------------------------------------
60-89 90 DAYS OR MORE 60-89 90 DAYS OR MORE
-------------------- -------------------- -------------------- --------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential mortgage............ 22 $1,316 35 $ 2,699 18 $ 780 27 $ 2,125
Commercial mortgage............. 1 37 14 4,854 7 2,454 12 5,097
Construction.................... 1 1,200 1 116 1 1,200 -- --
-- ------ -- -------- -- ------ -- --------
Total real estate loans.... 24 2,553 50 7,669 26 4,434 39 7,222
-- ------ -- -------- -- ------ -- --------
Commercial business................. 3 80 10 548 2 424 17 1,240
Consumer loans:
Home equity lines of credit..... 2 106 -- -- 3 191 -- --
Other consumer.................. 5 26 3 35 2 2 1 --
-- ------ -- -------- -- ------ -- --------
Total consumer loans....... 7 132 3 35 5 193 1 --
-- ------ -- -------- -- ------ -- --------
Total loans.............. 34 2,765 63 8,252 33 5,051 57 8,462
== ====== == ======== == ====== == ========
Total delinquent loans to total
loans............................. 2.67% 3.50%
======== ========
Total loans......................... $412,912 $386,018
======== ========
</TABLE>
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<PAGE> 80
Classified Assets. Troy Savings' classification policies require the
classification of loans and other assets such as debt and equity securities,
considered to be of lesser quality, as "substandard," "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the borrower or of the collateral
pledged, if any. Substandard assets include those characterized by the distinct
possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as "loss" are those considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific loss reserve is not warranted. At September 30,
1998, Troy Savings had classified $15.5 million and $811,000 of assets as
"substandard" and "doubtful," respectively. At such date, Troy Savings did not
have any assets classified as "loss."
At September 30, 1998, Troy Savings had five lending relationships each
with an outstanding principal balance in excess of $1.0 million which had an
internal adverse classification. Each of the classified loans was a commercial
real estate loan and classified as "substandard." A brief description of the
loans follows:
- Two commercial real estate loans to related borrowers. The outstanding
principal balance of these loans is $3.2 million, and the loans are
secured by warehouse industrial property and vacant land located outside
of New York State. The loans are also personally guaranteed.
- A $1.9 million commercial real estate loan secured by a multi-family
residential property located outside of New York State. The property
which secures the loan, prior to the borrower's purchase, was the subject
of Troy Savings' foreclosure proceedings. As of the date of this
prospectus, the loan is current and the borrower is seeking to refinance
with other financial institutions.
- A $2.0 million commercial real estate loan secured by a multi-building
warehouse park in Troy Savings' market area. Monthly payments on this
loan are received late. As of the date of this prospectus, the borrower
is seeking to renegotiate the loan.
- A $1.3 million commercial real estate loan secured by improved land
located in Troy Savings' market area and subdivided into lots intended
for office use. The loan is also personally guaranteed.
- A $1.4 million commercial real estate loan secured by a multi-family
residential apartment project located in upstate New York outside of Troy
Savings' market area. The loan has been delinquent at various times.
In addition to classified assets, Troy Savings also has certain "special
mention" or watch list assets which have characteristics, features or other
potential weaknesses that warrant special attention. At September 30, 1998,
special mention assets totaled $2.4 million, or .33% of total assets.
Non-Performing Assets. It is the policy of Troy Savings to place a loan on
non-accrual status when the loan is contractually past due 90 days or more, or
when, in the opinion of management, the collection of principal and/or interest
is in doubt. At such time, all accrued but unpaid interest is reversed against
current period income and, as long as the loan remains on non-accrual status,
interest is recognized only when received, if considered appropriate by
management. In certain cases, Troy Savings will not classify a loan which is
contractually past due 90 days or more as non-accruing if management determines
that the particular loan is well secured and in the process of collection. In
such cases, the loan is simply reported as "past due." Loans are removed from
non-accrual status when such loans become current as to principal and interest
or when, in the opinion of management, the loans are expected to be fully
collectible as to principal and interest. Troy Savings did not have any loans
classified as 90 days past due and still accruing interest at September 30,
1998. In certain cases, Troy Savings will classify non-performing loans, which
do not fall into the categories of non-accrual or past-due, as troubled debt
restructuring ("TDRs"). TDRs are loans whose repayment criteria have been
renegotiated to below market terms due to the borrowers' inability to repay the
loans in accordance with the loans' original terms. At September 30, 1998, Troy
Savings classified $2.1 million, or .29% of total assets, as TDRs.
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<PAGE> 81
Troy Savings classifies property that it acquires as a result of
foreclosure on a loan or settlement in lieu thereof as other real estate owned
("OREO"). Troy Savings records OREO at the lower of the unpaid principal balance
or fair value at the date of acquisition and subsequently carries it at the
lower of cost or net realizable value. At September 30, 1998, Troy Savings had
$345,000 of OREO resulting from single family residential mortgage loans, and
$1.5 million of OREO resulting from commercial real estate loans.
The following table sets forth the amounts and categories of non-performing
assets at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Real estate loans:
Residential mortgage................ $ 2,900 $ 2,598 $ 3,418 $ 3,676 $ 2,664
Commercial mortgage................. 6,327 3,438 6,613 4,241 4,430
Construction........................ -- 350 516 -- --
------- ------- ------- ------- -------
Total real estate loans........ 9,227 6,386 10,547 7,917 7,094
Commercial business loans.............. 31 33 105 236 810
Home equity lines of credit............ 259 -- -- -- 136
Other consumer loans................... 50 40 17 2 --
------- ------- ------- ------- -------
Total non-accrual loans........ 9,567 6,459 10,669 8,155 8,040
Loans contractually past due 90 days or
more other than non-accruing........... -- -- -- 4 89
Troubled debt restructurings........ 2,081 2,256 1,810 3,602 4,136
------- ------- ------- ------- -------
Total non-performing loans..... 11,648 8,715 12,479 11,761 12,265
Other real estate owned assets:
Residential real estate............. 345 589 622 67 84
Commercial real estate.............. 1,527 2,101 1,903 2,122 4,649
------- ------- ------- ------- -------
Total other real estate
owned........................ 1,872 2,690 2,525 2,189 4,733
Total non-performing assets.... $13,520 $11,405 $15,004 $13,950 $16,998
======= ======= ======= ======= =======
Allowance for loan losses................ $ 8,260 $ 6,429 $ 4,304 $ 4,297 $ 4,190
======= ======= ======= ======= =======
Allowance for loan losses as a percentage
of non-performing loans................ 70.91% 73.77% 34.49% 36.54% 34.16%
======= ======= ======= ======= =======
Non-performing loans as a percentage of
total loans............................ 2.50% 1.84% 2.74% 2.85% 3.18%
======= ======= ======= ======= =======
Non-performing assets as a percentage of
total assets........................... 1.89% 1.72% 2.28% 2.22% 2.80%
======= ======= ======= ======= =======
</TABLE>
For the fiscal years ended 1998, 1997 and 1996, the gross interest income
that would have been recorded had the non-accrual loans been on an accrual basis
or had the rate not been reduced with respect to the loans restructured in
trouble debt restructurings amounted to $591,000, $528,000, and $825,000,
respectively. The amounts included in interest income on these loans were
$411,000, $99,000, and $336,000 for the fiscal years ended 1998, 1997, and 1996,
respectively.
Allowance for Loan Losses. In originating loans, there is a substantial
likelihood that loan losses will be experienced. The risk of loss varies with,
among other things, general economic conditions, the type of loan, the
creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the quality of the collateral securing the loan. In an
effort to minimize loan losses, Troy Savings monitors its loan portfolio by
reviewing delinquent loans and taking appropriate measures. In addition, with
respect to Troy Savings' commercial real estate and commercial business loans,
Troy Savings closely watches all loans with a risk rating that indicates
potential adverse factors. Moreover, on an annual basis, Troy Savings reviews
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<PAGE> 82
borrowers' financial statements, including rent-rolls if appropriate, and in
some cases inspects borrowers' properties, in connection with the annual renewal
of lines of credit. Troy Savings' outside consultant periodically reviews the
credit quality of the loans in Troy Savings' commercial real estate and
commercial business loan portfolios, and, together with Troy Savings' Commercial
Loan Credit Committee, reviews on a quarterly basis all loans over $100,000 with
a risk rating that indicates the loan has certain weaknesses.
Based on management's on-going review of Troy Savings' loan portfolio,
including the risks inherent in the portfolio, historical loan loss experience,
general economic conditions and trends and other factors, Troy Savings maintains
an allowance for loan losses to cover potential loan losses. The allowance for
loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based upon a number of factors,
including the historical loan loss experience, changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific problem
loans, industry trends, and general economic conditions that may affect
borrowers' abilities to pay. Loans are charged against the allowance for loan
losses when management believes that the collectibility of all or a portion of
the principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb losses on existing loans that may become
uncollectible based on evaluation of the collectibility of loans and prior loan
loss experience. Based on information currently known to management, management
considers the current level of reserves adequate to cover potential loan losses,
although there can be no assurance that such reserves will in fact be sufficient
to cover actual losses. At September 30, 1998, Troy Savings' allowance for loan
losses was $8.3 million, or 1.77% of total loans, and 70.91% of non-performing
loans at that date. Net charge-offs during the year ending September 30, 1998
were $2.2 million. As a result of the current level of nonperforming loans and
net charge-offs, as well as consideration of the general economic trends in Troy
Savings' market area, Troy Savings anticipates that the provision for loan
losses will continue in the current range through at least fiscal 1999. There
can be no assurance, however, that such loan losses will not exceed estimated
amounts or that the provision for loan losses will not increase in future
periods. Troy Savings will continue to monitor and modify its allowance for loan
losses as conditions dictate.
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<PAGE> 83
The following table is a summary of the activity in Troy Savings' allowance
for loan losses for the last five years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total loans outstanding (at end of
period).................................. $465,581 $474,589 $456,126 $412,912 $386,018
======== ======== ======== ======== ========
Average total loans outstanding (period to
date).................................... $467,406 $471,779 $432,569 $398,793 $369,669
======== ======== ======== ======== ========
Allowance for loan losses at beginning of
period................................... $ 6,429 $ 4,304 $ 4,297 $ 4,190 $ 2,826
Loan charge-offs:
Residential real estate............... (521) (320) (578) (199) (99)
Commercial real estate................ (1,612) (1,286) (165) (392) (197)
Construction real estate.............. (130) (140) (401) (82) --
Commercial business................... (51) (110) (17) (286) (382)
Home equity lines of credit........... -- -- -- (3) --
Other consumer loans.................. (132) (34) (8) (72) (41)
-------- -------- -------- -------- --------
Total charge-offs................ (2,446) (1,890) (1,169) (1,034) (719)
Loan recoveries:
Residential real estate............... 147 80 92 34 55
Commercial real estate................ 57 13 83 94 59
Construction real estate.............. -- -- 58 -- --
Commercial business................... 4 12 9 9 12
Home equity lines of credit........... -- -- 1 4 --
Other consumer loans.................. 19 10 5 35 27
-------- -------- -------- -------- --------
Total recoveries................. 227 115 248 176 153
Loan charge-offs (net of recoveries)....... (2,219) (1,775) (921) (858) (566)
Provision charged to operations............ 4,050 3,900 928 965 1,930
-------- -------- -------- -------- --------
Allowance for loan losses (at end of
period).................................. $ 8,260 $ 6,429 $ 4,304 $ 4,297 $ 4,190
======== ======== ======== ======== ========
Ratio of net charge-offs during the period
to average loans outstanding during the
period................................... .48% .38% .21% .22% .15%
======== ======== ======== ======== ========
Allowance as a percentage of non-performing
loans.................................... 70.91% 73.77% 34.49% 36.54% 34.16%
======== ======== ======== ======== ========
Allowance as a percentage of total loans
(end of period).......................... 1.77% 1.35% .94% 1.04% 1.09%
======== ======== ======== ======== ========
</TABLE>
58
<PAGE> 84
The following table sets forth Troy Savings' percent of allowance for loan
losses to total allowance and the percent of loans to total loans in each of the
categories listed at the dates indicated. This allocation is based on
management's assessment as of a given point in time of the risk characteristics
of each of the component parts of the total loan portfolio and is subject to
changes as and when the risk factors of each such component part change. The
allocation is neither indicative of the specific amounts or the loan categories
in which future charge-offs may be taken nor is it an indicator of future loss
trends. The allocation of the allowance to each category does not restrict the
use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------ ---------- -------- ------ ---------- -------- ------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLOCATION OF ALLOWANCE FOR
LOAN LOSSES:
Real estate loans:
Residential mortgage... $1,316 15.93% 43.50% $ 878 13.66% 45.23% $ 372 8.64% 44.92%
Commercial mortgage.... 3,964 47.99 35.69 3,240 50.39 38.89 2,624 60.97 42.01
Construction........... 131 1.59 2.16 127 1.98 3.27 149 3.46 2.85
Commercial business
loans.................... 1,503 18.20 9.70 1,275 19.84 6.31 801 18.61 5.43
Home equity lines of
credit................... 31 .37 1.84 31 .48 2.08 31 .72 2.06
Other consumer loans....... 488 5.91 7.18 278 4.32 4.33 96 2.23 2.88
Net deferred loan costs and
unearned discount........ -- -- (.07) -- -- (.11) -- -- (.15)
Unallocated................ 827 10.01 -- 600 9.33 -- 231 5.37 --
------ ----- ----- ------ ----- ----- ------ ----- -----
Total.............. $8,260 100% 100% $6,429 100% 100% $4,304 100% 100%
====== ===== ===== ====== ===== ===== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------ ---------- -------- ------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ALLOCATION OF ALLOWANCE FOR
LOAN LOSSES:
Real estate loans:
Residential mortgage... $ 308 7.17% 46.92% $ 147 3.50% 45.53%
Commercial mortgage.... 2,549 59.32 41.60 2,720 64.92 44.23
Construction........... 458 10.66 2.27 682 16.28 1.54
Commercial business
loans.................... 814 18.94 4.61 530 12.65 4.16
Home equity lines of
credit................... 27 .63 2.09 7 .17 2.63
Consumer and other loans... 83 1.93 2.69 67 1.60 2.11
Net deferred loan costs and
unearned discount........ -- -- (.19) -- -- (.20)
Unallocated................ 58 1.35 -- 37 .88 --
------ ----- ----- ------ ----- -----
Total.............. $4,297 100% 100% $4,190 100% 100%
====== ===== ===== ====== ===== =====
</TABLE>
SECURITIES
Troy Savings separates its securities portfolio into securities available
for sale and investment securities held to maturity. At September 30, 1998, Troy
Savings had $197.8 million, or 27.6% of total assets in securities available for
sale and $3.5 million, or .5% of total assets, in investment securities held to
maturity. These portfolios consist primarily of U.S. government securities and
agency obligations, corporate debt securities, municipal securities,
mortgage-backed securities, mutual funds and equity securities. Troy Financial's
management determines the appropriate classification of securities at the time
of purchase. If management has the positive intent and ability to hold debt
securities to maturity, then they are classified as
59
<PAGE> 85
investment securities held to maturity and are carried at amortized cost.
Securities that are identified as trading account assets for resale over a short
period are stated at fair value with unrealized gains and losses reflected in
current earnings. All other debt and equity securities are classified as
securities available for sale and are reported at fair value, with net
unrealized gains or losses reported, net of income taxes, as a separate
component of equity. At September 30, 1998, Troy Savings did not hold any
securities considered to be trading securities. As a member of the FHLB of New
York, Troy Savings is required to hold FHLB stock which is carried at cost
because the FHLB stock is not marketable and may only be resold to the FHLB of
New York.
Troy Savings' investment policy focuses investment decisions on maintaining
a balance of high quality, diversified investments. In making its investments,
Troy Savings also considers liquidity, the potential need for collateral to be
used for pledging purposes, and earnings. Investment decisions are made by Troy
Savings' Trust and Investment Officer who has authority to purchase, sell or
trade securities qualifying as eligible investments under applicable law and in
conformance with Troy Savings' investment policy. In addition, Troy Savings'
director of municipal finance is authorized to purchase municipal securities for
Troy Savings' portfolio.
Under Troy Savings' investment policy, securities eligible for Troy Savings
to purchase include: U.S. Treasury Obligations, securitized loans from Troy
Savings' loan portfolio, municipal securities, certain corporate obligations,
equity mutual funds, common stock, preferred stock, convertible preferred,
convertible notes and bonds, U.S. governmental agency or agency sponsored
obligations, collateralized mortgage obligations and REMICs, banker's
acceptances and commercial paper, certificates of deposit and federal funds.
The following table sets forth the composition of Troy Savings' securities
available for sale and investment securities held to maturity in dollar amounts
and percentages at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
CARRYING PERCENT CARRYING PERCENT CARRYING PERCENT
VALUE OF TOTAL VALUE OF TOTAL VALUE OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale (fair
value):
U.S. Government securities and
agency obligations........... $117,220 59.27% $ 57,620 49.02% $ 81,053 54.43%
Obligations of states and
political subdivisions....... 51,681 26.13 20,833 17.72 1,548 1.04
Mortgage-backed securities..... 3,744 1.89 4,653 3.96 5,374 3.61
Corporate debt securities...... 16,984 8.59 27,168 23.11 53,959 36.23
Mutual funds and marketable
equity securities............ 4,822 2.44 3,971 3.38 3,704 2.49
Non-marketable equity
securities................... 3,307 1.68 3,307 2.81 3,279 2.20
-------- ------ -------- ------ -------- ------
Total securities available
for sale................ 197,758 100.00% 117,552 100.00% 148,917 100.00%
-------- ------ -------- ------ -------- ------
Investment securities held to
maturity (amortized cost):
U.S. Government securities and
agency obligations........... -- -- -- -- -- --
Mortgage-backed securities..... 1,980 56.85% 2,497 62.42% 3,012 66.71%
Corporate and other debt
securities................... 1,503 43.15 1,503 37.58 1,503 33.29
-------- ------ -------- ------ -------- ------
Total investment
securities held to
maturity................ 3,483 100.00% 4,000 100.00% 4,515 100.00%
-------- ------ -------- ------ -------- ------
Total securities portfolio.......... $201,241 $121,552 $153,432
======== ======== ========
</TABLE>
60
<PAGE> 86
The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of Troy Savings' debt
securities available for sale and investment securities held to maturity
portfolios as of September 30, 1998.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
(fair value):
U.S. Government securities
and agency obligations..... $115,172 5.05% $ 2,000 5.90% $ 48 7.95%
Obligations of states and
political
subdivisions(1)............ 27,656 5.79 23,160 6.22 273 6.34
Mortgage-backed securities... -- -- 365 6.67 1,410 7.10
Corporate debt securities.... 3,024 5.61 13,960 5.55 -- --
-------- ------- ------
Total due................ $145,852 5.21% $39,485 5.92% $1,731 7.01%
======== ======= ======
Investment securities held to
maturity (amortized cost):
Mortgage-backed securities... -- -- -- -- 560 8.20
Corporate debt securities.... -- -- -- -- -- --
-------- ------- ------
Total due................ -- -- -- -- $ 560 8.20%
======== ======= ======
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------------------------
MORE THAN
TEN YEARS TOTAL
------------------- -------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale
(fair value):
U.S. Government securities
and agency obligations..... $ -- --% $117,220 5.07%
Obligations of states and
political
subdivisions(1)............ 592 6.39 51,681 5.99
Mortgage-backed securities... 1,969 7.37 3,744 7.19
Corporate debt securities.... -- -- 16,984 5.56
------ --------
Total due................ $2,561 7.24% $189,629 5.40%
====== ========
Investment securities held to
maturity (amortized cost):
Mortgage-backed securities... 1,420 8.60 1,980 8.49
Corporate debt securities.... 1,503 7.14 1,503 7.19
------ --------
Total due................ $2,923 7.82% $ 3,483 7.92%
====== ========
</TABLE>
- ---------------
(1) Weighted average yields are presented on a tax equivalent basis, using an
assumed tax rate of 35%.
The following is a more detailed discussion of Troy Savings' available for
sale and investment securities held to maturity portfolios.
U.S. Government Securities and Agency Obligations. Troy Savings invests in
U.S. Treasury securities and debt securities issued by government agencies and
government-sponsored agencies such as FannieMae, the FHLBs, GinnieMae and
FreddieMac. At September 30, 1998, Troy Savings' investment in U.S. Treasury
securities totaled $45.2 million, comprised of $10.2 million of U.S. Treasury
Bills with an average yield of 4.59% and $35.0 million of U.S. Treasury Notes
with an average coupon rate of 5.56% and an average yield of 4.84%. At September
30, 1998, all such securities were classified as available for sale. At the same
date, Troy Savings also held, as available for sale, $71.9 million of
non-government guaranteed bonds issued by the FHLB, FreddieMac and FannieMae.
These securities had an average coupon rate and an average yield of 5.55% and
5.24%, respectively, and of these securities which were rated, all had ratings
of "AAA" or higher. Troy Savings' investment policy limits the amount of U.S.
government and agency obligations to 17% of Troy Savings' total assets or
approximately $121.8 million.
Corporate Debt Securities. Troy Savings' corporate debt securities
portfolio, which at September 30, 1998, totaled $18.5 million, and consisted of
general corporate obligations, public utility and telephone bonds. All of Troy
Savings' corporate debt securities were rated "BBB" or higher, and $17.0 million
and $1.5 million were classified as available for sale and held to maturity,
respectively. Troy Savings' investment policy limits the amount of corporate
debt securities to 25% of Troy Savings' Investment Securities portfolio or
approximately $179.2 million.
Municipal Securities. At September 30, 1998, $51.7 million, carrying
value, of Troy Savings' securities consisted of tax exempt municipal bonds and
notes, all of which were classified as available for sale. Of that $51.7
million, $33.2 million were invested in general obligation securities of
jurisdictions in the State of New York, of which $27.8 million represented
relationship investments in 54 separate municipalities, including counties,
cities, school districts, towns, villages and fire districts. In addition, Troy
Savings held $18.5 million in bonds of various municipalities throughout the
United States. Troy Savings' municipal securities have an average maturity of 17
months and a taxable equivalent yield of 5.99% at September 30, 1998. Interest
earned on municipal bonds is exempt from federal and state income taxes, and the
average yield on municipal securities is 50 to 90 basis points higher than that
of U.S. Treasury securities. Troy Savings' investment
61
<PAGE> 87
policy limits the amount of municipal securities to 15% of Troy Savings' total
assets or approximately $107.5 million. Following the conversion, Troy Savings
expects to invest in additional municipal securities.
Equity Securities. At September 30, 1998, Troy Savings' equity securities
portfolio totaled $8.1 million, all of which was classified as available for
sale. The single largest investment in one issuer was $3.2 million of FHLB of
New York common stock, which Troy Savings is required to hold as a member
institution. At September 30, 1998, Troy Savings also had a $4.7 million
investment in Federated mutual funds, consisting of $3.8 million in a Federated
ARMs Fund, which invests primarily in adjustable and floating rate mortgage
securities, and $885,000 in various other Federated mutual funds, which invest
primarily in the common stock of nationally recognized corporations. Troy
Savings' investment policy limits Troy Savings' investments in common and
preferred stock and mutual funds to 3% of Troy Savings' total assets, or $21.5
million. The investment policy presently limits Troy Savings' investment in the
securities of any single issuer to $500,000 and limits an investment in any
stock mutual fund to .75% of total assets ($5.4 million at September 30, 1998).
SOURCES OF FUNDS
Troy Savings' lending and investment activities are primarily funded by
deposits, repayments and prepayments of loans and securities, proceeds from the
sale of loans and securities, proceeds from maturing securities and cash flows
from operations. In addition, Troy Savings borrows from the FHLB of New York to
fund its operations.
Deposits. Troy Savings offers a variety of deposit accounts with a range
of interest rates and terms. Troy Savings' deposit accounts consist of interest
bearing checking, non-interest bearing checking, business checking, regular
savings, money market savings and time deposit accounts. Troy Savings' time
deposit accounts range from three months to five years. In addition, Troy
Savings offers IRAs and Keogh accounts. To enhance its deposit products and
increase its market share, Troy Savings offers overdraft protection and direct
deposit for its retail banking customers and cash management services for its
business customers. In addition, Troy Savings offers a low-cost interest bearing
checking account service to its customers over 55 years of age. Rates on deposit
products are set by Troy Savings' ALCO Committee.
At September 30, 1998, Troy Savings' deposits totaled $578.2 million or
92.1% of interest bearing liabilities. For the year ended September 30, 1998,
the average balance of core deposits, which is defined to include NOW accounts,
money market accounts, savings accounts and non-interest bearing checking
accounts, totaled $321.4 million, or 54.5% of total average deposits. At
September 30, 1998, Troy Savings had a total of $256.7 million in time deposit
accounts, or 44.4% of total deposits, and $194.8 million had maturities of one
year or less. See "Risk Factors -- Interest Rate Sensitivity."
The flow of deposits is influenced significantly by general economic
conditions, changes in interest rates and competition. Troy Savings' deposits
are obtained primarily from the six counties in which Troy Savings' branches are
located. Troy Savings relies primarily on the competitive pricing of its deposit
products and customer service and long-standing relationships to attract and
retain these deposits, although market interest rates and rates offered by
competing financial institutions affect Troy Savings' ability to attract and
retain deposits. Troy Savings uses traditional means of advertising its deposit
products, including local radio and print media, and does not solicit deposits
from outside its market area. In addition, Troy Savings does not use brokers to
obtain deposits, and at September 30, 1998, Troy Savings had no brokered
deposits.
62
<PAGE> 88
The following table sets forth Troy Savings' deposit flow schedule for the
periods indicated.
<TABLE>
<CAPTION>
MONEY NOW/ TIME TOTAL NO.
SAVINGS MARKETS SUPER NOW DEPOSITS DEMAND TOTAL OF ACCOUNTS
-------- ------- --------- -------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF SEPTEMBER 30, 1995......... $209,920 $11,280 $66,498 $249,491 $15,273 $552,462 72,531
Net deposits (withdrawals)........... (8,647) 2,078 1,967 (10,130) 4,319 (10,413)
Interest credited.................... 6,798 379 1,547 13,833 -- 22,557
-------- ------- ------- -------- ------- --------
BALANCE AS OF SEPTEMBER 30, 1996......... 208,071 13,737 70,012 253,194 19,592 564,606 71,458
Net deposits (withdrawals)........... (15,790) (1,049) (161) (48) 1,968 15,080
Interest credited.................... 6,648 433 1,591 14,199 -- 22,871
-------- ------- ------- -------- ------- --------
BALANCE AS OF SEPTEMBER 30, 1997......... 198,929 13,121 71,442 267,345 21,560 572,397 70,185
Net deposits (withdrawals)........... (6,871) (2,156) 3,057 (25,432) 9,556 (17,534)
Interest credited.................... 6,451 431 1,696 14,761 -- 23,339
-------- ------- ------- -------- ------- -------- -------
BALANCE AS OF SEPTEMBER 30, 1998......... $198,509 $15,708 $76,195 $256,674 $31,116 $578,202 70,057
======== ======= ======= ======== ======= ======== =======
</TABLE>
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by Troy Savings as of the dates indicated.
<TABLE>
<CAPTION>
BALANCE AS OF SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997 1996
------------------- ----------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts.................... $198,509 34.33% $198,929 34.75% $208,071 36.85%
Time deposit accounts:
2.00 - 2.99%................... 624 .11 257 0.04 252 0.05
3.00 - 3.99%................... 58 .01 9 -- 3,736 0.66
4.00 - 4.99%................... 10,174 1.76 5,893 1.03 57,153 10.12
5.00 - 5.99%................... 236,312 40.87 246,686 43.10 171,279 30.34
6.00 - 6.99%................... 6,679 1.15 11,762 2.06 18,118 3.21
7.00 - 7.99%................... 2,698 .47 2,578 0.45 2,500 0.44
8.00 - 8.99%................... 12 -- 53 0.01 65 0.01
Over 9.00%..................... 117 02 107 0.02 91 0.02
-------- ----- -------- ----- -------- -----
Total..................... 256,674 44.39 267,345 46.71 253,194 44.85
Money market accounts............... 15,708 2.72 13,121 2.29 13,737 2.43
NOW and Super NOW accounts.......... 76,195 13.18 71,442 12.48 70,012 12.40
-------- ----- -------- ----- -------- -----
Total interest bearing
accounts................ 547,086 94.62 550,838 96.23 545,014 96.53
Demand accounts..................... 31,116 5.38 21,560 3.77 19,592 3.47
-------- ----- -------- ----- -------- -----
Total deposits............ $578,202 100% $572,397 100% $564,606 100%
======== ===== ======== ===== ======== =====
</TABLE>
63
<PAGE> 89
The following table sets forth, by various rate categories, the amount of
Troy Savings' certificate of deposit accounts outstanding by maturities at the
dates indicated.
<TABLE>
<CAPTION>
AMOUNT DUE AT SEPTEMBER 30, 1998
------------------------------------------------------------
ONE YEAR ONE TO TWO TO THREE TO FIVE YEARS
OR LESS TWO YEARS THREE YEARS FIVE YEARS OR MORE TOTAL
-------- --------- ----------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Time deposits accounts:
2.00 - 2.99%............ $ 624 $ -- $ -- $ -- $ -- $ 624
3.00 - 3.99%............ 49 9 -- -- -- 58
4.00 - 4.99%............ 8,376 1,699 99 -- -- 10,174
5.00 - 5.99%............ 183,730 31,437 14,753 6,281 111 236,312
6.00 - 6.99%............ 1,847 4,832 -- -- -- 6,679
7.00 - 7.99%............ -- 2,698 -- -- -- 2,698
8.00 - 8.99%............ 12 -- -- -- -- 12
Over 9.00%.............. 117 -- -- -- -- 117
-------- ------- ------- ------ ---- --------
Total.............. $194,755 $40,675 $14,852 $6,281 $111 $256,674
======== ======= ======= ====== ==== ========
</TABLE>
At September 30, 1998, Troy Savings had outstanding $256.7 million in
certificates of deposit accounts, maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
--------------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NON-JUMBO CDS (LESS THAN $100,000):
Three months or less................................... $ 46,731 5.33%
Over three months through six months................... 59,597 5.22
Over six months through 12 months...................... 59,357 5.39
Over 12 months......................................... 57,540 5.71
--------
Total non-jumbo certificates of deposit........... $223,225 5.41%
========
JUMBO CDS ($100,000 OR MORE):
Three months or less................................... $ 9,510 5.19%
Over three months through six months................... 12,136 5.30
Over six months through 12 months...................... 7,424 5.45
Over 12 months......................................... 4,379 5.97
--------
Total jumbo certificates of deposit............... $ 33,449 5.39%
========
</TABLE>
Borrowings. The principal source of Troy Savings' borrowing is through
FHLB advances and repurchase agreements. The FHLB system functions in a reserve
credit capacity for member savings associations and certain other home financing
institutions. Members of a FHLB are required to own capital stock in the FHLB,
and, at September 30, 1998, Troy Savings owned approximately $3.2 million of
FHLB capital stock. Troy Savings uses FHLB advances as an alternative funding
source to fund its lending activities when it determines that it can profitably
invest the borrowed funds over their term. As of September 30, 1998, Troy
Savings had outstanding FHLB advances of approximately $44.9 million. Such
borrowings had a weighted average interest rate of 5.8% and a weighted average
term of eight years.
At September 30, 1998, Troy Savings also had $2.5 million of borrowed funds
in the form of securities sold under agreements to repurchase at an agreed upon
price and date. Troy Savings generally enters into these agreements only as an
accommodation to its business customers but may utilize this funding source more
often in the future.
TRUST SERVICES
The Trust Department of Troy Savings offers a full range of services,
including living trusts, executor services, testamentary trusts, employee
benefit plan management, custody services and investment
64
<PAGE> 90
management, primarily to corporations, unions and other institutions. The Trust
Department has retained the services of two independent financial services firms
to provide investment advice and to ratify the decisions of the Trust
Department. Operation of the Trust Department is overseen by a Trust Committee
which consists of two trust officers and four members of Troy Savings' board of
trustees who rotate on a semi-annual basis. The Trust Department markets its
services through its trust officers who call on Troy Savings' existing
customers, Troy Savings' CSSRs and branch managers who cross-sell the Trust
Department's services, and free seminars open to the public. As of September 30,
1998, the Trust Department managed over $294.4 million of assets, which includes
$78.3 million over which the Trust Department has discretionary investment
authority. The Trust Department's fee income, which totaled $459,000 for the
year ended September 30, 1998, supplements Troy Savings' rate-sensitive interest
income.
SAVINGS BANK LIFE INSURANCE
Since 1939, Troy Savings, through its Savings Bank Life Insurance
Department ("SBLI"), has been offering a wide variety of low-cost insurance
policies, including whole life, single premium life, senior life and children's
term, to its customers who live or work in the State of New York. New York law
mandates that SBLI activities be segregated from those of Troy Savings and,
while the SBLI does not directly affect Troy Savings' earnings, management
believes that offering SBLI is beneficial to Troy Savings' relationship with its
customers. The SBLI pays its own expenses and reimburses Troy Savings for
expenses incurred on its behalf.
SUBSIDIARY ACTIVITIES
The following are descriptions of Troy Savings' wholly owned subsidiaries,
which, following the conversion, will be indirectly owned by Troy Financial.
The Family Investment Services Co., Inc. The Family Investment Services
Co. ("FISC"), which was incorporated in May 1989, is Troy Savings' wholly owed
full-service brokerage firm, offering a complete range of investment products,
including mutual funds and debt, equity and government securities, on a fee-
per-transaction basis. FISC's goal is to market its products and services to
Troy Savings' existing customers who seek alternatives to traditional financial
institution savings products. As a complement to Troy Savings' municipal
investment activities, FISC intends to begin underwriting general obligation
securities of state and political subdivisions. FISC has two full time employees
who interface with Troy Savings' branches to facilitate referrals from the CSSRs
and branch managers, as well as one officer who assists customers with
investment decisions and trading. As of September 1, 1998, FISC held
approximately $61.3 million of customer assets. FISC is a member of the National
Association of Securities Dealers and is insured by the Securities Insurance
Protection Corporation.
Family Mortgage Banking Co. FMB, which was incorporated in April 1987, is
Troy Savings' wholly owned mortgage banking subsidiary. Troy Savings originates
the majority of its residential real estate and residential construction loans
through FMB.
Other Subsidiaries. Troy Savings has nine other wholly owned subsidiaries:
The Family Advertising Co. is an advertising agency; T.S. Capital has applied to
the Small Business Administration to become a licensed Small Business Investment
Corporation in order to offer small business loans and make investments in small
businesses; The Family Insurance Agency, Inc. is an insurance agency that offers
a full range of life and health insurance products, as well as taxed-deferred
annuities; and T.S. Real Property Inc., Troy SB Real Estate Co., 32 Second
Street, Camel Hill Corporation, 507 Heights Corp. and Realty Umbrella, Ltd. are
all related to the management of, or investment in, Troy Savings' foreclosed or
purchased real estate.
COMPETITION
Troy Savings faces significant competition for both deposits and loans. The
deregulation of the financial services industry and the commoditization of
savings and lending products has led to increased competition among savings
banks and other financial institutions for a significant portion of the deposit
and lending activity that had traditionally been the arena of savings banks and
savings and loan associations. Troy Savings
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competes for deposits with other savings banks, savings and loan associations,
commercial banks, credit unions, money market mutual funds, insurance companies,
brokerage firms and other financial institutions, many of which are
substantially larger in size and have greater financial resources than Troy
Savings.
Troy Savings' competition for loans comes principally from savings banks,
savings and loan associations, commercial banks, mortgage banks, credit unions,
finance companies and other institutional lenders, many of whom maintain offices
in Troy Savings' market area. Troy Savings' principal methods of competition
include providing competitive loan and deposit pricing, personalized customer
service, access to senior management of Troy Savings and continuity of banking
relationships.
Although Troy Savings is subject to competition from other financial
institutions, some of which have much greater financial and marketing resources,
Troy Savings believes it benefits by its position as a community oriented
savings bank with a long history of serving its market area. See "Risk
Factors -- Competition." Management believes that the variety, depth and
stability of the communities which Troy Savings services support the service and
lending activities conducted by Troy Savings.
PROPERTIES
Troy Savings currently conducts its business through 14 full-service
banking offices. The following table sets forth Troy Savings' offices as of
September 30, 1998.
<TABLE>
<CAPTION>
NET BOOK VALUE
ORIGINAL OF PROPERTY OR
YEAR DATE OF LEASEHOLD
LEASED OR LEASED OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION SEPTEMBER 30, 1998
- -------- --------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
HEADQUARTERS:
Troy Office.................................... Owned 1871 N/A $4,505,971(1)
32 Second Street
Troy, NY 12180
BRANCH OFFICES:
Hudson Valley Plaza Office..................... Leased 1983 12/31/05 26,150
75 Vandenburgh Avenue
Troy, NY 12180
East Greenbush Office.......................... Owned 1969 N/A 113,004
615 Columbia Pike
East Greenbush, NY 12061
Albany Office.................................. Owned 1995 N/A 1,743,465
120 State Street
Albany, NY 12207
Watervliet Office.............................. Leased 1983 3/1/03 31,856
1601 Broadway
Watervliet, NY 12189
Latham Office.................................. Leased 1989 6/30/99 407,433
545 Troy-Schenectady Rd
Schenectady, NY 12309
Colonie Office................................. Leased 1994 3/31/07 32,943
103 Wolf Road
Colonie, NY 12205
Guilderland Office............................. Leased 1997 6/9/07 324,790
1704 Western Avenue
Guilderland, NY 12203
</TABLE>
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<TABLE>
<CAPTION>
NET BOOK VALUE
ORIGINAL OF PROPERTY OR
YEAR DATE OF LEASEHOLD
LEASED OR LEASED OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION SEPTEMBER 30, 1998
- -------- --------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
Schenectady Office............................. Owned 1987 N/A 233,496
1626 Union Street
Schenectady, NY 12309
Clifton Park Office............................ Owned 1972 N/A 199,842
Routes 9 and 146
Clifton Park, NY 12065
Clifton Park-Hannaford Office.................. Leased 1995 8/14/00 115,537
9 Clifton Country Road
Clifton Park, NY 12065
Quaker Road Office............................. Owned 1995 N/A 1,713,275
44 Quaker Road
Queensbury, NY 12804
Queensbury Office.............................. Leased 1979 9/30/04 171,449
739 Upper Glen Street
Queensbury, NY 12804
Whitehall Office............................... Owned 1971 N/A 246,247
184 Broadway
Whitehall, NY 12887
</TABLE>
- ---------------
(1) The net book value of the headquarters will be reduced by an estimated
$300,000 upon contribution of the Music Hall to the Music Hall Foundation.
LEGAL PROCEEDINGS
Troy Savings is not a party to, nor is its property the subject of, any
material pending legal proceeding, other than ordinary routine litigation
incidental to the business of Troy Savings.
PERSONNEL
As of September 30, 1998, Troy Savings had 215 full-time employees and 36
part-time employees. The employees are not represented by a collective
bargaining unit, and Troy Savings believes that its relations with its employees
is satisfactory. Troy Savings offers various employee benefits, including
medical, dental and life insurance, and a pension and 401(k) savings plan.
REGULATION AND SUPERVISION
GENERAL
Troy Savings is a New York-chartered mutual savings bank, and its deposit
accounts are insured up to applicable limits by the FDIC under the Bank
Insurance Fund. Troy Savings is subject to extensive regulation by the NYSBD as
its chartering agency, and by the FDIC as the deposit insurer. After the
conversion, Troy Savings will be a New York-chartered stock savings bank with
deposits insured under the Bank Insurance Fund, and will continue to be subject
to extensive regulation by the NYSBD and the FDIC. Except as otherwise indicated
below, the discussion that follows of the regulations that currently apply to
Troy Savings will apply to the same extent to Troy Savings after the conversion.
Troy Savings must file reports with the NYSBD and the FDIC concerning its
activities and financial condition, and it must obtain regulatory approval prior
to entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions and opening or acquiring branch offices. The NYSBD
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and the FDIC conduct periodic examinations to assess Troy Savings' compliance
with various regulatory requirements, and to ascertain the condition of Troy
Savings and ensure that Troy Savings is being operated in a safe and sound
manner. This regulation and supervision is intended primarily for the protection
of the deposit insurance funds and depositors. The regulatory authorities have
extensive discretion in connection with the exercise of their supervisory and
enforcement activities, including the setting of policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Troy Financial, as a bank holding company, also is
required to file certain reports with, and otherwise comply with, the rules and
regulations of the Federal Reserve and the NYSBD and with the rules and
regulations of the Securities and Exchange Commission under the federal
securities laws. Any change in the regulations governing Troy Savings or Troy
Financial, whether by a bank regulatory agency or through legislation, could
have a material adverse impact on Troy Savings and Troy Financial and their
operations and shareholders.
The following is a summary of laws and regulations applicable to Troy
Savings and Troy Financial. The operations of Troy Savings and Troy Financial
may be affected by legislative and regulatory changes as well as by changes in
the policies of various regulatory authorities.
NEW YORK REGULATION OF TROY SAVINGS
Powers. Troy Savings gets its lending, investment and other powers
primarily from provisions of the New York Banking Law and regulations. Under
these laws and regulations, savings banks, including Troy Savings, may invest in
real estate mortgages, consumer and commercial loans, certain types of debt
securities, including certain corporate debt securities and obligations of
federal, state and local governments and agencies, certain types of corporate
equity securities and certain other assets. A savings bank may also exercise
trust powers upon approval of the New York Banking Board. The exercise of these
lending, investment and other powers are limited by federal law and regulations.
See "-- Federal Regulation of Troy Savings" and "-- Activity Restrictions on
State-Chartered Banks."
Community Reinvestment Act. The New York Banking Law, like the provisions
of the federal Community Reinvestment Act ("CRA") discussed below, requires New
York banking institutions to serve the credit needs of its local community ("NY
CRA"). Under the regulations, the NYSBD makes biennial community reinvestment
evaluations of each banking institution and assess each institution's compliance
with the NY CRA. Troy Savings' latest NY CRA rating was "Outstanding."
Dividends. Under the New York Banking Law, Troy Savings will not be able
to declare, credit or pay any dividends if capital stock is impaired or would be
impaired as a result of the dividend. In addition, the New York Banking Law
provides that Troy Savings cannot declare and pay dividends in any calendar year
in excess of its "net profits" for such year combined with its "retained net
profits" of the two preceding years, less any required transfer to surplus or a
fund for the retirement of preferred stock, without prior regulatory approval.
Enforcement. Under the New York Banking Law, the New York Superintendent
of Banks ("New York Superintendent") may issue an order to a New York-chartered
banking institution to appear and explain an apparent violation of law, to
discontinue unauthorized or unsafe practices and to keep prescribed books and
accounts. The New York Superintendent also has authority to take possession of a
New York banking organization under certain circumstances, including when it
appears that the banking organization is conducting its business in an
unauthorized or unsafe manner, is in an unsound or unsafe condition to transact
its business or has an impairment of its capital.
FEDERAL REGULATION OF TROY SAVINGS
Capital Requirements. The FDIC has adopted risk-based minimum capital
regulations for insured state nonmember banks, such as Troy Savings. The
regulations establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
insured depository institutions. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
required for the categories perceived as representing greater risk. State
nonmember banks must maintain a
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minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, and a
minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. Tier 1 capital
includes common equity, certain noncumulative perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and certain other intangible assets (except mortgage servicing rights
and purchased credit card relationships, subject to certain limitations). Total
capital consists of Tier 1 capital plus supplementary (Tier 2) capital which
includes, among other items, cumulative perpetual and long-term, limited-life,
preferred stock, mandatory convertible securities, certain hybrid capital
instruments, term-subordinated debt and the allowance for loan and lease losses,
subject to certain limitations, less required deductions. In addition, insured
state nonmember banks must maintain a ratio of Tier 1 capital to average total
assets (leverage ratio) of at least 3% to 5%, depending on the bank's CAMELS
rating.
Capital requirements higher than these minimum requirements may be
established for a particular bank if the FDIC determines that a bank's capital
is, or may become, inadequate in view of its particular circumstances.
Individual minimum capital requirements may be appropriate if a bank is
receiving special supervisory attention, has a high degree of exposure to
interest rate risk or poses other safety and soundness concerns. Troy Savings
currently is not subject to any individually imposed minimum capital
requirements.
Failure to meet capital guidelines could subject Troy Savings to a variety
of enforcement actions, including issuance of a capital directive, the
termination of deposit insurance, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon banks that fail to meet
applicable capital requirements under the FDIC's prompt corrective action
regulations.
The FDIC assesses Troy Saving's exposure to declines in the economic value
of the bank's capital due to changes in interest rates when assessing the bank's
capital adequacy. Under such a risk assessment, examiners will evaluate Troy
Savings' capital for interest rate risk on a case-by-case basis, with
consideration of both quantitative and qualitative factors. Applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital.
The following table shows Troy Savings' leverage ratio, its Tier 1
risk-based capital ratio, and its total risk-based capital ratio, at September
30, 1998, on a historical basis and a pro forma basis assuming the sale of
shares at the maximum of the estimated price range.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA REQUIRED
--------------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Regulatory Tier 1 leverage capital.......... $70,114 9.89% $107,299 14.38% $29,845 4.0%
Tier 1 risk-based capital................... 70,114 14.02 107,299 20.68 20,755 4.0
Total risk-based capital.......... 76,368 15.27 113,553 21.88 41,509 8.0
</TABLE>
As the preceding table shows, Troy Savings exceeded the minimum capital
adequacy requirements at the date indicated.
Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act generally limits the activities and investments of
state-chartered insured banks and their subsidiaries to those permissible for
federally chartered national banks and their subsidiaries, unless such
activities and investments are specifically exempted by law or the FDIC
determines that such activity or investment would pose no significant risk to
the Bank Insurance Fund. Any bank that held, at the time of passage of Section
24, an impermissible investment or engaged in an impermissible activity and that
did not receive FDIC approval to retain such investment or to continue such
activity was required to submit to the FDIC a plan for divesting of such
investment or activity as quickly and prudently as possible. In connection with
the passage of Section 24, Troy Savings received approval from the FDIC to
retain certain real estate investments until December 31, 1999.
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<PAGE> 95
Enforcement. The FDIC has extensive enforcement authority over Troy
Savings. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease and desist orders and to remove
directors and officers. In general, these enforcement actions may be initiated
in response to violations of laws and regulations and to unsafe or unsound
practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible equity to total assets that is equal to or less than 2%. See
"-- Prompt Corrective Action." The FDIC may also appoint a conservator or
receiver for a state bank on the basis of the institution's financial condition
or upon the occurrence of certain events, including: (i) insolvency; (ii)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound condition
to transact business; (iv) likelihood that a bank will be unable to meet the
demands of its depositors or to pay its obligations in the normal course of
business; and (v) insufficient capital. In the event of any such appointment, it
is likely that stockholders of the institution would not receive anything for
their interests in the institution and such interest ultimately would be
extinguished.
Deposit Insurance. Troy Savings is subject to quarterly payments on
semiannual insurance premium assessments for its FDIC deposit insurance. The
FDIC implements a risk-based deposit insurance assessment system. Deposit
insurance assessment rates currently are within a range of $0.00 to $0.27 per
$100 of insured deposits, depending on the assessment risk classification
assigned to each institution. Under current FDIC assessment guidelines, Troy
Savings expects that it will not incur any FDIC deposit insurance assessments
for the first half of 1999. However, the deposit insurance assessments imposed
by the FDIC are subject to change.
Troy Savings is subject to assessments for the payments on the bonds issued
in the late 1980's to recapitalize the former Federal Savings and Loan Insurance
Corporation. The annual rate of assessments for the payments on the FICO bonds
for the quarter beginning on January 1, 1999 was 1.22 basis points for
BIF-assessable deposits and 6.1 basis points for SAIF-assessable deposits.
FDIC insurance on deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations as an insured bank, or has violated any applicable law,
regulation, rule or order of, or condition imposed by or written agreement
entered into with the FDIC.
Community Reinvestment Act. Under the CRA, as implemented by FDIC
regulations, a savings bank has an obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low-
and moderate-income neighborhoods. The CRA requires the FDIC, in connection with
its examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by the institution.
The FDIC rates an institution based on its actual performance in meeting
community needs. The evaluation system focuses on a lending test, an investment
test, and a service test.
In its most recent examination for CRA performance, Troy Savings received
an "Outstanding" rating from the FDIC.
Safety and Soundness Standards. Troy Savings is subject to certain FDIC
standards designed to maintain the safety and soundness of individual banks and
the banking system. The FDIC has prescribed safety and soundness guidelines
relating to (i) internal controls, information systems and internal audit
systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate
exposure; (v) asset growth and quality; (vi) earnings; and (vii) compensation
and benefit standards for officers, directors, employees and principal
stockholders. The guidelines are intended to set out standards that the FDIC
will use to identify and address problems at institutions before capital becomes
impaired. Institutions are required to, among other things, establish and
maintain a system to identify problem assets and prevent deterioration of those
assets in a manner commensurate with their size and the nature and scope of
their operations. Furthermore, institutions must establish and maintain a system
to evaluate and monitor earnings and ensure that earnings are sufficient
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to maintain adequate capital and reserves in a manner commensurate with their
size and the nature and scope of their operation.
A bank not meeting one or more of the safety and soundness guidelines may
be required to file a compliance plan with the FDIC. In the event that an
institution were to fail to submit an acceptable compliance plan or fail in any
material respect to implement an accepted compliance plan within the time
allowed by the FDIC, the institution would be required to correct the deficiency
and the FDIC would also be authorized to: (i) restrict asset growth; (ii)
require the institution to increase its ratio of tangible equity to assets;
(iii) restrict the rates of interest that the institution may pay; or (iv) take
any other action that would better carry out the purpose of the corrective
action. Troy Savings believes it was in compliance with all such safety and
soundness guidelines as of the date of this prospectus.
The FDIC periodically conducts examinations of insured institutions and,
based upon evaluations, may require a revaluation of assets of an insured
institution and may require the establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets.
Prompt Corrective Action. Under the FDIC's prompt corrective action
regulations, insured institutions will be considered (i) "well capitalized" if
the institution has a total risk-based capital ratio of 10% or greater, a Tier 1
risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater
(provided that the institution is not subject to an order, written agreement,
capital directive or prompt corrective action directive to meet and maintain a
specified capital level for any capital measure), (ii) "adequately capitalized"
if the institution has a total risk-based capital ratio of 8% or greater, a Tier
1 risk based capital ratio of 4% or greater and a leverage ratio of 4% or
greater (3% or greater if the institution is rated composite CAMELS 1 in its
most recent report of examination and is not experiencing or anticipating
significant growth), (iii) "undercapitalized" if the institution has a total
risk-based capital ratio that is less than 8%, or a Tier 1 risk-based ratio of
less than 4% and a leverage ratio that is less than 4% (3% if the institution is
rated composite CAMELS 1 in its most recent report of examination and is not
experiencing or anticipating significant growth), (iv) "significantly
undercapitalized" if the institution has a total risk-based capital ratio that
is less than 6%, Tier 1 risk-based capital ratio of less than 3% or a leverage
ratio that is less than 3%, and (v) "critically undercapitalized" if the
institution has a ratio of tangible equity to total assets that is equal to or
less than 2%. Under certain circumstances, the FDIC can reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). At September 30, 1998, Troy Savings was classified
as a "well capitalized" institution.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to the FDIC. An undercapitalized institution
also is generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except in accordance with an accepted capital restoration plan or with
the approval of the FDIC. In addition, the FDIC may take any other action that
it determines will better carry out the purpose of prompt corrective action
initiatives.
Dividend Restrictions. Troy Savings is not permitted to pay dividends if,
as the result of the payment, it would become undercapitalized, as defined in
the prompt corrective action regulations of the FDIC. In addition, if Troy
Savings becomes "undercapitalized" under the "prompt corrective action"
initiatives of the FDIC, payment of dividends would be prohibited without the
prior approval of the FDIC. Troy Savings also could be subject to these dividend
restrictions if the FDIC determines that Troy Savings is in an unsafe or unsound
condition or engaging in an unsafe or unsound practice.
Required Reserves. Under Federal Reserve regulations, Troy Savings is
required to maintain non-interest-earning reserves against its transaction
accounts (primarily NOW and regular checking accounts). The Federal Reserve
regulations generally require that reserves of 3% must be maintained against
aggregate transaction accounts of $46.5 million or less (subject to adjustment)
and an initial reserve of $1,395,000 plus 10% (subject to adjustment between 8%
and 14%) against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances (subject to
adjustments) are exempted
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from the reserve requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve, the
effect of this reserve requirement is to reduce Troy Savings' interest-earning
assets.
REGULATION OF TROY FINANCIAL
New York Regulation. Under the New York Banking Law, certain companies
owning or controlling banks are regulated as a bank holding company. For the
purposes of the New York Banking Law, the term "bank holding company," is
defined generally to include any "company" that, directly or indirectly, either
controls the election of a majority of the directors of, or owns, controls or
holds with power to vote more than 10% of the voting stock of (i) a bank holding
company or, (ii) if the company is a banking institution, another banking
institution, or (iii) each of two or more banking institutions. An entity like
Troy Financial controlling, directly or indirectly, only one banking institution
will not be deemed to be a bank holding company for the purposes of the New York
Banking Law. If Troy Financial, however, establishes or acquires a New
York-chartered commercial bank and trust company, Troy Financial will be a "bank
holding company" for purposes of New York Banking Law.
Federal Regulation. Following the consummation of the conversion, Troy
Financial will be subject to examination, regulation and periodic reporting
under the Bank Holding Company Act of 1956, as amended ("BHC Act"), as
administered by the Federal Reserve.
The Federal Reserve has adopted capital adequacy guidelines for bank
holding companies on a consolidated basis substantially similar to those of the
FDIC for Troy Savings. See "-- Federal Regulation of Troy Savings -- Capital
Requirements." On a pro forma basis after the conversion, Troy Financial's risk-
based and leverage ratios will exceed these minimum capital requirements. A bank
holding company's ability to pay dividends to its shareholders and expand its
line of business through the acquisition of new banking subsidiaries can be
restricted if its capital falls below levels established by the Federal Reserve
guidelines. In addition, any bank holding company whose capital falls below
levels specified in the guidelines can be required to implement a plan to
increase capital.
Prior Federal Reserve approval will be required for Troy Financial to
acquire direct or indirect ownership or control of any voting securities of any
bank or bank holding company if, after giving effect to such acquisition, it
would, directly or indirectly, own or control more than 5% of any class of
voting shares of such bank or bank holding company. Troy Financial also will be
required to obtain the prior approval of the Federal Reserve to acquire all, or
substantially all, of the assets of any bank or bank holding company.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in,
non-banking activities unless such activities have been found by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. Some of the principal activities that the
Federal Reserve has determined by regulation to be so closely related to banking
as to be a proper incident thereto are: (i) making or servicing loans; (ii)
performing certain data processing services; (iii) providing discount and full
service brokerage services; (iv) acting as fiduciary, investment or financial
advisor, (v) leasing personal or real property; (vi) making investments in
corporations or projects designed primarily to promote community welfare; and
(vii) acquiring a savings and loan association.
Troy Financial will be required to give the Federal Reserve prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, will be equal to 10% or more of Troy Financial's consolidated net worth.
The Federal Reserve may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe and unsound practice, or
would violate any law, regulation, Federal Reserve order or directive, or any
condition imposed by, or written agreement with, the Federal Reserve. Such
notice and approval is not required for a bank holding company that would be
treated as "well capitalized" under applicable regulations of the Federal
Reserve, that has received a composite "1" or "2" rating at its most recent bank
holding company inspection by the Federal Reserve, and that is not the subject
of any unresolved supervisory issues.
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The Federal Reserve is empowered to initiate cease and desist proceedings
and other supervisory actions for violations of the BHC Act, or the Federal
Reserve regulations, orders or notices issued thereunder.
The status of Troy Financial as a registered bank holding company under the
BHC Act does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
Under applicable regulations, Troy Financial will be restricted from
repurchasing any of its common stock issued in the conversion prior to the first
anniversary of the conversion without the prior approval of the New York
Superintendent and, if necessary, the FDIC. During the second and third years
after the conversion, Troy Financial may not acquire in excess of five percent
of the common stock during any 12-month period without the prior approval of the
New York Superintendent. In reviewing whether to permit stock repurchases, the
New York Superintendent will review, among other things, the financial condition
and capital structure of Troy Financial, and its prospects for future earnings.
ACQUISITION OF TROY FINANCIAL
New York Change in Bank Control Restrictions. The New York Banking Law
generally requires prior approval of the New York Banking Board before any
action is taken that causes any company to acquire direct or indirect control of
a banking institution that is organized in the State of New York. For this
purpose, the term "company" is defined to include corporations, partnerships and
other types of business entities, chartered or doing-business in New York, and
an individual or combination of individuals acting in concert and residing or
doing business in New York, and the term "control" is defined generally to mean
the power to direct or cause the direction of the management and policies of the
banking institution and is presumed to exist if the company owns, controls or
holds with power to vote 10% or more of the voting stock of the banking
institution.
Federal Restrictions. Under the federal Change in Bank Control Act
("CBCA"), a notice must be submitted to the Federal Reserve if any person
(including a company), or group acting in concert, seeks to acquire 10% or more
of Troy Financial's shares of common stock. Under the CBCA, the Federal Reserve
takes into consideration certain factors, including the financial and managerial
resources of the acquirer, the convenience and needs of the communities served
by Troy Financial and Troy Savings, and the competitive effects of the
acquisition.
Under the BHC Act, any company would be required to obtain prior approval
from the Federal Reserve before it could acquire "control" of Troy Financial
within the meaning of the BHC Act. Control generally is defined for these
purposes to mean the ownership, control or power to vote 25% or more of any
class of voting securities of Troy Financial, the ability to control in any
manner the election of a majority of Troy Financial's directors, or to otherwise
have the power to exercise a controlling influence over the management or
policies of Troy Financial.
FEDERAL HOME LOAN BANK SYSTEM
Troy Savings is a member of the FHLB System. The FHLB provides a central
credit facility primarily for member institutions. Troy Savings, as a member of
FHLB of New York, is required to acquire and hold shares of capital stock in
that FHLB in an amount equal to the greater of 1.0% of the aggregate principal
amount of its unpaid residential mortgage loans, home purchase contracts and
similar obligations at the beginning of each year, 5% of its FHLB advances
outstanding, or one per cent of thirty per cent of total assets. At September
30, 1998, Troy Savings owned $3.2 million of FHLB common stock.
Advances from the FHLB of New York are secured by a member's shares of
stock in the FHLB of New York, certain types of mortgages and other assets.
Interest rates charged for advances vary depending upon maturity and cost of
funds to the FHLB of New York. As of September 30, 1998, Troy Savings had $44.9
million of outstanding advances from the FHLB of New York.
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TAXATION
FEDERAL TAXATION
General. Troy Financial and Troy Savings will report their income on a
consolidated basis, using a fiscal year ending September 30 and the accrual
method of accounting and will be subject to federal income taxation in the same
manner as other corporations with certain exceptions, including recapture of
portions of Troy Savings' tax reserve for bad debts, discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to Troy
Savings or Troy Financial. Based on the Internal Revenue Service ("IRS") and New
York State statutes of limitations for tax examinations, Troy Savings cannot be
examined for fiscal 1994 or earlier. No IRS or New York State tax examinations
have been completed for any years subsequent to fiscal 1994.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Act") made significant changes to the federal income tax rules concerning
a savings institution's deduction for additions to its bad debt reserves and the
recapture (i.e., inclusion in taxable income) of certain portions of the
reserve. The effect of the 1996 Act on Troy Savings is discussed below. Before
enactment of the 1996 Act on August 20, 1996, Troy Savings could take a federal
income tax deduction for annual additions to its reserve for bad debts, within
specified formula limits. Troy Savings' deduction with respect to "qualifying
loans," which generally were loans secured by certain interests in real
property, could be computed using an amount based on a six-year moving average
of Troy Savings' actual loss experience (the "Experience Method"), or a
percentage equal to 8% of Troy Savings' taxable income (the "PTI Method"),
computed without regard to this deduction, with certain additional modifications
and reduced by the amount of any permitted addition to the non-qualifying
reserve. Troy Savings' deduction with respect to non-qualifying loans was
required to be computed under the Experience Method. Each year, Troy Savings
adopted the most favorable method to calculate the deduction.
The 1996 Act. Under the 1996 Act, for its taxable year beginning October
1, 1996 and thereafter, Troy Savings is not permitted to make additions to its
bad debt reserves for tax purposes. Instead, Troy Savings is required to utilize
the specific charge-off method for bad debts. In addition, Troy Savings is
required to recapture (i.e., take into income) over a six-year period the excess
of the balance of its tax bad debt reserves as of September 30, 1996 over the
balance of such reserves as of September 30, 1988. As of September 30, 1996,
Troy Savings' tax bad debt reserve exceeded the balance of the reserve as of
September 30, 1988 by $1.4 million and Troy Savings will be required to include
such excess in its taxable income, ratably over the six taxable year period
beginning October 1, 1998.
Distributions. Under the 1996 Act, if Troy Savings makes "non-dividend
distributions" to Troy Financial, such distributions will be considered to have
been made from Troy Savings' unrecaptured tax bad debt reserves (including the
balance of its reserves as of September 30, 1988) to the extent thereof, and an
amount based on the amount distributed (but not in excess of such reserves) will
be included in Troy Savings' taxable income. Non-dividend distributions is
defined as distributions in excess of Troy Savings' current and accumulated
earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of Troy Savings' current or accumulated earnings
and profits will not be so included in Troy Savings' taxable income. The amount
of additional taxable income created from a non-dividend distribution is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if, after conversion, Troy Savings makes a
non-dividend distribution to Troy Financial, approximately one and one-half
times the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. See "Regulation and
Supervision" and "Dividend Policy" for limits on the payment of dividends by
Troy Savings. Troy Savings does not intend to pay dividends that would result in
a recapture of any portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The IRC imposes a tax on a
corporation's alternative minimum taxable income ("AMTI") at a rate of 20%. The
excess of the bad debt reserve deduction using the
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percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryforwards. The adjustment to AMTI based on book income will be an
amount equal to 75% of the amount by which a corporation's adjusted current
earnings exceeds its AMTI (determined without regard to this adjustment and
prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986 and before January 1, 1996, an environmental
tax of .12% of the excess of AMTI (with certain modifications) over $2 million,
was imposed on corporations, including Troy Savings, whether or not an
Alternative Minimum Tax ("AMT") is paid. Troy Savings does not expect to be
subject to the AMT.
Dividends Received Deduction and Other Matters. Troy Financial may exclude
from its income 100% of dividends received from Troy Savings as a member of the
same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which Troy Financial and Troy Savings do not file a
consolidated tax return, except that if Troy Financial and Troy Savings own more
than 20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be excluded.
MANAGEMENT OF TROY FINANCIAL CORPORATION
DIRECTORS OF TROY FINANCIAL CORPORATION
The Board of Directors of Troy Financial is divided into three classes, as
nearly equal in number as possible, and consists of nine directors. Each
director serves until such director's successor is duly elected and qualified or
until such director's earlier death, resignation or removal. At each annual
meeting of stockholders, the successors to the class of directors whose term
expires at that meeting will be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election and until their successors have been duly elected and qualified
or until any such director's earlier death, resignation or removal. The
following table sets forth certain information regarding the directors of Troy
Financial, each of whom will be an initial director upon completion of the
conversion and is currently a trustee of Troy Savings.
<TABLE>
<CAPTION>
POSITIONS(S) HELD
NAME AGE(1) WITH TROY FINANCIAL TERM EXPIRES
- ---- ------ ------------------- ------------
<S> <C> <C> <C>
Daniel J. Hogarty, Jr. ...................... 59 Chairman of the Board;
President; Chief Executive Officer 2000
George H. Arakelian.......................... 64 Director 2001
Richard B. Devane............................ 64 Director 2001
Michael E. Fleming........................... 68 Director 2002
Willie Anderson Hammett...................... 54 Director 2000
Thomas B. Healy.............................. 52 Director 2000
Keith D. Millsop............................. 72 Director 2002
Edward G. O'Haire............................ 67 Director 2001
Marvin L. Wulf............................... 73 Director 2002
</TABLE>
- ---------------
(1) As of December 31, 1998.
The biographical information of each director is set forth below under
"-- Biographical Information." Initially the directors of Troy Financial will
not receive additional fees for their services as directors of Troy Financial.
See "-- Compensation of Trustees" for a discussion of fees paid to trustees of
Troy Savings.
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EXECUTIVE OFFICERS OF TROY FINANCIAL
The executive officers of Troy Financial are the same as the executive
officers of Troy Savings. They are appointed annually and hold office until
their respective successors are chosen and qualified or until their death,
earlier resignation or removal from office. The following table sets forth
certain information regarding the executive officers of Troy Financial and Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AGE(1) WITH TROY FINANCIAL AND BANK
- ---- ------ ----------------------------
<S> <C> <C>
Daniel J. Hogarty, Jr. ............................ 59 Chairman of the Board of Troy Financial;
Trustee of Troy Savings; President and
Chief Executive Officer of Troy
Financial and Troy Savings
Kevin M. O'Bryan................................... 49 Senior Vice President; Secretary
Michael C. Mahar................................... 51 Senior Vice President
Edward M. Maziejka, Jr. ........................... 39 Vice President and Chief Financial Officer
</TABLE>
- ---------------
(1) As of December 31, 1998.
The biographical information for each executive officer is set forth below
under "-- Biographical Information."
Since the formation of Troy Financial, none of the executive officers,
directors or other personnel has received remuneration from Troy Financial.
Executive officers of Troy Financial will be compensated as described below
under "Management of Troy Savings."
MANAGEMENT OF TROY SAVINGS BANK
TRUSTEES OF THE TROY SAVINGS BANK
The direction and control of Troy Savings has been vested in its Board of
Trustees. Upon consummation of the conversion, each of the current trustees of
Troy Savings will become directors of the stock-chartered Bank for terms that
expire in the same year as their respective terms on the Board of Troy
Financial. The directors will be divided into three classes, as nearly in number
as possible, with the terms of office of one class expiring each year. Members
of each class shall be elected for the term of three years and until their
successors are elected and qualified. The following table sets forth certain
information regarding the Board of Trustees of Troy Savings.
<TABLE>
<CAPTION>
POSITIONS HELD
NAME WITH TROY SAVINGS TRUSTEE SINCE
- ---- ----------------- -------------
<S> <C> <C>
Daniel J. Hogarty, Jr. ...................... President; Chief Executive
Officer; Trustee 1985
George H. Arakelian.......................... Trustee 1988
Richard B. Devane............................ Trustee 1970
Michael E. Fleming........................... Trustee 1981
Willie Anderson Hammett...................... Trustee 1990
Thomas B. Healy.............................. Trustee 1995
Keith D. Millsop............................. Trustee 1979
Edward G. O'Haire............................ Trustee 1979
Marvin L. Wulf............................... Trustee 1973
</TABLE>
- ---------------
(1) As of December 31, 1998.
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BIOGRAPHICAL INFORMATION
Trustees of Troy Savings
Daniel J. Hogarty, Jr. joined Troy Savings in 1985 and has been Troy
Savings' President, Chief Executive Officer and trustee since that time. Mr.
Hogarty also serves as President and/or Director of nine of Troy Savings'
subsidiaries.
George H. Arakelian has served as a trustee of Troy Savings since 1988. Mr.
Arakelian is President and Chairman of the Board of Standard Manufacturer Co.,
Inc., a manufacturer of outerwear and sportswear located in Troy, New York.
Richard B. Devane has served as a trustee of Troy Savings since 1970. Mr.
Devane is President of Devane, Inc., a floor contractor, and is a real estate
broker with Devane Realty, both of which are located in Troy, New York.
Michael E. Fleming, DDS has served as a trustee of Troy Savings since 1980.
Dr. Fleming is an orthodontist practicing in Troy, New York.
Willie A. Hammett has served as a trustee of Troy Savings since 1990. Mr.
Hammett is Vice President of Student Services at Hudson Valley Community College
located in Troy, New York.
Thomas B. Healy has served as a trustee of Troy Savings since 1995. Mr.
Healy is Senior Vice President of Investments at Prudential Securities, Inc.
located in Albany, New York.
Keith D. Millsop has served as a trustee of Troy Savings since 1979. Mr.
Millsop is a retired Manager of Industrial Relations at Ford Motor Company's
Plant in Green Island, New York.
Edward G. O'Haire has served as a trustee of Troy Savings since 1979. Mr.
O'Haire is President of Ryan & O'Haire Insurance Agency located in Troy, New
York.
Marvin L. Wulf has served as a trustee of Troy Savings since 1973. Mr. Wulf
is an Economic Development Specialist for the City of Troy, New York.
EXECUTIVE OFFICERS OF TROY SAVINGS WHO ARE NOT TRUSTEES
Kevin M. O'Bryan joined Troy Savings in 1976 and is a Senior Vice President
and Troy Savings' Chief Credit Officer and Secretary. Mr. O'Bryan's primary
responsibilities include oversight of all of Troy Savings' lending departments.
Prior to his appointment as Senior Vice President and Chief Credit Officer in
1992, Mr. O'Bryan has held numerous positions in Troy Savings' commercial
mortgage department. Mr. O'Bryan is also Secretary and Director of FMB, Troy
S.B. Real Estate Co., Inc., The Family Advertising Co., T.S. Real Property,
Inc., Realty Umbrella, Ltd., and 32 Second Street, Inc., all of which are
subsidiaries of Troy Savings. Mr. O'Bryan is also President and Director of
Camel Hill Corporation, 507 Height, and T.S. Capital Corp., which are also
subsidiaries of Troy Savings.
Michael C. Mahar joined Troy Savings in 1988 and is a Senior Vice President
of Troy Savings. Mr. Mahar's primary responsibilities include oversight of Troy
Savings' retail banking, deposit services, sales and marketing, and operations.
Prior to that appointment in 1992, Mr. Mahar was the director of Troy Savings'
commercial lending program.
Edward M. Maziejka, Jr. joined Troy Savings in 1988 and is Troy Savings'
Chief Financial Officer. Prior to that appointment in 1993, Mr. Maziejka was
Vice President of Financial Administration of Troy Savings. Mr. Maziejka is also
Treasurer and Director of FMB, Troy S.B. Real Estate Co., Inc., The Family
Advertising Co., T.S. Real Property, Inc., Realty Umbrella, Ltd., and 32 Second
Street, Inc., all of which are subsidiaries of Troy Savings. Mr. Maziejka also
serves as Assistant Treasurer of The Family Insurance Agency, Inc., as Treasurer
and Secretary of T.S. Capital Corp., and as Secretary, Treasurer and Director of
Camel Hill Corporation, which are also subsidiaries of Troy Savings.
MEETINGS AND COMMITTEES OF THE BOARDS OF TROY SAVINGS
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The Board of Trustees of Troy Savings meets at least monthly and may have
additional special meetings as may be called by the President or one-third of
the trustees. During the fiscal year ended September 30, 1998, the Board of
Trustees held 16 meetings. No trustee attended fewer than 98% in the aggregate
of the total number of meetings of the Board or committees on which such trustee
served for the year ended September 30, 1998. There are currently five
committees of the Board of Trustees consisting of the Audit and Examining
Committee, the Compensation Committee, the Loan Committee, the Executive
Committee and the Trust Committee. Subsequent to the conversion, the Board of
Trustees may consider and make revisions to the current structure of its
committees.
COMPENSATION OF TRUSTEES
Trustees of Troy Savings receive fees of $1,375 per board meeting attended
and fees ranging from $250 to $850 per committee meeting attended, depending on
the type of committee. Subsequent to the conversion, Troy Financial and Troy
Savings intend to engage a compensation consultant to study the level and
structure of compensation paid to the directors and trustees, as compared to
similarly situated publicly traded financial institutions and, upon review of
such study, may revise the amount of fees paid to such director and trustees.
TRUSTEES EMERITUS
Troy Savings' Bylaws require that a trustee retire at the end of the
calendar year in which the trustee reaches the age of 75. Troy Savings' Bylaws
also permit the Board of Trustees, upon a majority vote, to elect as a Trustee
Emeritus a trustee, who so requests, and who has served Troy Savings for at
least 20 years and who is at least 70 years old. Trustees Emeritus may attend
all regular meetings of the Board and may take part in the Board's discussions,
but shall not be eligible to vote. In addition, Trustees Emeritus are not
counted for the purpose of determining a quorum, and Trustees Emeritus may be
removed by a majority vote of the Board of Trustees. Upon conversion, Trustees
Emeritus will receive the same meeting fees as trustees of Troy Savings.
HONORARY TRUSTEES
Troy Savings' Bylaws also permit the Board of Trustees to elect Honorary
Trustees by a majority vote. Honorary Trustees are elected for three year terms,
and may attend all regular meetings of the Board and may take part in the
Board's discussions. Honorary Trustees may not vote, receive any compensation or
be counted for the purpose of determining any quorum.
EXECUTIVE COMPENSATION
The following table sets forth the cash and certain other compensation paid
by Troy Savings for services rendered in all capacities during the year ended
September 30, 1998, to the President and Chief Executive Officer and all
executive officers who received compensation in excess of $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
------------------------------
ANNUAL COMPENSATION(2) RESTRICTED
NAME AND --------------------------------- STOCK ALL OTHER
PRINCIPAL POSITIONS YEAR(1) SALARY ($) BONUS ($) AWARDS ($)(4) OPTIONS (#)(4) COMPENSATION(5)
- ------------------- ------- ---------- --------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel J. Hogarty, Jr. ... 1998 $577,967(3) -- -- -- $10,000
President and Chief
Executive Officer
Kevin M. O'Bryan.......... 1998 $154,048 -- -- -- $ 8,789
Senior Vice President,
Chief Credit Officer
and Secretary
</TABLE>
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- ---------------
(1) All data for fiscal years ended September 30, 1998.
(2) For fiscal year ended September 30, 1998, there were no perquisites with an
aggregate value for any named individual in excess of the lesser of $50,000
or 10% of the individual's salary and bonus or other annual compensation not
categorized as salary or bonus.
(3) Includes deferred compensation of $98,000.
(4) As a mutual institution, Troy Savings does not have any stock based plans.
Troy Financial does, however, intend to adopt such plans following the
conversion.
(5) Reflects matching contributions made by Troy Savings under a 401(k) plan.
REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to the NYSBD's regulations governing the conversion, Troy Savings
must obtain the opinion of an independent compensation consultant as to whether
or not the total compensation for the executive officers, directors or trustees
of Troy Savings, viewed as a whole and on an individual basis, is reasonable and
proper in comparison to the compensation provided to executive officers,
directors or trustees of similar publicly traded financial institutions. Troy
Savings has obtained two opinions from William M. Mercer, Incorporated, which
provide that, based upon public data of similarly situated publicly traded
financial institutions operating in the relevant markets as of December 18,
1998, with respect to the total cash compensation (base salary and annual
incentive) for executive officers and total compensation for trustees of Troy
Savings, such compensation, viewed as a whole and on an individual basis, is
reasonable in comparison to the total compensation (base salary, annual
incentives and estimated present value of long-term incentives) provided by
similarly situated publicly-traded financial institutions, and that, with
respect to the amount of shares of common stock to be reserved under the ESOP
and Equity Compensation Plan that such amounts reserved for granting are
reasonable in comparison to similar publicly traded financial institutions.
BENEFIT PLANS
Employment and Employment Protection Agreements
Upon the conversion, Troy Financial and Troy Savings intend to enter into
employment agreements with three executive officers, including Messrs. Hogarty
and O'Bryan (the "Employment Agreements") and employment protection agreements
with four other officers (the "Employment Protection Agreements").
The following summarizes the principal terms of the Employment Agreements:
- term -- initially three-years, with possible year-to-year renewals;
- specified annual salary, plus annual cost of living and merit increases;
- discretionary bonuses;
- participation in all benefit and compensation plans; and
- car or automobile allowance.
As of September 30, 1998, the base salaries for Messrs. Hogarty and O'Bryan are
$600,000 and $160,000, respectively.
Troy Financial and Troy Savings may terminate an executive officer's
employment at any time during the term of an Employment Agreement. Unless the
termination is for "cause" (as defined in the Employment Agreement), Troy
Financial and Troy Savings will be required to pay the following amounts to the
executive officer:
- three times the executive officer's annual base salary plus bonus; and
- the value of the additional retirement benefits that the executive
officer would have been entitled to receive under Troy Savings' qualified
benefit plans and Supplemental Retirement and Benefits
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Restoration Plan ("Supplemental Plan") if the executive officer had continued to
be employed for three years.
The foregoing amounts will be paid in a lump sum. Troy Financial and Troy
Savings will also provide the terminated executive:
- insurance and other non-pension benefits for three years;
- outplacement services;
- indemnification and director and officer liability insurance
In addition, following a termination without cause, the executive officer
will be fully vested, except to the extent limited by applicable regulations,
in:
- stock options;
- Restricted Stock;
- the Supplemental Plan; and
- any other benefit that would otherwise be forfeited
If an executive officer terminates his employment with "good reason" (as
defined in the Employment Agreements), the above provisions will also apply, as
if Troy Financial and Troy Savings had terminated his employment without cause.
If the executive officer is subject to the federal excise tax imposed on
excess parachute payments, Troy Financial and Troy Savings will pay to the
executive officer a gross-up amount sufficient, after all taxes, to pay the
excise tax and any interest and penalties. However, if making the gross-up
payment would not produce a net after-tax benefit to the executive officer of at
least $50,000 more than the amount the executive officer could receive without
paying the excise tax, the amounts payable to the executive officer will be
reduced as necessary to avoid the excise tax.
After termination, the executive officer cannot have any other employment
during a specified noncompetition period with a substantial competitor of Troy
Savings or Troy Financial if:
- the executive officer terminates his employment without consent and
without good reason or
- Troy Financial and Troy Savings terminate the officer's employment for
cause.
The noncompetition period is one year or the remaining term of the
agreement plus six months, whichever is less. A substantial competitor means a:
- commercial or savings bank,
- savings and loan association, or
- mortgage banking company, or
- a holding company affiliate of any of the foregoing
The Employment Agreements also contain provisions relating to unauthorized
disclosure of confidential information and return of written materials upon
termination of employment.
The principal terms of the Employment Protection Agreements are:
- term -- initially three-years, with possible renewals;
- no severance or other compensation following termination of employment
except in the context of a change of control;
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- severance is payable if either before and in connection with a change of
control, or within up to two years after a change of control:
- Troy Financial and Troy Savings terminate the officer's employment
without cause (as defined in the Employment Protection Agreement); or
- the officer terminates employment with "good reason" (as defined in the
Employment Protection Agreement);
- severance amount is two times the officer's annual salary;
- if severance is payable, employee welfare benefits continue for two years
after the termination; and
- except to the extent limited by applicable regulations, stock options,
Restricted Stock and other equity compensation arrangements, and deferred
compensation and other employee benefits that would otherwise be
forfeited are fully vested.
However, severance and other benefits, including accelerated vesting, will be
limited to the maximum amount that can be paid to the officer without
constituting an "excess parachute payment" under the IRC.
For purposes of the Employment Protection Agreements, a "change of control"
means any of the following:
- the acquisition by any individual, entity or group (a "Person") of
beneficial ownership of 20% or more of either:
(a) the outstanding shares of Troy Financial's common stock or
(b) the combined voting power of Troy Financial's outstanding voting
securities that are entitled to vote generally in the election of
directors ("Voting Securities"),
except that the following will not constitute a change of control:
any acquisition:
(1) directly from Troy Financial,
(2) by Troy Financial,
(3) by any employee benefit plan or trust of Troy Financial or Troy
Savings, or
(4) pursuant to a transaction that complies with clauses (a), (b)
and (c) of the second bullet below.
- individuals who, as of the conversion, constituted the "Incumbent Board"
(as defined) cease for any reason to constitute at least a majority of
Troy Financial's Board of Directors;
- a reorganization, merger or consolidation or sale or other disposition of
all or substantially all of Troy Financial's assets or Troy Financial's
acquisition of the stock or assets of another entity (a "Business
Combination"), unless:
(a) the beneficial owners of Troy Financial's outstanding common stock
and Voting Securities, respectively, beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding shares
of common stock (the "Resulting common stock") and the combined
voting power of the outstanding voting securities entitled to vote
generally in the election of directors (the "Resulting Voting
Securities"), as the case may be, of the corporation resulting from
the Business Combination (the "Resulting Corporation") in
substantially the same proportions as before,
(b) no Person, excluding any employee benefit plan or trust of Troy
Financial or Troy Savings or of the Resulting Corporation,
beneficially owns, directly or indirectly, 20% or more of the
Resulting common stock or the combined voting power of the Resulting
Voting Securities, except to the extent of the Person's ownership
before the Business Combination and
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(c) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board; or
- approval by Troy Financial's stockholders of a complete liquidation or
dissolution of Troy Financial.
Employee Severance Compensation Plan
Upon conversion, Troy Savings intends to establish an Employee Severance
Compensation Plan (the "Severance Plan") which will provide eligible employees
with severance pay benefits in the event of termination of employment after a
change of control (as defined above). Management personnel with Employment
Agreements or Employment Protection Agreements will not be eligible to
participate in the Severance Plan. Generally, after a change of control, each
full-time employee whose employment is terminated without cause (as defined in
the Severance Plan) or who terminates his employment for good reason (as
specified in the Severance Plan), will be entitled to receive two-weeks' pay for
each year of service, up to a maximum of one year's salary.
Other Benefit Plans
General. Troy Savings currently provides customary hospitalization, major
medical and prescription drug benefits to employees, on a self-funded basis (up
to applicable stop loss insurance amounts). Troy Savings also provides life and
disability insurance to employees and certain health care and life insurance
benefits to retired employees.
Defined Benefit Pension Plan. Troy Savings maintains a non-contributory
defined benefit pension plan covering substantially all of its full-time
salaried employees (the "Pension Plan"). A participant is 100% vested after five
years of service, upon attaining normal retirement age or upon a change of
control (as defined above).
The normal retirement benefit (generally at age 65) is based on the
participant's highest three-year average annual base earnings during the
participant's final 10-years of participation, subject to a limitation on the
amount of compensation that can be taken into account under the IRC. The annual
benefit provided to a participant at normal retirement age is:
- 2% of average annual earnings, times years of credited service, up to
32.5 years, plus
- .4% of average annual earnings that exceed 50% of the Social Security
wage base, times years of credited service, up to 30 years.
An unreduced annual retirement benefit, calculated in the same manner as
described above, will be provided to a participant who:
- is eligible for an early retirement benefit (generally age 60 with five
years of service or age 55 with 10 years of service) and elects to defer
the payment of the benefit to normal retirement age;
- has attained age 60 and completed 30 years of service, or attained age 62
and completed 25 years of service, and elects to receive payment of the
benefit before normal retirement age; or
- postpones annual benefits beyond normal retirement age.
If a participant begins receiving early retirement benefits before satisfying
the foregoing age and service requirements, his benefits will be actuarially
reduced.
The Pension Plan also provides a surviving spouse benefit if the
participant dies before retirement or other termination of employment with a
vested retirement benefit.
The following table sets forth, as of September 30, 1998, estimated annual
pension benefits for individuals at age 65 payable in the form of a life annuity
under the most advantageous plan provisions for various levels of compensation
and years of service. The figures in this table are based upon the assumption
that the Pension Plan continues in its present form and do not reflect Social
Security benefits and benefits
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payable under the ESOP. At September 30, 1998, the estimated years of credited
service of Messrs. Hogarty and O'Bryan were 13 and 22 years, respectively.
[INSERT PENSION PLAN TABLE]
401(k) Savings Plan. Troy Savings has a qualified, tax-exempt savings plan
with a cash or deferred feature qualifying under Section 401(k) of the IRC (the
"401(k) Plan"). All salaried or commissioned employees who have attained
age 21 and completed one year of employment are eligible to participate.
Participants may contribute from 2% to 15% of their base compensation to the
401(k) Plan on a pre-tax basis. At present, Troy Savings makes a matching
contribution equal to 50% of the participant's pre-tax contributions, up to a
maximum of 3% of the participant's compensation.
All participants' pre-tax contributions plus earnings are fully vested.
Matching contributions become vested at a rate of 20% per year of service,
beginning when the employee has completed two years of service. A participant
also will be fully vested if he becomes disabled, reaches age 65 or dies, or if
a change of control (as defined above) occurs.
Participants may direct the investment of amounts contributed to their
401(k) Plan accounts. Troy Savings intends to amend the 401(k) Plan to permit
participants to invest in Troy Financial's common stock as one of the investment
options. The following provisions will apply to investments in Company stock:
- the 401(k) Plan will purchase common stock from Troy Financial or in open
market transactions;
- the 401(k) Plan trustee will vote the common stock in accordance with
participants' directions, subject to the 401(k) Plan and applicable law;
- the trustee will vote shares of common stock as to which no directions
are received from participants in accordance with its fiduciary duties;
- the trustee will also follow the directions of participants in
determining whether to tender shares of common stock in response to any
tender offer and will not tender shares for which no instructions are
received.
Participants are permitted to borrow against their account balances in the
401(k) Plan and are eligible to receive hardship distributions from their
pre-tax contributions. For the year ended September 30, 1998, Troy Savings'
contributions to the 401(k) Plan on behalf of Messrs. Hogarty and O'Bryan were
$10,000 and $8,789, respectively.
Employee Stock Ownership Plan. In connection with the conversion, Troy
Savings intends to implement the ESOP. The ESOP will be a noncontributory,
tax-qualified stock purchase plan that invests primarily in common stock of Troy
Financial. The ESOP will be designed to meet the applicable requirements of a
leveraged employee stock ownership plan as described in the IRC and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and, as such, the
ESOP will be permitted to borrow in order to finance purchases of common stock.
Troy Financial anticipates that it will lend enough money to the ESOP so
that it can purchase 8% of the common stock issued in the conversion, including
shares contributed to the Community Foundation. Troy Financial's loan will be
secured by the common stock purchased by the ESOP. Common stock purchased with
the loaned funds will be held in a suspense account under the ESOP and will be
released for allocation to participants' accounts as payments of principal and
interest are made on the loan. The term of the loan will be 10-15 years. The
ESOP trustee will allocate released shares to participants' accounts on an
annual basis, generally in proportion to their compensation for the year. The
ESOP will repay the loan from contributions received from Troy Savings (and
dividends paid on the purchased shares that have not been allocated to
participants' accounts, if any). The loan will bear interest, based on
prevailing market rates. Subject to limitations imposed by the IRC, Troy Savings
will be entitled to a federal income tax deduction for the amounts it
contributes to the ESOP.
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All employees of Troy Savings will be eligible to participate in the ESOP
after they attain age 21 and complete one year of service during which they work
at least 1,000 hours. A participant will become vested in his ESOP account at a
rate of 20% per year commencing upon completion of two years of service and,
after completing six years of service, a participant will be 100% vested in his
or her ESOP account. An ESOP participant will be fully vested in the event of
disability, death, attainment of age 65 or a change of control (as defined
above).
ESOP participants generally will be entitled to receive distributions from
their ESOP accounts only upon termination of service, except for certain
diversification distributions provided for under the IRC. Participants will not
incur federal income taxes until a distribution is made.
Participating employees will be entitled to instruct the trustee of the
ESOP as to how to vote the shares held in their accounts. The ESOP trustee will
vote unallocated shares, and allocated shares as to which no instructions are
received, in the same manner, on a proportionate basis, as the allocated shares
for which it receives instructions, subject to the requirements of ERISA. The
trustee will similarly follow the instructions of participants with respect to
allocated shares in determining how to respond to a tender offer with respect to
Troy Financial's common stock and will not tender allocated shares for which it
does not receive instructions. The trustee will decide whether to tender
unallocated shares consistently with ERISA. The trustee will not be affiliated
with Troy Financial.
The ESOP may be amended by the Board of Directors of Troy Savings, except
that no amendment may be made which would reduce the vested interest of any
participant or divert assets of the ESOP trust fund away from the exclusive
benefit of participants or their beneficiaries.
Future purchases by the ESOP of common stock from Troy Financial or in the
market, which are not currently contemplated, would be subject to applicable
laws, regulations and market conditions.
Long-Term Equity Compensation Plan. Troy Financial and Troy Savings
believe that the conversion will enhance their ability to attract and retain
directors and key personnel because it will be able to offer stock options and
other stock-related incentive programs after the conversion. Troy Financial
intends to adopt a Long-Term Equity Compensation Plan (the "Equity Compensation
Plan") and to submit it to its stockholders for their approval (at a meeting to
be held no earlier than six months following the conversion). The objective of
the Equity Compensation Plan will be to provide directors, officers, employees
and independent contractors with a proprietary interest in Troy Financial as an
incentive to contribute to its success.
The Equity Compensation Plan will consist of a stock option plan and the
MRP. Troy Financial anticipates that the Equity Compensation Plan will permit
Troy Financial to grant:
- stock options intended to qualify as incentive options under Section 422
of the IRC ("Incentive Options") to officers and other employees,
- >stock options that do not qualify as Incentive Options ("Non-Statutory
Options") to directors, officers, employees and independent contractors;
and
- shares of common stock, which may be made subject to vesting restrictions
(Restricted Stock), to directors, officers, employees and independent
contractors (including Trustees Emeritus).
Troy Financial plans to reserve a number of shares equal to 10% of the
shares of common stock issued in the conversion, including shares contributed to
the Community Foundation (or 1,048,653 shares based upon the issuance of
10,486,530 shares), for options issued under the Equity Compensation Plan.
Assuming stockholders approve the Equity Compensation Plan, Troy Financial plans
to contribute cash to a trust established under the Plan so that the trust can
buy 4% of the shares of common stock issued in the conversion, including shares
contributed to the Community Foundation (that is, 419,461 shares assuming
10,486,530 shares are issued), that will be used for grants of Restricted Stock
under the MRP. Alternatively, Troy Financial may reserve an equivalent number of
its authorized but unissued shares for grants of
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Restricted Stock. Troy Financial expects that the Equity Compensation Plan will
remain in effect for 10 years.
If Troy Financial implements the Equity Compensation Plan within one year
following the conversion, applicable regulations provide that:
- no individual officer or employee may receive more than 25% of the
options or Restricted Stock;
- non-employee directors may not receive more than 5% individually, or 30%
in the aggregate, of the options or Restricted Stock;
- the exercise price of options cannot be lower than the market price on
the grant;
- vesting of Restricted Stock and options may not be accelerated except
upon death or disability.
A compensation committee of Troy Financial's directors will administer the
Equity Compensation Plan. Each member of the compensation committee will be a
"non-employee director," as defined in regulations issued by the SEC, and an
"outside director," as defined under Section 162(m) of the IRC. The compensation
committee will have the authority to grant options and Restricted Stock and to
determine whether options will be Incentive Options. When the compensation
committee grants an option, it will specify the number of shares subject to the
option, the exercise price, the manner of exercise and any vesting or other
restrictions.
The option exercise price of an Incentive Option may not be less than 100%
of the fair market value of the common stock on the grant date (110% if an
Incentive Option is granted to on owner of more than 10% of the outstanding
common stock). The maximum option term is 10 years (five years if an Incentive
Option granted to an owner of more than 10% of the outstanding common stock).
The Equity Compensation Plan will specify a maximum number of shares that may be
covered by options granted to any employee in any calendar year. There is a
$100,000 limit on the value of stock (determined at the time of grant) covered
by Incentive Options that first become exercisable by an employee in any
calendar year. The compensation committee will specify the number of shares of
Restricted Stock it grants to an eligible individual and the nature of the
vesting and other restrictions that apply to each grant.
Troy Financial expects that options granted pursuant to the Equity
Compensation Plan generally will be exercisable for at least three months after
a participant's terminates employment or service, unless the compensation
committee determines otherwise. Troy Financial anticipates that Restricted Stock
will vest ratably over five years and that unvested shares will be forfeited
upon a voluntary termination of employment without "good reason" or involuntary
termination of employment for "cause." However, in the event of death,
disability or a change of control, options and Restricted Stock will be vested
and exercisable for up to one year, or such other period as determined by the
compensation committee, subject to applicable regulatory requirements and,
unless otherwise determined by Troy Financial, to limitations to prevent such
accelerated vesting from constituting an excess parachute payment under the IRC.
Incentive Options and Restricted Stock awards will be non-transferable and
non-assignable (except at death). In its discretion, the compensation committee
may allow an optionee to transfer nonqualified options for estate planning
purposes.
Appropriate adjustments will be made to shares available under the Equity
Compensation Plan and to shares covered by outstanding awards to reflect changes
in Troy Financial's capitalization.
The Equity Compensation Plan will provide that Troy Financial's Board of
Directors may amend it prospectively, except that stockholder approval will be
required if necessary to satisfy IRC requirements for Incentive Options or to
enable nonqualified options to meet the definition of qualified performance
related compensation under Section 162(m) of IRC.
The grant of an option under the Equity Compensation Plan will not be a
taxable event. When a participant in the Equity Compensation Plan exercises a
Non-Statutory Option, he generally will recognize ordinary income equal to the
difference between the exercise price and the fair market value of the common
stock on the date of exercise and Troy Financial generally will be entitled to a
business expense deduction in the same amount. Different rules may apply if the
common stock is subject to restrictions.
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An employee will not recognize taxable income upon exercise of an Incentive
Option, except that alternative minimum tax may apply. Gain realized upon a sale
of shares received pursuant to the exercise of an Incentive Option will be taxed
as long-term capital gain if the employee has held the shares for at least two
years after the grant date and for one year after the date of exercise of the
option. Troy Financial will not be entitled to any business expense deduction
with respect to the grant or exercise of an Incentive Option, except as
discussed below.
If an employee does not complete the special holding period set forth
above, he will recognize ordinary income when he disposes of the shares,
generally in an amount equal to the excess of the fair market value of the
shares at the time the option was exercised over the option exercise price (or,
if less, the amount of gain recognized on the disposition). Any remaining gain
will be taxed as long- or short-term capital gain, depending upon how long the
shares were held. If Troy Financial complies with applicable reporting
requirements, it will be allowed a business expense deduction to the extent the
employee recognizes ordinary income.
The grant of shares of Restricted Stock will not be a taxable event if the
shares are subject to a substantial risk of forfeiture, unless the recipient
makes a special tax election under Section 83(b) of the IRC within 30 days after
the grant. Upon the vesting of shares of Restricted Stock (assuming no Section
83(b) election), the grantee will realize ordinary income equal to the value of
the shares that become vested and Troy Financial will generally be entitled to a
deduction for tax purposes in the same amount, except as limited by Section
162(m) of the IRC, if the employee's annual compensation exceeds $1 million. If
the grantee makes a Section 83(b) election, he will realize ordinary income as
of the grant date in an amount equal to the value of the shares at that time and
Troy Financial generally will be entitled to a deduction in a like amount. A who
makes grantee a Section 83(b) election will not be entitled to any tax deduction
if he subsequently forfeits the shares.
If an employee becomes vested in an option or in shares of Restricted Stock
because of a change of control, the employee may be subject to an additional 20%
excise tax if he has an "excess parachute payment" under the IRC. In that case,
Troy Financial would not be allowed to claim a deduction for the amount that
constituted an excess parachute payment.
Supplemental Retirement and Benefit Restoration Plan
Troy Savings intends to implement a non-tax qualified Supplemental
Retirement and Benefit Restoration Plan (the "Supplemental Plan") to provide
additional benefits to designated employees. Troy Savings anticipates that three
executive officers, including Messrs. Hogarty and O'Bryan, will participate in
the Supplemental Plan. Participants will receive additional retirement benefits
that cannot be provided under Troy Savings' qualified retirement plans, because
of limitations in effect under the IRC. In addition, the Supplemental Plan will
make up for benefits lost under the ESOP allocation procedures if participants
retire or otherwise terminate employment before the ESOP has repaid the funds it
will borrow to purchase common stock.
Each participant in the Supplemental Plan will be entitled to an annual
pension amount at age 65 equal to 65% of his average annual earnings (the
"Pension Amount"), reduced by any amounts actually payable under the Pension
Plan and, in Mr. Hogarty's case, by $26,000 per year. The benefit will be fully
vested upon completion of five years of service (including service before
adoption) and will be reduced in proportion to years of service if the
participant retires or terminates employment before age 65. No more than
$500,000 of Mr. Hogarty's annual compensation will be counted. In the event of
the participant's death, the Pension Amount (reduced by the death benefit
payable under the Pension Plan) will be paid to his surviving spouse for life,
beginning when the participant would have reached age 65. The Pension Amount
will be actuarially reduced if benefits are before the participant attains (or
would have attained) age 65, unless the participant is eligible for an unreduced
early retirement benefit under the Pension Plan, and will be reduced by the
benefit payable at that time under the Pension Plan.
Each participant in the Supplemental Plan will also be entitled to an
annual defined contribution amount, based on the matching contribution Troy
Savings would make to the 401(k) Plan if the participant made the
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maximum allowable pre-tax contribution, and there were no nondiscrimination
limitations, reduced by the maximum matching contribution that could actually be
made under such circumstances, but applying existing nondiscrimination
provisions. The defined contribution amounts will be reflected in a bookkeeping
account on Troy Savings' books and will be credited with earnings based on the
performance of investments selected by the participant. The defined contribution
amounts will be fully vested and will be paid in a lump sum upon the
participant's retirement or other termination of employment.
Each participant in the Supplemental Plan will also be entitled, at
retirement or other termination of employment, to an additional benefit if
shares have not been allocated under the ESOP because the ESOP has not repaid
its loan. The benefit will be based on (a) the number of shares of common stock
that were allocated to the participant under the ESOP during the last plan year
before the retirement, termination of employment or change of control multiplied
by (b) the number of years remaining in the term of the ESOP loan. The vesting
provisions of the ESOP will apply to the ESOP Replacement Benefit.
Participants' rights to benefits under the Supplemental Plan will be
limited to those of general unsecured creditors of Troy Savings. Troy Savings
may establish a trust to provide funds to pay benefits under the Supplemental
Plan, but the assets of the trust will be subject to claims of Troy Savings'
creditors in the event of insolvency and, if the trust invests in Troy
Financial's common stock, Troy Savings will have the right to substitute other
assets for the common stock.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Certain executive officers of Troy Savings were customers of, and had other
transactions with, Troy Savings in the ordinary course of business. Loans to
these parties were made on Troy Savings' normal credit terms, including interest
rates and collateralization. The aggregate of such loans totaled less than 5% of
Troy Savings' total equity at September 30, 1998. Troy Financial intends that
all transactions between Troy Financial and its executive officers, directors,
holders of 10% or more of Troy Financial's stock and affiliates thereof, will
contain terms no less favorable to Troy Financial than could have been obtained
by it in arms-length negotiations with unaffiliated persons and will be approved
by a majority of Troy Financial's independent directors who do not have any
interest in the transaction.
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SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND TRUSTEES
The following table sets forth the number of shares of stock Troy Savings'
executive officers and trustees and their associates, propose to purchase,
assuming shares of common stock are issued at the minimum and maximum of the
estimated price range and that sufficient shares will be available to satisfy
their subscriptions. The table also sets forth the total expected beneficial
ownership of stock as to all trustees and executive officers as a group.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED OF THE ESTIMATED
PRICE RANGE(1) PRICE RANGE(1)
---------------------- ---------------------
AS A % AS A %
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- ---- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Daniel J. Hogarty, Jr. ................... $1,000,000 100,000(2) 1.33% 100,000 .95%
George H. Arakelian....................... 1,000,000 100,000(2) 1.33 100,000 .95
Richard B. Devane......................... 20,000 2,000 -- 2,000 --
Michael E. Fleming........................ 300,000 30,000 .40 30,000 .29
Willie Anderson Hammett................... 200,000 20,000 .26 20,000 .20
Thomas B. Healy........................... 500,000 50,000 .66 50,000 .49
Keith D. Millsop.......................... 400,000 40,000 .53 40,000 .39
Edward G. O'Haire......................... 400,000 40,000 .53 40,000 .39
Marvin L. Wulf............................ 200,000 20,000 .26 20,000 .20
Michael C. Mahar.......................... 60,000 6,000 .08 6,000 .06
Edward M. Maziejka, Jr. .................. 70,000 7,000 .09 7,000 .07
Kevin M. O'Bryan.......................... 100,000 10,000 .13 10,000 .10
All Trustees and Executive Officers as a
group (12 persons)................... $4,250,000 425,000 5.64% 425,000 4.17%
</TABLE>
- ---------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are expected
to be 8% of the shares issued in the conversion, including shares
contributed to the Community Foundation. Also does not include shares to be
contributed to the Community Foundation, which amount will vary depending
upon the number of shares sold, common stock which may be awarded under the
MRP to be adopted equal to 4% of the common stock issued in the conversion,
including shares contributed to the Community Foundation and common stock
which may be purchased pursuant to options which may be granted under the
Equity Compensation Plan equal to 10% of the number of shares of common
stock issued in the conversion, including shares contributed to the
Community Foundation.
THE CONVERSION
THE BOARD OF TRUSTEES OF TROY SAVINGS AND THE NEW YORK SUPERINTENDENT HAVE
APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF TROY SAVINGS'
DEPOSITORS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH APPROVAL BY
THE NEW YORK SUPERINTENDENT, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN OF CONVERSION BY THE NEW YORK SUPERINTENDENT.
GENERAL
On July 15, 1998, the Board of Trustees of Troy Savings adopted a plan of
conversion, as amended on December 10, 1998 and January 28, 1999 (the "Plan of
Conversion"), pursuant to which Troy Savings will convert from a New York
State-chartered mutual savings bank to a New York State-chartered capital stock
savings bank under the same name. The Plan of Conversion also contemplates that,
upon the conversion of Troy Savings to the stock form of organization, all of
the stock of Troy Savings will be owned by a bank holding company organized as a
Delaware corporation that will issue its own common stock to certain
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depositors and members of the general public. The Plan of Conversion has been
approved by the New York Superintendent and Troy Savings has received a notice
of intent not to object to the Plan of Conversion from the FDIC, subject to,
among other things, approval of the Plan of Conversion by Troy Savings' eligible
depositors. The Federal Reserve has approved the application of Troy Financial
to become a bank holding company by acquiring Troy Savings. A special meeting of
eligible depositors has been called for this purpose to be held on
, 1999.
In the conversion, Troy Financial will acquire all of the issued and
outstanding shares of Troy Savings' capital stock. Troy Financial will offer the
common stock to Eligible Account Holders, the ESOP and the Supplemental Eligible
Account Holders in the respective priorities and upon the terms and conditions
set forth in the Plan of Conversion. Any shares of common stock not subscribed
for by the foregoing classes of persons will then be offered for sale to certain
members of the public directly through a Community Offering and/or a Syndicated
Community Offering, through an underwritten firm commitment public offering or
through a combination thereof. If a holding company is not utilized and thus
Troy Financial is not utilized, then the common stock of Troy Savings will be
sold in the manner described above pursuant to the priorities set forth in the
Plan of Conversion.
The Plan of Conversion also provides that, immediately following the
conversion, Troy Financial intends to contribute to the Community Foundation a
number of shares of its authorized but unissued common stock. The Community
Foundation, along with the established Charitable Foundation, will provide for
charitable activities in Troy Savings' community. The Community Foundation will
allow Troy Savings' local communities to share in the potential growth and any
profitability of Troy Financial and Troy Savings over the long-term.
Although the Plan of Conversion has been unanimously approved by the Board
of Trustees of Troy Savings present at a meeting duly called under Troy Savings'
Bylaws, and pursuant to the notice requirements of the New York Banking Law, the
Plan of Conversion must also be approved by the affirmative vote of at least 75%
in amount of deposit liabilities represented in person or by proxy at the
Special Meeting and by the affirmative vote of at least a majority of the amount
of votes eligible to be cast at the Special Meeting. The Board of Trustees will
appoint an independent custodian and tabulator to receive and hold proxies to be
voted at the Special Meeting and count the votes cast in favor of and in
opposition to the Plan of Conversion.
The aggregate price of the shares of common stock to be sold in the
conversion will be determined based upon an independent appraisal prepared by
FinPro of the estimated pro forma market value of the common stock giving effect
to the conversion. All shares of common stock to be issued and sold in the
conversion will be sold at the same price. FinPro's independent appraisal will
be updated and the final price of the shares of common stock will be determined
at the completion of the Subscription Offering, if all shares are subscribed
for, or at the completion of the Community and/or Syndicated Offering. FinPro is
a consulting firm experienced in the valuation and appraisal of savings
institutions. See "-- Stock Pricing" for additional information as to the
determination of the estimated pro forma market value of the common stock.
The following is a brief summary of pertinent aspects of the Plan of
Conversion. The summary is qualified in its entirety by reference to the
provisions of the Plan of Conversion. A copy of the Plan of Conversion is
available from Troy Savings upon written request directed to
and is available for inspection at the offices of Troy
Savings and at the office of the New York Superintendent. The Plan of Conversion
is also filed as an Exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
PURPOSES OF THE CONVERSION
The Board of Trustees has carefully considered the corporate structures and
charter alternatives available to Troy Savings, including maintaining Troy
Savings' current form. Based on this evaluation, the Board of Trustees has
determined that the mutual to stock conversion, and concurrent holding company
formation, is in the best interests of Troy Savings, its depositors and the
communities served by Troy Savings. If the concurrent holding company formation
cannot be accomplished, the Board of Trustees still believes that the
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mutual to stock conversion is in the best interests of Troy Savings, its
depositors and the communities served by Troy Savings.
Troy Savings, as a New York State-chartered mutual savings bank, does not
have stockholders and has no authority to issue capital stock. By converting to
the capital stock form of organization, Troy Savings will be structured in the
form used by most financial service providers, including savings banks, and
therefore will enable Troy Financial and Bank to compete more effectively with
such institutions. The conversion will also allow Troy Financial to access the
capital markets in order to raise additional capital as needed, and will
facilitate Troy Financial's establishment or acquisition of a commercial bank
and trust company that can accept municipal deposits to complement Troy Savings'
municipal investment activities. The newly raised capital may also be used to
increase Troy Savings' presence in its communities and to attract new customers
through expanded operations, acquisitions of other financial institutions or
branches and diversification of operations. Although there are no current
arrangements, understandings or agreements regarding any such opportunities,
Troy Financial will be in a position after the conversion, subject to regulatory
limitations and Troy Financial's financial position, to take advantage of any
such opportunities that may arise. While there are benefits associated with the
holding company form of organization, such form of organization may involve
additional costs associated with its maintenance and regulation as a bank
holding company to be registered with the Federal Reserve, such as additional
administrative expenses, taxes and regulatory filings or examination fees.
The potential impact of the conversion upon Troy Savings' capital base is
significant. At September 30, 1998, Troy Savings had Tier I Leverage capital of
$70.1 million, or 9.89% of total adjusted quarterly average assets. Assuming
that $114.7 million (using the maximum plus 15% of the estimated price range) of
net proceeds are realized from the sale of common stock (see "Pro Forma Data"
for the basis of this assumption) and assuming that 50% of the net proceeds are
used by Troy Financial to purchase the capital stock of Troy Savings, Troy
Savings' Tier I Leverage capital would increase to $112.9 million, resulting in
a pro forma leverage capital ratio of 15.02% giving effect to the conversion.
After completion of the conversion, the unissued common stock and preferred
stock authorized by Troy Financial's certificate of incorporation will permit
Troy Financial, subject to market conditions and applicable regulatory
approvals, to raise additional equity capital through further sales of
securities, and to issue
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securities in connection with possible acquisitions. At the present time, Troy
Financial has no plans with respect to additional offerings of securities, other
than the issuance of additional shares to the Community Foundation and issuance
of shares upon exercise of stock options under the Equity Compensation Plan,
ESOP and MRPs. Following the conversion, Troy Financial will also be able to use
stock-based benefit plans to attract and retain executive and other personnel
for itself and its subsidiaries. See "Management of Troy Savings -- Executive
Compensation."
EFFECTS OF CONVERSION
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which may have realizable value
only in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time, as owners, would have a claim to
share pro rata in any residual surplus and reserves after other claims,
including claims of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds representing the
liquidation account established in connection with the conversion. Additionally,
permanent nonwithdrawable capital stock is created and offered to depositors
which represents the ownership of the institution's net worth, subject to
certain claims of Eligible Account Holders and Supplemental Eligible Account
Holders with respect to amounts representing the liquidation account. THE COMMON
STOCK IS SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Certificates are issued to
evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any deposit account the seller may hold in the
institution.
Continuity. While the conversion is being accomplished, the normal
business of Troy Savings of accepting deposits and making loans will continue
without interruption. Troy Savings will continue to be subject to regulation by
the New York Superintendent and the FDIC. After conversion, Troy Savings will
continue to provide services for depositors and borrowers under current policies
by its present management and staff.
The trustees of Troy Savings at the time of conversion will serve as
directors of Troy Savings after the conversion. The directors of Troy Financial
will consist of the same individuals who will serve on the Board of Directors of
Troy Savings. All officers of Troy Savings at the time of conversion will retain
their positions after the conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in Troy Savings
at the time of conversion will automatically continue as a depositor after the
conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the conversion. Depositors will
continue to hold their existing passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from Troy Savings will be affected by
the conversion, and the amount, interest rate, maturity and security for each
loan will remain as it was contractually fixed prior to the conversion.
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Effect on Voting Rights of Depositors. In its current mutual form, voting
rights and control of Troy Savings are vested exclusively in the Board of
Trustees. After the conversion, direction of Troy Savings will be under the
control of the Board of Directors of Troy Savings. Troy Financial, as the holder
of all of the outstanding common stock of Troy Savings, will have exclusive
voting rights with respect to any matters concerning Troy Savings requiring
stockholder approval, including the election of directors of Troy Savings.
After the conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the common stock will
have exclusive voting rights with respect to any matters concerning Troy
Financial. Each holder of common stock will, subject to the restrictions and
limitations set forth in Troy Financial's Certificate of Incorporation discussed
below, be entitled to vote on any matters to be considered by Troy Financial's
stockholders, including the election of directors of Troy Financial.
Tax Effects. Troy Savings has received an opinion of counsel with regard
to federal income taxation which indicates that the adoption and implementation
of the Plan of Conversion set forth herein will not be taxable for federal
income tax purposes. Troy Savings has also received an opinion from KPMG LLP
with respect to New York State franchise and income taxes that the Plan of
Conversion will not be taxable for New York State tax purposes to Troy Savings
or its Eligible Account Holders and Supplemental Eligible Account Holders or
Troy Financial, subject to the limitations and qualifications in such opinion.
See "-- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to liquidate,
all claims of creditors (including those of depositors, to the extent of deposit
balances) would be paid first. Thereafter, if there were any assets remaining,
depositors would have a claim to receive such remaining assets, pro rata, based
upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that Troy Savings were to liquidate after
conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account," if any, to certain depositors (as
described in "-- Liquidation Rights," below), with any assets remaining
thereafter distributed to Troy Financial as the holder of Troy Savings' capital
stock.
STOCK PRICING
The Plan of Conversion requires that the purchase price of the common stock
must be based on the appraised pro forma market value of the common stock, as
determined on the basis of an independent appraisal. Troy Savings and Troy
Financial have retained FinPro to make such appraisal. For its services in
making such appraisal, FinPro will receive a fee of $ , including fees
related to the preparation of a business plan for Troy Financial and Bank, and
will be reimbursed for certain of its expenses. Troy Savings and Troy Financial
have agreed to indemnify FinPro and its employees and affiliates against certain
losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as the independent appraiser,
except where FinPro's liability results from its negligence or willful
misconduct.
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of Troy Financial and Troy
Savings, including liquidity, capitalization, asset composition, funding mix,
amount of intangible assets owned, and level of interest rate risk; the
economic, demographic and competitive aspects of Troy Savings' existing
marketing area; the quality and depth of Troy Savings' management; certain
historical, financial and other information relating to Troy Savings; a
comparative evaluation of the operating and financial statistics of Troy Savings
with those of other savings institutions; the aggregate size of the offering of
the common stock; the impact of conversion on Troy Savings' net worth and
earnings potential; the proposed dividend policy of Troy Financial and Troy
Savings; the trading market for securities of comparable institutions and
general conditions in the market for such securities; and recent regulatory
matters. In particular, the appraisal considered Troy Savings' financial
condition and projected and historical operating results, including income and
expense trends, asset size, loan portfolio composition, non-performing loans and
assets, interest rate sensitivity position, capital position, and yields on
assets and costs of liabilities in comparison to other publicly-traded thrifts
with assets greater than or equal to $650 million and less than or equal to
$1.1. billion
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located in the Mid-Atlantic, New England and/or Midwest regions. The Board of
Trustees of Troy Savings and Board of Directors of Troy Financial have reviewed
the appraisal of FinPro in determining the reasonableness and adequacy of such
appraisal consistent with New York Banking Board and FDIC regulations and have
reviewed the methodology and reasonableness of assumptions utilized by FinPro in
the preparation of such appraisal and established the estimated price range in a
manner consistent with this appraisal.
On the basis of the foregoing, FinPro has advised Troy Financial and Troy
Savings that, in its opinion dated as of January 29, 1999, the estimated pro
forma market value of the common stock being sold in connection with the
conversion ranged from a minimum of $75,395,000 to a maximum of $102,005,000
(the "estimated price range") with a midpoint of $88,700,000. This establishes
the number of shares to be offered (7,539,500 to 10,200,500), based on an
offering price of $10.00 per share. If the appraised market value of the common
stock changes due to market or financial conditions, then, without notice, Troy
Financial may be required to offer up to an additional 15% above the maximum
number of shares or 11,730,575 shares. The estimated price range may be amended
with the approval of the New York Superintendent and FDIC, if required, if
necessitated by subsequent developments in the financial condition of Troy
Financial or Troy Savings or market conditions generally.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES OF
COMMON STOCK. FINPRO DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION PROVIDED BY TROY SAVINGS, NOR DID FINPRO VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF TROY SAVINGS. THE APPRAISAL CONSIDERS
TROY SAVINGS AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF
THE LIQUIDATION VALUE OF TROY SAVINGS. MOREOVER, BECAUSE SUCH APPRAISAL IS
NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF
WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT
PERSONS PURCHASING SUCH SHARES IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL
SUCH SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE
FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE THEREOF.
No sale of shares of common stock may be consummated unless, prior to such
consummation, FinPro confirms to Troy Savings, Company, New York Superintendent
and FDIC that, to the best of its knowledge, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause FinPro to
conclude that the value of the common stock at the price so determined is
incompatible with its estimate of the pro forma market value of the common stock
at the conclusion of the Subscription and Community Offerings.
If the pro forma market value of the common stock is either more than 15%
above the maximum of the estimated price range ($117,305,750) or less than the
minimum of the estimated price range ($75,395,000), Troy Savings and Troy
Financial, after consulting with the New York Superintendent and FDIC, may
terminate the conversion and return all funds promptly with interest, extend or
hold a new Subscription Offering, Community Offering and/or Syndicated Community
Offering, establish a new estimated price range, commence a resolicitation of
subscribers or take such other actions as permitted by the New York
Superintendent and FDIC in order to complete the conversion. In the event that a
resolicitation is commenced, unless an affirmative response is received within a
reasonable period of time, all funds will be promptly returned to investors as
described above. A resolicitation following the conclusion of the Subscription
Offering and Community Offering would not exceed 45 days or, if following the
Syndicated Community Offering, would not exceed 60 days, unless such
resolicitation period is further extended by the New York Superintendent or FDIC
for periods of up to 60 days not to extend beyond , 1999.
If all shares of common stock are not sold through the Subscription
Offering and Community Offering, then Troy Savings and Troy Financial expect to
offer the remaining shares in a Syndicated Community Offering which would occur
as soon as practicable following the close of the Subscription Offering and
Community Offering but may commence the Syndicated Community Offering during the
Subscription Offering and Community Offering subject to prior rights of
subscribers. All shares of common stock will be
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sold at the same price per share in the Syndicated Community Offering as in the
Subscription Offering and Community Offering. See "-- Syndicated Community
Offering."
No sale of shares of common stock may be consummated unless, prior to such
consummation, FinPro confirms to Troy Savings, Company, New York Superintendent
and FDIC that, to the best of its knowledge, nothing of a material nature has
occurred which, taking into account all relevant factors, including those which
would be involved in a cancellation of the Syndicated Community Offering, would
cause FinPro to conclude that the aggregate market value of the common stock is
incompatible with its estimate of the pro forma market value of the common stock
of Troy Financial at the time of the Syndicated Community Offering. Any change
which would result in an aggregate purchase price which is below or more than
15% above the estimated price range would be subject to New York Superintendent
and FDIC approval. If such confirmation is not received, Troy Savings may extend
the conversion, extend, reopen or commence a new Subscription Offering and
Community Offering and/or Syndicated Community Offering, establish a new
estimated price range and commence a resolicitation of all subscribers with the
approval of the New York Superintendent and FDIC or take such other actions as
permitted by the New York Superintendent and FDIC in order to complete the
conversion, or terminate the Plan of Conversion and cancel the Subscription
Offering and Community Offering and/or the Syndicated Community Offering. In the
event market or financial conditions change so as to cause the aggregate
purchase price of the shares to be below the minimum of the estimated price
range ($75,395,000) or more than 15% above the maximum of the estimated price
range ($117,305,750), and Troy Financial and Troy Savings determine to continue
the conversion, subscribers will be resolicited (i.e., be permitted to continue
their orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest, or be permitted to
decrease or cancel their subscriptions). Any change in the estimated price range
must be approved by the New York Superintendent and FDIC. A resolicitation, if
any, following the conclusion of the Subscription and Community Offerings would
not exceed 45 days, or if following the Syndicated Community Offering, 60 days,
unless further extended by the New York Superintendent or FDIC for periods up to
60 days not to extend beyond , 1999. If such resolicitation is not
effected, Troy Savings will return all funds promptly with interest.
Copies of the appraisal report of FinPro including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection by any Eligible
Account Holder or Supplemental Eligible Account Holder at Troy Savings' main
office located at 32 Second Street, Troy, New York 12180, during regular
business hours of Troy Savings. Copies of the appraisal may also be requested by
Eligible Account Holders or Supplemental Eligible Account Holders; provided,
however, that such Eligible Account Holders or Supplemental Eligible Account
Holders shall be responsible for all costs associated with the copying and
transmittal of such appraisal. See "Additional Information."
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the commencement of
the Subscription Offering and Community Offerings, the total number of shares to
be sold in the conversion may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the price per share is not below the minimum of the estimated price range or
more than 15% above the maximum of the estimated price range. Based on a fixed
purchase price of $10.00 per share and FinPro's estimate of the pro rata market
value of the common stock ranging from a minimum of $75,395,000 to a maximum
plus 15% of $117,305,750, the number of shares of common stock expected to be
issued is between a minimum of 7,539,500 shares and a maximum plus 15% of
11,730,575 shares. The actual number of shares issued between this range will
depend on a number of factors and shall be determined by Troy Savings and
Company subject to New York Superintendent and FDIC approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the estimated
price range or more than 15% above the maximum of the estimated price range, if
the Plan is not terminated by Troy Financial and Troy Savings after consultation
with the New York Superintendent and FDIC, purchasers will be resolicited (i.e.,
permitted to continue their
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orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions. Any change in the estimated price range must be
approved by the New York Superintendent and FDIC. If the number of shares issued
in the conversion is increased due to an increase of up to 15% in the estimated
price range to reflect changes in market or financial conditions, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares. See "-- Limitations on
Common Stock Purchases."
An increase in the number of shares to be issued in the conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and Troy Financial's pro forma net
earnings and stockholders' equity on a per share basis while increasing pro
forma net earnings and stockholders' equity on an aggregate basis. A decrease in
the number of shares to be issued in the conversion would increase both a
subscriber's ownership interest and Troy Financial's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the sale
of common stock in the conversion will be increased by the number of shares used
to fund the Community Foundation. Assuming the sale of shares in the offerings
at the maximum of the estimated price range, Troy Financial intends to
contribute 286,030 shares of its common stock from authorized but unissued
shares to the Community Foundation immediately following the completion of the
conversion. In that event, Troy Financial will have total shares of common stock
outstanding of 10,486,530 shares. Of that amount, the Community Foundation will
own 2.80%. Funding the Community Foundation with authorized but unissued shares
will have the effect of diluting the ownership and voting interests of persons
purchasing shares in the conversion by 2.73% since a greater number of shares
will be outstanding upon completion of the conversion than would be if the
Community Foundation were not funded. See "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of common stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority:
1. Eligible Account Holders -- those persons who held deposit accounts
(containing balances of at least $100) at Troy Savings on June 30, 1997.
2. ESOP.
3. Supplemental Eligible Account Holders -- those persons (other than
Eligible Account Holders) who held deposit accounts (containing balances
of at least $100) with Troy Savings on December 31, 1998.
All subscriptions received will be subject to the availability of common
stock after satisfaction of all subscriptions of all persons having prior rights
in the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "-- Limitations
on common stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment, as a first priority, nontransferable subscription
rights to subscribe for shares of common stock in the Subscription Rights
Offering up to the amount permitted to be purchased in the Community Offering,
currently $500,000 of common stock, subject to the overall maximum purchase
limitation. See "-- Limitations on common stock Purchases." Subscription rights
as Eligible Account Holders received by trustees and Officers of Troy Savings
and their associates based on increased deposits in Troy Savings during the
one-year period preceding June 30, 1997 will be subordinated to all other
subscription rights of Eligible Account Holders.
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of common stock in excess of the total number of such shares
eligible for subscription, the shares of common
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stock will be allocated among the subscribing Eligible Account Holders so as to
permit each subscribing Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Eligible Account Holder. Thereafter, any shares remaining
after that allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that the amount
of the qualifying deposit of each remaining Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the qualifying
deposits of all subscribing Eligible Account Holders whose subscriptions remain
unsatisfied. If any shares remain after the above allocations, such shares shall
then be allocated among those remaining Eligible Account Holders whose
subscriptions remain unfilled, on the same principle until all available shares
have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible Account
Holder has an ownership interest. Failure to list an account could result in
less shares being allocated than if all accounts had been disclosed.
Priority 2: ESOP. To the extent that there are sufficient shares remaining
after satisfaction of the subscriptions by Eligible Account Holders, the ESOP
will receive, without payment, as a second priority, nontransferable
subscription rights to purchase in the Subscription Rights Offering the number
of shares of common stock requested by any such plan, up to 10% of the common
stock issued in the conversion. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares of common stock is not
available to fill the subscriptions by any such plan, then subscription by such
plan shall be filled to the maximum extent possible. The ESOP intends to
purchase 8% of the shares to be issued in connection with the conversion,
including shares contributed to the Community Foundation, or 609,012 shares and
971,121 shares, based on the issuance of 7,612,653 shares (minimum) and
12,139,011 shares (maximum plus 15%), respectively.
Priority 3: Supplemental Eligible Account Holders. To the extent there are
sufficient shares of common stock remaining after the satisfaction of
subscriptions by Eligible Account Holders and the ESOP, each Supplemental
Eligible Account Holder will receive, without payment, as a third priority,
nontransferable subscription rights to subscribe for shares of common stock
equal to the amount permitted to be subscribed for in the Community Offering
which amount is currently $500,000, subject to the overall maximum purchase
limitation. See "-- Limitations on common stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of common stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the qualifying deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If any shares remain after the above allocations, such shares shall
then be allocated among those remaining Supplemental Eligible Account Holders
whose subscriptions remain unfilled on the same principle until all available
shares have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his or her stock order form all accounts in which such
Supplemental Eligible Account Holder has an ownership interest. Failure to list
an account could result in less shares being allocated than if all accounts had
been disclosed. Subscription rights received by an Eligible Account Holder shall
be applied in partial satisfaction of the subscription rights to be received as
a Supplemental Eligible Account Holder.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire on , 1999 at 12:00 noon, New York time ("Expiration
Date"), unless extended for up to days by Troy Savings and Company or
such additional periods with the approval of the New York Superintendent and
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FDIC, if required. Subscription rights which have not been exercised prior to
the Expiration Date will become void. Troy Savings will not execute orders until
all shares of common stock have been subscribed for or otherwise sold. If all
shares have not been subscribed for or sold within days after the
Expiration Date, unless such period is extended with the consent of the New York
Superintendent and FDIC, all funds delivered to Troy Savings pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be canceled. If an extension beyond the
day period following the Expiration Date is granted, Troy Savings will
notify subscribers of the extension of time and of any rights of subscribers to
modify or rescind their subscriptions and have their funds returned promptly
with interest, and of the time period within which subscribers must
affirmatively notify Troy Savings of their intention to confirm, modify, or
rescind their subscription. If an affirmative response to any resolicitation is
not received by Troy Financial from a subscriber, such order will be rescinded
and all subscription funds will be promptly returned with interest. Such
extensions may not go beyond , 1999.
COMMUNITY OFFERING
If shares of common stock remain available following the Subscription
Offering, then those remaining shares will be sold, as a fourth priority, in a
Community Offering to certain members of the general public. Participants in the
Community Offering may, together with any associate or group of persons acting
in concert, subscribe for up to $500,000 of common stock subject to the minimum
and maximum purchase limitations set forth in the Plan of Conversion See
"-- Limitations on common stock Purchases." The shares may be made available in
the Community Offering through a direct community marketing program which may
provide for utilization of a broker, dealer, consultant or investment banking
firm. In offering the unsubscribed for shares to the public in the Community
Offering, Troy Financial and Troy Savings may establish the relative
preferences, priorities, purchase limitations and allocation of shares among
persons, including Bank investors, subscribing for shares. Troy Savings may
establish all other terms and conditions of such offer. Troy Savings will make a
distribution of the stock to be sold in the Community Offering in such a manner
as to promote a wide distribution of the stock, and will give a preference to
natural persons residing in the counties in which Troy Savings has its home
office or branch offices. Troy Savings reserves the right to reject any or all
orders, in whole or in part, which are received in the Community Offering.
It is expected that the Community Offering will commence concurrently with
the Subscription Offering. The Community Offering must be completed within 45
days after the completion of the Subscription Offering unless otherwise extended
with the approval of the New York Superintendent and FDIC, if necessary.
RESIDENCE OF PURCHASERS
Troy Financial and Troy Savings will make reasonable efforts to comply with
the securities laws of all states in the United States in which persons entitled
to subscribe for common stock pursuant to the Plan of Conversion reside.
The Plan of Conversion does not permit the issuance of subscription rights
to, or the purchase of common stock in the Subscription Offering or Community
Offering by, a person residing in a foreign country.
MARKETING AND UNDERWRITING ARRANGEMENTS
Troy Savings and Troy Financial have engaged Sandler O'Neill as a
consultant and financial advisor in connection with the offering of the common
stock, and Sandler O'Neill has agreed to assist Troy Savings and Troy Financial
in its solicitation of subscriptions and purchase orders for shares of common
stock in the offerings. Sandler O'Neill will use its best efforts to help us
sell at least 7,539,500 shares of common stock but is not required to sell any
specific amount of common stock. Sandler O'Neill will receive a fee equal to
1.1% of the aggregate purchase price of all shares sold in the conversion,
excluding shares purchased by trustees, directors, officers and employees of
Troy Savings or Company and any immediate family member thereof and the ESOP for
which Sandler O'Neill will not receive a fee. If a selected dealers agreement is
entered into in connection with a Syndicated Community Offering, Troy Financial
and Bank will pay a fee
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(to be negotiated at such time under such agreement) to such selected dealers,
any sponsoring dealers fees, and a management fee to Sandler O'Neill of 1.10%
for shares sold by a NASD member firm pursuant to a selected dealers agreement;
provided, however, that the aggregate fees payable to Sandler O'Neill for common
stock sold by them pursuant to such a selected dealers agreement shall not
exceed 1.10% of the aggregate purchase price and provided, further, however,
that the aggregate fees payable to Sandler O'Neill and the selected dealers will
not exceed 1.10% of the aggregate purchase price of the common stock sold by
selected dealers. Fees to Sandler O'Neill and to any other broker-dealer may be
deemed to be underwriting fees, and Sandler O'Neill and such broker-dealers may
be deemed to be underwriters. Sandler O'Neill will also be reimbursed for its
reasonable out-of-pocket expenses, including legal fees. Notwithstanding the
foregoing, in the event the offerings are not consummated or Sandler O'Neill
ceases, under certain circumstances after the subscription solicitation
activities are commenced, to provide assistance to Troy Financial, Sandler
O'Neill will be entitled to a fee for its management advisory services in an
amount to be agreed upon by Troy Savings and Sandler O'Neill, and based upon the
amount of services performed by Sandler O'Neill and will also be reimbursed for
its reasonable out-of-pocket expenses as described above. Troy Financial and
Troy Savings have agreed to indemnify Sandler O'Neill for reasonable costs and
expenses in connection with certain claims or liabilities, including certain
liabilities under the Securities Act of 1933, as amended ("Securities Act").
Sandler O'Neill has received advances towards its marketing and financial
advisory service fees totaling $50,000. Total marketing fees to Sandler O'Neill
are expected to be $707,000 and $975,000 at the minimum and the maximum of the
estimated price range, respectively. See "Pro Forma Data" for the assumptions
used to arrive at these estimates.
Sandler O'Neill, in its role as conversion agent, will also perform proxy
solicitation services, conversion agent services and records management services
for Troy Savings in the conversion and will receive a fee for these services of
$30,000, plus reimbursement of reasonable out-of-pocket expenses.
Directors, trustees and executive officers of Troy Financial and Bank may
participate in the solicitation of offers to purchase common stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. Other employees of Troy Savings may participate in the offering
in ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of common stock.
Troy Financial will rely on Rule 3a4-1 under the Securities Exchange Act of
1934, as amended ("Exchange Act"), and sales of common stock will be conducted
within the requirements of Rule 3a4-l, so as to permit officers, trustees,
directors and employees to participate in the sale of common stock. No officer,
trustee, director or employee of Troy Financial or Troy Savings will be
compensated in connection with his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the common stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from Troy
Savings' deposit account (which may be given by completing the appropriate
blanks in the stock order form), must be received by Troy Savings at any of its
offices by p.m., New York time, on , 1999. Stock order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, Troy Savings and Company are not obligated to
accept orders submitted on photocopied or facsimilied stock order forms and will
not accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, Troy Financial and Bank shall have the right,
each in their sole discretion, to permit institutional investors to submit
irrevocable orders together with a legally
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binding commitment for payment and to thereafter pay for the shares of common
stock for which they subscribe in the Community Offering at any time prior to 48
hours before the completion of the conversion. Troy Financial and Troy Savings
have the right to waive or permit the correction of incomplete or improperly
executed forms, but do not represent that they will do so. Once received, an
executed stock order form may not be modified, amended or rescinded without the
consent of Troy Savings unless the conversion has not been completed within 45
days after the end of the Subscription and Community Offerings, unless such
period has been extended.
In order to ensure that Eligible Account Holders and Supplemental Eligible
Account Holders are properly identified as to their stock purchase priorities,
depositors of Troy Savings as of the eligibility record date (June 30, 1997)
and/or the supplemental eligibility record date ([December 31, 1998]) must list
all accounts on the stock order form giving all names in each account and the
account number.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of Troy Savings, (ii) by check or money order, or (iii) by
authorization of withdrawal from deposit accounts maintained with Troy Savings.
No wire transfers will be accepted. Interest will be paid on payments made by
cash, check or money order at Troy Savings' passbook rate of interest from the
date payment is received until the completion or termination of the conversion.
If payment is made by authorization of withdrawal from deposit accounts, the
funds authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
conversion, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the conversion.
If a subscriber authorizes Troy Savings to withdraw the amount of the
purchase price from his deposit account, Troy Savings will do so as of the
effective date of the conversion. Troy Savings will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are transferred under the
authorization, the certificate will be canceled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at Troy Savings'
passbook rate. If a certificate account or other time account matures prior to
the conversion's completion or termination, such funds will earn interest at
Troy Savings' regular passbook rate from the time of maturity until completion
or termination of the conversion.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of common stock subscribed for
at the purchase price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from Troy Financial or an unrelated financial institution to lend to
the ESOP, at such time, the aggregate purchase price of the shares for which it
subscribed.
Owners of self-directed IRAs and other qualified plan accounts, such as
Keogh and 401(k) Plan accounts, may use the assets of such IRAs and other
qualified plan accounts to purchase shares of common stock in the Subscription
and Community Offerings, provided that such IRAs or other qualified plan
accounts (other than Troy Savings' 401(k) Plan) are not maintained at Troy
Savings or any subsidiary of Troy Savings and that the terms of the IRA or
qualified plan permit the purchase. Persons with self-directed IRAs or qualified
plan accounts maintained at Troy Savings or any subsidiary of Troy Savings must
have their accounts transferred to an unaffiliated institution or broker to
purchase shares of common stock in the Subscription and Community Offerings. In
addition, the provisions of ERISA and IRS regulations require that officers,
directors and ten percent shareholders who use self-directed IRA or qualified
plan account funds to purchase shares of common stock in the Subscription and
Community Offerings make such purchases for the exclusive benefit of the IRAs or
qualified plan accounts.
Certificates representing shares of common stock purchased will be mailed
to purchasers at the address specified in properly completed stock order forms,
as soon as practicable following consummation of the sale of all shares of
common stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
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RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the conversion, the New York Banking Board
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the Plan
or the shares of common stock to be issued upon their exercise. Such rights may
be exercised only by the person to whom they are granted and only for his or her
account. Each person exercising such subscription rights will be required to
certify that he or she is purchasing shares solely for his or her own account
and that he or she has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of common stock prior to the completion of
the conversion.
TROY SAVINGS AND TROY FINANCIAL WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the conversion, the Plan provides that, if feasible, all
shares of common stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of Troy Financial to
assist Troy Financial and Troy Savings in the sale of the common stock. TROY
FINANCIAL AND TROY SAVINGS HAVE THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART
IN THEIR SOLE DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. Neither Sandler
O'Neill nor any registered broker-dealer shall have any obligation to take or
purchase any shares of the common stock in the Syndicated Community Offering,
however, Sandler O'Neill has agreed to use its best efforts in the sale of
shares in the Syndicated Community Offering.
The price at which common stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing." Subject
to the overall maximum purchase limitation, no person, together with any
associate or group of persons acting in concert, will be permitted to subscribe
in the Syndicated Community Offering for more than $500,000 of common stock;
provided, however, that shares of common stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to an overall maximum purchase limitation of
$1.0 million (100,000 shares).
Payments made in the form of a check, money order or in cash will earn
interest at Troy Savings' passbook rate of interest from the date such payment
is actually received by Troy Savings until completion or termination of the
conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to Troy Savings for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to Troy Savings for deposit in a segregated
account. Although purchasers' funds are not required to be in their accounts
with selected dealers until the debit date in the event that such alternative
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procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
Certificates representing shares of common stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
common stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than
days following the Subscription Expiration Date, unless extended by Troy
Financial with the approval of the New York Superintendent and FDIC. Such
extensions may not be beyond , 1999. See "-- Stock Pricing" above
for a discussion of rights of subscribers, if any, in the event an extension is
granted.
LIMITATIONS ON PURCHASES
The Plan includes the following limitations on the number of shares of
common stock which may be purchased during the conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the amount permitted to be purchased in the
Community Offering, currently $500,000 of common stock, subject to the
overall maximum purchase limitation described in (7) below;
(3) The ESOP is permitted to purchase, in the aggregate, up to 10% of the
shares of common stock issued in the conversion, including shares
issued in the event of an increase in the estimated price range of 15%,
and the ESOP intends to purchase 8% of the shares of common stock
issued in connection with the conversion, including shares contributed
to the Community Foundation (838,922 shares using the maximum of the
estimated price range);
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the amount permitted to be
purchased in the Community Offering, currently $500,000 of common
stock, subject to the overall maximum purchase limitation described in
(7) below;
(5) Persons purchasing shares of common stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to
$500,000 of common stock, subject to the overall maximum purchase
limitation described in (7) below;
(6) Persons purchasing shares of common stock in the Syndicated Community
Offering, together with associates of and persons acting in concert
with such persons, may purchase in the Syndicated Offering up to
$500,000 of common stock subject to the overall maximum purchase
limitation described in (7) below and, provided further, that shares of
common stock purchased in the Community Offering by any persons,
together with associates of and persons acting in concert with such
persons, will be aggregated with purchases in the Syndicated Community
Offering in applying the $500,000 purchase limitation;
(7) Eligible Account Holders and Supplemental Eligible Account Holders may
purchase stock in the Community Offering and Syndicated Community
Offering, subject to the purchase limitations described in (5) and (6)
above, provided that, except for the ESOP, the overall maximum number
of shares of common stock subscribed for or purchased in all categories
of the conversion by any person, together with associates of and groups
of persons acting in concert with such persons, shall not exceed
100,000; and
(8) No more than 25% of the total number of shares issued in the conversion
may be purchased by trustees, directors and officers of Troy Savings or
Company and their associates in the aggregate, excluding purchases by
the ESOP.
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Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of depositors of
Troy Savings or subscribers for common stock, both the individual amount
permitted to be subscribed for and the overall maximum purchase limitation may
be increased to up to a maximum of 5% of the common stock to be issued at the
sole discretion of Troy Financial and Troy Savings. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of Troy Savings may be, given the opportunity to increase
their subscriptions up to the then applicable limit.
The overall maximum purchase limitation may not be reduced to less than
100,000 shares or $1.0 million and the individual amount permitted to be
subscribed for may not be reduced by Troy Savings to less than 0.10% without the
further approval of eligible depositors or resolicitation of subscribers. An
Eligible Account Holder or Supplemental Eligible Holder may not purchase
individually in the Subscription Offering the overall maximum purchase limit of
100,000 shares or $1.0 million, but may make such purchase, together with
associates of and persons acting in concert with such person, by also purchasing
in other available categories of the conversion, subject to availability of
shares and the maximum overall purchase limit for purchases in the conversion.
The term "associate" of a person is defined to mean: (a) any corporation or
organization (other than Troy Financial, Troy Savings or a majority-owned
subsidiary of Troy Savings) of which such person is an officer, partner or 10%
stockholder; (b) any trust or other estate in which such person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; provided, however, such term shall not include any employee stock
benefit plan of Troy Savings in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity; and (c) any
relative or spouse of such person, or any relative of such spouse, who either
has the same home as such person or who is a trustee or officer of Troy Savings.
Trustees are not treated as associates of each other solely because of their
Board membership. For a further discussion of limitations on purchases of a
converting institution's stock at the time of conversion and subsequent to
conversion, see "Management of Troy Savings -- Subscriptions by Executive
Officers, Directors and Trustees," "-- Certain Restrictions on Purchase or
Transfer of Shares After Conversion" and "Restrictions on Acquisition of Troy
Financial Corporation."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of Troy Savings in its
present mutual form, each depositor would have a claim to receive their pro rata
share of any assets of Troy Savings remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor would
have a claim to receive a pro rata share of any such remaining assets in the
same proportion as the value of such depositor's deposit accounts to the total
value of all deposit accounts in Troy Savings at the time of liquidation. After
the conversion, each depositor, in the event of a complete liquidation, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of Troy Savings. However, except as described below, his
claim would be solely in the amount of the balance in their deposit account plus
accrued interest. Such depositor would not have an interest in the value or
assets of Troy Savings above that amount.
The Plan provides for the establishment, at the time of the conversion, of
a liquidation account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders in an amount equal to Troy Savings' net
worth (determined in accordance with generally accepted accounting principles)
as set forth in the latest statement of financial condition contained in the
Proxy Statement. The liquidation account will be maintained by Troy Savings for
the benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their deposit accounts at Troy Savings in the
event of a complete liquidation of Troy Savings following the conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall, with
respect to each deposit account, hold a related inchoate interest in a portion
of the liquidation account balance, in relation to each deposit account balance
at June 30, 1997 or , 1999, as the case may be, or to such balance
as it may be subsequently reduced, as hereinafter provided. The initial
liquidation account balance shall not be increased, and shall be subject to
downward
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adjustment to the extent of any downward adjustment of any subaccount balance of
any Eligible Account Holder or Supplemental Eligible Account Holder in
accordance with the Conversion Regulations.
In the unlikely event of a complete liquidation of Troy Savings (and only
in such event), following all liquidation payments to creditors (including those
to Account Holders to the extent of their Accounts) each Eligible Account Holder
and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his deposit account then held, before any
liquidation distribution may be made to any holders of Troy Savings' capital
stock. No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transactions with an
FDIC-insured savings bank, in which Troy Savings is not the surviving
institution, shall be deemed to be a complete liquidation for this purpose. In
such transactions, the liquidation account shall be assumed by the surviving
institution.
The initial subaccount balance for a deposit account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's or
Supplemental Eligible Account Holder's qualifying deposit and the denominator of
which is the total amount of all qualifying deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in Troy Savings. Such initial
subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below.
If, at the close of business on the last day of any period for which Troy
Savings or Troy Financial, as the case may be, has prepared audited financial
statements subsequent to the effective date of conversion, the deposit balance
in the deposit account of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the lesser of (i) the balance in the deposit account
at the close of business on the last day of any period for which Troy Savings or
Troy Financial, as the case may be, has prepared audited financial statements
subsequent to June 30, 1997 or , 1999, as the case may be, or (ii)
the amount in such deposit account as of June 30, 1997 or , 1999, as
the case may be, the subaccount balance for such deposit account shall be
adjusted by reducing such subaccount balance in an amount proportionate to the
reduction in such deposit balance. In the event of such downward adjustment, the
subaccount balance shall not be subsequently increased, notwithstanding any
subsequent increase in the deposit balance of the related deposit account. If
any such deposit account is closed, the related subaccount shall be reduced to
zero. A time account shall be deemed to be closed upon its maturity date
regardless of any renewal. A distribution of each subaccount balance may be made
only in the event of a complete liquidation of Troy Savings subsequent to the
conversion and only out of funds available for such purpose after payment of all
creditors.
Troy Savings is not required to set aside funds for the purpose of
establishing the liquidation account, and the creation and maintenance of the
liquidation account does not operate to restrict the use or application of any
of the net worth accounts of Troy Savings, except that Troy Savings may not
declare or pay a cash dividend on, or repurchase any of, its capital stock if
the effect thereof would cause its net worth to be reduced below the amount
required for the liquidation account.
TAX ASPECTS
Consummation of the conversion is expressly conditioned upon the receipt by
Troy Savings of either a favorable ruling from the IRS or an opinion of counsel
with respect to federal income taxation, and an opinion of KPMG LLP with respect
to certain New York state taxation, to the effect that the conversion will not
be a taxable transaction to Troy Financial, Troy Savings, Eligible Account
Holders or Supplemental Eligible Account Holders, except as noted below. The
federal and New York tax consequences will remain unchanged in the event that a
holding company form of organization is not utilized.
No private ruling has been requested from the IRS with respect to the
proposed conversion. Instead, Troy Savings has received an opinion of its
counsel, Hogan & Hartson L.L.P., which has been filed with the SEC
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as an exhibit to Troy Financial's Registration Statement to the effect that for
federal income tax purposes, among other matters:
- Troy Savings' change in form from mutual to stock ownership will
constitute a reorganization under section 368(a)(1)(F) of the IRC and
neither Troy Savings nor Troy Financial will recognize any gain or loss
as a result of the conversion;
- no gain or loss will be recognized by Troy Savings or Troy Financial upon
the purchase of Troy Savings' capital stock by Troy Financial or by Troy
Financial upon the purchase of its Common Stock in the conversion;
- no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the issuance to them of
deposit accounts in Troy Savings in its stock form plus their interests
in the liquidation account in exchange for their deposit accounts in Troy
Savings;
- the tax basis of the depositors' deposit accounts in Troy Savings
immediately after the conversion will be the same as the basis of their
deposit accounts immediately prior to the conversion;
- the tax basis of each Eligible Account Holder's or Supplemental Eligible
Account Holder's interest in the liquidation account will be zero;
- no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of
nontransferable subscription rights to purchase shares of the Common
Stock, provided that the amount to be paid for the Common Stock is equal
to the fair market value of such stock; and
- the tax basis to the stockholders of the Common Stock of Troy Financial
purchased in the conversion will be the amount paid therefor and the
holding period for the shares of Common Stock purchased by such persons
will begin on the date on which their subscription rights are exercised.
Troy Savings has also received an opinion from KPMG LLP with respect to New
York State franchise and income taxes that the Plan of Conversion will not be
taxable for New York State tax purposes to Troy Savings or its Eligible Account
Holders and Supplemental Eligible Account Holders or Troy Financial, subject to
the limitations and qualifications in such opinion.
In the opinion of FinPro, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common Stock
at a price equal to its estimated fair market value, which will be the same
price as the purchase price for the unsubscribed shares of Common Stock. If the
subscription rights granted to Eligible Account Holders or Supplemental Eligible
Account Holders are deemed to have an ascertainable value, such recipients could
be taxed either on the receipt or exercise of such subscription rights and Troy
Savings may have taxable income when it distributes the subscription rights.
Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common stock purchased or acquired (either directly or
indirectly) in connection with the conversion by a director, trustee or an
executive officer of Troy Savings or Company will be subject to a restriction
that the shares not be sold for a period of one year following the date of
purchase or acquisition, except in the event of the death or judicial
declaration of incompetency of such director, trustee or executive officer or
any exchange of such shares in connection with a merger or acquisition involving
Troy Savings or Troy Financial, as the case may be, which has been approved by
the New York Superintendent. Each certificate for such restricted shares will
bear a legend giving notice of this restriction on transfer, and instructions
will be issued to the stock transfer agent for Troy Financial to the effect that
any transfer within
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such time period of any certificate or record ownership of such shares other
than as provided above is a violation of such restriction. Any shares of common
stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the restriction that
they may not be sold until the restrictions respecting such originally
restricted stock are terminated, and will bear a legend advising of such
restrictions. The directors, trustees and executive officers of Troy Savings or
Company will also be subject to the insider trading rules promulgated pursuant
to the Exchange Act.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan of Conversion and application of its
provisions to particular circumstances by a majority of the Board of Trustees of
Troy Savings will be final, subject to the authority of the New York
Superintendent and FDIC. The Plan of Conversion provides that, if deemed
necessary or desirable by the Board of Trustees of Troy Savings, the Plan of
Conversion may be substantively amended at any time prior to solicitation of
proxies from Voting Depositors, and at any time thereafter, by a vote of the
Board of Trustees with the concurrence of the New York Superintendent and FDIC.
The conversion must be completed within 24 months of the approval of the Plan of
Conversion by the New York Superintendent, unless a longer time period is
permitted by governing laws and regulations, or the Plan of Conversion will
terminate. The Plan of Conversion may be terminated by majority vote of the
Board of Trustees of Troy Savings at any time prior to the Special Meeting, and
at any time thereafter, with the concurrence of the New York Superintendent and
FDIC.
ESTABLISHMENT OF THE COMMUNITY FOUNDATION
As part of the conversion, Troy Financial intends to establish and transfer
to the Community Foundation, for a nominal consideration, from its authorized,
but unissued common stock, common stock in an amount equal to the difference
between 8% of the gross proceeds from the shares of common stock sold in the
conversion and $5.3 million, which is the amount of contributions committed to
the Charitable Foundation ($5.0 million of cash contributions and the value of
the Music Hall). The funding of the Community Foundation with common stock of
Troy Financial furthers the stated goals of the Community Foundation, and
enables the community to share in the potential growth and any profitability of
Troy Financial and Troy Savings over the long-term.
The Community Foundation will be dedicated to the promotion of charitable
purposes within Troy Savings' communities, including, but not limited to,
providing grants to the Music Hall Foundation and other qualifying charitable
organizations. In order to serve the purposes for which it was formed and
maintain its Section 501(c)(3) qualification, the Community Foundation may sell
the common stock contributed to it by Troy Financial.
Troy Savings will be the sole voting member of the Community Foundation and
will have the power to elect its board of directors. The board of directors of
the Community Foundation will be selected from the individuals who, from time to
time, are serving as directors of Troy Savings. The board of directors of the
Community Foundation will be responsible for establishing the polices of the
Community Foundation with respect to grants or donations, consistent with the
stated purposes of the Community Foundation.
The funding of the Community Foundation as part of the conversion is
subject to the approval of the New York Superintendent and, if applicable, the
FDIC.
Structure of the Community Foundation. The Community Foundation will be
incorporated under Delaware law as a non-stock corporation. The certificate of
incorporation of the Community Foundation will provide that the Community
Foundation is organized exclusively for charitable purposes, including community
development, as set forth in Section 501(c)(3) of the IRC. The Community
Foundation's certificate of incorporation will further provide that no part of
the net earnings of the Community Foundation will inure to the benefit of, or be
distributable to its directors, officers or members of Troy Financial or Bank.
The board of directors of the Community Foundation will have authority over
the affairs of the Community Foundation. The directors of the Community
Foundation will establish the policies with respect
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to grants or donations by the Community Foundation, consistent with the purposes
for which the Community Foundation was established. The directors of the
Community Foundation will at all times be bound by their fiduciary duties to
advance the Community Foundation's charitable goals, to protect the assets of
the Community Foundation and to act in a manner consistent with its charitable
purposes. The directors of the Community Foundation will also be responsible for
directing the activities of the Community Foundation, including the management
of the common stock of Troy Financial held by the Community Foundation. However,
as a condition to receiving the New York Superintendent's approval of the Plan
of Conversion and the nonobjection of the FDIC to Troy Savings' conversion, the
Community Foundation has agreed that all shares of common stock held by the
Community Foundation will be voted in the same ratio as all other shares of Troy
Financial's common stock on all proposals considered by stockholders of Troy
Financial; provided, however, that the New York Superintendent and FDIC shall
waive this voting restriction under certain circumstances if compliance with the
voting restriction would: (i) cause a violation of the law of the State of
Delaware; (ii) would cause the Community Foundation to lose its tax-exempt
status, or cause the IRS to deny the Community Foundation's request for a
determination that it is an exempt organization or otherwise have a material and
adverse tax consequence on the Community Foundation; or (iii) would cause the
Community Foundation to be subject to an excise tax under Section 4941 of the
IRC. In order for the New York Superintendent and FDIC to waive such voting
restriction, Troy Financial's or the Community Foundation's legal counsel must
render an opinion satisfactory to the New York Superintendent and FDIC that
compliance with the voting restriction would have the effect described in
clauses (i), (ii) or (iii) above. Under those circumstances, the New York
Superintendent and FDIC will grant a waiver of the voting requirement upon
submission of such legal opinion(s) by Troy Financial or the Community
Foundation that are satisfactory to the New York Superintendent and FDIC. If the
New York Superintendent and FDIC were to waive the voting requirement, the
directors would direct the voting of the common stock held by the Community
Foundation. However, the regulators may impose conditions on the composition of
the board of directors if a waiver is granted.
The number of shares of common stock contributed to the Community
Foundation by Troy Financial will vary based upon the number of shares sold in
the conversion. At the minimum, midpoint, maximum and maximum plus 15% of the
estimated price range, the contribution to the Community Foundation would equal
73,153, 179,174, 286,030 and 408,436 shares, which would have a market value of
$731,530, $1,791,740, $2,860,300 and $4,084,360, respectively, assuming a $10.00
per share price. Troy Financial and Troy Savings determined to fund the
Community Foundation with common stock rather than cash because it desired to
form a bond with its community in a manner that would allow the community to
share in any potential growth and success of Troy Financial and Troy Savings
over the long-term.
The Community Foundation would receive working capital from any dividends
that may be paid on Troy Financial's common stock in the future, and subject to
applicable federal and state laws, loans collateralized by the common stock or
from the proceeds of the sale of any of the common stock in the open market from
time to time as may be permitted to provide the Community Foundation with
additional liquidity. As a private foundation under Section 501(c)(3) of the
IRC, the Community Foundation will be required to distribute annually in grants
or donations, a minimum of 5% of the average fair market value of its net
investment assets. One of the conditions imposed on the gift of common stock by
Troy Financial is that the amount of common stock that may be sold by the
Community Foundation in any one year shall not exceed 5% of the average market
value of the assets held by the Community Foundation, except where the board of
directors of the Community Foundation determines that the failure to sell an
amount of common stock greater than such amount would result in a long-term
reduction of the value of the Community Foundation's assets and as such would
jeopardize the Community Foundation's capacity to carry out its charitable
purposes. Upon completion of the conversion and the contribution of shares to
the Community Foundation immediately following the conversion, Troy Financial
would have 7.6 million, 9.0 million, 10.5 million and 12.1 million shares issued
and outstanding, respectively, at the minimum, midpoint, maximum and maximum
plus 15% of the estimated price range. Because Troy Financial will have an
increased number of shares outstanding, the voting and ownership interests of
stockholders in Troy Financial's common stock would be diluted by 0.96%, 1.98%,
2.73% or 3.36%, respectively, as compared to their interests in Troy Financial
if the Community
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Foundation was not funded with common stock. For additional discussion of the
dilutive effect, see "Risk Factors -- Contribution to the Community Foundation"
and "Pro Forma Data."
Tax Considerations. Troy Financial and Troy Savings have been advised by
Hogan & Hartson L.L.P., their tax advisor, that an organization created for the
above purposes would qualify as a Section 501(c)(3) exempt organization under
the IRC, and would likely be classified as a private foundation. The Community
Foundation will submit a request to the IRS to be recognized as an exempt
organization. As long as the Community Foundation files its application for
tax-exempt status within 15 months from the date of its organization, and
provided the IRS approves the application, the effective date of the Community
Foundation's status as a Section 501(c)(3) organization will be the date of its
organization. Troy Financial's tax advisors, however, have not rendered any
advice on the condition to the contribution to be agreed to by the Community
Foundation which requires that all shares of common stock of Troy Financial held
by the Community Foundation be voted in the same ratio as all other outstanding
shares of common stock of Troy Financial on all proposals considered by
stockholders of Troy Financial. The New York Superintendent and FDIC would waive
this voting restriction if it would cause the Community Foundation to lose its
tax-exempt status or subject the Community Foundation to an excise tax, upon
submission of a legal opinion satisfactory to the New York Superintendent and
FDIC. See "-- Regulatory Conditions Imposed on the Community Foundation."
Under Delaware law, Troy Financial is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Troy Financial and Troy Savings believe that the
conversion presents a unique opportunity to fund a charitable foundation given
the substantial amount of additional capital being raised in the conversion. In
making such a determination, Troy Financial and Troy Savings considered the
dilutive impact of the contribution of common stock to the Community Foundation
on the amount of common stock available to be offered for sale in the
conversion. Based on such consideration, Troy Financial and Troy Savings believe
that the contribution to the Community Foundation in excess of the 10% annual
limitation is justified given Troy Savings' capital position and its earnings,
the substantial additional capital being raised in the conversion and the
potential benefits of the Community Foundation to Troy Savings' community. In
this regard, assuming the sale of the common stock at the maximum plus 15% of
the estimated price range, Troy Financial would have pro forma consolidated
stockholders' equity of $173.0 million or 21.1% of pro forma consolidated assets
and Troy Savings' pro forma leverage and Tier I risk-based capital ratios would
be 15.02% and 21.64% respectively. See "Regulatory Capital Compliance,"
"Capitalization," and "Comparison of Valuation and Pro Forma Information with No
Contribution to the Community Foundation." Thus, the amount of the contribution
will not adversely impact the consolidated financial condition of Troy Financial
and Troy Savings, and Troy Financial and Troy Savings therefore believe that the
amount of the charitable contribution is reasonable given Troy Financial's and
Troy Savings' pro forma capital positions. As such, Troy Financial and Troy
Savings believe that the contribution does not raise safety and soundness
concerns.
Troy Financial and Troy Savings have received an opinion of Hogan & Hartson
L.L.P., their tax advisor, that Troy Financial's transfer of its own stock to
the Community Foundation for a nominal consideration would not constitute an act
of self-dealing, and that Troy Financial will be entitled to a deduction in the
amount of the fair market value of the stock at the time of the contribution,
subject to the limitation based on 10% of Troy Financial's annual taxable
income.
In fiscal 1998, Troy Savings established and contributed to the Charitable
Foundation $1.0 million in cash and entered into a binding, irrevocable
commitment to make a total of $4.0 million in scheduled payments to the
Charitable Foundation. The scheduled payments will occur in each of fiscal years
1999, 2000 and 2001. In connection with Troy Savings' cash contribution and
future binding commitment, Troy Savings recorded a contribution expense of $4.5
million, which represents the $1.0 million cash contributed and the present
value of the $4.0 million in future scheduled contributions. In fiscal 1998,
Troy Savings recognized the entire tax benefit associated with this contribution
expense. In fiscal 1999, Troy Financial also intends to contribute the Music
Hall to the Music Hall Foundation (the pre-tax cost of this contribution is
estimated at $300,000).
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At this time, Troy Financial estimates the tax benefit of the contribution
of common stock to the Community Foundation to be between approximately 627,000
(assuming contribution of 179,174 shares at the midpoint of the estimated price
range, a $10.00 per share price and a combined tax rate of 35%) and $1.4 million
(assuming contribution of 408,436 shares at the maximum plus 15% of the
estimated price range, a $10.00 per share price and a combined tax rate of 35%).
There can be no assurances that the IRS will determine that the Charitable
Foundation, the Community Foundation and the Music Hall Foundation are not
tax-exempt charities under Section 501(c)(3) of the IRC. If one or more of the
foundations do not qualify, the IRS may disallow Troy Financial's deductions for
its contributions, in whole or in part. If Troy Financial is not permitted to
deduct part or all of the contribution expense, its results of operations will
be adversely impacted. See "Risk Factors -- Contribution to the Community
Foundation."
As a private foundation, earnings and gains, if any, from the sale of
common stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The foundations will
each be required to make an annual filing with the IRS within four and one-half
months after the close of their fiscal year to maintain their tax-exempt status.
The foundations will each be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the foundation's managers and a concise statement
of the purpose of each grant. The foundations will also be required to file
annual reports with the Charities Bureau of the Office of the Attorney General
of the State of New York.
Regulatory Conditions Imposed on the Community Foundation. Establishment
of the Community Foundation is subject to the following conditions to be agreed
to by the Community Foundation in writing as a condition to receiving the New
York Superintendent's approval and FDIC's non-objection of Troy Savings'
conversion: (i) the Community Foundation will be subject to examination by the
NYSBD and FDIC; (ii) the Community Foundation must comply with supervisory
directives imposed by the NYSBD and FDIC; (iii) the Community Foundation will
operate in accordance with written policies adopted by the board of directors,
including a conflict of interest policy; and (iv) any shares of common stock of
Troy Financial held by the Community Foundation must be voted in the same ratio
as all other outstanding shares of common stock of Troy Financial on all
proposals considered by stockholders of Troy Financial; provided, however, that,
consistent with the condition, the New York Superintendent and FDIC shall waive
this voting restriction under certain circumstances if compliance with the
voting restriction would: (a) cause a violation of the law of the State of
Delaware; (b) would cause the Community Foundation to lose its tax-exempt status
or otherwise have a material and adverse tax consequence on the Community
Foundation; or (c) would cause the Community Foundation to be subject to an
excise tax under Section 4941 of the IRC. In order for the New York
Superintendent and FDIC to waive such voting restriction, Troy Financial's or
the Community Foundation's legal counsel must render an opinion satisfactory to
the New York Superintendent and FDIC that compliance with the voting restriction
would have the effect described in clauses (a), (b) or (c) above. There can be
no assurances that a legal opinion addressing these issues will be rendered, or
if rendered, that the New York Superintendent and FDIC will grant an
unconditional waiver of the voting restriction. In no event will the voting
restriction survive the sale of shares of the common stock held by the Community
Foundation.
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RESTRICTIONS ON ACQUISITION OF TROY FINANCIAL CORPORATION
Provisions in Troy Financial's Certificate of Incorporation and Bylaws and
in its management remuneration plan, together with provisions of Delaware
corporate law, may have anti-takeover effects. In addition, Troy Savings'
Restated Organization Certificate and Bylaws and management remuneration plan
may also have anti-takeover effects. Finally, regulatory restrictions may make
it difficult to acquire either Troy Financial or Troy Savings.
RESTRICTIONS IN TROY FINANCIAL'S CERTIFICATE OF INCORPORATION AND BYLAWS
The following discussion is a general summary of certain provisions of Troy
Financial's Certificate of Incorporation and Bylaws and certain other statutory
and regulatory provisions relating to stock ownership and transfers, the Board
of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. These provisions will also render the removal of the current Board of
Directors or management of Troy Financial more difficult. See "Additional
Information" if you would like to obtain a copy of Troy Financial's Certificate
of Incorporation and Bylaws.
Limitation on Voting Rights. The Certificate of Incorporation of Troy
Financial provides that no beneficial owner in excess of 10% of the then
outstanding shares of common stock (the "Limit") can vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 under the Exchange Act, and includes shares beneficially owned by
such person or any of his affiliates (as defined in Rule 12b-2 under the
Exchange Act), shares which such person or his affiliates have the right to
acquire pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or otherwise
and shares as to which such person and his affiliates have sole or shared voting
or investment power, but shall not include shares that are subject to a publicly
solicited revocable proxy and that are not otherwise deemed to be beneficially
owned by such person and his affiliates. No director or officer (or any
affiliate thereof) of Troy Financial shall, solely by reason of any or all of
such directors or officers acting in their capacities as such, be deemed to
beneficially own any shares beneficially owned by any other director or officer
(or affiliate thereof) nor will the ESOP or any similar plan of Troy
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Financial or Troy Savings or any trustee with respect thereto (solely by reason
of such trustee's capacity) be deemed to beneficially own any shares held under
any such plan. The Certificate of Incorporation of Troy Financial further
provides that the provisions limiting voting rights may only be amended upon the
vote of the holders of at least a majority of the voting power of all then
outstanding shares of capital stock entitled to vote thereon (after giving
effect to the provision limiting voting rights).
Board of Directors. The Board of Directors of Troy Financial is divided
into three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of directors being
elected each year. Troy Financial's Certificate of Incorporation and Bylaws
provide that the size of the Board shall be determined by resolution of the
Board of Directors. The Certificate of Incorporation and the Bylaws provide that
any vacancy occurring in the Board, including a vacancy created by an increase
in the number of directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled, for the
remainder of the unexpired term, exclusively by a majority vote of the directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of Troy
Financial. Directors may be removed by the stockholders only for cause by the
affirmative vote, at a special meeting of stockholders called for such a
purpose, of the holders of at least 66 2/3% of the voting power of all then
outstanding shares of capital stock entitled to vote thereon. In the absence of
these provisions, the vote of the holders of a majority of the shares could
remove the entire Board, with or without cause, and replace it with persons of
such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting in the
election of directors. Special meetings of stockholders of Troy Financial may be
called at any time by a majority of the Board of Directors of Troy Financial or
by the holders of at least 66 2/3% of the voting power of all then outstanding
shares of capital stock of Troy Financial entitled to vote generally in the
election of directors. The Certificate of Incorporation also provides that any
action required or permitted to be taken by the stockholders of Troy Financial
may be taken only at an annual or special meeting and prohibits stockholder
action by written consent in lieu of a meeting unless such consent is unanimous.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 60 million shares of common stock and 15 million shares of serial
preferred stock. The shares of common stock and serial preferred stock were
authorized in an amount greater than that to be issued in the conversion to
provide Troy Financial's Board of Directors with as much flexibility as possible
to effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and employee stock options. However, these additional authorized
shares may also be used by the Board of Directors, consistent with its fiduciary
duty, to deter future attempts to gain control of Troy Financial. The Board of
Directors also has sole authority to determine the terms of any one or more
series of serial preferred stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of serial preferred stock, the Board has the power, to the extent
consistent with its fiduciary duty, to issue a series of serial preferred stock
to persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. Troy Financial's Board
currently has no plans for the issuance of additional shares, other than the
issuance of additional shares upon exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders. In order to approve certain "Business Combinations" with
"Interested Stockholders" (each as defined in Troy Financial's Certificate of
Incorporation) and related transactions, the Certificate of Incorporation
requires the approval of (i) the holders of at least 80% of the total number of
outstanding shares of voting stock and (ii) the holders of 66 2/3% of the voting
power of the outstanding shares of voting stock, excluding for purposes of
calculating the affirmative vote and the total number of outstanding shares of
voting stock under this clause (ii) above, all shares of voting stock of which
the beneficial owner is the Interested Stockholder involved in the Business
Combination or any affiliate or associate of such Interested Stockholder. Under
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Delaware law, absent this provision, business combinations, including mergers,
consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of common stock of the
company and any other affected class of stock.
Under the Certificate of Incorporation, the 80% approval is not required if
(i) the Business Combination has been approved by at least 66 2/3% of Troy
Financial's directors, who are not affiliated with the Interested Stockholder(s)
and were members of the Board of Directors prior to the time that the Interested
Stockholder (including any affiliate or associate of such Interested
Stockholder) became an Interested Stockholder, then in office at a duly
constituted meeting of the Board of Directors called for such purpose or (ii) if
the proposed transaction meets certain price and procedure conditions in the
Certificate of Incorporation designed to afford stockholders a fair price in
consideration for their shares. In each such case, where stockholder approval is
required, the approval of only a majority of the outstanding shares of voting
stock is sufficient. The term "Interested Stockholder" is defined to include,
among others, any person (than Troy Financial, its subsidiaries or their
employee benefit plans that (a) is the beneficial owner, directly or indirectly,
of five percent or more of the voting power of the then outstanding voting
stock, (b) is an affiliate of Troy Financial and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the then
outstanding voting stock; or (c) which is an assignee of or has otherwise
succeeded to the beneficial ownership of any shares of voting stock that were at
any time within the two-year period immediately prior to any such date
beneficially owned by an Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not utilizing the facilities of a national securities exchange,
occurring on The Nasdaq Stock Market, Inc., or involving a public distribution.
The term "Business Combination" is defined to include: (i) any merger or
consolidation of Troy Financial or any subsidiary with any Interested
Stockholder or any other corporation (whether or not itself an Interested
Stockholder) which is, or after the merger or consolidation would be, an
affiliate or associate of such Interested Stockholder prior to the transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
other than in the usual and regular course of business (in one transaction or a
series of transactions in any 12-month period) to any Interested Stockholder or
any affiliate or associate of such Interested Stockholder, other than Troy
Financial or any of its subsidiaries, of any assets of Troy Financial or any
subsidiary that have an aggregate book value as of the end of Troy Financial's
most recent fiscal quarter of 10% or more of the total market value of the
outstanding shares of Troy Financial or of its net worth as of the end of its
most recent fiscal quarter, measured at the time the transaction(s) is approved
by the Board of Directors of Troy Financial; (iii) any issuance or transfer by
Troy Financial or any subsidiary of any equity securities of Troy Financial or
any subsidiary having an aggregate market value of five percent or more of the
total market value of the outstanding shares of Troy Financial or such
subsidiary to any Interested Stockholder or any affiliate or associate of any
Interested Stockholder, other than Troy Financial or any of its subsidiaries,
except pursuant to the exercise of warrants, rights or options to subscribe for
or purchase securities offered, issued or granted pro rata to all holders of the
voting stock of Troy Financial or any other method affording substantially
proportionate treatment to the holders of voting stock; (iv) any adoption of any
plan or proposal for the liquidation or dissolution of Troy Financial or any
subsidiary proposed by or on behalf of an Interested Stockholder or any
affiliate or associate of such Interested Stockholder, other than Troy Financial
or any of its subsidiaries; and (v) any reclassification of securities
(including any reverse stock split), or recapitalization of Troy Financial, or
any merger or consolidation of Troy Financial with any of its subsidiaries or
any other transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, in one
transaction or a series of transactions, of increasing the proportionate amount
of the outstanding shares of any class of equity or convertible securities of
Troy Financial or any subsidiary which is directly or indirectly owned by any
Interested Stockholder or any affiliate or associate of any Interested
Stockholder, other than Troy Financial or any of its subsidiaries.
Evaluation of Offers. The Certificate of Incorporation of Troy Financial
further provides that the Board of Directors of Troy Financial, when evaluating
any offer of another party to (a) make a tender or exchange offer for any equity
security of Troy Financial, (b) merge or consolidate Troy Financial with another
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institution, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of Troy Financial, shall, in connection with the
exercise of its judgment in determining what is in the best interests of Troy
Financial and its stockholders, be authorized to give due consideration to any
such factors as the Board of Directors determines to be relevant, including,
without limitation, the economic effects of acceptance of such offer on
depositors, borrowers and employees of the insured institution subsidiary or
subsidiaries of Troy Financial, and on the communities in which such subsidiary
or subsidiaries operate or are located and the ability of such subsidiary or
subsidiaries to fulfill the objectives of an insured institution under
applicable Federal and state statutes and regulations. By having these standards
in the Certificate of Incorporation of Troy Financial, the Board of Directors
may be in a stronger position to oppose such a transaction if the Board of
Directors concludes that the transaction would not be in the best interest of
Troy Financial, even if the price offered is significantly greater than the then
market price of any equity security of Troy Financial.
Amendment of Certificate of Incorporation and Bylaws. Amendments to Troy
Financial's Certificate of Incorporation must be approved by 66 2/3% of the
Board of Directors and by a majority of the outstanding shares of its voting
stock, provided, however, that an affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock entitled to vote (after giving effect to
the provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation relating to the Board of
Directors, actions by stockholders, special stockholder meetings, acquisition or
control of Troy Financial, evaluation of certain business transactions by the
Board of Directors, indemnification and amendment of the Certificate of
Incorporation. The affirmative vote of the holders of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal Article 11 of Troy
Financial's Certificate of Incorporation which governs Business Combinations.
Troy Financial's Bylaws may be amended or repealed by a majority vote of the
Board of Directors of Troy Financial then in office. The stockholders may also
amend or repeal the Bylaws of Troy Financial upon the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital stock of Troy Financial entitled to vote generally in the
election of directors (after giving effect to the provision limiting voting
rights), voting together as a single class.
Certain Bylaw Provisions. The Bylaws of Troy Financial also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 60 days' advance notice to the Secretary of Troy Financial. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to Troy Financial concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide Troy Financial with certain information concerning the
nominee and the proposing stockholder.
ANTI-TAKEOVER EFFECTS OF TROY FINANCIAL'S CERTIFICATE OF INCORPORATION AND
BYLAWS AND BENEFIT PLANS ADOPTED IN CONVERSION
The provisions described above are intended to reduce Troy Financial's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. Certain
provisions of the Equity Compensation Plan provide for accelerated benefits to
participants in the event of a change of control of Troy Financial or Troy
Savings or a tender or exchange offer for their stock. See "Management of Troy
Savings -- Benefit Plans." Troy Financial and Troy Savings have entered or
intend to enter into agreements with key officers and employees and Troy Savings
intends to establish the [Severance Plan] which will provide such officers and
eligible employees with additional payments and benefits on the officer's
termination in connection with a change of control of Troy Financial or Troy
Savings. See "Management of Troy Savings -- Benefit Plans." The foregoing
provisions and limitations may make it more difficult for companies or persons
to acquire control of Troy Financial and Troy Savings. Additionally, the
provisions could deter offers to acquire the outstanding shares of Troy
Financial which might be viewed by stockholders to be in their best interests.
Troy Financial's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws and Troy Financial's benefit plans are
in the best interest of Troy Financial and its stockholders. An unsolicited
non-negotiated takeover proposal can seriously disrupt the business and
management of a
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corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of Troy Financial and its stockholders to
encourage potential acquirers to negotiate directly with management and that
these provisions will encourage such negotiations and discourage non-negotiated
takeover attempts.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquirer to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the corporation's
directors who are also officers and certain employee stock plans; (iii) any
business combination with an Interested Stockholder that is approved by the
board of directors and by a 66 2/3% vote of the outstanding voting stock not
owned by the Interested Stockholder; and (iv) certain business combinations that
are proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the board of directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its certificate of incorporation or
bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
RESTRICTIONS IN TROY SAVINGS' RESTATED ORGANIZATION CERTIFICATE AND BYLAWS
Although the Board of Trustees of Troy Savings is not aware of any effort
that might be made to obtain control of Troy Savings after conversion, the Board
of Trustees believes that it is appropriate to adopt certain provisions
permitted by the General Regulations of the New York Banking Board to protect
the interests of the converted Bank and its sole stockholder from any hostile
takeover. Such provisions may, indirectly, inhibit a change of control of Troy
Financial, as Troy Savings' sole stockholder. See "Risk Factors -- Certain
Anti-Takeover Provisions."
Troy Savings' Restated Organization Certificate contains a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of Troy Savings by any
person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
indirectly, without the prior written approval of the New York Superintendent,
is prohibited for a period of three years following the both the consummation of
the conversion of Troy Savings from a mutual to a stock savings bank and the
concurrent acquisition by Troy Financial of all of the outstanding capital stock
of Troy Savings. Any stock in excess of 10% acquired in violation of the charter
provision will not be entitled to vote and shall not be voted by any person or
counted as voting stock in connection with any matter submitted to stockholders
for a vote. In addition, Troy Savings' Restated Organization Certificate
prohibits the cumulation of votes for the election of directors, and provides
for the election of three classes of directors to staggered terms. The staggered
terms of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors because only one-third of the Board of Directors is elected
each
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year. The purpose of these provisions is to assure stability and continuity of
management of Troy Savings in the years immediately following the conversion.
DESCRIPTION OF CAPITAL STOCK OF TROY FINANCIAL CORPORATION
GENERAL
Troy Financial is authorized to issue 75,000,000 shares of capital stock,
of which 60,000,000 shares will be common stock having a par value of $.0001 per
share and 15,000,000 shares of serial preferred stock having a par value of
$.0001 per share (the "Preferred Stock"). In connection with the conversion,
Troy Financial currently expects to issue up to 10,200,500 shares of common
stock (or up to 11,730,575 shares in the event of an increase of 15% in the
estimated price range). Giving effect to the contribution of common stock to the
Community Foundation, Troy Financial currently expects to issue up to 10,486,530
shares of common stock at the maximum of the estimated price range (or
12,139,011 shares at the maximum plus 15% of the estimated price range). Troy
Financial does not expect to issue any shares of Preferred Stock. The Board of
Directors of Troy Financial is expressly authorized to issue, without
stockholder approval, any unissued shares of authorized common stock as
nonvoting common stock. Except as discussed above in "Restrictions on
Acquisition of Troy Financial Corporation," each share of Troy Financial's
common stock will have the same relative rights as, and will be identical in all
respects to, all the other shares of Troy Financial's common stock. Upon receipt
by Troy Financial of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.
THE COMMON STOCK OF TROY FINANCIAL WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
Dividends. The Board of Directors of Troy Financial may declare and pay
dividends upon the shares of Troy Financial's common stock out of Troy
Financial's statutory surplus or out of certain net profits of Troy Financial,
and the holders of record of the common stock will be entitled to receive such
dividends out of any assets legally available therefor. The payment of dividends
by Troy Financial is subject to limitations which are imposed by law and
applicable regulation. See "Dividend Policy" and "Regulation and Supervision."
Voting Rights. Upon conversion, the holders of common stock of Troy
Financial will possess exclusive voting rights in Troy Financial. Each holder of
shares of common stock will be entitled to attend all special and annual
meetings of the stockholders of Troy Financial and to vote upon any matter or
thing (including, without limitation, the election of one or more directors)
properly considered and acted upon by the stockholders, except as otherwise
provided in Troy Financial's Certificate of Incorporation or by applicable law.
There will be no cumulative voting rights in the election of directors.
As a New York-chartered mutual savings bank, Troy Savings' corporate powers
and control are vested in its Board of Trustees, who elect the officers of Troy
Savings and who fill any vacancies on the Board of Trustees as it exists upon
conversion. Subsequent to conversion, voting rights of Troy Savings will vest
exclusively with Troy Financial which will be the owner of Troy Savings'
outstanding capital stock. The Board of Directors of Troy Financial will vote
Troy Savings' capital stock, and, consequently, the holders of the common stock
of Troy Financial will not have direct control of Troy Savings.
Liquidation. In the event of any dissolution, liquidation or winding up of
Troy Financial, whether voluntary or involuntary, the holders of record of the
common stock then outstanding, and all holders of the outstanding shares of any
class or series of stock entitled to participate therewith, as to distribution
of assets, will be entitled to participate in the distribution of any assets of
Troy Financial remaining after Troy Financial has paid, or set aside for
payment, to the holders of outstanding shares of any class of capital stock
having preference over the common stock, with respect to dissolution,
liquidation or winding up, the full preferential amounts (if any) to which such
holders are entitled.
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Preemptive Rights. Holders of the common stock of Troy Financial will not
be entitled to preemptive rights with respect to any shares or other securities
of Troy Financial which may be issued.
PREFERRED STOCK
None of the shares of Troy Financial's authorized Preferred Stock will be
issued in the conversion. The Board of Directors of Troy Financial expressly is
authorized, subject to limitations prescribed by the Delaware General
Corporation Law and the provisions of Troy Financial's Certificate of
Incorporation, to provide for the issuance from time to time of Preferred Stock
in one or more series, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and other rights of the shares of each such series and to fix the
qualifications, limitations and restrictions thereon.
DESCRIPTION OF CAPITAL STOCK OF THE TROY SAVINGS BANK
GENERAL
If the holding company form of organization is not utilized in connection
with the conversion, Troy Savings may offer shares of its common stock in
connection with the conversion. Prior to doing so, Troy Savings will conduct a
resolicitation of depositors. The following is a discussion of the capital stock
of Troy Savings.
The Restated Organization Certificate of Troy Savings, to be effective upon
the conversion, authorizes the issuance of capital stock consisting of 1,000
shares of common stock, par value $1.00 per share. Except as discussed above in
"Restrictions on Acquisition of Troy Financial Corporation," each share of
common stock of Troy Savings will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. After the
conversion, the Board of Directors will be authorized to approve the issuance of
common stock up to the amount authorized by the Restated Organization
Certificate without the approval of Troy Savings' shareholders, except to the
extent that such approval is required by governing law. All of the issued and
outstanding common stock of Troy Savings will be held by Troy Financial as Troy
Savings' sole shareholder.
THE CAPITAL STOCK OF TROY SAVINGS WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
Dividends. The holders of Troy Savings' common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of Troy Savings out of funds legally available therefor. See
"Dividend Policy" for certain restrictions on the payment of dividends and
"Taxation -- Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
Voting. The holders of Troy Savings' common stock will possess exclusive
voting power. Each holder of shares of common stock will be entitled to one vote
for each share held by such holder. Cumulation of votes for election of
directors will not be permitted. See "Restrictions on Acquisition of Troy
Financial Corporation -- Anti-Takeover Effects of Troy Financial's Certificate
of Incorporation and Bylaws and Benefit Plans Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up of
Troy Savings, the holders of its common stock will be entitled to receive, after
payment of all debts and liabilities of Troy Savings (including all deposit
accounts and accrued interest thereon), and distribution of the balance in the
special liquidation account, which is a memorandum account only, to Eligible
Account Holders and Supplemental Eligible Account Holders (see "The
Conversion -- Effects of Conversion -- Liquidation Rights"), all assets of Troy
Savings available for distribution in cash or in kind.
Preemptive Rights. Holders of the common stock of Troy Savings will not be
entitled to preemptive rights with respect to any shares of Troy Savings which
may be issued. Upon receipt by Troy Savings of the
115
<PAGE> 141
full specified purchase price therefor, the common stock of Troy Savings will be
fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Registrar and
Transfer Company.
EXPERTS
The consolidated financial statements of Troy Savings and its subsidiaries
as of September 30, 1998 and 1997 and for each of the years in the three-year
period ended September 30, 1998, included in this prospectus have been audited
by KPMG LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
FinPro has consented to the publication herein of the summary of its report
to Troy Savings and Troy Financial setting forth its opinion as to the estimated
pro forma market value of the common stock upon conversion and its opinion with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax consequences of
the conversion will be passed upon for Troy Savings and Troy Financial by Hogan
& Hartson L.L.P., Washington, D.C., special counsel to Troy Savings and Troy
Financial. The New York State income tax consequences of the conversion will be
passed upon for Troy Savings and Troy Financial by KPMG LLP. Certain legal
matters will be passed upon for Sandler O'Neill by Muldoon, Murphy & Faucette
LLP, Washington, D.C.
ADDITIONAL INFORMATION
Troy Financial has filed with the SEC a registration statement under the
Securities Act with respect to the common stock offered hereby. As permitted by
the rules and regulations of the SEC, this prospectus does not contain all the
information set forth in the registration statement. Such information, including
the conversion valuation appraisal report, which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including Troy Financial. The
conversion valuation appraisal report may also be inspected by Eligible Account
Holders and Supplemental Eligible Account Holders at the offices of Troy Savings
during normal business hours. This prospectus contains a description of the
material terms and features of all material contracts, reports or exhibits to
the registration statement required to be described herein. Such statements are,
of necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
Troy Savings has filed an application for approval of conversion with the
New York Superintendent and the FDIC. Pursuant to the rules and regulations of
the New York Superintendent, this prospectus omits certain information contained
in that application. The application may be examined at the principal office of
the New York Superintendent, Two Rector Street, New York, New York, 10006.
Troy Financial has filed with the Federal Reserve an application to become
a bank holding company. This prospectus omits certain information contained in
such application. Such application may be inspected at the offices of the
Federal Reserve Bank of New York, 59 Maiden Lane, New York, New York 10045.
In connection with the conversion, Troy Financial will register its common
stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, Troy Financial and the holders of its
116
<PAGE> 142
common stock will become subject to the proxy solicitation rules, reporting
requirements and restrictions on stock purchases and sales by directors,
officers and greater than 10% stockholders, the annual and periodic reporting
and certain other requirements of the Exchange Act. Under the plan of
conversion, Troy Financial has undertaken that it will not terminate such
registration for a period of at least three years following the conversion. In
the event that Troy Savings amends the plan of conversion to eliminate the
concurrent formation of Troy Financial as part of the conversion, Troy Savings
will register its stock with the FDIC under Section 12(g) of the Exchange Act
and, upon such registration, Troy Savings and the holders of its stock will
become subject to the same obligations and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of Troy Financial
and the Restated Organization Certificate and Bylaws of Troy Savings are
available without charge from Troy Savings. Troy Savings' principal office is
located at 32 Second Street, Troy, New York 12180 and its telephone number is
(518) 270-3313.
117
<PAGE> 143
THE TROY SAVINGS BANK AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Condition at September 30, 1998
and 1997.................................................. F-3
Consolidated Statements of Income for the Years Ended
September 30, 1998, 1997 and 1996. ....................... F-4
Consolidated Statements of Changes in Equity for the Years
Ended September 30, 1998, 1997 and 1996. ................. F-5
Consolidated Statements of Cash Flows for Years Ended
September 30, 1998, 1997 and 1996. ....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
All schedules are omitted because the required information is not
applicable or is included in the Consolidated Financial Statements and related
Notes.
The financial statements of the Holding Company have been omitted because
the Holding Company has not yet issued any stock, has no assets, no liabilities
and has not conducted any business other than that of an organizational nature.
F-1
<PAGE> 144
INDEPENDENT AUDITORS' REPORT
The Examining and Audit Committee
of the Board of Trustees
The Troy Savings Bank:
We have audited the accompanying consolidated statements of condition of
The Troy Savings Bank and subsidiaries (the Bank) as of September 30, 1998 and
1997, and the related consolidated statements of income, changes in equity, and
cash flows for each of the years in the three-year period ended September 30,
1998. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Troy
Savings Bank and subsidiaries as of September 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
October 30, 1998
Albany, New York
F-2
<PAGE> 145
THE TROY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 12,330 $ 13,903
Federal funds sold.......................................... 5,585 28,548
-------- --------
Total cash and cash equivalents................... 17,915 42,451
Loans held for sale......................................... 11,096 3,703
Securities available for sale, at fair value................ 197,758 117,552
Investment securities held to maturity (fair value of $3,621
and $4,162, at September 30, 1998 and 1997,
respectively)............................................. 3,483 4,000
Net loans receivable........................................ 457,321 468,160
Accrued interest receivable................................. 4,287 4,334
Other real estate owned..................................... 1,872 2,690
Premises and equipment, net................................. 14,096 13,734
Other assets................................................ 8,821 5,824
-------- --------
Total assets................................. $716,649 $662,448
======== ========
LIABILITIES AND EQUITY
Liabilities:
Due to depositors:
Savings accounts.................................. 198,509 198,929
Money Market accounts............................. 15,708 13,121
N.O.W. and demand accounts........................ 107,311 93,002
Time accounts..................................... 256,674 267,345
-------- --------
Total deposits............................... 578,202 572,397
Mortgagors' escrow accounts............................ 1,900 1,916
Securities sold under agreement to repurchase.......... 2,524 372
Federal Home Loan Bank of New York long-term debt...... 44,940 4,356
Accrued interest payable............................... 360 60
Official bank checks................................... 8,841 7,988
Contribution payable................................... 3,453 --
Other liabilities and accrued expenses................. 5,400 3,817
-------- --------
Total liabilities............................ 645,620 590,906
-------- --------
Commitments and contingent liabilities (note 14)
Equity:
Surplus................................................ 18,306 18,306
Undivided profits...................................... 52,316 53,194
Net unrealized gain on securities available for sale,
net of tax............................................ 407 42
-------- --------
Total equity................................. 71,029 71,542
-------- --------
Total liabilities and equity................. $716,649 $662,448
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 146
THE TROY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans............................. $38,842 $39,050 $36,413
Securities available for sale:
Taxable........................................... 4,121 7,262 8,521
Tax exempt........................................ 2,214 119 --
------- ------- -------
6,335 7,381 8,521
Investment securities.................................. 300 353 410
Federal funds sold..................................... 2,553 1,503 1,518
------- ------- -------
Total interest and dividend income................ 48,030 48,287 46,862
------- ------- -------
Interest expense:
Deposits and escrows................................... 23,339 22,812 22,557
Short-term borrowings.................................. 33 271 230
Long-term debt......................................... 821 268 230
------- ------- -------
Total interest expense............................ 24,193 23,351 23,017
------- ------- -------
Net interest income............................... 23,837 24,936 23,845
Provision for loan losses................................... 4,050 3,900 928
------- ------- -------
Net interest income after provision for loan
losses.......................................... 19,787 21,036 22,917
------- ------- -------
Non-interest income:
Service charges on deposits............................ 858 822 802
Loan servicing fees.................................... 432 460 443
Trust income........................................... 459 362 293
Net gains from securities sales or calls............... 8 4 1
Net gains (losses) from mortgage loan sales............ 76 14 (14)
Other income........................................... 719 1,075 1,340
------- ------- -------
Total non-interest income......................... 2,552 2,737 2,865
------- ------- -------
Non-interest expense:
Compensation and employee benefits..................... 10,218 9,573 9,009
Occupancy.............................................. 2,101 2,089 1,956
Furniture, fixtures and equipment...................... 1,080 901 961
Computer charges....................................... 1,424 1,322 1,248
Professional, legal and other fees..................... 924 726 658
Printing, postage and telephone........................ 614 559 543
Other real estate owned................................ 1,087 380 499
Contribution expense................................... 4,759 102 479
Other.................................................. 2,884 2,887 2,845
------- ------- -------
Total non-interest expense........................ 25,091 18,539 18,198
------- ------- -------
Income (loss) before income tax expense (benefit)........... (2,752) 5,234 7,584
Income tax expense (benefit)................................ (1,874) 1,576 2,506
------- ------- -------
Net income (loss)........................................... $ (878) $ 3,658 $ 5,078
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 147
THE TROY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON
SECURITIES
AVAILABLE
UNDIVIDED FOR SALE, TOTAL
SURPLUS PROFITS NET OF TAX EQUITY
------- --------- -------------- -------
<S> <C> <C> <C> <C>
Balance, September 30, 1995.......................... $18,306 $44,458 $ 18 $62,782
Net income for year ended September 30, 1996......... -- 5,078 -- 5,078
Change in net unrealized gain/loss on securities
available for sale, net of tax..................... -- -- (452) (452)
------- ------- ----- -------
Balance, September 30, 1996.......................... 18,306 49,536 (434) 67,408
Net income for year ended September 30, 1997......... -- 3,658 -- 3,658
Change in net unrealized gain/loss on securities
available for sale, net of tax..................... -- -- 476 476
------- ------- ----- -------
Balance, September 30, 1997.......................... 18,306 53,194 42 71,542
Net loss for year ended September 30, 1998........... -- (878) -- (878)
Change in net unrealized gain/loss on securities
available for sale, net of tax..................... -- -- 365 365
------- ------- ----- -------
Balance, September 30, 1998.......................... $18,306 $52,316 $ 407 $71,029
======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 148
THE TROY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss)................................... $ (878) $ 3,658 $ 5,078
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation.................................... 1,615 1,426 1,442
Net amortization (accretion) of premium/discount
on securities................................. 65 85 (358)
Deferred tax benefit............................ (3,027) (1,442) (333)
Net gains from securities sales or calls........ (8) (4) (1)
Provision for loan losses....................... 4,050 3,900 928
Net (gains) losses from mortgage loan sales..... (76) (14) 14
Net loss on sale of other real estate owned..... 106 12 54
Net write-down of other real estate owned....... 326 -- 359
Proceeds from sale of loans held for sale....... 44,496 13,443 30,025
Net loans made to customers and held for sale... (51,813) (15,660) (25,664)
Decrease (increase) in accrued interest
receivable.................................... 47 439 (497)
Decrease (increase) in other assets............. (215) 93 1,774
Increase (decrease) in accrued interest
payable....................................... 300 (59) (52)
Decrease in mortgagors' escrow accounts......... (16) (473) (1,419)
Increase (decrease) in other liabilities,
accrued expenses, and official bank checks.... 5,889 (2,015) 3,515
--------- -------- ---------
Net cash provided by operating
activities............................... 861 3,389 14,865
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of securities available for sale..... 54,782 -- 61
Proceeds from maturity and redemption of securities
available for sale.................................... 110,223 78,199 97,393
Purchase of securities available for sale............... (244,657) (46,125) (103,592)
Proceeds from maturity and redemption of investment
securities............................................ 517 519 14,609
Purchase of investment securities....................... -- -- (15,479)
Proceeds from sale of other real estate owned........... 963 2,629 353
Net loans repaid from (made to) customers............... 6,212 (22,701) (44,987)
Capital expenditures.................................... (1,977) (930) (1,702)
--------- -------- ---------
Net cash (used in) provided by investing
activities............................... (73,937) 11,591 (53,344)
--------- -------- ---------
Cash flows from financing activities:
Net increase in deposits................................ $ 5,805 $ 7,790 $ 12,145
Net increase (decrease) in securities sold under
agreement to repurchase............................... 2,152 222 (693)
Increase (decrease) in FHLB of New York short-term
borrowings............................................ -- (5,000) 5,000
Issuance of long-term debt.............................. 41,000 -- 5,000
Payments on long-term debt.............................. (417) (393) (250)
--------- -------- ---------
Net cash provided by financing
activities............................... 48,540 2,619 21,202
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents........ (24,536) 17,599 (17,277)
Cash and cash equivalents at beginning of year.............. 42,451 24,852 42,129
--------- -------- ---------
Cash and cash equivalents at end of year.................... $ 17,915 $ 42,451 $ 24,852
========= ======== =========
Supplemental information:
Cash paid for:
Interest on deposits and borrowings................. $ 23,893 $ 23,410 $ 23,068
Income taxes........................................ $ 1,569 $ 3,826 $ 2,209
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to other
real estate owned......................................... $ 577 $ 2,462 $ 853
Investment securities transferred to securities available
for sale in accordance with the FASB "Special Report,"
fair value of securities transferred $98,700.............. $ -- $ -- $ 98,384
Increase (decrease) in equity from change in net unrealized
gain/loss on securities available for sale, net of tax.... $ 365 $ 476 $ (452)
Increase in deferred gain on sale of other real estate...... $ -- $ 344 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 149
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation Policy
The consolidated financial statements include the accounts of The Troy
Savings Bank and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
(b) Basis of Presentation
The accompanying consolidated financial statements of The Troy Savings Bank
and subsidiaries (the Bank) conform, in all material respects, to generally
accepted accounting principles and to general practice within the savings bank
industry. The Bank utilizes the accrual method of accounting for financial
reporting purposes.
(c) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses
and the valuation of other real estate owned acquired in connection with
foreclosures. In connection with the determination of the allowance for loan
losses and the valuation of other real estate owned, management obtains
appraisals for properties.
Management believes that the allowance for loan losses is adequate and that
other real estate owned is recorded at its fair value less an estimate of the
costs to sell the properties. While management uses available information to
recognize losses on loans and other real estate owned, future additions to the
allowance or write downs of other real estate owned may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses and other real estate owned. Such agencies may require
the Bank to recognize additions to the allowance or write downs of other real
estate owned based on their judgments about information available to them at the
time of their examination which may not be currently available to management.
A substantial portion of the Bank's loans are secured by real estate
located throughout the six New York State Counties of Albany, Rensselaer,
Saratoga, Schenectady, Warren and Washington. In addition, a substantial portion
of the other real estate owned is located in those same markets. Accordingly,
the ultimate collectibility of a substantial portion of the Bank's loan
portfolio and the recovery of a substantial portion of the carrying amount of
other real estate owned is dependent upon market conditions in these market
areas.
(d) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents consists of cash on hand, due from banks, and federal funds sold.
F-7
<PAGE> 150
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(e) Loans Held for Sale
Loans held for sale are recorded at the lower of cost or fair value,
determined on an aggregate basis. Gains and losses on the disposition of loans
held for sale are determined on the specific identification method. It is the
intention of management to sell these loans in the near future.
Loans held for sale, as well as commitments to originate fixed rate
mortgage loans at a set interest rate, which will subsequently be sold in the
secondary mortgage market, are regularly evaluated and, if necessary, a
valuation reserve for changes in interest rates is recorded.
(f) Mortgage Servicing Rights
As of October 1, 1996, the Bank adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights", (SFAS No. 122) as
amended by SFAS No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS No. 125) which require entities
to recognize as separate assets, the rights to service mortgage loans for
others, regardless of how those servicing rights were acquired. Additionally,
these Statements require that the capitalized mortgage servicing rights be
assessed for impairment based on the fair value of those rights, and that
impairment, if any, be recognized through a valuation allowance. The adoption of
SFAS No.'s 122 and 125, did not have a material effect on the Bank's
consolidated financial statements.
(g) Securities Available for Sale, and Investment Securities Held to Maturity
Management determines the appropriate classification of securities at the
time of purchase. If management has the positive intent and ability to hold debt
securities to maturity, they are classified as investment securities held to
maturity and are carried at amortized cost. Securities that are identified as
trading account assets for resale over a short period are stated at fair value
with unrealized gains and losses reflected in current earnings. All other debt
and equity securities are classified as securities available for sale and are
reported at fair value, with net unrealized gains or losses reported, net of
income taxes, as a separate component of equity. At September 30, 1998 and 1997,
the Bank did not hold any securities considered to be trading securities. As a
member of the Federal Home Loan Bank of New York (FHLB), the Bank is required to
hold stock which is carried at cost since there is no readily available market
value.
Unrealized losses on securities which reflect a decline in value which is
other than temporary, if any, are charged to income. Gains or losses on
disposition of securities are based on the net proceeds and the amortized cost
of the securities sold, using the specific identification method. The amortized
cost of securities is adjusted for amortization of premium and accretion of
discount, which is calculated on an effective interest method.
In November 1995, the staff of the Financial Accounting Standards Board
released its Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities." The Special
Report contained, among other things, a provision that allowed entities to,
concurrent with the initial adoption of the Special Report (November 15, 1995),
but no later than December 31, 1995, reassess the appropriateness of the
classifications of all securities held at that time. In conjunction with the
provisions of this Special Report, in December 1995, the Bank transferred
certain securities with an amortized cost totaling $98.4 million and a fair
value totaling $98.7 million from investment securities held to maturity to
securities available for sale.
F-8
<PAGE> 151
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(h) Net Loans Receivable
Loans receivable are reported at the principal amount outstanding, net of
unearned discount, net deferred loan fees, and the allowance for loan losses.
Discounts and net loan fees on loans are accreted to income to provide a
level-yield of interest on the underlying loans.
Loans considered doubtful of collection by management are placed on a
nonaccrual status for the recording of interest. Generally loans past due 90
days or more as to principal or interest are placed on nonaccrual status except
for those loans which, in management's judgment, are adequately secured and in
the process of collection and certain consumer and open-end credit loans which
are usually charged off at 120 days past due. When a loan is placed on
nonaccrual status, all previously accrued income that has not been collected is
reversed from current year interest income, and subsequent cash receipts are
generally applied to reduce the unpaid principal balance. Amortization of
related unearned discount and net deferred fees is suspended when a loan is
placed on nonaccrual status. Loans are removed from nonaccrual status when they
become current as to principal and interest or when in the opinion of
management, the loans are expected to be fully collectible as to principal and
interest.
(i) Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loans are charged against the allowance for loan
losses when management believes that the collectibility of all or a portion of
the principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. Management's evaluation of the adequacy of the allowance
for loan losses is performed on a periodic basis and takes into consideration
such factors as the historical loan loss experience, changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect borrowers' ability
to pay.
As of October 1, 1995 the Bank adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS No. 114) as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures," (SFAS No. 118). These Statements prescribe recognition criteria
for loan impairment and measurement methods for certain impaired loans and all
loans whose terms are modified in troubled debt restructurings subsequent to the
adoption of these Statements. Under these Statements, a loan is considered
impaired when it is probable that the borrower will not repay the loan according
to the original contractual terms of the loan agreement, or when a loan (of any
loan type) is restructured in a troubled debt restructuring subsequent to
October 1, 1995. The allowance for loan losses related to impaired loans is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain loans where repayment of the
loan is expected to be provided solely by the underlying collateral (collateral
dependent loans). The Bank's impaired loans are generally collateral dependent.
These Statements are principally related to commercial type loans, however,
certain provisions related to restructured loans are applicable to all loan
types. The adoption of these Statements did not have a material effect on the
Bank's consolidated financial statements.
(j) Other Real Estate Owned
Other real estate owned includes real estate acquired in settlement of
loans. Other real estate owned is recorded on an individual asset basis at the
lower of cost (defined as the fair value at initial investment), or the fair
value of the asset acquired less an estimate of the costs to sell the property.
At the time of foreclosure, the excess, if any, of the loan value over the fair
value of the property received is charged to the
F-9
<PAGE> 152
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
allowance for loan losses. Subsequent declines in the value of such property and
net operating expenses of such properties are charged directly to other
operating expenses. Properties are regularly reappraised and written down to the
fair value less the estimated cost to sell the property, if necessary.
The recognition of gains and losses from the sale of other real estate
owned is dependent on a number of factors relating to the nature of the property
sold, terms of the sale, and the future involvement of the Bank and subsidiaries
in the property sold. If a real estate transaction does not meet certain down
payment and loan amortization requirements, income recognition is deferred and
recognized under an alternative method.
(k) Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of
the terms of the related leases or the useful lives of the assets.
(l) Income Taxes
The Bank accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" (SFAS No. 109). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets are recognized subject to
management's judgment that those assets will more likely than not be realized. A
valuation allowance is recognized if, based on an analysis of available
evidence, management believes that all or a portion of the deferred tax assets
will not be realized. Adjustments to increase or decrease the valuation
allowance are charged or credited, respectively, to income tax expense. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(m) Statutory Transfer to Surplus
A quarterly transfer of 10% of net income (before dividends paid to
depositors and losses on sale of assets) is generally required to be made to
surplus under New York State Banking Law. No transfer is required, however, if
the net worth of the bank exceeds 10% of deposits.
(n) Financial Instruments
In the normal course of business, the Bank is a party to certain financial
instruments with off-balance-sheet risk such as commitments to extend credit,
unused lines of credit and standby letters of credit. The Bank's policy is to
record such instruments when funded.
(o) Official Bank Checks
The Bank's official checks (including tellers' checks, loan disbursement
checks, interest checks, expense checks, money orders, and payroll checks) are
drawn on deposit accounts at the Bank and are ultimately paid through the Bank's
Federal Reserve correspondent account.
F-10
<PAGE> 153
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(p) Reclassifications
Amounts in the prior years' consolidated financial statements are
reclassified whenever necessary to conform with the current year's presentation.
(q) Trust Assets and Service Fees
Assets held by the Bank in a fiduciary or agency capacity for its customers
are not included in the consolidated statements of condition since these assets
are not assets of the Bank. Trust service fees are reported on the accrual
basis.
(r) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130", "Reporting Comprehensive
Income". SFAS No. 130 states that comprehensive income includes the reported net
income of a company adjusted for items that are currently accounted for as
direct entries to equity, such as the mark to market adjustment on securities
available for sale, foreign currency items and minimum pension liability
adjustments. This statement is effective for fiscal years beginning after
December 15, 1997. Management does not believe that the impact of adopting this
Statement will be material to the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting by public companies of operating segments within the company,
disclosures about products and services, geographic areas and major customers.
This statement is effective for periods beginning after December 15, 1997.
Management does not believe that the adoption of SFAS No. 131 will have a
material impact on the Company's consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132
standardizes the disclosures of SFAS No. 87 and No. 106 to the extent practical
and recommends a parallel format for presenting information about pensions and
other postretirement benefits. This Statement is applicable to all entities and
addresses disclosure only. The Statement does not change any of the measurement
or recognition provisions provided for in SFAS No. 87, No. 88 or No. 106. The
Statement is effective for fiscal years beginning after December 15, 1997.
Management anticipates providing the required disclosures in the September 30,
1999 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts, and for hedging activities. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is currently evaluating the impact of this Statement on the Company's
consolidated financial statements.
(2) LOANS HELD FOR SALE
At September 30, 1998 and 1997, loans held for sale consisted of
conventional mortgages originated for subsequent sale. At September 30, 1998 and
1997, there was no valuation reserve related to loans held for sale.
F-11
<PAGE> 154
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate fair value of securities available for
sale at September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government securities and agencies
obligations...................................... $117,174 $ 46 $-- $117,220
Obligations of states and political subdivisions... 51,324 357 -- 51,681
Mortgage-backed securities......................... 3,616 128 -- 3,744
Corporate debt securities.......................... 16,826 160 (2) 16,984
-------- ---- ---- --------
Total debt securities available for
sale................................... 188,940 691 (2) 189,629
Mutual funds and marketable equity securities...... 4,831 74 (83) 4,822
Non-marketable equity securities................... 3,307 -- -- 3,307
-------- ---- ---- --------
Total securities available for sale...... $197,078 $765 $(85) $197,758
======== ==== ==== ========
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government securities and agencies
obligations...................................... $ 57,658 $ 52 $ (90) $ 57,620
Obligations of states and political subdivisions... 20,829 6 (2) 20,833
Mortgage-backed securities......................... 4,561 92 -- 4,653
Corporate debt securities.......................... 27,145 87 (64) 27,168
-------- ---- ----- --------
Total debt securities available for
sale................................... 110,193 237 (156) 110,274
Mutual funds and marketable equity securities...... 3,983 53 (65) 3,971
Non-marketable equity securities................... 3,307 -- -- 3,307
-------- ---- ----- --------
Total securities available for sale...... $117,483 $290 $(221) $117,552
======== ==== ===== ========
</TABLE>
During 1998, proceeds from sales of securities available for sale totaled
$54.8 million, with gross gains of $9 thousand and gross losses of $1 thousand.
During 1997 there were no sales of securities available for sale. During 1996
proceeds from the sale of securities available for sale totaled $61 thousand
with gross gains of $1 thousand.
As of September 30, 1998, the contractual maturity schedule
(mortgaged-backed securities are shown separately) of debt securities available
for sale at amortized cost and approximate fair value is as follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED FAIR
MATURITY RANGES COST VALUE
--------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C>
Within one year............................................. $145,761 $145,852
From one year to five years................................. 38,661 39,120
From five years to ten years................................ 318 321
Over ten years.............................................. 584 592
Mortgage-backed securities.................................. 3,616 3,744
-------- --------
$188,940 $189,629
======== ========
</TABLE>
F-12
<PAGE> 155
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SECURITIES AVAILABLE FOR SALE (CONTINUED)
Actual maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Mortgaged-backed securities consist entirely of direct pass through
Government National Mortgage Association (GNMA) and Freddie Mac securities.
Other than U.S. Government Securities there are no securities of a single
issuer that exceed 10% of equity at September 30, 1998 and 1997.
(4) INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost and approximate fair value of investment securities as
of September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed securities....................... $1,980 $118 $-- $2,098
Corporate and other debt securities.............. 1,503 20 -- 1,523
------ ---- ---- ------
Total investment securities.............. $3,483 $138 $-- $3,621
====== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed securities....................... $2,497 $160 $(1) $2,656
Corporate and other debt securities.............. 1,503 7 (4) 1,506
------ ---- --- ------
Total investment securities.............. $4,000 $167 $(5) $4,162
====== ==== === ======
</TABLE>
The amortized cost and approximate fair value of investment securities held
to maturity at September 30, 1998, by contractual maturity (mortgage-backed
securities are shown separately), are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED FAIR
MATURITY RANGES COST VALUE
--------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C>
Over ten years............................................ $1,503 $1,523
Mortgage-backed securities................................ 1,980 2,098
------ ------
Total............................................. $3,483 $3,621
====== ======
</TABLE>
Actual maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
No provision has been made for losses on investment securities held to
maturity in which the current market prices are less than the carrying values
since the Bank has the positive intent and ability to hold all investment
securities to maturity, and the Bank does not anticipate that the unrealized
loss, if any, is other than temporary.
F-13
<PAGE> 156
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NET LOANS RECEIVABLE
A summary of loans receivable at September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Residential............................................ $202,511 $214,638
Commercial............................................. 166,186 184,561
Construction........................................... 10,052 15,508
-------- --------
Total real estate loans........................... 378,749 414,707
Commercial business.................................... 45,156 29,961
Home equity lines...................................... 8,575 9,883
Other consumer loans................................... 33,445 20,539
-------- --------
Total consumer loans.............................. 42,020 30,422
Less: Net unearned discount and deferred fees.......... (344) (501)
Allowance for loan losses.............................. (8,260) (6,429)
-------- --------
Loans receivable, net.................................. $457,321 $468,160
======== ========
</TABLE>
Non performing loans receivable at September 30, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans...................................... $ 9,567 $6,459 $10,669
Restructured loans..................................... 2,081 2,256 1,810
------- ------ -------
Total............................................. $11,648 $8,715 $12,479
======= ====== =======
</TABLE>
All restructured loans are performing according to their modified terms at
September 30, 1998 and 1997.
Had the above non-accrual loans been on an accrual basis or had the
interest rate not been reduced with respect to the loans restructured in trouble
debt restructurings, the additional interest that would have been earned was
$180 thousand, $429 thousand, and $489 thousand for 1998, 1997 and 1996,
respectively. There are no commitments to extend further credit on the
restructured loans.
Changes in the allowance for loan losses for the years ended September 30,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year................................. $6,429 $ 4,304 $ 4,297
Provision charged to operations............................ 4,050 3,900 928
Loans charged off.......................................... (2,446) (1,890) (1,169)
Recoveries on loans charged-off............................ 227 115 248
------ ------- -------
Balance, end of year....................................... $8,260 $ 6,429 $ 4,304
====== ======= =======
</TABLE>
At September 30, 1998 and 1997, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled $8.4 million and $6.1
million, respectively, for which the related allowance for loan losses was
approximately $1.2 million and $1.0 million, respectively. As of September 30,
1998 and 1997, there were no impaired loans which did not have an allowance for
loan loss. The average recorded investment in impaired loans for the years ended
September 30, 1998 and 1997 was approximately
F-14
<PAGE> 157
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NET LOANS RECEIVABLE -- (CONTINUED)
$5.9 million and $7.0 million, respectively. The total interest income
recognized on impaired loans, during the period of impairment, was $0, $99
thousand, and $336 thousand for 1998, 1997 and 1996, respectively. The interest
income recognized on impaired loans, during the period of impairment, using the
cash basis of income recognition was $0, $98 thousand and $315 thousand for
1998, 1997, and 1996, respectively.
Certain executive officers of the Bank were customers of and had other
transactions with the Bank in the ordinary course of business. Loans to these
parties were made in the ordinary course of business at the Bank's normal credit
terms, including interest rate and collateralization. The aggregate of such
loans totaled less than 5% of total equity at September 30, 1998 and 1997.
(6) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at September 30, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loans....................................................... $2,770 $2,925
Securities available for sale............................... 1,494 1,386
Investment securities....................................... 23 23
------ ------
$4,287 $4,334
====== ======
</TABLE>
(7) OTHER REAL ESTATE OWNED
Other real estate owned at September 30, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Other real estate owned:
Residential (1-4 family).................................. $ 345 $ 589
Commercial properties..................................... 1,527 2,101
------ ------
$1,872 $2,690
====== ======
</TABLE>
(8) PREMISES AND EQUIPMENT, NET
A summary of premises and equipment at September 30, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,423 $ 1,423
Buildings................................................... 12,621 12,520
Furniture, fixtures and equipment........................... 8,002 7,516
Leasehold improvements...................................... 3,450 3,075
Construction in progress.................................... 1,225 210
-------- --------
26,721 24,744
Less accumulated depreciation............................... (12,625) (11,010)
-------- --------
Premises and equipment, net............................... $ 14,096 $ 13,734
======== ========
</TABLE>
F-15
<PAGE> 158
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PREMISES AND EQUIPMENT, NET -- (CONTINUED)
Depreciation expense was approximately $1.6 million for the year ended
September 30, 1998 and $1.4 million in each of the years ended September 30,
1997 and 1996.
(9) DEPOSITS
A summary of depositors' balances at September 30, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Savings accounts (2.75% to 5.5%)............................ $198,509 $198,929
-------- --------
Time accounts:
2.00% to 2.99%............................................ 624 257
3.00% to 3.99%............................................ 58 9
4.00% to 4.99%............................................ 10,174 5,893
5.00% to 5.99%............................................ 236,312 246,686
6.00% to 6.99%............................................ 6,679 11,762
7.00% to 7.99%............................................ 2,698 2,578
8.00% to 8.99%............................................ 12 53
9.00% to 9.99%............................................ 117 107
-------- --------
Total time accounts............................... 256,674 267,345
-------- --------
Money market accounts (2.00% to 3.00%)...................... 15,708 13,121
N.O.W. and Super N.O.W. accounts (2.00% to 2.35%)........... 76,195 71,442
Demand accounts (0%)........................................ 31,116 21,560
-------- --------
Total money market, N.O.W. and demand deposit
accounts........................................ 123,019 106,123
-------- --------
Total deposits.................................... $578,202 $572,397
======== ========
</TABLE>
The contractual maturities of time accounts for the years subsequent to
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
(IN THOUSANDS)
<S> <C>
1999.............................................. $194,755
2000.............................................. 40,675
2001.............................................. 14,852
2002.............................................. 6,281
Thereafter........................................ 111
--------
$256,674
========
</TABLE>
F-16
<PAGE> 159
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) DEPOSITS -- (CONTINUED)
Interest expense on deposits and escrows for the years ended September 30,
1998, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Time accounts............................................ $14,701 $14,087 $13,758
Savings accounts......................................... 6,451 6,647 6,798
Money market accounts.................................... 431 433 379
N.O.W. and Super N.O.W. accounts......................... 1,696 1,590 1,547
Escrow accounts.......................................... 60 55 75
------- ------- -------
$23,339 $22,812 $22,557
======= ======= =======
</TABLE>
Individual time accounts in excess of $100 thousand totaled $33.4 million
and $28.7 million at September 30, 1998 and 1997, respectively.
(10) EMPLOYEE BENEFIT PLANS
The Bank maintains a non-contributory pension plan with the Retirement
System Group, Inc., covering substantially all its full-time employees. The
benefits are generally computed as two percent of the highest three year
"average annual earnings" multiplied by years of credited service, subject to
various caps and adjustments as provided for in the plan. The amounts
contributed to the plan are determined annually on the basis of (a) the maximum
amount that can be deducted for federal income tax purposes or (b) the amount
certified by an actuary as necessary to avoid an accumulated funding deficiency
as defined by the Employee Retirement Income Security Act of 1974. Contributions
are intended to provide not only for benefits attributed to service to date but
also those expected to be earned in the future. Assets of the plan are primarily
invested in pooled equity and fixed income funds.
The following table sets forth the plan's funded status and amounts
recognized in the banks consolidated financial statements as of September 30,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $9.8 million and, $8.3 million at September 30, 1998
and 1997, respectively................................. $(10,182) $ (8,467)
======== ========
Projected benefit obligation for service rendered to
date................................................... (12,458) (10,388)
Plan assets at fair value................................. 12,805 13,160
-------- --------
Plan assets in excess of projected benefit obligation..... 347 2,772
Unrecognized net gain from past experience different from
that assumed and effects and changes in assumptions.... (241) (2,513)
Unrecognized net transition asset at January 1, 1987 being
recognized over 11.2 years............................. -- (14)
Unrecognized past service asset........................... 339 387
-------- --------
Prepaid pension cost included in other assets............. $ 445 $ 632
======== ========
</TABLE>
F-17
<PAGE> 160
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE BENEFIT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------- -------------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension cost included the following
components:
Service cost.......................................... $ 580 $ 482 $ 361
Interest cost......................................... 752 699 559
Expected return on plan assets........................ (1,038) (868) (488)
Net amortization...................................... (68) (51) (211)
------- ----- -----
Net periodic pension cost............................. $ 226 $ 262 $ 221
======= ===== =====
</TABLE>
The actuarial assumptions used in determining the actuarial present value
of the projected benefit obligation as of September 30, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount Rate.............................................. 6.50% 7.25% 7.75%
Long-term rate of return................................... 8.00% 8.00% 8.00%
Salary increase rate....................................... 4.50% 5.00% 5.50%
</TABLE>
The Bank maintains a 401(k) savings plan covering all salaried and
commissioned employees who become eligible to participate upon attaining the age
of twenty-one and completing a year of service. Participants may contribute from
2% to 15% of their compensation. The Bank made matching contributions equal to
50% of the participants' contributions (up to a limit of 3% of the participants'
compensation) in fiscal 1998, 1997 and 1996. Employer matching contributions
vest 20% per year beginning after one year of participation in the plan.
Employer matching contributions were approximately $146 thousand, $125 thousand
and $120 thousand for each of the years ended September 30, 1998, 1997 and 1996,
respectively.
The Bank has established a self-funded employee welfare benefit plan to
provide health care coverage (hospital medical, major medical, and prescription
drug) for eligible employees and their dependents who enroll in the plan. This
self insurance program is administered by an unrelated company. Under the terms
of the self insurance program, the Bank could incur costs up to a maximum of
approximately $828 thousand for the cost of covered claims for the plan year
ended December 31, 1998. The Bank has purchased a $1.0 million insurance policy
to cover claims in excess of the maximum costs under the plan. In addition,
there are lower maximum cost limitations for individual claims.
The Bank provides certain health care and life insurance benefits for
retired employees. Substantially all of the Bank's employees will become
eligible for those benefits if they reach normal retirement age while working
for the Bank. As of October 1, 1995, the Bank adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106).
F-18
<PAGE> 161
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired employees.................................... $(1,769) $(2,072)
Active employees fully eligible for benefits......... (533) (255)
Other active plan participants....................... (1,135) (1,126)
------- -------
Unfunded postretirement benefit obligation............. (3,437) (3,453)
Unrecognized net loss.................................. 15 253
Unrecognized transition obligation..................... 2,304 2,440
------- -------
Accrued postretirement benefit cost included in other
liabilities........................................... $(1,118) $ (760)
======= =======
</TABLE>
Net periodic post retirement benefit cost recognized in the consolidated
statements of income for the years ended September 30, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $170 $124 $115
Interest cost............................................... 204 237 217
Amortization of transition obligation at October 1, 1995
being amortized over 20 years............................. 136 136 136
---- ---- ----
Net periodic postretirement benefit cost.................... $510 $497 $468
==== ==== ====
</TABLE>
The weighted-average discount rate used in determining the accumulated post
retirement benefit obligation was 6.5%, 7.25% and 8.0% as of September 30, 1998,
1997, and 1996 respectively.
For measurement purposes, 5% and 3% annual rates of increase in the per
capita cost of covered medical and dental costs, respectively, was assumed for
fiscal 1998 and thereafter. The medical and dental cost trend rate assumptions
have a significant effect on the amounts reported. To illustrate, increasing the
assumed medical and dental cost trend rates one percentage point in each year
would increase the accumulated postretirement benefit obligation as of September
30, 1998 by approximately $332 thousand (10%) and increase the aggregate of the
service and interest cost components of the net periodic postretirement benefit
cost for fiscal 1998 by approximately $56 thousand (15%).
(11) INCOME TAXES
The components of income tax (benefit) expense for the years ended
September 30, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal............................................... $ 850 $ 2,694 $2,444
State................................................. 303 324 395
Deferred tax benefit....................................... (3,027) (1,442) (333)
------- ------- ------
Income tax (benefit) expense.......................... $(1,874) $ 1,576 $2,506
======= ======= ======
</TABLE>
F-19
<PAGE> 162
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES -- (CONTINUED)
The following is a reconciliation of the expected income tax (benefit)
expense and the actual income tax (benefit) expense. The expected income tax
(benefit) expense has been computed by applying the statutory federal tax rate
to income before income tax (benefit) expense:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income tax (benefit) expense at applicable federal
statutory rate......................................... $ (936) $1,780 $2,578
Increase (decrease) in income tax (benefit) expense
resulting from:
Tax exempt securities income........................ (637) (46) (10)
State income tax (benefit) expense, net of Federal
impact............................................ (276) 214 261
Reduction in the valuation allowance for deferred
tax assets........................................ -- -- (245)
Reduction in New York State bad debt reserve
resulting from tax law changes.................... -- (349) --
Rehabilitation credits.............................. -- -- (42)
Other............................................... (25) (23) (36)
------- ------ ------
Income tax (benefit) expense........................ $(1,874) $1,576 $2,506
======= ====== ======
Effective tax rate....................................... (68.1)% 30.1% 33.0%
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Differences in reporting the provision for loan
losses................................................ $2,815 $2,084
Differences in reporting expenses related to other real
estate owned.......................................... 248 182
Differences in reporting certain accrued expenses...... 2,689 667
Differences in reporting depreciation.................. 603 397
Deferred compensation.................................. 386 335
------ ------
Total gross deferred tax assets................... 6,741 3,665
Deferred tax liabilities:
Differences in reporting pension costs................. 178 253
Differences in reporting prepaid expenses.............. 259 252
Deferred net loan origination fees..................... 157 133
Mortgage servicing rights.............................. 127 34
------ ------
Total gross deferred tax liabilities.............. 721 672
------ ------
Net deferred tax asset at end of year....................... 6,020 2,993
Net deferred tax asset at beginning of year................. 2,993 1,551
------ ------
Deferred tax benefit for the year........................... $3,027 $1,442
====== ======
</TABLE>
In addition to the deferred tax assets and liabilities described above, the
Bank also has a deferred tax liability of approximately $273 thousand and $28
thousand at September 30, 1998 and 1997, respectively, related to the net
unrealized gain on securities available for sale.
Deferred tax assets are recognized subject to management's judgement that
realization is more likely than not. Based on the sufficiency of temporary
taxable items, historical taxable income, as well as estimates
F-20
<PAGE> 163
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES -- (CONTINUED)
of future taxable income, the Bank believes it is more likely than not that the
entire net deferred tax asset at September 30, 1998 and 1997 will be realized.
During the year ended September 30, 1996 the valuation allowance of $245
thousand was reduced to zero.
As a thrift institution, the Bank is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been determined using methods based on loss experience or a percentage of
taxable income. Tax bad debt reserves are maintained equal to the excess of
allowable deductions over actual bad debt losses and other reserve reductions.
These reserves consist of a defined base-year amount, plus additional amounts
("excess reserves") accumulated after the base year. SFAS No. 109 requires
recognition of deferred tax liabilities with respect to such excess reserves, as
well as any portion of the base-year amount which is expected to become taxable
(or "recaptured") in the foreseeable future.
Certain amendments to the Federal and New York State tax laws regarding bad
debt deductions were enacted in July and August 1996, respectively. The Federal
amendments include elimination of the percentage of taxable income method for
tax years beginning after December 31, 1995, and imposition of a requirement to
recapture into taxable income (over a period of approximately six years) the bad
debt reserves in excess of the base-year amounts. The Bank previously
established, and will continue to maintain, a deferred tax liability with
respect to such excess Federal reserves. The New York State amendments
redesignate the Bank's state bad debt reserves at December 31, 1995 as the
base-year amount and also provide for future additions to the base-year reserve
using the percentage of taxable income method. As a result of the redesignation
of the New York State base-year reserve, the Bank reduced its deferred tax
liabilities related to the previous excess New York State reserve resulting in a
deferred tax benefit in fiscal 1997 of approximately $349 thousand.
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the Federal base-year reserve of $7.9 million and
"supplemental" reserve (as defined) of $1.0 million at September 30, 1998, and
the state base-year reserve of $18.9 million at September 30, 1998, since the
Bank does not expect that these amounts will become taxable in the foreseeable
future. Under New York State tax law, as amended, events that would result in
taxation of these reserves include the failure of the Bank to maintain a
specified qualifying assets ratio or meet other thrift definition tests for tax
purposes. The unrecognized deferred tax liability at September 30, 1998 with
respect to the Federal base-year reserve and supplemental reserve was $2.7
million and $340 thousand, respectively. The unrecognized deferred tax liability
at September 30, 1998 with respect to the state base-year reserve was
approximately $1.7 million.
F-21
<PAGE> 164
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) SHORT-TERM BORROWINGS
A summary of short-term borrowings is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities Sold Under Agreements to Repurchase:
Balance at September 30............................ $2,524 $ 372 $ 149
Maximum month-end balance.......................... 2,544 2,352 761
Average during the year............................ 1,222 704 386
Average rate during the year....................... 2.70% 4.12% 3.37%
Rate at September 30............................... 3.45% 5.10% 4.31%
Federal Home Loan Bank of New York Short-Term
Borrowings:
Balance at September 30............................ -- -- 5,000
Maximum month-end balance.......................... -- 10,000 10,000
Average during the year............................ -- 4,403 4,220
Average rate during the year....................... -- 5.50% 5.14%
Rate at September 30............................... -- -- 5.45%
Average aggregate borrowing rates....................... 2.70% 5.30% 5.27%
</TABLE>
Securities sold under agreements to repurchase generally mature within
ninety days. The Company maintains control over the securities underlying the
agreements.
The Company has established overnight and term lines of credit with the
Federal Home Loan Bank of New York (FHLB). If advanced, such lines of credit
will be collateralized by qualifying loans, securities, mortgage-backed
securities, and FHLB stock loans. Total availability under these lines was
approximately $67.1 million and $67.0 million at September 30, 1998 and 1997,
respectively. Participation in the FHLB program requires an investment in FHLB
stock. Investment in FHLB stock, included in securities available for sale on
the consolidated balance sheets, amounted to $3.2 million at September 30, 1998
and 1997.
(13) FEDERAL HOME LOAN BANK OF NEW YORK LONG-TERM DEBT
At September 30, 1998, long term debt included a $3.9 million 5.89% fixed
rate amortizing loan and other long term borrowings of $41.0 million bearing
interest of 5.8%. The following table sets forth maturities of the long-term
borrowings of September 30, 1998.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS)
<S> <C>
1999.............................................. $ 443
2000.............................................. 469
2001.............................................. 3,028
2002.............................................. --
2003.............................................. 10,000
2004 and thereafter............................... 31,000
-------
$44,940
=======
</TABLE>
Collateral for borrowings include a blanket lien on general assets of the
Bank and approximately $11.0 million of pledged securities.
F-22
<PAGE> 165
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMMITMENTS AND CONTINGENT LIABILITIES
(a) Lease Obligations
The Bank leases several banking office facilities under various
noncancellable operating leases. These leases expire (excluding renewal options)
in periods ranging from 1 to 10 years. Minimum rental commitments under lease
contracts are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, OFFICE FACILITIES
(IN THOUSANDS) -----------------
<S> <C>
1999.............................................. $ 448
2000.............................................. 502
2001.............................................. 540
2002.............................................. 542
2003.............................................. 547
2004 and thereafter............................... 1,065
------
$3,644
======
</TABLE>
(b) Data Processing
During the year ended September 30, 1997, the Bank renewed its data
processing agreement for a five year period beginning February 1, 1997. At
September 30, 1998, commitments under this agreement were approximately $3.8
million.
(c) Off-Balance-Sheet Financing and Concentrations of Credit
The Bank is a party to certain financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
unused lines of credit and standby letters of credit. These instruments involve,
to varying degrees, elements of credit risk in excess of the amount recognized
on the consolidated financial statements. The contract amounts of these
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments as it does for on-
balance-sheet instruments.
F-23
<PAGE> 166
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
Contract amounts of financial instruments that represent the future
extension of credit as of September 30, 1998 and 1997 at fixed and variable
interest rates are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------
(IN THOUSANDS)
----------------------------
FIXED VARIABLE TOTAL
------- -------- -------
<S> <C> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments outstanding:
Conventional mortgages......................... $10,212 $13,487 $23,699
Construction loans............................. -- 14,575 14,575
------- ------- -------
10,212 28,062 38,274
------- ------- -------
Unused lines of credit:
Home equity lines of credit.................... -- 6,242 6,242
Commercial lines of credit..................... 25,846 25,077 50,923
Overdraft lines of credit...................... -- 1,572 1,572
------- ------- -------
25,846 32,891 58,737
------- ------- -------
Standby letters of credit........................... -- 2,721 2,721
------- ------- -------
$36,058 $63,674 $99,732
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
(IN THOUSANDS)
---------------------------
FIXED VARIABLE TOTAL
------ -------- -------
<S> <C> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments outstanding:
Conventional mortgages.......................... $5,801 $ 2,019 $ 7,820
Construction loans.............................. -- 5,570 5,570
------ ------- -------
5,801 7,589 13,390
------ ------- -------
Unused lines of credit:
Home equity lines of credit..................... -- 6,192 6,192
Commercial lines of credit...................... 3,124 24,460 27,584
Overdraft lines of credit....................... -- 1,446 1,446
------ ------- -------
3,124 32,098 35,222
------ ------- -------
Standby letters of credit............................ -- 1,935 1,935
------ ------- -------
$8,925 $41,622 $50,547
====== ======= =======
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since not all of the commitments are expected
to be funded, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral, if any, required by the Bank upon
the extension of credit is based on management's credit evaluation of the
customer. Mortgage and construction loan commitments are secured by a first lien
on real estate. Collateral on
F-24
<PAGE> 167
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
extensions of credit for commercial loans varies but may include accounts
receivable, inventory, property, plant and equipment, and income producing
commercial property.
Commitments to extend credit may be written on a fixed rate basis exposing
the Bank to interest rate risk given the possibility that market rates may
change between commitment and actual extension of credit.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee payment on behalf of a customer and guarantee the performance of a
customer to a third party. The credit risk involved in issuing these instruments
is essentially the same as that involved in extending loans to customers. Since
a portion of these instruments will expire unused, the total amounts do not
necessarily represent future cash requirements. Each customer is evaluated
individually for creditworthiness under the same underwriting standards used for
commitments to extend credit and on-balance sheet instruments. Bank policies
governing loan collateral apply to standby letters of credit at the time of
credit extension.
Certain residential mortgage loans are written on an adjustable-rate basis
and include interest rate caps which limit annual and lifetime increases in the
interest rates on such loans. Generally, adjustable rate residential mortgages
have an annual rate increase cap of 2% and a lifetime rate increase cap of 5% to
6%. These caps expose the Bank to interest rate risk should market rates
increase above these limits. At September 30, 1998 and 1997 approximately $75.6
million and $104.6 million of adjustable rate residential loans had interest
rate caps.
The Bank generally enters into rate lock agreements at the time that
residential mortgage loan applications are taken. These rate lock agreements fix
the interest rate at which the loan, if ultimately made, will be originated.
Such agreements may exist with borrowers with whom commitments to extend loans
have been made, as well as with individuals who have not yet received a
commitment. The Bank makes its determination of whether or not to identify a
loan as held for sale at the time rate lock agreements are entered into.
Accordingly, the Bank is exposed to interest rate risk to the extent that a rate
lock agreement is associated with a loan application or a loan commitment which
is intended to be held for sale, as well as with respect to loans held for sale.
At September 30, 1998 and 1997, the Bank had rate lock agreements (certain
of which relate to loan applications for which no formal commitment has been
made) and conventional mortgage loans held for sale amounting to approximately
$20.3 million and $8.6 million, respectively.
In order to reduce the interest rate risk associated with the portfolio of
conventional mortgage loans held for sale, as well as outstanding loan
commitments and uncommitted loan applications with rate lock agreements which
are intended to be held for sale, the Bank enters into agreements to sell loans
in the secondary market to unrelated investors on a loan by loan basis, and may
also enter into option agreements. At September 30, 1998 and 1997, the Bank had
mandatory commitments and cancelable options to sell conventional fixed rate
mortgage loans at set prices amounting to approximately $25.0 million and $11.0
million, respectively. The Bank believes that it will be able to meet these
commitments without incurring any material losses.
(d) Serviced Loans
The total loans serviced by the Bank for unrelated third parties were
approximately $195.7 million at September 30, 1998 and $146.1 million at
September 30, 1997.
F-25
<PAGE> 168
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
(e) Contingent Liabilities
In the ordinary course of business there are various legal proceedings
pending against the Bank. Based on consultation with outside counsel, management
considers that the aggregate exposure, if any, arising from such litigation
would not have a material adverse effect on the Bank's consolidated financial
statements.
(f) Charitable Foundation Contribution Commitment
In 1998, the Bank contributed $1.0 million to the Troy Savings Bank
Charitable Foundation (the Foundation) and entered into a binding unconditional
commitment to contribute an additional $4.0 million to the Foundation over the
next 3 years as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
(IN THOUSANDS)
<S> <C>
1999.............................................. $1,000
2000.............................................. 1,500
2001.............................................. 1,500
------
$4,000
======
</TABLE>
The present value of the above commitment of $3.5 million has been recorded
as a liability on the Bank's September 30, 1998 consolidated statement of
condition. A related contribution expense of $3.5 million, in addition to the
$1.0 million paid to the Foundation, has been recorded on the Bank's 1998
consolidated statement of income.
(g) Concentrations of Credit
The Bank grants commercial, consumer and residential loans to customers
throughout the six New York State counties of Albany, Rensselaer, Saratoga,
Schenectady, Warren and Washington. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the real estate and construction related sectors of
the economy.
(h) Reserve Requirement
The Bank is required to maintain certain reserves of vault cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve requirement,
included in cash and due from banks, was approximately $46 thousand.
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS
No. 107) requires that the Bank disclose estimated fair values for its financial
instruments. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on judgments
regarding future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
F-26
<PAGE> 169
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the deferred tax assets and
bank premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates of fair value
under SFAS No. 107.
In addition there are significant intangible assets that SFAS No. 107 does
not recognize, such as the value of core deposits, the Bank's branch network,
and other items generally referred to as goodwill.
Short-Term Financial Instruments
The fair values of certain financial instruments are estimated to
approximate their carrying values because the remaining term to maturity of the
financial instrument is less than 90 days or the financial instrument reprices
in 90 days or less. Such financial instruments include cash and due from banks,
Federal funds sold, accrued interest receivable, accrued interest payable, and
securities sold under agreements to repurchase.
Loans Held for Sale
The estimated fair value of loans held for sale, is calculated by either
using quoted market rates or in the case where a firm commitment has been made
to sell the loan, the firm committed price.
Securities Available for Sale and Investment Securities Held to Maturity
Securities available for sale and investment securities held to maturity
are financial instruments which are usually traded in broad markets. Fair values
are based upon market prices. If a quoted market price is not available for a
particular security, the fair value is determined by reference to quoted market
prices for securities with similar characteristics.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type including, residential real
estate, commercial real estate, construction other commercial loans and consumer
loans.
The estimated fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
respective loan portfolio. Estimated fair value for non-performing loans is
based on recent external appraisals or estimated cash flows discounted using a
rate commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
Management has made estimates of fair value discount rates that it believes
to be reasonable. However, because there is no active market for many of these
loans, management has no basis to determine whether the estimated fair value
would be indicative of the value negotiated in an actual sale.
Deposit Liabilities
The estimated fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings, NOW and money market accounts and
mortgagors' escrow deposits, is regarded to be the amount payable on demand as
of September 30, 1998 and 1997. The estimated fair value of time accounts is
F-27
<PAGE> 170
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities. The fair value estimates for deposits do not include the benefit
that results from the low-cost funding provided by the deposit liabilities as
compared to the cost of borrowing funds in the market.
Long-Term Debt
The estimated fair value of long-term debt is based on the discounted value
of contractual cash flows. The discount rate is estimated using the rates
currently offered for similar long-term debt issues.
Commitments to Extend Credit, Unused Lines of Credit, and Standby Letters of
Credit
The fair value of commitments to extend credit, unused lines of credit and
standby-letters of credit is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counterparties. For fixed
rate commitments to extend credit and unused lines of credit, fair value also
considers the difference between current levels of interest rates and the
committed rates. Based upon the estimated fair value of commitments to extend
credit, unused lines of credit, and standby letters of credit, there are no
significant unrealized gains or losses associated with these financial
instruments.
Table of Financial Instruments
The carrying values and estimated fair values of financial instruments as
of September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.............. $ 17,915 $ 17,915 $ 42,451 $ 42,451
Loans held for sale.................... 11,096 11,096 3,703 3,703
Securities available for sale.......... 197,758 197,758 117,552 117,552
Investment securities held to
maturity............................. 3,483 3,621 4,000 4,162
Loans.................................. 465,581 469,713 474,589 473,253
Less: Allowance for loan losses... 8,260 -- 6,429 --
-------- -------- -------- --------
Net loans.................... 457,321 469,713 468,160 473,253
Accrued interest receivable................. 4,287 4,287 4,334 4,334
Financial liabilities:
Deposits:
Demand, savings, money market, and
NOW accounts.................... 321,528 321,528 305,052 305,052
Time accounts..................... 256,674 258,254 267,345 267,712
Securities sold under agreements to
repurchase........................... 2,524 2,524 372 372
Accrued interest payable............... 360 360 60 60
Mortgagors' escrow accounts............ 1,900 1,900 1,916 1,916
Contribution payable................... 3,453 3,453 -- --
Long-term debt......................... 44,940 44,940 4,356 4,356
</TABLE>
F-28
<PAGE> 171
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Note: Loans held for sale represent the only trading financial instruments;
all other financial instruments are considered to be held for
purposes other than trading.
(16) REGULATORY CAPITAL REQUIREMENTS
Federal Deposit Insurance Corporation regulations require banks to maintain
a minimum level of regulatory capital. Under the regulations in effect at
September 30, 1998 and 1997, the Bank was required to maintain a minimum
leverage ratio of Tier I (core) capital to average adjusted quarterly assets of
4.00%; and minimum ratios of Tier I (core) capital and total capital to risk
weighted assets of 4.00% and 8.00%, respectively.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on an institution's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. Generally an
institution is considered well capitalized if it has a Tier I (core) capital
ratio of at least 5.0% (based on total adjusted quarterly average assets); a
Tier I risk-based capital ratio of at least 6.0%; and a total risk-based capital
ratio of at least 10.0%.
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 the FDIC about
capital components, risk weighting and other factors.
Management believes that, as of September 30, 1998 and 1997, the Bank met
all capital adequacy requirements to which it is subject. Further, the most
recent FDIC notification categorized the Bank as a well-capitalized institution
under the prompt corrective action regulations. There have been no conditions or
events since that notification that management believes have changed the Bank's
capital classification.
The following is a summary of the Bank's actual capital amounts and ratios
as of September 30, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 AMOUNT RATIO
------------------ --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Leverage (Tier I) Capital................................... $70,114 9.89%
Risk-based Capital:
Tier I............................................ $70,114 14.02%
Total............................................. $76,368 15.27%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 AMOUNT RATIO
------------------ ------- -----
<S> <C> <C>
Leverage (Tier I) Capital................................... $70,943 10.64%
Risk-based Capital:
Tier I............................................ $70,943 15.01%
Total............................................. $77,372 16.37%
</TABLE>
(17) ADOPTION OF PLAN OF CONVERSION
On July 15, 1998 the Board of Trustees of the Bank, subject to regulatory
approval and approval by members of the Bank, unanimously adopted a Plan of
Conversion (as amended and restated, the Plan), to convert from a New York
State-chartered mutual savings bank to a New York State-chartered stock savings
F-29
<PAGE> 172
THE TROY SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) ADOPTION OF PLAN OF CONVERSION -- (CONTINUED)
bank with the concurrent formation of a holding company. The conversion is
expected to be accomplished through amendment of the Bank's Organization
Certificate and the sale of the holding company's common stock in an amount
equal to the proforma market value of the Bank after giving effect to the
conversion. A subscription offering of the sale of the holding company's common
stock will be offered with priority rights to certain of the Bank's depositors,
and the employee stock ownership plan expected to be set up as part of the Plan.
Any shares of the holding company's common stock not sold in the subscription
offering will be offered for sale to the general public.
At the time of conversion, the Bank will establish a liquidation account in
an amount equal to its total equity as of the date of the latest consolidated
balance sheet appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The Bank may not pay dividends that
would reduce stockholders' equity below the required liquidation account
balance.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all costs
will be charged to expense. As of September 30, 1998, approximately $120.8
thousand of conversion costs had been deferred.
Pursuant to the Plan, the holding company intends to contribute holding
company common stock in an amount equal to 1-4% of the total amount of common
stock to be sold in the conversion, to the Troy Savings Bank Community
Foundation (the Community Foundation). The Community Foundation is being formed
as a complement to the Bank's existing community activities and will be
dedicated to community activities and the promotion of charitable causes.
The Community Foundation will submit a request to the Internal Revenue
Service to be recognized as a tax-exempt organization and will likely be
classified as a private foundation. A contribution of common stock to the
Community Foundation by the holding company may be tax deductible, subject to an
annual limitation of all contributions based on 10% of the holding company's
annual taxable income (before contributions). To the extent that the Bank
determines that such annual taxable income will, more likely than not, be
sufficient to allow for the deduction, the holding company would be able to
carry forward any unused portion of the deduction for five years following the
contribution. Upon funding the Community Foundation, the holding company will
recognize an expense in the full amount of the contribution, offset in part by
any corresponding tax benefit, during the quarter in which the contribution is
made.
F-30
<PAGE> 173
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY TROY FINANCIAL CORPORATION, THE TROY SAVINGS BANK OR SANDLER O'NEILL &
PARTNERS, L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF TROY FINANCIAL
CORPORATION OR THE TROY SAVINGS BANK SINCE ANY OF THE DATES AS OF WHICH SUCH
INFORMATION IS FURNISHED OR SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers..................... 1
Summary................................... 3
Risk Factors.............................. 8
Troy Financial Corporation................ 11
The Troy Savings Bank..................... 11
Selected Consolidated Financial and Other
Data.................................... 12
Use of Proceeds........................... 14
Dividend Policy........................... 14
Market for the common stock............... 15
Regulatory Capital Compliance............. 16
Capitalization............................ 17
Pro Forma Data............................ 18
Comparison of Valuation and Pro Forma
Information with No Contribution to the
Community Foundation.................... 23
The Troy Savings Bank and Subsidiaries
Consolidated Statements of Income....... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 26
Business of Troy Financial Corporation.... 42
Business of The Troy Savings Bank......... 42
Regulation and Supervision................ 66
Taxation.................................. 73
Management of Troy Financial
Corporation............................. 74
Management of Troy Savings Bank........... 75
The Conversion............................ 87
Restrictions on Acquisition of Troy
Financial Corporation................... 107
Description of Capital Stock of Troy
Financial Corporation................... 112
Description of Capital Stock of The Troy
Savings Bank............................ 113
Transfer Agent and Registrar.............. 114
Experts................................... 114
Legal and Tax Opinions.................... 114
Additional Information.................... 114
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
10,200,500 SHARES
TROY FINANCIAL
CORPORATION
[LOGO]
(PROPOSED BANK HOLDING COMPANY
FOR THE TROY SAVINGS BANK)
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1999
SANDLER O'NEILL &
PARTNERS, L.P.
------------------------------------------------------
------------------------------------------------------
<PAGE> 174
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts, except the
Securities and Exchange Commission registration fee, are estimated, and based
on the maximum of the Estimated Price Range. The SEC fee is based on the
maximum, plus 15%, of the Estimated Price Range.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
SEC registration fees $ 33,747
NASD fee 10,000
Nasdaq listing fee 75,000
New York State Banking Department filing fee 5,000
Counsel fees and expenses 600,000
Accounting fees and expenses 255,000
Appraisal and business plan fees 46,500
Conversion agent fees 30,000
Marketing agent fees 975,000
Benefit consultant fees 30,000
Printing, postage and mailing 225,000
Blue sky fees and expenses 20,000
Other expenses 28,753
----------
TOTAL $2,334,000
==========
</TABLE>
- ---------------
All expenses of registration incurred in connection with this
Registration Statement are being borne by the Registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to the provisions of the General Corporation Law
of the State of Delaware (the "DGCL") and Section 12 of the Company's
Certificate of Incorporation.
The Registrant is a Delaware corporation subject to the applicable
indemnification provisions of the DGCL. Section 145 of the DGCL provides for
the indemnification, under certain circumstances, of persons who are or were
directors, officers, employees or agents of a corporation, or are or were
serving at the request of a corporation in such a capacity with another
business organization or entity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in actions, suits or
proceedings, whether civil, criminal, administrative, or investigative, brought
or threatened against or involving such persons because of such person's
service in any such capacity. In the case of actions brought by or in the
right of a corporation, Section 145 provides for indemnification of expenses
(including attorneys' fees) if the person seeking indemnification acted in good
faith and in a manner that such person reasonably believed to be in or not
opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall been adjudged liable to the corporation unless and only
upon a determination by the Court of Chancery or the court in which such action
or suit was brought that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is reasonably and fairly
entitled to indemnity for such expenses.
II-1
<PAGE> 175
The Company's Certificate of Incorporation provides that, to the
extent permitted by law, the Company shall fully indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was a director
or officer of the Company, or is or was serving at the request of the Company
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. Moreover, to the extent permitted by law, the Company will fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was an employee or agent of the Company, or is or was serving
at the request of the Company as an employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding. The Company will also advance expenses
upon receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that such director or
officer is not entitled to indemnification. Section 8 of the Company's Bylaws
provides for similar indemnification of such persons.
ITEM 15: RECENT SALES OF UNREGISTERED SECURITIES
ITEM 701. During the past three years, the Registrant has not sold
any unregistered securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following Exhibits are filed herewith or incorporated herein by
reference:
1.1 Engagement Letter, dated as of July 15, 1998, between The Troy Savings
Bank and Sandler O'Neill & Partners, L.P.*
1.2 Form of Agency Agreement between Troy Financial Corporation, The Troy
Savings Bank and Sandler O'Neill & Partners, L.P.
2 Amended and Restated Plan of Conversion of The Troy Savings Bank, dated
July 15, 1998, and amended on December 10, 1998.*
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1
hereto).*
4.2 Bylaws of the Company (filed as Exhibit 3.2 hereto).*
4.3 Form of stock certificate of Troy Financial Corporation.*
5.1 Opinion of Hogan & Hartson L.L.P.*
8.1 Opinion of Hogan & Hartson L.L.P. as to certain federal income tax
matters.
II-2
<PAGE> 176
8.2 Opinion of KPMG LLP as to certain New York State tax matters.
8.3 Opinion of FinPro, Inc. as to value of subscription rights.*
10.1 Form of Employment Agreements.
10.2 Form of Employment Protection Agreement.
10.3 Form of Employee Change of Control Severance Plan.
10.4 Form of Supplemental Retirement and Benefits Restoration Plan.
10.5 Engagement Letter, dated as of September 16, 1998, between The Troy
Savings Bank and FinPro, Inc., for conversion appraisal services and
services related to the preparation of the business plan of The Troy
Savings Bank.*
10.6 Engagement Letter, dated as of July 15, 1998, between The Troy Savings
Bank and Sandler O'Neill & Partners, L.P., for conversion agent
services.*
21 Subsidiaries of The Troy Savings Bank.*
23.1 Consent of KPMG LLP.
23.2 Consent of FinPro, Inc.*
23.3 Consents of Hogan & Hartson L.L.P. (contained in Exhibit 5.1 and
Exhibit 8.1).
23.4 Consent of William M. Mercer, Inc.*
24.1 Power of Attorney (incorporated herein by reference from the signature
Page of the Registration Statement filed by Troy Financial Corporation
on December 11, 1998).
27 Financial Data Schedule.*
99.1 Appraisal Report of FinPro, Inc.
99.2 Form of marketing materials.
- ------------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
II-3
<PAGE> 177
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) To provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Troy, New York, on
February 11, 1999.
TROY FINANCIAL CORPORATION
(Registrant)
By: /s/ Daniel J. Hogarty, Jr.
-----------------------------------------
Daniel J. Hogarty, Jr.
President and Chief Executive Officer
TROY SAVINGS BANK
401(k) SAVINGS PLAN IN RSI RETIREMENT TRUST
(Co-Registrant)
By: /s/ Evelyn A. Morris
-----------------------------------------
Evelyn A. Morris
Plan Administrator
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 11, 1999.
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C>
/s/ Daniel J. Hogarty, Jr.
- ----------------------------
Daniel J. Hogarty, Jr. President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Edward M. Maziejka, Jr.
- ----------------------------
Edward M. Maziejka, Jr. Chief Financial Officer
(Principal Financial Officer)
*
- ----------------------------
George H. Arakelian Director
*
- ----------------------------
Richard B. Devane Director
</TABLE>
II-5
<PAGE> 179
<TABLE>
<S> <C>
*
- ----------------------------
Michael E. Fleming Director
*
- ----------------------------
Willie A. Hammett Director
*
- ----------------------------
Thomas B. Healy Director
*
- ----------------------------
Keith D. Millsop Director
*
- ----------------------------
Edward G. O'Haire Director
*
- ----------------------------
Marvin L. Wulf Director
/s/ Daniel J. Hogarty, Jr.
- ----------------------------
*By Daniel J. Hogarty, Jr.
as Attorney-in-Fact
</TABLE>
II-6
<PAGE> 180
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBITS NUMBER
- ------ -------- ------
<S> <C>
1.1 Engagement Letter, dated as of July 15, 1998, between The Troy Savings Bank and Sandler O'Neill & Partners, L.P.*
1.2 Form of Agency Agreement between Troy Financial Corporation, The Troy Savings Bank and Sandler O'Neill & Partners, L.P.
2 Amended and Restated Plan of Conversion of The Troy Savings Bank, dated July 15, 1998, and amended on December 10, 1998.*
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 hereto).*
4.2 Bylaws of the Company (filed as Exhibit 3.2 hereto).*
4.3 Form of stock certificate of Troy Financial Corporation.*
5.1 Opinion of Hogan & Hartson L.L.P.*
8.1 Opinion of Hogan & Hartson L.L.P. as to certain federal income tax matters.
8.2 Opinion of KPMG LLP as to certain New York State tax matters.
8.3 Opinion of FinPro, Inc. as to value of subscription rights.*
10.1 Form of Employment Agreements.
10.2 Form of Employment Protection Agreement.
10.3 Form of Employee Change of Control Severance Plan.
10.4 Form of Supplemental Retirement and Benefits Restoration Plan.
10.5 Engagement Letter, dated as of September 16, 1998, between The Troy Savings Bank and FinPro, Inc., for conversion
appraisal services and services related to the preparation of the business plan of The Troy Savings Bank.*
10.6 Engagement Letter, dated as of July 15, 1998, between The Troy Savings Bank and Sandler O'Neill & Partners, L.P., for
conversion agent services.*
21 Subsidiaries of The Troy Savings Bank.*
23.1 Consent of KPMG LLP.
23.2 Consent of FinPro, Inc.*
</TABLE>
II-7
<PAGE> 181
<TABLE>
<S> <C>
23.3 Consents of Hogan & Hartson L.L.P. (contained in Exhibit 5.1 and Exhibit 8.1).
23.4 Consent of William M. Mercer, Inc.*
24.1 Power of Attorney (incorporated herein by reference from the Signature Page of
the Registration Statement filed by Troy Financial Corporation on
December 11, 1998).
27 Financial Data Schedule.*
99.1 Appraisal Report of FinPro, Inc.
99.2 Form of marketing materials.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
II-8
<PAGE> 1
EXHIBIT 1.2
_____________ Shares
(subject to increase up to ___________ shares
in the event of an oversubscription)
TROY FINANCIAL CORPORATION
(a Delaware corporation)
Common Stock
(par value $.0001 per share)
DRAFT AGENCY AGREEMENT
_______________, 1999
SANDLER O'NEILL & PARTNERS, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Troy Financial Corporation, a Delaware corporation (the "Company"), and
The Troy Savings Bank, a New York-chartered mutual savings bank (the "Bank"),
hereby confirm their agreement with Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill" or the "Agent") with respect to the offer and sale by the Company of
______ shares (subject to increase up to ________ shares in the event of an
oversubscription) of the Company's Common Stock, par value $.0001 per share (the
"Common Stock"). The shares of Common Stock to be sold by the Company are
hereinafter called the "Securities." In addition, as described herein, the
Company expects to contribute shares of Common Stock in an amount equal to 8% of
the shares of Common Stock sold in the Offerings (as hereinafter defined) to The
Troy Savings Bank Community Foundation (the "Foundation"), such shares
hereinafter being referred to as the "Foundation Shares".
The Securities are being offered for sale and the Foundation shares are
being contributed in accordance with the amended and restated plan of conversion
dated July 15, 1998 and amended on December 10, 1998 and January 28, 1999 (the
"Plan") adopted by the Board of Directors of the Bank
1
<PAGE> 2
pursuant to which: (i) the Bank will convert into a stock institution; (ii) the
Company will sell the Securities in the Offerings (as hereinafter defined);
(iii) the Company will use a portion of the net proceeds of the sale of the
Securities to purchase all of the outstanding capital stock of the Bank; and
(iv) any common stock of the Company held by the Bank will be canceled.
Pursuant to the Plan, the Company is offering to certain of the Bank's
depositors, and to the Bank's tax qualified employee benefit plans, including
the Employee Stock Ownership Plan (the "ESOP"), rights to subscribe for the
Securities in a subscription offering (the "Subscription Offering"). To the
extent Securities are not subscribed for in the Subscription Offering, such
Securities may be offered to certain members of the general public in a direct
community offering (the "Community Offering" and together with the Subscription
Offering, as each may be extended or reopened from time to time, the
"Subscription and Community Offering") to be commenced concurrently with the
Subscription Offering. It is currently anticipated by the Bank and the Company
that any Securities not subscribed for in the Subscription and Community
Offering will be offered, subject to Section 2 hereof, in a syndicated community
offering (the "Syndicated Community Offering"). The Subscription and Community
Offering and the Syndicated Community Offering are hereinafter referred to
collectively as the "Offerings." The conversion of the Bank from mutual to stock
form, the acquisition of the Bank's capital stock by the Company and the
Offerings are hereinafter referred to collectively as the "Conversion". It is
acknowledged that the number of Securities to be sold in the Offerings may be
increased or decreased as described in the Prospectus (as hereinafter defined).
If the number of Securities is increased or decreased in accordance with the
Plan, the term "Securities" shall mean such greater or lesser number, where
applicable. In the event that a holding company form of organization is not
utilized, all pertinent terms of this Agreement will apply to the conversion of
the Bank from the mutual to stock form of organization and the issuance of the
Bank's common stock in accordance with the Plan.
In connection with the Conversion and pursuant to the terms of the Plan
as described in the Prospectus, the Company intends to establish the Foundation.
Immediately following the consummation of the Conversion, subject to compliance
with certain conditions as may be imposed by regulatory authorities, the Company
will contribute newly issued shares of Common Stock in a amount equal to the
difference between 8% of the gross proceeds from the sale of Securities in the
Offering and $5.3 million, which is the $5.0 million in contributions, committed
to the existing The Troy Savings Bank Charitable Foundation, Inc., and the
$300,000 value of the Music Hall, or between _______ and _________ shares of
Common Stock (subject to increase in certain circumstances to _________ shares).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-68813) including a
prospectus for the registration of the Securities and the Foundation Shares
under the Securities Act of 1933, as amended (the "Securities Act"), has filed
such amendments thereto, if any, and such amended prospectuses as may have been
required to the date hereof by the Commission in order to declare such
registration statement effective, and will file such additional amendments
thereto and such amended prospectuses and prospectus supplements as may
hereafter be required. Such registration statement (as amended
2
<PAGE> 3
to date, if applicable, and as from time to time amended or supplemented
hereafter) and the prospectuses constituting a part thereof (including in each
case all documents incorporated or deemed to be incorporated by reference
therein and the information, if any, deemed to be part thereof pursuant to the
rules and regulations of the Commission under the Securities Act, as from time
to time amended or supplemented pursuant to the Securities Act or otherwise (the
"Securities Act Regulations")) are hereinafter referred to as the "Registration
Statement" and the "Prospectus", respectively, except that if any revised
prospectus shall be used by the Company in connection with the Subscription and
Community Offering or the Syndicated Community Offering which differs from the
Prospectus on file with the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the Securities Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus of the Company to be used in
the Subscription and Community Offering. Such prospectus contains information
with respect to the Bank, the Company and the Common Stock.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company and the Bank jointly and severally represent and
warrant to the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by
the Commission, no stop order has been issued with respect thereto and
no proceedings therefor have been initiated or, to the knowledge of the
Company and the Bank, threatened by the Commission. At the time the
Registration Statement became effective and at the Closing Time
referred to in Section 2 hereof, the Registration Statement complied
and will comply in all material respects with the requirements of the
Securities Act and the Securities Act Regulations and did not and will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, at the date hereof
does not and at the Closing Time referred to in Section 2 hereof will
not, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Prospectus made in reliance upon and in conformity with information
with respect to the Agent furnished to the Company in writing by the
Agent expressly for use in the Prospectus (the "Agent Information,"
which the Company and the Bank acknowledge appears only in the sections
captioned "Market for the Common Stock" and the first two paragraphs of
the section captioned "The Conversion - Marketing and Underwriting
Arrangements" of the Prospectus).
3
<PAGE> 4
(ii) The Company has filed with the Board of Governors of the
Federal Reserve System (the "Federal Reserve") the Company's
application for approval of its acquisition of the Bank (the "Holding
Company Application") on Form FR Y-3 promulgated under the Bank Holding
Company Act, as amended ("BHC Act"), Regulation Y, and the other
regulations promulgated under the BHC Act. The Company has received
written notice from the Federal Reserve of its approval of the
acquisition of the Bank, such approval remains in full force and effect
and no order has been issued by the Federal Reserve suspending or
revoking such approval and no proceedings therefor have been initiated
or, to the knowledge of the Company or the Bank, threatened by the
Federal Reserve. At the date of such approval and the Closing Time as
referred to in Section 2, the Holding Company Application complied and
will comply in all material respects with the applicable provisions of
BHC Act and the regulations promulgated thereunder.
(iii) Pursuant to the General Regulations of the Banking Board
of the State of New York and the rules and regulations of the Federal
Deposit Insurance Corporation ("FDIC") governing the conversion of New
York State chartered mutual savings banks to stock form (the
"Conversion Regulations"), the Bank has filed with the Superintendent
of Banks of the State of New York (the "Superintendent") an application
for conversion on Form 86-AC, and filed with the FDIC a Notice of
Conversion, including the Form 86-AC and the Holding Company
Application, and has filed such amendments thereto and supplementary
materials as may be required to the date hereof (such application, as
amended to date, if applicable, and as from time to time amended or
supplemented hereafter, is hereinafter referred to as the "Conversion
Application"), including copies of the Bank's Proxy Statement, to be
dated _____, 1999, relating to the Conversion (the "Proxy Statement"),
and the Prospectus. The Superintendent has, by letter dated _____ 1999,
approved the Conversion Application, such approval remains in full
force and effect and no order has been issued by the Superintendent
suspending or revoking such approval and no proceedings therefor have
been initiated or, to the knowledge of the Company or the Bank,
threatened by the Superintendent. The FDIC has, by letter dated ____,
1999, issued a letter of non-objection to the Conversion Application,
and such non-objection remains in full force and effect and no order
has been issued by the FDIC suspending or revoking such approval and no
proceedings therefor have been initiated or, to the knowledge of the
Company or the Bank, threatened by the FDIC. At the date of such
approval by the Superintendent and the letter of non-objection by the
FDIC, and at the Closing Time referred to in Section 2 hereof, the
Conversion Application complied and will comply in all material
respects with the applicable provisions of the Conversion Regulations.
(iv) At the time of their use, the Proxy Statement and any
other proxy solicitation materials will comply in all material respects
with the applicable provisions of the Conversion Regulations and will
not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The Company and the Bank will promptly file the Prospectus and any
supplemental sales literature with the Commission,
4
<PAGE> 5
the Superintendent and the FDIC, as required. The Prospectus and all
supplemental sales literature as of the date the Registration Statement
became effective and at the Closing Time referred to in Section 2
hereof, complied and will comply in all material respects with the
applicable requirements of the Conversion Regulations and, at or prior
to the time of their first use, will have received all required
authorizations of the Superintendent and the FDIC for use in final
form.
(v) None of the Commission, the Superintendent, nor the FDIC
has, by order or otherwise, prevented or suspended the use of the
Prospectus or any supplemental sales literature authorized by the
Company or the Bank for use in connection with the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company
and the Bank will have completed the conditions precedent to the
Conversion and the establishment of the Foundation in accordance with
the Plan, the applicable Conversion Regulations and all other
applicable laws, regulations, decisions and orders, including all
material terms, conditions, requirements and provisions precedent to
the Conversion imposed upon the Company or the Bank by the Federal
Reserve, the Superintendent, the FDIC, or any other regulatory
authority, other than those which the regulatory authority permits to
be completed after the Conversion.
(vii) FinPro, Inc. ("FinPro"), which prepared the valuation of
the Company and the Bank as part of the Conversion, has advised the
Company and the Bank in writing that it satisfies all requirements for
an appraiser set forth in the Conversion Regulations and any
interpretations or guidelines issued by the Superintendent and the FDIC
with respect thereto. FinPro, which prepared the opinion filed under
separate cover as Exhibit 5 of the Conversion Application as required
by the Conversion Regulations, satisfies all requirements for an
"independent corporate appraisal expert" within the meaning of the
Conversion Regulations.
(viii) William M. Mercer, Incorporated, ("Mercer") has
reviewed the total compensation package for the trustees or directors
and executive officers of the Company and the Bank for the purpose of
determining whether or not such compensation package, viewed as a whole
and on an individual basis, is reasonable and proper in comparison to
compensation provided to executive officers, directors or trustees of
similar publicly traded financial institutions and has advised the
Company and the Bank in writing that the compensation satisfies all
requirements set forth in the Conversion Regulations and any
interpretations or guidelines issued by the Superintendent and the FDIC
with respect thereto. Mercer, which prepared the opinion filed as
Exhibit 9(h) of the Conversion Application as required by the
Conversion Regulations, satisfies all requirements for an "independent
executive compensation expert" within the meaning of the Conversion
Regulations.
(ix) The accountants who certified the consolidated financial
statements and supporting schedules of the Bank included in the
Registration Statement have advised the Company and the Bank in writing
that they are independent public accountants within the
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<PAGE> 6
meaning of the Code of Ethics of the American Institute of Certified
Public Accountants, and that such accountants are, with respect to the
Company and the Bank, and each subsidiary of the Bank, independent
certified public accountants as required by the Securities Act and the
Securities Act Regulations.
(x) The Bank has 15 wholly owned subsidiaries. These are the
only subsidiaries of the Bank (the "Subsidiaries"). The Subsidiaries
are: The Family Investment Services Co., Inc., a New York corporation,
is a full-service securities brokerage firm and a member of the
National Association of Securities Dealers; The Family Mortgage Banking
Co., Inc., a New York corporation, originates residential mortgage
loans; T.S. Capital Corp. is a New York corporation that has applied to
the Small Business Administration to be licensed as a Small Business
Investment Company under Section 302(b) of the Small Business
Investment Act of 1958, as amended; T.S. Real Property, Inc., a New
York corporation, is a holding company for a 25% limited partnership
interest in the Washington Apartments Associates, a New York limited
partnership, and a 99% limited partnership interest in Capitol Hill
Affordable Housing Associates, a New York limited partnership; 507
Heights Corp., Camel Hill Corporation and Realty Umbrella, Ltd., all of
which are New York corporations established to hold shares and assets
acquired by Troy in satisfaction of debts previously contracted in good
faith; The Troy Savings Bank Charitable Foundation, Inc., a New York
not-for-profit corporation; The Troy Savings Bank Music Hall
Foundation, Inc., a New York not-for-profit corporation; The Troy
Savings Bank Community Foundation, Inc., a Delaware nonstock,
not-for-profit corporation; The Troy Savings Bank Charitable Trust, a
charitable trust established under New York law; 32 Second Street, a
New York corporation that owns a condominium unit in Washington
Apartments Associates; The Family Advertising Co., Inc., a New York
corporation that places advertisements for Troy and its subsidiaries;
Troy SB Real Estate Co., Inc., a New York corporation that provides
real estate brokerage services; and The Family Insurance Agency, Inc.,
a New York corporation engaged in full-service insurance agency
business.
(xi) The consolidated financial statements and the related
notes thereto included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Bank and the
Subsidiaries at the dates indicated and the results of operations,
equity and cash flows for the periods specified, and comply as to form
in all material respects with the applicable accounting requirements of
the Securities Act Regulations and the Conversion Regulations. Except
as otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis; and the supporting
schedules and tables included in the Registration Statement present
fairly the information required to be stated therein.
(xii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein: (A) there has been no material adverse change
in the financial condition, results of operations or business affairs
of the Company, the Bank and the Subsidiaries taken as a whole, whether
or not
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<PAGE> 7
arising in the ordinary course of business, and (B) except for
transactions specifically referred to or contemplated in the
Prospectus, there have been no transactions entered into by the
Company, the Bank or the Subsidiaries other than those in the ordinary
course of business, which are material with respect to the Company, the
Bank and the Subsidiaries taken as a whole.
(xiii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation
to transact business and is in good standing in the State of New York
and in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qualify would not
have a material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Bank, and the
Subsidiaries, taken as a whole.
(xiv) Upon consummation of the Conversion and the contribution
of the Foundation Shares as described in the Prospectus, the
authorized, issued and outstanding capital stock of the Company will be
as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus); no shares of
Common Stock have been or will be issued and outstanding prior to the
Closing Time referred to in Section 2; at the time of Conversion, the
Securities will have been duly authorized for issuance and, when issued
and delivered by the Company pursuant to the Plan against payment of
the consideration calculated as set forth in the Plan, stated on the
cover page of the Prospectus and provided for in resolutions of the
Board of Directors of the Company, will be duly and validly issued and
fully paid and non-assessable; the terms and provisions of the Common
Stock and the capital stock of the Company conform to all statements
relating thereto contained in the Prospectus; the form of certificates
evidencing the shares of Common Stock conform to the requirements of
applicable law and regulations; and the issuance of the Securities is
not subject to preemptive or other similar rights.
(xv) The Bank, as of the date hereof, is a New York State
chartered savings bank in mutual form and upon consummation of the
Conversion will be a New York State chartered savings bank in stock
form, in both instances with full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus; the Company, the Bank and the Subsidiaries
have obtained all licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses or required for the conduct of their respective businesses
as contemplated by the Holding Company Application and the Conversion
Application, except where the failure to obtain such licenses, permits
or other governmental authorizations would not have a material adverse
effect on the financial condition, results of operations or business
7
<PAGE> 8
affairs of the Company, the Bank and the Subsidiaries taken as a whole;
all such licenses, permits and other governmental authorizations are in
full force and effect and the Company, the Bank and the Subsidiaries
are in all material respects in compliance therewith; neither the
Company, the Bank nor any of the Subsidiaries has received notice of
any proceeding or action relating to the revocation or modification of
any such license, permit or other governmental authorization which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a material adverse effect on the
financial condition, results of operations or business affairs of the
Company, the Bank and the Subsidiaries, taken as a whole, and the Bank
is in good standing under the laws of the State of New York and is
qualified as a foreign corporation in any jurisdiction in which the
failure to so qualify would have a material adverse effect on the
financial condition, results of operations or business affairs of the
Company, the Bank and the Subsidiaries, taken as a whole.
(xvi) The deposit accounts of the Bank are insured by the FDIC
up to the applicable limits and upon consummation of the Conversion,
the liquidation account for the benefit of eligible and supplemental
eligible account holders will be duly established in accordance with
the requirements of the Conversion Regulations.
(xvii) Upon consummation of the Conversion, the authorized
capital stock of the Bank will be 1,000 shares of common stock, par
value $1.00 per share (the "Bank Common Stock"). The Bank has no
authorized preferred stock, and the issued and outstanding capital
stock of the Bank will be [1,000] shares of Bank Common Stock; no
shares of Bank Common Stock are issued and outstanding as of the date
hereof. No shares of Bank Common Stock and will be issued prior to the
Closing Time referred to in Section 2. The shares of Bank Common Stock
to be issued to the Company have been duly authorized and, when issued
and delivered by the Bank pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, described in the
Prospectus and provided for in resolutions of the Board of Trustees of
the Bank, will be duly and validly issued and fully paid and
nonassessable, and all such Bank Common Stock will be owned
beneficially and of record by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance or legal or
equitable claim; the terms and provisions of the Bank Common Stock
conform to all statements relating thereto contained in the Prospectus,
and the certificate(s) representing the shares of the Bank Common Stock
will conform with the requirements of applicable laws and regulations;
and the issuance of the Bank Common Stock is not subject to preemptive
or similar rights.
(xviii) Upon consummation of the Conversion, the Foundation
will be duly incorporated and validly existing as a nonstock
corporation in good standing under the laws of the State of Delaware
with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus;
the Foundation will not be a bank holding company under the New York
Banking law or the BHC Act or a savings and loan holding company within
the meaning of 12 C.F.R. Section 574.2(q) as a result of the issuance
of shares of Common Stock to it in accordance with the terms of the
Plan and
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<PAGE> 9
in the amounts as described in the Prospectus; no approvals are
required to establish the Foundation and to contribute the shares of
Common Stock thereto as described in the Prospectus other than those
imposed by the Superintendent and the FDIC; except as specifically
disclosed in the Prospectus and the Proxy Statement, there are no
agreements and/or understandings, written or oral, between the Company
and/or the Bank and the Foundation with respect to the control,
directly or indirectly, over the voting and the acquisition or
disposition of the Foundation Shares; at the time of the Conversion,
the Foundation Shares will have been duly authorized for issuance and,
when issued and contributed by the Company pursuant to the Plan, will
be duly and validly issued and fully paid and non-assessable; and the
issuance of the Foundation Shares is not subject to preemptive or
similar rights.
(xix) Each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has full corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and Prospectus, is
duly qualified to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material
adverse effect on the financial condition, results of operations or
business of the Company, the Bank and the Subsidiaries, taken as a
whole; the activities of the Subsidiaries are permitted to subsidiaries
of a New York State chartered savings bank by the rules, regulations,
resolutions and practices of the Superintendent and the FDIC; all of
the issued and outstanding capital stock of the Subsidiaries has been
duly authorized and validly issued, is fully paid and nonassessable and
is owned by the Bank directly, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or legal or equitable claim.
(xx) This Agreement has been duly executed and delivered by,
and is the valid and binding agreement of, the Company and the Bank,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other laws affecting the enforceability of
the rights of creditors generally and judicial limitations on the right
of specific performance and except as the enforceability of
indemnification and contribution provisions may be limited by
applicable securities laws.
(xxi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
and prior to the Closing Time referred to in Section 2, except as
otherwise may be indicated or contemplated therein, none of the
Company, the Bank nor the Subsidiaries will have (A) issued any
securities or incurred any liability or obligation, direct or
contingent, or borrowed money, except borrowings in the ordinary course
of business from the same or similar sources and in similar amounts as
indicated in the Prospectus, or (B) entered into any transaction or
series of transactions which is material in light of the business of
the Company, the Bank and the Subsidiaries, taken as
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<PAGE> 10
a whole, excluding the origination, purchase and sale of loans or the
purchase or sale of investment securities or mortgage-backed securities
in the ordinary course of business.
(xxii) No approval of any regulatory or supervisory authority
or any other public authority is required in connection with the
execution and delivery of this Agreement or the issuance of the
Securities and the Foundation Shares that has not been obtained and a
copy of which has been delivered to the Agent, except as may be
required under the securities laws of various jurisdictions.
(xxiii) None of the Company, the Bank nor any of the
Subsidiaries is in violation of its certificate of incorporation,
organization certificate, articles of incorporation or charter as the
case may be, or bylaws (and the Bank will not be in violation of its
restated organization certificate or bylaws in stock form upon
consummation of the Conversion); and neither the Company, the Bank nor
any of the Subsidiaries is in default (nor has any event occurred
which, with notice or lapse of time or both, would constitute a
default) in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which the Company,
the Bank, or any of the Subsidiaries is a party or by which it or any
of them may be bound, or to which any of the property or assets of the
Company, the Bank or any of the Subsidiaries is subject, except for
such defaults that would not, individually or in the aggregate, have a
material adverse effect on the financial condition, results of
operations or business of the Company, the Bank and the Subsidiaries,
taken as a whole; and there are no contracts or documents of the
Company, the Bank or any of the Subsidiaries which are required to be
filed as exhibits to the Registration Statement or the Conversion
Application which have not been so filed.
(xxiv) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein
have been duly authorized by all necessary corporate action and do not
and will not conflict with or constitute a breach of, or default under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the Bank or any
of the Subsidiaries pursuant to, any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which the Company,
the Bank or any of the Subsidiaries is a party or by which it or any of
them may be bound, or to which any of the property or assets of the
Company, the Bank or any of the Subsidiaries is subject, except for
such defaults that would not, individually or in the aggregate, have a
material adverse effect on the financial condition, results of
operations or business of the Company, the Bank and the Subsidiaries
taken as a whole; nor will such action result in any violation of the
provisions of the certificate of incorporation, organization
certificate, articles of incorporation or charter, as the case may be
and in each case as amended, or the by-laws of the Company, the Bank or
any of the Subsidiaries, or any applicable law, administrative
regulation or administrative or court decree to which the Company, the
Bank or any of the Subsidiaries is subject or by which any of their
property or assets may be bound.
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<PAGE> 11
(xxv) No labor dispute with the employees of the Company, the
Bank or any of the Subsidiaries exists or, to the knowledge of the
Company or the Bank, is imminent or threatened; and the Company and the
Bank are not aware of any existing or threatened labor disturbance by
the employees of any of its principal suppliers or contractors which
might be expected to result in any material adverse change in the
financial condition, results of operations or business of the Company
and the Bank, taken as a whole.
(xxvi) Each of the Company, the Bank and the Subsidiaries has
good and marketable title to all properties and assets for which
ownership is material to the business of the Company, the Bank or the
Subsidiaries and to those properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material in relation to the business of the
Company, the Bank and the Subsidiaries taken as a whole; and all of the
leases and subleases material to the business of the Company, the Bank
and the Subsidiaries, under which the Company, the Bank and any of the
Subsidiaries hold properties, including those described in the
Prospectus, are valid and binding agreements of the Company, the Bank
and any of the Subsidiaries enforceable in accordance with their terms.
(xxvii) None of the Company, the Bank nor any of the
Subsidiaries is in violation of any directive from the Superintendent
or the FDIC to make any material change in the method of conducting
their respective businesses; the Bank and the Subsidiaries have
conducted and are conducting their businesses so as to comply with all
applicable statutes, regulations and administrative and court decrees
(including, without limitation, all regulations, decisions, directives
and orders of the Superintendent or the FDIC).
(xxviii) There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company or the Bank, threatened,
against or affecting the Company, the Bank or any of the Subsidiaries
which is required to be disclosed in the Registration Statement (other
than as disclosed therein), or which might result in any material
adverse change in the financial condition, results of operations or
business affairs of the Company, the Bank and the Subsidiaries, taken
as a whole, or which might materially and adversely affect the
properties or assets thereof or which might materially and adversely
affect the consummation of the Conversion; all pending legal or
governmental proceedings to which the Company, the Bank or any of the
Subsidiaries is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to their
business, are considered in the aggregate not material; and there are
no contracts or documents of the Company, the Bank or any of the
Subsidiaries which are required to be filed as exhibits to the
Registration Statement or the Conversion Application which have not
been so filed.
(xxix) The Bank has obtained an opinion of its special
counsel, Hogan & Hartson L.L.P., with respect to the legality of the
Securities to be issued and the Foundation Shares
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<PAGE> 12
and the federal income tax consequences of the Conversion, copies of
which are filed as exhibits to the Registration Statement; the Bank has
obtained the opinion of KPMG LLP with respect to the state and local
income tax consequences of the Conversion (including franchise tax,
sales or use tax, license fee on foreign corporations, stock transfer
tax, real property transfer gain tax and real estate transfer tax) and
the federal income tax consequences of the Foundation, copies of which
are filed as exhibits to the Registration Statement; all material
aspects of the aforesaid opinions are accurately summarized in the
Prospectus; the facts and representations upon which such opinions are
based are truthful, accurate and complete in all material respects; and
neither the Bank, any of the Subsidiaries nor the Company has taken or
will take any action inconsistent therewith.
(xxx) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxxi) All of the loans represented as assets on the most
recent consolidated financial statements or consolidated selected
financial information of the Bank included in the Prospectus meet or
are exempt from all requirements of federal, state or local law
pertaining to lending, including without limitation truth in lending
(including the requirements of Regulation Z and 12 C.F.R. Part 226),
real estate settlement procedures, consumer credit protection, equal
credit opportunity and all disclosure laws applicable to such loans,
except for violations which, if asserted, would not result in a
material adverse effect on the financial condition, results of
operations or business of the Company, the Bank and the Subsidiaries
taken as a whole.
(xxxii) To the knowledge of the Company and the Bank, with the
exception of the intended loan to the Bank's ESOP by the Company to
enable the ESOP to purchase shares of Common Stock in an amount of up
to 8% of the Common Stock issued in the Conversion, none of the
Company, the Bank or any employee of the Bank has made any payment of
funds of the Company or the Bank as a loan for the purchase of the
Common Stock nor made any other payment of funds prohibited by law, and
no funds have been set aside to be used for any payment prohibited by
law.
(xxxiii) The Company, the Bank and the Subsidiaries are in
compliance in all material respects with the applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transaction Reporting Act of 1970, as amended, and the rules and
regulations thereunder.
(xxxiv) None of the Company, the Bank nor any of the
Subsidiaries nor any properties owned or operated by the Company, the
Bank or any of the Subsidiaries is in violation of or liable under any
Environmental Law (as defined below), except for such violations or
liabilities that, individually or in the aggregate, would not have a
material adverse effect on the financial condition, results of
operations or business of the Company, the Bank and the Subsidiaries,
taken as a whole. There are no actions, suits or proceedings,
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<PAGE> 13
or demands, claims, notices or investigations (including, without
limitation, notices, demand letters or requests for information from
any environmental agency) instituted or pending, or to the knowledge of
the Company or the Bank threatened, relating to the liability of any
property owned or operated by the Company, the Bank or any Subsidiary,
under any Environmental Law. For purposes of this subsection, the term
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any regulatory authority relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water, vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
(xxxv) The Company, the Bank and the Subsidiaries have filed
all federal income and state and local franchise tax returns required
to be filed and have made timely payments of all taxes shown as due and
payable in respect of such returns, and no deficiency has been asserted
with respect thereto by any taxing authority.
(xxxvi) The Company has received approval, subject to
regulatory approval to consummate the Offerings and stock issuance, to
have the Securities quoted on the Nasdaq Stock Market (the "Nasdaq
National Market") effective at the Closing Time referred to in Section
2 hereof.
(xxxvii) The Company has filed a registration statement for
the Common Stock under Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act Registration Statement") and the
Exchange Act Registration Statement has become effective concurrent
with the effectiveness of the Registration Statement.
(b) Any certificate signed by any officer of the Company or the Bank
and delivered to either the Agent or counsel for the Agent shall be deemed a
representation and warranty by the Company or the Bank to each of the matters
covered thereby.
SECTION 2. APPOINTMENT OF SANDLER O'NEILL; SALE AND DELIVERY OF THE
SECURITIES; CLOSING.
On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Company hereby
appoints Sandler O'Neill as its Agent to consult with and advise the Company,
and to assist the Company with the solicitation of subscriptions and purchase
orders for Securities, in connection with the Company's sale of Common Stock in
The Subscription and Community Offering and the Syndicated Community Offering.
On the basis of
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<PAGE> 14
the representations and warranties herein contained, and subject to the terms
and conditions herein set forth, Sandler O'Neill accepts such appointment and
agrees to use its best efforts to assist the Company with its solicitation of
subscriptions and purchase orders for Securities in accordance with this
Agreement; provided, however, that the Agent shall not be obligated to take any
action that is inconsistent with any applicable laws, regulations, decisions or
orders. The services to be rendered by Sandler O'Neill pursuant to this
appointment include the following: (i) consulting as to the securities marketing
implications of any aspect of the Plan or related corporate documents; (ii)
reviewing with the Bank's Board of Trustees the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of the
appraisal including the methodology employed; (iii) reviewing all offering
documents, including the Prospectus, stock order forms and related offering
materials (it being understood that the preparation and filing of such documents
is the sole responsibility of the Company and the Bank and their counsel); (iv)
assisting in the design and implementation of a marketing strategy for the
Offerings; (v) assisting in obtaining all requisite regulatory approvals; (vi)
assisting Bank management in preparing for meetings with potential investors and
broker-dealers; and (vii) providing such other general advice and assistance as
may be requested to promote the successful completion of the Conversion.
The appointment of the Agent hereunder shall terminate upon the earlier
to occur of (a) forty five (45) days after the last day of the Subscription and
Community Offering, unless the Company and the Agent agree in writing to extend
such period and the Superintendent agrees to extend the period of time in which
the Shares may be sold, (b) the receipt and acceptance of subscriptions and
purchase orders for all of the Securities, or (c) the completion of the
Syndicated Community Offering.
If any of the Securities remain available after the expiration of the
Subscription Offering and Community Offering, at the request of the Company and
the Bank and subject to the continued satisfaction of all terms of this
Agreement, Sandler O'Neill will seek to form a syndicate of registered brokers
or dealers ("Selected Dealers") to assist in the solicitation of purchase orders
of such Securities on a best efforts basis, subject to the terms and conditions
set forth in a selected dealers' agreement (the "Selected Dealers' Agreement"),
substantially in the form set forth in Exhibit A to this Agreement. Sandler
O'Neill will endeavor to limit the aggregate fees to be paid by the Company and
the Bank under any such Selected Dealers' Agreement to an amount competitive
with gross underwriting discounts charged at such time for underwritings of
comparable amounts of stock sold at a comparable price per share in a similar
market environment; provided, however, that the aggregate fees payable to Sander
O'Neill and Selected Dealers shall not exceed 5% of the aggregate Purchase Price
of the Securities sold under such Selected Dealers Agreement. Sander O'Neill
will endeavor to distribute the Securities among the Selected Dealers in a
fashion which best meets the distribution objective of the Bank and the Company
and the requirements of the Plan, which may result in limiting the allocation of
stock to certain Selected Dealers. It is understood that in no event shall
Sandler O'Neill be obligated to act as a Selected Dealer or to take or purchase
any Securities.
In the event the Company is unable to sell at least the total minimum
of the Securities, as set forth on the cover page of the Prospectus, within the
period herein provided, this Agreement shall
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<PAGE> 15
terminate and the Company shall refund to any persons who have subscribed for
any of the Securities the full amount which it may have received from them,
together with interest as provided in the Prospectus, and no party to this
Agreement shall have any obligation to the others hereunder, except for the
obligations of the Company and the Bank as set forth in Sections 4, 6(a) and 7
hereof and the obligations of the Agent as provided in Sections 6(b) and 7
hereof. Appropriate arrangements for placing the funds received from
subscriptions for Securities or other offers to purchase Securities in special
interest-bearing accounts with the Bank until all Securities are sold and paid
for were made prior to the commencement of the Subscription Offering, with
provision for refund to the purchasers as set forth above, or for delivery to
the Company if all Securities are sold.
If at least the total minimum of Securities, as set forth on the cover
page of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time as defined below against payment therefor by release of funds
from the special interest-bearing accounts referred to above. The closing shall
be held at the office of Hogan & Hartson L.L.P., at 10:00 a.m., local time, or
at such other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. Certificates for Securities shall be delivered
directly to the purchasers thereof in accordance with their directions.
Notwithstanding the foregoing, certificates for Securities purchased through
Selected Dealers shall be made available to the Agent for inspection at least 48
hours prior to the Closing Time at such office as the Agent shall designate. The
hour and date upon which the Company shall release for delivery all of the
Securities, in accordance with the terms hereof, is herein called the "Closing
Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section 4
hereof, if the Conversion is consummated the Agent will receive the following
compensation for its services hereunder:
(a) one and one-tenth percent (1.10%) of the aggregate Purchase Price
(as defined in the Prospectus) of the Securities sold in the Subscription and
Community Offering, excluding in each case shares purchased by (i) any employee
benefit plan of the Company or the Bank established for the benefit of their
respective trustees, directors, officers and employees, (ii) any trustee,
director, officer or employee of the Company, the Bank or any Subsidiary or
members of their immediate families (which term shall mean parents,
grandparents, spouse, siblings, children and grandchildren) and the Bank's
general counsel, Lambert L. Ginsberg; and
(b) with respect to any Securities sold by an NASD member firm (other
than Sandler O'Neill) under any Selected Dealers' Agreement in the Syndicated
Community Offering, (i) the sales commission payable to Selected Dealers under
any Selected Dealers Agreement, (ii) any sponsoring dealer's fees and (iii) a
management fee to Sandler O'Neill of one and one-tenth percent (1.10%) of the
aggregate Purchase Price of such Securities sold under any such agreement. Any
fees payable
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<PAGE> 16
to Sandler O'Neill for Securities under such agreement shall be limited to an
aggregate of one and one-tenth percent (1.10%) of the aggregate Purchase Price
of such Securities.
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Conversion is terminated by the Company
or the Bank, no fee shall be payable by the Company or the Bank to Sandler
O'Neill; however, the Bank shall reimburse the Agent for all of its reasonable
out-of-pocket expenses incurred prior to termination, including the reasonable
fees and disbursements of counsel for the Agent in accordance with the
provisions of Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in immediately
available funds at Closing Time, or upon the termination of this Agreement, as
the case may be. In recognition of the long lead times involved in the
conversion process, the Bank agrees to make advance payments to the Agent in the
aggregate amount of $50,000, $25,000 of which has been previously paid and the
remaining $25,000 of which shall be payable upon execution hereof, which shall
be credited against any fees or reimbursement of expenses payable hereunder.
SECTION 3. COVENANTS OF THE COMPANY AND THE BANK.
The Company and the Bank covenant with the Agent as follows:
(a) The Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the Conversion
Application and the Proxy Statement as may hereafter be required by the
Securities Act Regulations or the Conversion Regulations or as may hereafter be
requested by the Agent. Following completion of the Subscription and Community
Offering, in the event of a Syndicated Community Offering, the Company and the
Bank will (i) promptly prepare and file with the Commission a post-effective
amendment to the Registration Statement relating to the results of the
Subscription and Community Offering, any additional information with respect to
the proposed plan of distribution and any revised pricing information or (ii) if
no such post-effective amendment is required, file with, or mail for filing to,
the Commission a prospectus or prospectus supplement containing information
relating to the results of the Subscription and Community Offering and pricing
information pursuant to Rule 424 of the Securities Act Regulations, in either
case in a form acceptable to the Agent. The Company and the Bank will notify the
Agent immediately, and confirm the notice in writing, (i) of the effectiveness
of any post-effective amendment to the Registration Statement, the filing of any
supplement to the Prospectus and the filing of any amendment to the Conversion
Application, (ii) of the receipt of any comments from the Superintendent, the
FDIC, the Federal Reserve or the Commission with respect to the transactions
contemplated by this Agreement or the Plan, (iii) of any request by the
Commission, the Superintendent or the FDIC for any amendment to the Registration
Statement or the Conversion Application or any amendment or supplement to the
Prospectus or for additional information, (iv) of the issuance by the
Superintendent or the FDIC of any order suspending the Offerings or the use of
the Prospectus or the initiation of any proceedings for that purpose, (v) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose,
and (vi) of the receipt of any notice
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<PAGE> 17
with respect to the suspension of any qualification of the Securities for
offering or sale in any jurisdiction. The Company and the Bank will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company and the Bank will give the Agent notice of their
intention to file or prepare any amendment to the Conversion Application or
Registration Statement (including any post-effective amendment) or any amendment
or supplement to the Prospectus (including any revised prospectus which the
Company proposes for use in connection with the Syndicated Community Offering of
the Securities which differs from the prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether or not such
revised prospectus is required to be filed pursuant to Rule 424(b) of the
Securities Act Regulations), will furnish the Agent with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement or use any such prospectus to which the Agent or counsel for the
Agent may object.
(c) The Company and the Bank will deliver to the Agent as many signed
copies and as many conformed copies of the Conversion Application and the
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein) as the
Agent may reasonably request, and from time to time such number of copies of the
Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be delivered,
the Company and the Bank will comply, at their own expense, with all
requirements imposed upon them by the Superintendent and the FDIC, by the
applicable Conversion Regulations, as from time to time in force, and by the
Securities Act, the Securities Act Regulations, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission promulgated thereunder, including, without limitation, Regulation M
under the Exchange Act, so far as necessary to permit the continuance of sales
or dealing in shares of Common Stock during such period in accordance with the
provisions hereof and the Prospectus.
(e) If any event or circumstance shall occur as a result of which it is
necessary, in the opinion of counsel for the Agent, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the Company
and the Bank will forthwith amend or supplement the Prospectus (in form and
substance satisfactory to counsel for the Agent) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a purchaser, not misleading, and the Company and the Bank will furnish to the
Agent a reasonable number of copies of such amendment or supplement. For the
purpose of this subsection, the Company and the Bank will each furnish such
information with respect to itself as the Agent may from time to time reasonably
request.
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<PAGE> 18
(f) The Company and the Bank will take all necessary action, in
cooperation with the Agent, to qualify the Securities for offering and sale
under the applicable securities laws of such states of the United States and
other jurisdictions as the Conversion Regulations may require and as the Agent
and the Company have agreed; provided, however, that the Company and the Bank
shall not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. In each jurisdiction in which the Securities have been so qualified,
the Company, and the Bank will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement.
(g) The Company authorizes Sandler O'Neill and any Selected Dealers to
act as agent of the Company in distributing the Prospectus to persons entitled
to receive subscription rights and other persons to be offered Securities having
record addresses in the states or jurisdictions set forth in a survey of the
securities or "blue sky" laws of the various jurisdictions in which the
Offerings will be made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the Securities Act Regulations) covering a twelve month period
beginning not later than the first day of the Company's fiscal quarter next
following the "effective date" (as defined in said Rule 158) of the Registration
Statement.
(i) During the period ending on the third anniversary of the expiration
of the fiscal year during which the closing of the transactions contemplated
hereby occurs, the Company will furnish to its stockholders as soon as
practicable after the end of each such fiscal year in such period an annual
report (including consolidated statements of financial condition and
consolidated statements of income, stockholders' equity and cash flows of the
Company certified by independent public accountants) and, will make available to
stockholders as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary financial
information of the Company for such quarter in reasonable detail. In addition,
such annual report and quarterly consolidated summary financial information
shall be made public through the issuance of appropriate press releases at the
same time or prior to the time of the furnishing thereof to stockholders of the
Company.
(j) During the period ending on the third anniversary of the expiration
of the fiscal year during which the closing of the transactions contemplated
hereby occurs, the Company will furnish to the Agent (i) as soon as publically
available, a copy of each report or other document of the Company furnished
generally to stockholders of the Company or furnished to or filed with the
Commission under the Exchange Act or any national securities exchange or system
on which any class of securities of the Company is listed, and (ii) from time to
time, such other information concerning the Company as the Agent may reasonably
request.
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<PAGE> 19
(k) The Company and the Bank will conduct the Conversion (including the
establishment and operation of the Foundation) in all material respects in
accordance with the Plan, the Conversion Regulations and all other applicable
regulations, decisions and orders, including all applicable terms, requirements
and conditions precedent to the Conversion imposed upon the Company or the Bank
by the Superintendent, the FDIC or the Federal Reserve.
(l) Each of the Company and the Bank will use the net proceeds received
by it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
(m) The Company will file with the Commission such reports as may be
required pursuant to Rule 463 of the Securities Act Regulations, if such report
or substantially similar report is required by the SEC.
(n) The Company will maintain the effectiveness of the Exchange Act
Registration Statement for not less than three years. The Company will file with
the Nasdaq Stock Market all documents and notices required by the Nasdaq Stock
Market of companies that have issued securities that are listed on the Nasdaq
Stock Market.
(o) During the period beginning on the date hereof and ending on the
later of the third anniversary of the Closing Time or the date on which the
Agent receives full payment in satisfaction of any claim for indemnification or
contribution to which it may be entitled pursuant to Sections 6 or 7,
respectively, neither the Company nor the Bank shall, without the prior written
consent of the Agent, which consent shall not be unreasonably withheld, take or
permit to be taken any action that could result in the Bank Common Stock or Bank
Preferred Stock becoming subject to any security interest, mortgage, pledge,
lien or encumbrance; provided, however, that this covenant shall be null and
void if the Federal Reserve, by regulation, policy statement or interpretive
release, or letter, permits indemnification of the Agent by the Bank as
contemplated by Section 6(a) hereof.
(p) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the National Association of Securities Dealers, Inc.'s
"Interpretation Relating to Free-Riding and Withholding."
(q) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not, without the prior
written consent of the Agent, sell or issue, contract to sell or otherwise
dispose of, any shares of Common Stock other than the Securities for a period of
180 days following the Closing Time.
(r) The Company and the Bank will comply with the conditions imposed by
or agreed to with the Superintendent and the Federal Reserve in connection with
its approval of the Holding Company Application and with the Superintendent or
the FDIC in connection with their approval of, or non-objection to, the
Conversion Application including those conditions relating to the establishment
and the operation of the Foundation; the Company and the Bank shall use their
best efforts to ensure that the Foundation submits within the time frames
required by applicable law a
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<PAGE> 20
request to the Internal Revenue Service to be recognized as a tax-exempt
organization under Section 501 (c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"); the Company and the Bank will take no action which will
result in the possible loss of the Foundation's tax-exempt status; and neither
the Company nor the Bank will contribute any additional assets to the Foundation
until such time that such additional contributions will be deductible for
federal and state income tax purposes.
(s) The Company shall not deliver the Securities until the Company and
the Bank have satisfied each condition set forth in Section 5 hereof, unless
such condition is waived by the Agent.
(t) The Company or the Bank will furnish to Sandler O'Neill as early as
practicable prior to the Closing Date, but no later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim
consolidated financial statements of the Bank and the Subsidiaries which have
been read by KPMG LLP, as stated in their letters to be furnished pursuant to
subsections (e) and (f) of Section 5 hereof.
SECTION 4. PAYMENT OF EXPENSES.
The Company and the Bank jointly and severally agree to pay all
expenses incident to the performance of their obligations under this Agreement,
including but not limited to (i) the cost of obtaining all securities and bank
regulatory approvals, (ii) the printing and filing of the Registration Statement
as originally filed and of each amendment thereto, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the purchasers
in the Offerings, (iv) the fees and disbursements of the Company's and the
Bank's counsel, accountants, conversion agent, appraiser and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the fees and
disbursements of counsel in connection therewith and in connection with the
preparation of the Blue Sky Survey, (vi) the printing and delivery to the Agent
of copies of the Registration Statement as originally filed and of each
amendment thereto and the printing and delivery of the Prospectus and any
amendments or supplements thereto to the purchasers in the Offerings and the
Agent, (vii) the printing and delivery to the Agent of copies of a Blue Sky
Survey, (viii) the fees and expenses incurred in connection with the listing of
the Securities on the Nasdaq Stock Market, and (viii) the cost of printing and
distributing the offering materials. In the event the Agent incurs any such fees
and expenses on behalf of the Bank or the Company, the Bank will reimburse the
Agent for such fees and expenses whether or not the Conversion is consummated;
provided, however, that the Agent shall not incur any substantial expenses on
behalf of the Bank or the Company pursuant to this Section without the prior
approval of the Bank or the Company.
The Company and the Bank jointly and severally agree to pay certain
expenses incident to the performance of the Agent's obligations under this
Agreement, regardless of whether the Conversion is consummated, including (i)
the filing fees paid or incurred by the Agent in connection with all filings
with the National Association of Securities Dealers, Inc., and (ii) all
reasonable out of pocket expenses incurred by the Agent relating to the
Offerings, including, without limitation,
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<PAGE> 21
advertising, promotional, syndication and travel expenses and fees and expenses
of the Agent's counsel (not to exceed $150,000). All fees and expenses to which
the Agent is entitled to reimbursement under this paragraph of this Section 4
shall be due and payable upon receipt by the Company or the Bank of a written
accounting therefor setting forth in reasonable detail the expenses incurred by
the Agent.
SECTION 5. CONDITIONS OF AGENT'S OBLIGATIONS.
The Company, the Bank and the Agent agree that the issuance and the
sale of Securities and all obligations of the Agent hereunder are subject to the
accuracy of the representations and warranties of the Company and the Bank
herein contained as of the date hereof and the Closing Time, to the accuracy of
the statements of officers, directors and trustees of the Company and the Bank
made pursuant to the provisions hereof, to the performance by the Company and
the Bank of their obligations hereunder, and to the following further
conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the Securities Act or proceedings
therefor initiated or threatened by the Commission. No order suspending the
Offerings or authorization for final use of the Prospectus shall have been
issued or proceedings therefor initiated or threatened by the Superintendent or
the FDIC and no order suspending the sale of the Securities in any jurisdiction
shall have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Hogan
& Hartson L.L.P., special counsel for the Company and the Bank, in form
and substance satisfactory to counsel for the Agent, to the effect
that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware.
(ii) The Company has full corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Registration
Statement and Prospectus and to enter into and perform its
obligations under this Agreement.
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in
the State of New York, and in each other jurisdiction in which
such qualification is required whether by reason of the
ownership or leasing of property or the conduct of business,
except where the failure to be so qualified would not have a
material adverse effect upon the financial condition, results
of operation or business of the Company, the Bank and the
Subsidiaries, taken as a whole.
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(iv) Upon consummation of the Conversion, and
issuance of the Foundation Shares to the Foundation
immediately upon completion thereof, the authorized, issued
and outstanding capital stock of the Company will be within
the range set forth in the Prospectus under "Capitalization"
and no shares of Common Stock have been or will be issued and
remain outstanding prior to the Closing Time.
(v) The Securities and the Foundation Shares have
been duly and validly authorized for issuance and sale and,
when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth
in the Plan, or contributed by the Company pursuant to the
Plan in the case of the Foundation Shares, will be duly and
validly issued, fully paid and non-assessable.
(vi) The issuance of the Securities and the
Foundation Shares is not subject to preemptive or other
similar rights arising by operation of law or, to the best of
such counsel's knowledge, otherwise.
(vii) The Foundation has been duly incorporated and
is validly existing as a non-stock corporation in good
standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus; the Foundation is not a bank holding company under
the New York Banking law or the BHC Act or a savings and loan
holding company within the meaning of 12 C.F.R. Section
574.2(q) as a result of the issuance of shares of Common Stock
to it in accordance with the terms of the Plan and in the
amounts as described in the Prospectus; no approvals are
required to establish the Foundation and to contribute the
shares of Common Stock thereto as described in the Prospectus
other than those set forth in any written notice or order of
approval or non-objection of the Conversion, Conversion
Application or the Holding Company Application copies of which
were provided to the Agent prior to the Closing Time.
(viii) The Bank has been at all times since the date
of this Agency Agreement and prior to the Closing Time duly
organized, and is validly existing in good standing under the
laws of the State of New York as a New York State chartered
savings bank of mutual form, and at Closing Time, has become
duly organized, validly existing and in good standing under
the laws of the State of New York as a New York-chartered
savings bank in stock form, in both instances, with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus; and the Bank is
duly qualified as a foreign corporation in each jurisdiction
in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of
business except where the failure to so qualify would not have
a material adverse effect upon the financial condition or
results of operations or business of the Bank.
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<PAGE> 23
(ix) The deposit accounts of the Bank are insured by
the FDIC up to the applicable limits, and the Bank is a member
of the Federal Home Loan Bank of New York.
(x) Each Subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement, the Prospectus and the Holding Company
Application and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of
business, except where the failure to so qualify would not
have a material adverse effect upon the financial condition,
results of operation or business of the Company, the Bank and
the Subsidiaries, taken as a whole, the activities of the
Subsidiaries as described in the Prospectus and the Holding
Company Application are permitted to subsidiaries of a savings
association holding company and of a New York State chartered
savings bank by the rules, regulations, resolutions and
practices of the Federal Reserve and the Superintendent, as
the case may be; all of the issued and outstanding capital
stock of each of the Subsidiaries has been duly authorized and
validly issued, is fully paid and non-assessable and is owned
by the Bank free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim.
(xi) Upon consummation of the Conversion, all of the
issued and outstanding capital stock of the Bank when issued
and delivered pursuant to the Plan against payment of
consideration calculated as set forth in the Plan will be duly
authorized and validly issued and fully paid and
nonassessable, and all such capital stock will be owned
beneficially and of record by the Company free and clear of
any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(xii) The Superintendent and Federal Reserve has
approved the Holding Company Application, the Superintendent
has approved the Conversion Application and the FDIC has
issued a letter of intent not to object to the Conversion and
no action is pending, or to the best of such counsel's
knowledge, threatened respecting the Holding Company
Application or the Conversion Application (including therewith
the establishment of the Foundation and the contribution of
shares of Common stock thereto) or the acquisition by the
Company of all of the Bank's issued and outstanding capital
stock; the Holding Company Application complies as to form in
all material respects with the applicable requirements of the
Superintendent and the Federal Reserve, and the Conversion
Application complies as to form in all material respects with
the applicable requirements of the Superintendent and the FDIC
and include all documents required to be filed as exhibits
thereto, excluding the Prospectus and any related marketing
materials filed as a part of the Holding
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<PAGE> 24
Company Application or the Conversion Application; the Company
is duly authorized to become a bank holding company and is
duly authorized to own all of the issued and outstanding
capital stock of the Bank to be issued pursuant to the Plan.
(xiii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby,
including the establishment of the Foundation and the
contribution thereto of the Foundation Shares, (A) have been
duly and validly authorized by all necessary action on the
part of each of the Company and the Bank, and this Agreement
constitutes the legal, valid and binding agreement of each of
the Company and the Bank, enforceable in accordance with its
terms, except as rights to indemnity and contribution
hereunder may be limited under applicable law (it being
understood that such counsel may avail itself of customary
exceptions concerning the effect of bankruptcy, insolvency,
and the availability of equitable remedies), (B) will not
result in any violation of the provisions of the certificate
of incorporation, organization certificate, articles of
incorporation or charter, as the case may be, or by-laws of
the Company, the Bank or any of its Subsidiaries; and, (C)
will not conflict with or constitute a breach of, or default
under, and no event has occurred which, with notice or lapse
of time or both, would constitute a default under, or result
in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the
Bank or the Subsidiaries pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which the Company, the Bank or any of the Subsidiaries is a
party or by which any of them may be bound, or to which any of
the property or assets of the Company, the Bank or the
Subsidiaries is subject, that, individually or in the
aggregate, would have a material adverse effect on the
financial condition, results of operations or business of the
Company, the Bank and the Subsidiaries, taken as a whole.
(xiv) The Prospectus has been duly authorized by the
Superintendent and the FDIC for final use pursuant to the
Conversion Regulations and no action is pending, or to the
best of such counsel's knowledge, is threatened, by the
Superintendent or the FDIC to revoke such authorization.
(xv) The Registration Statement is effective under
the Securities Act and no stop order suspending the
effectiveness of the Registration Statement has been issued
under the Securities Act or, to the best of such counsel's
knowledge, have proceedings therefor been initiated or
threatened by the Commission.
(xvi) No further approval, authorization, consent or
other order of any public board or body is required in
connection with the execution and delivery of this Agreement,
the issuance of the Securities and the consummation of the
Conversion, except as may be required under the securities or
Blue Sky laws of various jurisdictions as to which no opinion
need be rendered.
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<PAGE> 25
(xvii) At the time the Registration Statement became
effective, the Registration Statement (other than the
financial statements the notes thereto, related schedules and
other financial, appraisal and statistical data included
therein, as to which no opinion need be rendered) complied as
to form in all material respects with the requirements of the
Securities Act and the Securities Act Regulations and the
Conversion Regulations.
(xviii) The Common Stock conforms to the description
thereof contained in the Prospectus, and the form of
certificate used to evidence the Common Stock is in due and
proper form and complies with all applicable statutory
requirements.
(xix) There are no legal or governmental proceedings
pending or threatened against or affecting the Company, the
Bank any of the Subsidiaries, or the Foundation which are
required, individually or in the aggregate, to be disclosed in
the Registration Statement and Prospectus, other than those
disclosed therein.
(xx) All pending legal or governmental proceedings
to which the Company, the Bank or any of the Subsidiaries is a
party or to which any of their property is subject which are
not described in the Registration Statement, including
ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material.
(xxi) The information in the Prospectus under "Risk
Factors - Contribution to the Charitable Foundation -
Potential Anti-Takeover Effect," and "Risk Factors -
Contribution to the Charitable Foundation - Impact on Earnings
and Tax Considerations;" and "Risk Factors Anti-Takeover
Provisions Restricting the Acquisition of Troy Financial
Corporation", "Risk Factors - Possible Adverse Income Tax
Consequences of the Distribution of Subscription Rights,"
"Dividend Policy," "Regulatory Capital Compliance", "Business
of The Troy Savings Bank - Legal Proceedings," "Taxation,"
"Regulation and Supervision," "The Conversion-Establishment of
The Community Foundation," "- Effects of Conversion," "-
Liquidation Rights" and "- Tax Aspects," "Restrictions on
Acquisition of The Troy Financial Corporation," "Description
of Capital Stock of The Troy Financial Corporation" and
"Description of Capital Stock of The Troy Savings Bank" to the
extent that it constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has
been reviewed by them and is complete and accurate in all
material respects.
(xxii) To the best of such counsel's knowledge,
there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to
be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto, and the
descriptions thereof or references thereto are correct.
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<PAGE> 26
(xxiii) The Plan has been duly authorized by the
Board of Directors of the Company and the Board of Trustees of
the Bank and the Superintendent's and the FDIC's approvals of
the Plan remain in full force and effect; the Bank's
organization certificate has been amended and restated,
effective upon consummation of the Conversion and the filing
of such amended and restated organization certificate with the
Superintendent, to authorize the issuance of permanent capital
stock; to the best of such counsel's knowledge, the Company
and the Bank have conducted the Conversion and the
establishment and funding of the Foundation in all material
respects in accordance with applicable requirements of the
Conversion Regulations, the Plan and all other applicable
regulations, decisions and orders thereunder, including all
material applicable terms, conditions, requirements and
conditions precedent to the Conversion imposed upon the
Company or the Bank by the Superintendent, the Federal Reserve
or the FDIC and, no order has been issued by the
Superintendent or the FDIC to suspend the Conversion or the
Offerings and no action for such purpose has been instituted
or threatened by the Superintendent or the FDIC; and, to the
best of such counsel's knowledge, no person has sought to
obtain review of the final action of the Superintendent, the
Federal Reserve or the FDIC, as applicable, in approving the
Conversion Application (which includes the Plan which provides
for establishment of the Foundation) or the Holding Company
Application.
(xxiv) To the best of such counsel's knowledge, the
Company, the Bank and the Subsidiaries have obtained all
material licenses, permits and other governmental
authorizations currently required for the conduct of their
respective businesses as described in the Registration
Statement and Prospectus, and all such licenses, permits and
other governmental authorizations are in full force and
effect, and the Company, the Bank and the Subsidiaries are in
all material respects complying therewith.
(xxv) None of the Company, the Bank nor any of the
Subsidiaries is in violation of its certificate of
incorporation, organization certificate, articles of
incorporation or charter, as the case may be, or bylaws (and
the Bank will not be in violation of its organization
certificate and bylaws in stock form upon consummation of the
Conversion) or, to the best of such counsel's knowledge, in
default (nor has any event occurred which, with notice or
lapse of time or both, would constitute a default) in the
performance or observance of any obligation, agreement,
covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company, the Bank or any of the
Subsidiaries is a party or by which the Company, the Bank or
any of the Subsidiaries or any of their property may be bound.
(xxvi) The Company is not required to be registered
as an investment company under the Investment Company Act of
1940.
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<PAGE> 27
(2) The favorable opinion, dated as of Closing Time, of
Muldoon, Murphy & Faucette LLP, counsel for the Agent, with respect to
the matters set forth in Section 5(b)(1)(i), (iv), (v), (vi) (solely as
to preemptive rights arising by operation of law), (xiii), (xvii), and
(xviii) and such other matters as the Agent may reasonably require.
(3) In giving their opinions required by subsections (b)(1)
and (b)(2), respectively, of this Section, Hogan & Hartson L.L.P. and
Muldoon, Murphy & Faucette LLP shall each additionally state that
nothing has come to their attention that would lead them to believe
that the Registration Statement (except for the appraisal, financial
statements, notes thereto, related schedules and other financial,
statistical or appraisal data included therein, as to which counsel
need make no statement), at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (except for the
appraisal, financial statements and schedules and other financial,
statistical or appraisal data included therein, as to which counsel
need make no statement), at the time the Registration Statement became
effective or at Closing Time, included an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. In giving their opinions Hogan &
Hartson L.L.P. and Muldoon, Murphy & Faucette LLP may state that they
have not independently verified the information with respect to the
Company and the Bank contained in the Registration Statement,
Conversion Application and the Prospectus. In giving their opinions,
Hogan & Hartson L.L.P. and Muldoon, Murphy & Faucette LLP may rely as
to matters of fact on certificates of officers and directors of the
Company and the Bank and certificates of public officials, and as to
certain matters of New York law upon the opinion of Pattison, Sampson,
Ginsberg & Griffin, P.C., general counsel for the Company and the Bank
and as to certain matters of Delaware law upon the opinion of
______________________, which opinions shall be in form and substance
satisfactory to the Agent, and Muldoon, Murphy & Faucette LLP may also
rely on the opinion of Hogan & Hartson L.L.P.
(c) At the Closing time referred to in Section 2, the Company and the
Bank will have completed in all material respects the conditions precedent to
the Conversion in accordance with the Plan, the applicable Conversion
Regulations and all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon the Company or the Bank by the Federal Reserve, the
Superintendent, the FDIC, or any other regulatory authority other than those
which the Federal Reserve, the Superintendent or the FDIC permit to be completed
after the Conversion.
(d) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
financial condition, results of operations or business of the Company, the Bank
and the Subsidiaries, taken as a whole, whether or not arising in the ordinary
course of business, and the Agent shall have received a certificate of the Chief
Executive Officer of
27
<PAGE> 28
the Company and the Bank, and the chief financial or chief accounting officer of
the Company and of the Bank, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) there shall have been no
material transaction entered into by the Company or the Bank from the latest
date as of which the financial condition of the Company or the Bank is set forth
in the Registration Statement and the Prospectus other than transactions
referred to or contemplated therein and transactions in the ordinary course of
business, (iii) neither the Company nor the Bank has received from the
Superintendent, the FDIC or the Federal Reserve any direction (oral or written)
to make any material change in the method of conducting its business with which
it has not complied (which direction, if any, shall have been disclosed to the
Agent) or which materially and adversely would affect the business, financial
condition or results of operations of the Company, the Bank and the
Subsidiaries, taken as a whole, (iv) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, (v) the Company and the Bank have
complied with all agreements and satisfied all conditions on their part to be
performed or satisfied at or prior to Closing Time, (vi) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission and (vii) no order suspending the Offerings or the authorization for
final use of the Prospectus has been issued and no proceedings for that purpose
have been initiated or threatened by the Superintendent or the FDIC and no
person has sought to obtain regulatory or judicial review of the action of the
Superintendent or the FDIC in approving the Plan in accordance with the
Conversion Regulations nor has any person sought to obtain regulatory or
judicial review of the action of the Federal Reserve in approving the Holding
Company Application.
(e) At the time of the execution of this Agreement, the Agent shall
have received from KPMG LLP a letter dated such date, in form and substance
satisfactory to the Agent, to the effect that (i) they are independent public
accountants with respect to the Company, the Bank and the Subsidiaries within
the meaning of the Code of Ethics of the American Institute of Certified Public
Accountants, the Securities Act and the Securities Act Regulations and the
Conversion Regulations; (ii) it is their opinion that the consolidated financial
statements and supporting schedules included in the Registration Statement and
covered by their opinions therein comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and the
Securities Act Regulations and the Conversion Regulations; (iii) based upon
limited procedures as agreed upon by the Agent and KPMG LLP set forth in detail
in such letter, nothing has come to their attention which causes them to believe
that (A) the unaudited financial statements and supporting schedules of the Bank
and the Subsidiaries included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act, the Securities Act Regulations, and the Conversion Regulations
or are not presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement and the Prospectus, (B) the
unaudited amounts set forth under "Selected Consolidated Financial Information
and Other Data" and "Recent Developments" in the Registration Statement and
Prospectus do not agree with the amounts set forth in unaudited consolidated
financial statements as of and for the dates and periods presented under such
captions or such amounts were not determined on a basis substantially consistent
with that used
28
<PAGE> 29
in determining the corresponding amounts in the audited financial statements
included in the Registration Statement, (C) at a specified date not more than
five days prior to the date of this Agreement, there has been any increase in
the consolidated long term or short term debt of the Bank and the Subsidiaries
or any decrease in consolidated total assets, the allowance for loan losses,
total deposits or retained earnings of the Bank and the Subsidiaries, in each
case as compared with the amounts shown in the ______________, 1998 balance
sheet included in the Registration Statement or, (D) during the period from
______________, 1998 to a specified date not more than five days prior to the
date of this Agreement, there were any decreases, as compared with the
corresponding period in the preceding year, in total interest income, net
interest income, net interest income after provision for loan losses, income
before income tax expense or net income of the Bank and the Subsidiaries, except
in all instances for increases or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur; and (iv) in addition to the
examination referred to in their opinions and the limited procedures referred to
in clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information which are included in the Registration Statement and
Prospectus and which are specified by the Agent, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other records of the Company, the Bank and the
Subsidiaries identified in such letter.
(f) At Closing Time, the Agent shall have received from KPMG LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of this
Section, except that the specified date referred to shall be a date not more
than five days prior to Closing Time.
(g) At Closing Time, the Securities shall have been approved for
listing on the Nasdaq Stock Market upon notice of issuance.
(h) At Closing Time, the Agent shall have received a letter from
FinPro, dated as of the Closing Time, confirming its appraisal.
(i) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities and the Foundation
Shares as herein contemplated and related proceedings, or in order to evidence
the accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities and
Foundation Shares as herein contemplated shall be satisfactory in form and
substance to the Agent and counsel for the Agent.
(j) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effect of which, in the judgment of the Agent, are
so material and adverse as to make it impracticable to market the Securities or
to enforce contracts, including subscriptions or orders, for the sale of the
Securities, and (ii) trading generally
29
<PAGE> 30
on the American Stock Exchange, the New York Stock Exchange or Nasdaq shall not
have been suspended, and minimum or maximum prices for trading shall not have
been fixed, or maximum ranges for prices for securities have been required, by
either of said Exchanges or by order of the Commission or any other governmental
authority, and a banking moratorium shall not have been declared by either
Federal or New York authorities.
SECTION 6. INDEMNIFICATION.
(a) The Company and the Bank, jointly and severally, agree to indemnify
and hold harmless the Agent, each person, if any, who controls the Agent, within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and its respective partners, directors, officers, employees and agents as
follows:
(i) from and against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, related to or arising out
of the Conversion (including establishment of the Foundation and the
contribution of the Foundation Shares thereto by the Company) or any
action taken by the Agent where acting as agent of the Company or the
Bank or otherwise as described in Section 2 hereof;
(ii) from and against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, based upon or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto), or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Proxy Statement or
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(iii) from and against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever described in
clauses (i) or (ii) above, if such settlement is effected with the
written consent of the Company or the Bank, which consent shall not be
unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as
incurred (including, subject to Section 6(c) hereof, the fees and
disbursements of counsel chosen by the Agent), reasonably incurred in
investigating, preparing for or defending against any litigation, or
any investigation, proceeding or inquiry by any governmental agency or
body, commenced or threatened, or any claim pending or threatened
whatsoever described in clauses (i) or (ii) above, to the extent that
any such expense is not paid under (i), (ii) or (iii) above;
30
<PAGE> 31
provided, however, that the indemnification provided for in this paragraph (a)
shall not apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading which was made in reliance upon and in conformity with
the Agent Information.
(b) The Agent agrees to indemnify and hold harmless the Company, the
Bank, their directors and trustees, each of their officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, of a material fact made in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with the Agent Information.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to no more than one local counsel
in each separate jurisdiction in which any action or proceeding is commenced)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(d) The Company and the Bank also agree that the Agent shall not have
any liability (whether direct or indirect, in contract or tort or otherwise) to
the Bank, the Company, its security holders or the Bank's or the Company's
creditors relating to or arising out of the engagement of the Agent pursuant to,
or the performance by the Agent of the services contemplated by, this Agreement,
except to the extent that any loss, claim, damage or liability is found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from the Agent's bad faith, willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iv) hereof, in the event that any Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or any of its partners, directors, officers, employees or
agents is requested or required to appear as a witness or otherwise gives
testimony in any action, proceeding, investigation or inquiry brought by or on
behalf of or against the Company, the Bank, the Agent or any of its respective
affiliates or any participant in the transactions contemplated hereby in which
the Agent or such person or agent is not named as a defendant or subject of an
investigation or inquiry, the Company and the Bank jointly and severally agree
to
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<PAGE> 32
reimburse the Agent for all reasonable and necessary out-of-pocket expenses
incurred by it in connection with preparing or appearing as a witness or
otherwise giving testimony and to compensate the Agent in an amount to be
mutually agreed upon.
SECTION 7. CONTRIBUTION.
In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 6 hereof
is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company, the Bank and the Agent
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement incurred by the
Company or the Bank and the Agent, as incurred, in such proportions (i) that the
Agent is responsible for that portion represented by the percentage that the
maximum aggregate marketing fees appearing on the cover page of the Prospectus
bears to the maximum aggregate gross proceeds appearing thereon and the Company
and the Bank are jointly and severally responsible for the balance or (ii) if,
but only if, the allocation provided for in clause (i) is for any reason held
unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits to the Company and the Bank on the one hand and the Agent on
the other, as reflected in clause (i), but also the relative fault of the
Company and the Bank on the one hand and the Agent on the other, as well as any
other relevant equitable considerations; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section,
each person, if any, who controls the Agent within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as the Agent, and each director of the Company, each trustee of
the Bank, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company or the Bank within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Company and the Bank. Notwithstanding
anything to the contrary set forth herein, to the extent permitted by applicable
law, in no event shall the Agent be required to contribute an aggregate amount
in excess of the aggregate marketing fees to which the Agent is entitled and
actually paid pursuant to this Agreement.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY.
All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company or the Bank
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Agent or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities.
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<PAGE> 33
SECTION 9. TERMINATION OF AGREEMENT.
(a) The Agent may terminate this Agreement, by notice to the Company,
at any time at or prior to Closing Time (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement, any material adverse change in the financial
condition, results of operations or business of the Company or the Bank, or the
Company, the Bank and the Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or elsewhere or any
outbreak of hostilities or escalation thereof or other calamity or crisis the
effect of which, in the judgment of the Agent, are so material and adverse as to
make it impracticable to market the Securities or to enforce contracts,
including subscriptions or orders, for the sale of the Securities, (iii) if
trading generally on the Nasdaq Stock Market, the American Stock Exchange or the
New York Stock Exchange has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by such market or either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either Federal or New York authorities, (iv) if any condition
specified in Section 5 shall not have been fulfilled when and as required to be
fulfilled; (v) if there shall have been such material adverse change in the
condition or prospects of the Company or the Bank or the prospective market for
the Company's securities as in the Agent's good faith opinion would make it
inadvisable to proceed with the offering, sale or delivery of the Securities;
(vi) if, in the Agent's good faith opinion, the price for the Securities
established by FinPro is not reasonable or equitable under then prevailing
market conditions, or (vii) if the Conversion is not consummated on or prior to
December 31, 1999.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof relating to the reimbursement of expenses and
except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
SECTION 10. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Agent shall be directed to the Agent
at Two World Trade Center, 104th Floor, New York, New York 10048, attention of
Catherine A. Lawton, Principal, with a copy to Joseph A. Muldoon, Esq., Muldoon,
Murphy & Faucette LLP, 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016;
notices to the Company and the Bank shall be directed to either of them at The
Troy Savings Bank, 32 Second at State Streets, Troy, NY 12180, attention of
Daniel J. Hogarty, Jr., President and Chief Executive Officer, with a copy to
Stuart G. Stein, Esq., Hogan & Hartson L.L.P., Columbia Square, 555 Thirteenth
Street, N.W., Washington, DC 20004-1109.
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<PAGE> 34
SECTION 11. PARTIES.
This Agreement shall inure to the benefit of and be binding upon the
Agent, the Company and the Bank and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Agent, the Company, and the
Bank and their respective successors and the controlling persons and officers,
trustees and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein or therein contained. This
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the Agent, the Company and the Bank and
their respective successors, and said controlling persons and officers, trustees
and directors and their heirs and legal representatives, and for the benefit of
no other person, firm or corporation.
SECTION 12. ENTIRE AGREEMENT; AMENDMENT.
This Agreement represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and supersedes any
and all other oral or written agreements heretofore made, except for engagement
letter dated July 15, 1998, by and between the Agent and the Company and the
Bank, relating to the Agent's providing conversion agent services to the Company
and the Bank in connection with the Conversion. No waiver, amendment or other
modification of this Agreement shall be effective unless in writing and signed
by the parties hereto.
SECTION 13. GOVERNING LAW AND TIME.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State without regard to the conflicts of laws provisions
thereof. Specified times of day refer to Eastern time.
SECTION 14. SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
SECTION 15. HEADINGS.
Sections headings are not to be considered part of this Agreement, are
for convenience and reference only and are not to be deemed to be full or
accurate descriptions of the contents of any paragraph or subparagraph.
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<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
TROY FINANCIAL CORPORATION
--------------------------------------------
By: Daniel J. Hogarty, Jr.
Title: President and Chief Executive Officer
Troy Savings Bank
--------------------------------------------
By: Daniel J. Hogarty, Jr.
Title: President and Chief Executive Officer
CONFIRMED AND ACCEPTED, as
of the date first above written:
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
--------------------------------------------
By: Catherine A. Lawton
Vice President
35
<PAGE> 1
EXHIBIT 8.1
[FORM OF TAX OPINION]
________ __, 1999
Board of Trustees
The Troy Savings Bank
32 Second Street
Troy, New York 12180
Board of Directors
Troy Financial Corporation
32 Second Street
Troy, New York 12180
Gentlemen/Ladies:
Pursuant to Section 30 of the Plan of Conversion originally
adopted on July 15, 1998, and amended on December 10, 1998 and January 28, 1999
(the "Plan"), you have requested that we render to you our opinion with respect
to certain federal income tax consequences of the proposed conversion of The
Troy Savings Bank (the "Savings Bank") from a New York state-chartered mutual
savings bank to a New York-state chartered capital stock savings bank under the
same name and the acquisition of the Savings Bank's capital stock by Troy
Financial Corporation, a Delaware corporation (the "Holding Company").
In connection with the preparation of this opinion, we have
examined and with your consent relied upon the following documents (including
all exhibits and schedules thereto): (1) the Plan; (2) the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission (the
"Registration Statement") and/or the Proxy Statement/Prospectus of the Holding
Company (the "Proxy Statement"); (3) representations and certifications made to
us by the Holding Company and the Savings Bank (attached hereto as Exhibit A);
(4) such other instruments and documents related to the formation, organization
and operation of the Holding Company and the Savings Bank or to the consummation
of the Plan
<PAGE> 2
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 2
and the transactions contemplated thereby as we have deemed necessary or
appropriate. (1)
The Proposed Transaction
Based solely upon our review of the documents set forth above,
and upon such information as the Holding Company and the Savings Bank have
provided to us (which we have not attempted to verify in any respect), and in
reliance upon such documents and information, we understand that the proposed
transaction and the relevant facts with respect thereto are as follows:
The Holding Company has not engaged in any significant
business to date. The Holding Company was established in December 1998 to be the
bank holding company for the Savings Bank upon the Conversion.
The Savings Bank is a mutual savings bank headquartered in
Troy, New York. The Savings Bank provides full service business and retail
banking, and trust and investment services to individuals, families and
businesses throughout the six New York Counties of Albany, Rensselaer (Troy),
Saratoga, Schenectady, Warren and Washington.
In order to enable the Savings Bank to compete more
effectively with other financial service providers (including savings banks),
raise capital as needed and facilitate the Holding Company's establishment or
acquisition of a commercial bank that can accept municipal deposits to
complement the Savings Bank's municipal investment activities, the Board of
Trustees has adopted the Plan, pursuant to which the Savings Bank will convert
from a New York State-chartered mutual savings bank to a New York
State-chartered capital stock savings bank (the "Converted Bank"). Pursuant to
the Plan, the Holding Company will acquire all of the issued and outstanding
shares of the Converted Bank's capital stock. The Holding Company will issue
nontransferable Subscription Rights to purchase its stock, the Conversion Stock,
to Eligible Account Holders, the Employee Plans established by the Savings Bank
or Holding Company and the Supplemental Eligible Account Holders in the
respective priorities and upon the terms and conditions set forth in the Plan
(the "Subscription Offering"). Any shares of
- --------
(1) All capitalized terms used herein and not otherwise defined shall have the
same meaning as they have in the Plan. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 3
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 3
Conversion Stock not subscribed for by the foregoing classes of persons will
then be offered for sale to certain members of the public directly through a
Community Offering, a Syndicated Community Offering, through an underwritten
firm commitment public offering, or through a combination thereof. The Plan
requires that the purchase price of the Conversion Stock be based on the
appraised pro forma market value of the Conversion Stock, as determined on the
basis of an independent appraisal. If the Holding Company is not utilized, then
the Common Stock of the Savings Bank will be sold in the manner described above
pursuant to the priorities set forth in the Plan.
The Plan provides that, immediately following the Conversion,
the Holding Company intends to establish and donate to The Troy Savings Bank
Community Foundation a certain number of shares of its authorized but unissued
common stock. The Troy Savings Bank Community Foundation will be dedicated to
the promotion of charitable purposes within the Savings Bank's communities,
including, but not limited to, providing grants to the Music Hall Foundation and
other qualifying charitable organizations. The funding of The Troy Savings Bank
Community Foundation with common stock of the Holding Company furthers the
stated goals of The Troy Savings Bank Community Foundation, and enables the
community to share in the potential growth and any profitability of the Holding
Company and the Savings Bank over the long-term. In order to serve the purposes
for which it was formed and maintain its Section 501(c)(3) qualification, The
Troy Savings Bank Community Foundation may sell the common stock contributed to
it by the Holding Company subject to limitations.
The Plan also provides for the establishment, at the time of
the Conversion, of a liquidation account in an amount equal to the Savings
Bank's net worth as set forth in the latest statement of financial condition
contained in the Proxy Statement. The liquidation account will be maintained by
the Converted Bank for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain their deposit
accounts at the Converted Bank in the event of a complete liquidation of the
Converted Bank following the Conversion. Each Eligible Account Holder and
Supplemental Eligible Account Holder will, with respect to each deposit account,
hold a related inchoate interest in a portion of the liquidation account
balance, in relation to each deposit account balance at the Eligibility Record
Date or the Supplemental Eligibility Record Date as the case may be, or to such
balance as it may be subsequently reduced.
<PAGE> 4
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 4
In the unlikely event of a complete liquidation of the
Converted Bank, following all liquidation payments to creditors, each Eligible
Account Holder and Supplemental Eligible Account Holder will be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his deposit account then held,
before any liquidation distribution may be made to any holders of the Converted
Bank's capital stock. No merger, consolidation, purchase of bulk assets with
assumption of deposit accounts and other liabilities, or similar transactions
with an FDIC-insured savings bank, in which the Converted Bank is not the
surviving institution, will be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account will be assumed by the
surviving institution.
Assumptions and Representations
In connection with rendering this opinion, we have assumed or
obtained representations (and, with your consent, are relying thereon, without
any independent investigation or review thereof, although we are not aware of
any material facts or circumstances contrary to or inconsistent therewith) that:
1. All information contained in each of the documents we have
examined and relied upon in connection with the preparation of this opinion is
accurate and completely describes all material facts relevant to our opinion,
all copies are accurate and all signatures are genuine. We have also assumed
that there has been (or will be by the Effective Time of the Conversion) due
execution and delivery of all documents where due execution and delivery are
prerequisites to the effectiveness thereof.
2. The Conversion will be consummated in accordance with
applicable state and federal law.
3. All representations made in the exhibits hereto are true,
correct, and complete in all material respects. Any representation or statement
made "to the best of knowledge" or similarly qualified is correct without such
qualification.
4. The Conversion will be consummated in accordance with the
Plan and as described in the Proxy Statement (including satisfaction of all
covenants and conditions to the obligations of the parties without amendment or
waiver thereof); both Holding Company and Savings Bank will comply with all
reporting obligations with respect to the Conversion required under the Code and
the Treasury Regulations thereunder; and the Plan and all other documents and
<PAGE> 5
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 5
instruments referred to therein or in the Proxy Statement are valid and binding
in accordance with their terms.
Opinion - Federal Income Tax Consequences
Based upon and subject to the assumptions and qualifications
set forth herein, it is our opinion that for Federal income tax purposes:
1. The proposed conversion of Savings Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization within the
meaning of section 368(a)(1)(F) of the Code, and neither Savings Bank nor the
Converted Bank will recognize gain or loss as a result of the Conversion.
Savings Bank and the Converted Bank will each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
2. No gain or loss will be recognized by the Converted Bank or
the Holding Company upon the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital stock
(Code Section 1032(a)).
3. No gain or loss will be recognized by the Holding Company
upon the receipt of money in exchange for shares of its Conversion Stock (Code
Section 1032(a)).
4. The basis of the assets of the Savings Bank in the hands of
Converted Bank will be the same as the basis of such assets in the hands of the
Savings Bank immediately prior to the Conversion (Code Section 362(b)).
5. The holding period of the assets of the Savings Bank in the
hands of the Converted Bank will include the holding period during which the
Savings Bank held the assets (Code Section 1223(2)).
6. No gain or loss will be recognized by the Eligible Account
Holders or the Supplemental Eligible Account Holders of the Savings Bank on the
issuance to them of withdrawable deposit accounts in the Converted Bank plus
interests in the liquidation account of the Converted Bank in exchange for their
deposit accounts in the Savings Bank or to other depositors on the issuance to
them of withdrawable deposit accounts in the Converted Bank in exchange for
their deposit accounts in the Savings Bank (Code Section 354(a)).
<PAGE> 6
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 6
7. Provided that the amount to be paid for the Conversion
Stock pursuant to the Subscription Rights is equal to the fair market value of
the stock, no gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of the
nontransferable Subscription Rights to purchase shares of stock in the Holding
Company (Code Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a result of the
exercise by them of the nontransferable Subscription Rights (Rev. Rul. 56-572,
1956-2 C.B. 182).
8. The basis of the deposit accounts in the Converted Bank to
be received by the Eligible Account Holders, Supplemental Eligible Account
Holders and other depositors of the Savings Bank will be the same as the basis
of their deposit accounts in the Savings Bank surrendered in exchange therefor
(Code Section 358(a)(1)). The basis of the interests in the liquidation account
of the Converted Bank to be received by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Savings Bank will be zero (Rev.
Rul. 71-233, 1971-1 C.B. 113). The basis of the Holding Company Conversion Stock
to its stockholders will be the purchase price thereof plus the basis, if any,
of the nontransferable Subscription Rights (Code Section 1012). Accordingly,
assuming the nontransferable subscription rights have no value, the basis of the
Conversion Stock to the Eligible Account Holders and Supplemental Eligible
Account Holders will be the amount paid therefor.
9. The holding period of the Conversion Stock purchased
pursuant to the exercise of Subscription Rights will commence on the date on
which the right to acquire such stock was exercised (Code Section 1223(6)).
Our opinion in paragraph (7), above, is predicated on the
representation that no person will receive any payment, whether in money or
property, in lieu of the issuance of Subscription Rights. Our opinions in
paragraphs (6) and (8), above, are predicated on the representation that no
person will receive any payment, whether in money or property, in lieu of their
interest in the liquidation account. Our opinions under paragraphs (7) and (8),
above, assume that the Subscription Rights to purchase shares of Conversion
Stock received by the Eligible Account Holders and Supplemental Eligible Account
Holders have a fair market value of zero. We understand that you have received a
letter from FinPro, Inc. that the Subscription Rights do not have any value. We
express no view regarding the valuation of the Subscription Rights. If the
Subscription Rights are subsequently found to have a fair market value, income
may be recognized by
<PAGE> 7
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 7
various recipients of the Subscription Rights (in certain cases, whether or not
the Subscription Rights are exercised) and the Holding Company and/or the
Converted Bank may be taxable on the distribution of the Subscription Rights.
In addition to the assumptions set forth above, this opinion
is subject to the exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment
regarding the application of relevant current provisions of the Code and
interpretations of the foregoing as expressed in existing court decisions,
administrative determinations (including the practices and procedures of the
Internal Revenue Service (the "IRS") in issuing private letter rulings, which
are not binding on the IRS except with respect to the taxpayer that receives
such a ruling) and published rulings and procedures, all as of the date hereof.
An opinion of counsel merely represents counsel's best judgment with respect to
the probable outcome on the merits and is not binding on the Internal Revenue
Service or the courts. There can be no assurance that positions contrary to our
opinions will not be taken by the IRS, or that a court considering the issues
would not hold contrary to such opinions. Neither Holding Company nor Savings
Bank has requested a ruling from the IRS (and no ruling will be sought) as to
any of the federal income tax consequences addressed in this opinion.
Furthermore, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the opinion expressed herein. Nevertheless, we
undertake no responsibility to advise you of any new developments in the law or
in the application or interpretation of the federal income tax laws.
2. This letter addresses only the specific tax opinions set
forth above. This letter does not address any other federal, state, local or
foreign tax consequences that may result from the Conversion or any other
transaction (including any transaction undertaken in connection with the
Conversion).
3. Our opinion set forth herein is based upon the description
of the contemplated transactions as set forth above in the section captioned
"The Proposed Transaction," the Plan and the Proxy Statement. If the actual
facts relating to any aspect of the transactions differ from this description in
any material respect, our opinion may become inapplicable. No opinion is
expressed as to any transaction other than those set forth in the section
captioned "The Proposed Transaction," the Plan and the Proxy Statement or to any
transaction whatsoever, including the
<PAGE> 8
The Troy Savings Bank
Troy Financial Corporation
____________1999
Page 8
Conversion, if all the transactions described in the section captioned "The
Proposed Transaction," the Plan and the Proxy Statement are not consummated in
accordance with the terms of the section captioned "The Proposed Transaction,"
the Plan and the Proxy Statement and without waiver or breach of any material
provision thereof or if all of the representations, warranties, statements and
assumptions upon which we relied are not true and accurate at all relevant
times. In the event any one of the statements, representations, warranties or
assumptions upon which we have relied to issue this opinion is incorrect, our
opinion might be adversely affected and may not be relied upon.
This opinion is provided to the Holding Company and the
Savings Bank only, and without our prior consent, may not be relied upon, used,
circulated, quoted or otherwise referred to in any manner by any person, firm,
governmental authority or entity whatsoever other than reliance thereon by the
Holding Company and the Savings Bank. Notwithstanding the prior sentence, we
hereby consent to the use of the opinion letter as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and to the submission of this opinion to the New York State Banking Department
and the Federal Deposit Insurance Corporation. In giving the consent to use the
opinion letter as an exhibit to the Registration Statement, we do not thereby
admit that we are an "expert" within the meaning of the Securities Act of 1933,
as amended.
Sincerely yours,
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 8.2
[KPMG LLP LOGO]
February , 1999
Board of Trustees
The Troy Savings Bank
32 Second Street
Troy, NY 12180
Board Members:
You have requested the opinion of KPMG LLP ("KPMG") as to the New York State
franchise and New York State personal income tax consequences relating to the
proposed conversion of The Troy Savings Bank from a state chartered mutual
savings bank to a state chartered stock savings bank (Stock Bank) and the
formation of Troy Financial Corporation which will acquire all of the
outstanding stock of Stock Bank.
You have submitted to us a copy of the federal income tax opinion ("Federal
Opinion") dated February , 1999 relating to the federal income tax consequences
of the proposed transaction prepared by your counsel, Hogan & Hartson, L.L.P.
Our opinion regarding the New York State franchise and New York State personal
income tax consequences of the proposed transaction is based on the same facts,
assumptions and conditions contained in the Federal Opinion. It is also based on
existing New York Tax Law which is subject to change. We have not reviewed the
legal documents necessary to effectuate the steps to be undertaken, and we
assume that all steps will be properly effectuated under state and federal law
and will be consistent with the legal documentation.
In our opinion, the New York State franchise and New York State personal income
tax consequences of the proposed transaction are consistent with the federal
income tax consequences of the proposed transaction opined upon in the Federal
Opinion.
For purposes of the franchise tax the State of New York has adopted federal
taxable income (Internal Revenue Code Sec. 63), as currently amended, as the
starting point for computing New York entire net income (NYS Tax Law Sec. 1453).
Franchise tax terms are defined in relation to the Internal Revenue Code of
1986, as amended. Taxpayers are required to use federal taxable income as the
starting point for the computation of entire net income.
Several specific modifications to federal taxable income are enumerated in the
New York Tax Law and the Banking Corporation Regulations in determining income
taxable for New York State franchise tax purposes, however there are no specific
modifications which apply to the proposed transaction (see New York State Tax
Law Article 32, Sections 1453 (b) through (o) and Regulation Sections 18-2.3,
18-2.4 and 18-2.5 of the Franchise Tax on Banking Corporations).
<PAGE> 2
Board of Trustees
The Troy Savings Bank
February , 1999
Page 2
The State of New York has adopted federal adjusted gross income (IRC Sec. 62),
as currently amended, as the starting point for computing New York taxable
income (NYS Tax Law Sec. 612) for personal income tax purposes. Income tax terms
are defined in relation to the Internal Revenue Code of 1986, as amended.
Several specific modifications to federal taxable income are enumerated in the
New York Statutes in determining income taxable for New York State personal
income tax purposes, however there are no specific modifications which apply to
the proposed transaction (see New York State Tax Law Article 22, Sections 612
(b) through (t) and Regulation Sections 112.2 through 112.13 of the Personal
Income Tax).
Our opinion as expressed above is rendered only with respect to the New York
franchise and New York State personal income tax consequences of specific
matters discussed herein, and we express no opinion with respect to any other
New York franchise, income or transfer tax matter or any other federal, state,
local or foreign tax matter relating to the proposed transaction. Our opinion is
based on the facts and conditions as stated herein, whether directly or by
reference to the Federal Opinion. It is expressly understood and agreed to by
The Troy Savings Bank, Stock Bank, and Troy Financial Corporation that KPMG is
relying solely on the Federal Opinion in all respects relating to the federal
tax consequences of the matters described herein. KPMG has not independently
verified the accuracy of any fact, representation, opinion or other matter
contained in the Federal Tax Opinion and should any fact, representation,
opinion or other matter addressed therein not be correct, it could cause the New
York State franchise and income tax opinion contained herein to also be
incorrect. If any of the facts and conditions are not entirely complete or
accurate, it is imperative that we be informed immediately, as the inaccuracy or
incompleteness could have a material effect on our conclusions. In rendering our
opinion, we are relying upon the relevant provisions of the Internal Revenue
Code of 1986, as amended, and New York Statutes, as amended, the regulations and
rules thereunder and judicial and administrative interpretations thereof, which
are subject to change or modification by subsequent legislative, regulatory,
administrative, or judicial decisions. Any such changes could also have an
effect on the validity of our opinion. We undertake no responsibility to update
or supplement our opinion after its issuance. This opinion is not binding upon
any tax authority or any court and no assurance can be given that a position
contrary to that expressed herein will not be asserted by a tax authority and
ultimately sustained by a court.
Very truly yours,
KPMG LLP
Steven J. Evans
Partner
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this ____ day of ______________, 1999, by and
among THE TROY SAVINGS BANK, a New York-chartered capital stock savings bank
having its principal place of business in Troy, New York (the "Bank"), TROY
FINANCIAL CORPORATION, a Delaware corporation owning all of the issued and
outstanding shares of capital stock of the Bank ("Troy Financial") (the Bank and
Troy Financial, collectively, the "Employers"), and DANIEL J. HOGARTY, JR., an
individual residing in Troy, New York (the "Executive").
WHEREAS, the Employers and the Executive desire that the Executive be
employed as President and Chief Executive Officer of the Employers;
WHEREAS, the Boards of Directors of the Employers (collectively, the
"Boards"), have approved and authorized the Employers to enter into this
Agreement with the Executive;
WHEREAS, the parties desire to enter into this Agreement, setting forth
the terms and conditions for the employment relationship of the Executive with
the Employers:
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Executive is employed as President and Chief
Executive Officer of the Employers during the Employment Term (as defined in
Section 5 below). As the President and Chief Executive Officer of the Employers,
the Executive shall render executive, policy and other management services to
the Employers of the type customarily performed by persons serving in a similar
chief executive officer capacity. As Chief Executive Officer, the Executive
shall be responsible for implementing the policies of the Boards and shall
report only to the Boards. All other officers of the Employers shall report
directly to the Executive, except as the Executive shall otherwise determine,
and except that the internal auditor shall report directly to the Boards. The
Executive shall also perform such duties as the Boards may from time to time
reasonably direct. During the Employment Term, there shall be no material
decrease in the duties and responsibilities of the Executive otherwise than as
provided herein, unless the parties otherwise agree in writing. During the
Employment Term, the Executive shall not be required to relocate his place of
employment to a location more than 50 miles away from the Bank's Troy, New York
location, or outside the State of New York, to perform his duties hereunder,
except for reasonably required travel by the Executive on the business of the
Employers.
<PAGE> 2
2. COMPENSATION.
(a) The Employers agree to pay the Executive during the
Employment Term a salary at an initial annual rate of $600,000. The Executive's
salary shall be reviewed by the Boards prior to October 1, 1999, and thereafter
on an annual basis prior to October 1 of each year (or such date as from time to
time is the date used by the Employers for review of executive compensation)
during the Employment Term. In so reviewing the Executive's salary, the Boards
shall consider increases in the amount of the Executive's salary for increases
in the cost of living for Rensselaer County, New York, and based upon the
Executive's performance and scope of responsibility.
(b) The salary of the Executive shall not be decreased at any
time during the Employment Term from the amount then in effect, unless the
Executive otherwise agrees in writing. Participation in deferred compensation,
discretionary bonus, retirement and other employee benefit plans and in fringe
benefits, other than salary reduction programs in which the Executive elects to
participate, shall not reduce the salary payable to the Executive under this
Section 2. The salary under this Section 2 shall be payable to the Executive not
less frequently than monthly. The Executive shall not be entitled to receive
fees for serving as a director of the Employers or any of their subsidiaries or
for serving as a member of any committee of the Boards of Directors of the
Employers or any of their subsidiaries.
3. DISCRETIONARY BONUSES; BUSINESS EXPENSES.
(a) During the Employment Term, the Executive shall be
entitled to participate in an equitable manner with all other executive
employees of the Employers in such discretionary bonuses as may be authorized,
declared and paid by the Boards to executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the Executive's
right to participate in such bonuses when and as declared by the Boards. This
provision shall not preclude the grant of any other bonus to the Executive as
determined by the Boards.
(b) The Executive is expected and is authorized to incur
reasonable expenses in the performance of his duties hereunder, including the
costs of business entertainment, travel, and attendance at conventions and
meetings. The Employers shall reimburse the Executive for all such expenses
promptly upon periodic presentation by the Executive of an itemized account of
such expenses. The Employers shall provide the Executive with the use of an
automobile for business purposes or, at his election, shall pay the Executive an
automobile allowance for the business use of his personal vehicle.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE
BENEFITS. During the Employment Term, the Executive shall be entitled to
participate in any incentive, bonus, management recognition, equity
compensation,
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<PAGE> 3
retirement, deferred compensation, fringe benefit or welfare benefit plan of the
Employers, including any plan providing for stock options, restricted stock,
employee stock purchases, pension or retirement income, retirement savings,
employee stock ownership, deferred compensation or medical, prescription,
dental, disability, employee life, group life, accidental death or travel
accident insurance that the Employers may adopt for the benefit of executive
employees, in accordance with the terms of such plans.
5. TERM. The initial term of employment under this Agreement
shall be for a three-year period commencing on the date of this Agreement (the
"Initial Term"). Subject to annual review and approval by the Boards, this
Agreement may be extended by written notice from the Employers to the Employee
for an additional consecutive 12-month period (the "Extended Term") as of the
first anniversary of the date of this Agreement and every subsequent anniversary
of the date of this Agreement thereafter, unless the Executive has given
contrary written notice to the Employers at least three months before any such
renewal date. The Initial Term and all such Extended Terms are collectively
referred to herein as the "Employment Term."
6. STANDARDS. The Executive shall perform his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the Boards. The
reasonableness of such standards shall be measured against standards for
executive performance generally prevailing in the financial institutions
industry.
7. VOLUNTARY ABSENCES; VACATIONS. The Executive shall be
entitled, without loss of pay, to absent himself voluntarily for reasonable
periods of time from the performance of his duties and responsibilities under
this Agreement. All such voluntary absences shall count as paid vacation time,
unless the Boards otherwise approve. The Executive shall be entitled to an
annual paid vacation of ______ weeks per year or such longer period as the
Boards may approve. The timing of paid vacations shall be scheduled in a
reasonable manner by the Executive. The Executive shall not be entitled to
receive any additional compensation from the Employers on account of his failure
to take a paid vacation.
8. TERMINATION OF EMPLOYMENT.
(a) (i) The Employers may terminate the Executive's employment
at any time, but any termination by the Employers during the Employment Term
other than termination for Cause (as defined below) shall not prejudice the
Executive's right to compensation or other benefits under this Agreement.
(ii) The Executive shall have no right to receive
compensation or other benefits for any period after termination for Cause.
"Cause" shall mean the
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<PAGE> 4
Executive's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform
material stated duties, willful violation of any law, rule, or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the financial institutions industry; provided,
it shall be the burden of the Employers to prove the alleged acts and omissions
and the prevailing nature of the standards the Employers shall have alleged are
violated by such acts and/or omissions.
(iii) The parties acknowledge and agree that damages that
will result to the Executive for termination without cause shall be extremely
difficult or impossible to establish or prove, and agree that, unless the
termination is for cause, the Employers shall be obligated, concurrently with
such termination, to make a lump sum cash payment to the Executive as liquidated
damages of an amount equal to three times the sum of (A) the Executive's then
current annual base salary under Section 2 of this Agreement and (B) the amount
of any bonuses that were payable to the Executive during the 12 months preceding
the termination (including bonuses that were earned during such period but the
payment of which was deferred to a later period). The Executive agrees that,
except for such other payments and benefits to which the Executive may be
entitled as expressly provided by the terms of this Agreement, such liquidated
damages shall be in lieu of all other claims which Executive may make by reason
of such termination. Such payment to the Executive shall be made on or before
the Executive's last day of employment with the Employers. The liquidated
damages amount shall not be reduced by any compensation which the Executive may
receive for other employment with another employer after termination of his
employment with the Employers.
(iv) In addition to the liquidated damages above described
that are payable to the Executive for termination without cause, in the event of
any such termination:
(1) concurrently with such termination, the Employers
shall pay to the Executive an amount equal to the excess of (A) the actuarial
equivalent (utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Bank's qualified defined benefit pension plan
before such termination) of the employer-provided benefits under the qualified
pension, 401(k), profit sharing, stock bonus and employee stock ownership plans
of Troy Financial and the Bank (the "Qualified Plans"), the Troy Savings Bank
Supplemental Executive Retirement Plan (including benefits determined by
reference to the Qualified Plans) and any other excess or supplemental
retirement plan in which the Executive participates (together, the "SERP") that
the Executive would have received if the Executive's employment had continued
for a period of three years after such termination (assuming for this purpose
that all accrued benefits are fully
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<PAGE> 5
vested, that the Executive's compensation in each of the three years is
one-third of the amount of the liquidated damages payable under Section
8(a)(iii) hereof and that the Executive makes the maximum allowable pre-tax
contributions under the Qualified Plans), over (B) the actuarial equivalent
(using such actuarial assumptions) of the Executive's actual employer-provided
benefits (paid or payable), if any, under the Qualified Plans and the SERP as of
the date of such termination;
(2) for three years after such termination, or such
longer period as may be provided by the terms of the appropriate plan, the
Employers shall continue in effect all medical, prescription, dental,
disability, employee life, group life and accidental death insurance and other
employee welfare plans for the benefit of the Executive and, if applicable, the
Executive's family, which would have been provided to them in accordance with
Section 4 of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time after such termination with respect to executives of the Employers and
their families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, prescription or dental
benefits under another employer provided plan, the medical prescription and
dental benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, the Executive shall be
considered to have remained employed until three years after such termination
and to have retired on the last day of such period;
(3) except as otherwise required by applicable
federal or state banking regulations with respect to accelerated vesting of
options and restricted stock following the conversion of the Bank from mutual to
stock form of organization and the formation of Troy Financial, as of the time
of such termination of employment, the Executive shall be fully vested in all
stock options, restricted stock, deferred compensation and other employee
benefits that would otherwise be forfeited as a result of such termination of
employment (except that vesting under any qualified pension or retirement plan
shall be only in accordance with the terms of such plan);
(4) the Employers shall, at their sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(5) the Employers shall continue in effect for the
benefit of the Executive all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the Employers that were in
effect on the date of such termination with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not
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<PAGE> 6
occurred, and until the final expiration or running of all periods of limitation
against action that may be applicable to such acts or omissions.
(v) If the Executive terminates his employment with the
Employers during the Employment Term for "Good Reason," such termination shall
be deemed to have been a termination by the Employers of the Executive's
employment without cause. "Good Reason" shall mean:
(1) the assignment to the Executive by the Employers
(or either of them) of duties materially inconsistent with the Executive's
position, duties, responsibilities, and status with the Employers, a material
adverse change in the Executive's titles or offices, any removal of the
Executive from or any failure to reelect the Executive to any of such positions,
except in connection with the termination of his employment for Cause, or any
action that would have a material adverse effect on the physical conditions in
which the Executive performs his employment duties;
(2) a reduction by the Employers in the Executive's
base salary as in effect on the date hereof or as the same may be increased from
time to time during the Employment Term;
(3) the taking of any action by the Employers that
would materially adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any employee benefit plan or deprive the
Executive of any material fringe benefit enjoyed by the Executive;
(4) any requirement that the Executive relocate to
any place more than 50 miles away from the Bank's Troy, New York location, or
outside the State of New York, to perform his duties hereunder, except for
reasonably required travel by the Executive on the business of the Employers;
(5) any other action or inaction that constitutes a
material breach by the Employers or either of them of this Agreement;
(6) any failure by the Employers to obtain the
assumption of this Agreement by any acquirors, successors or assigns of the
Employers; or
(7) any failure by the Employers to have renewed this
Agreement pursuant to Section 5 hereof such that the remaining Employment Term
shall at any time be less than two years.
(b) The Executive shall have no right to terminate his
employment under this Agreement before the end of the Employment Term, unless
(i) such termination is approved by the Boards or (ii) such termination is with
"Good Reason" as defined above. In the event that the Executive violates this
provision,
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<PAGE> 7
the Employers shall be entitled, in addition to their other legal remedies, to
enjoin the employment of the Executive with any significant competitor of the
Employers (or either of them) for a period of one year or the then remaining
Employment Term plus six months, whichever is less. The term "significant
competitor" shall mean any commercial bank, savings bank, savings and loan
association, mortgage banking company or a holding company affiliate of any of
the foregoing which, at the date of its employment of the Executive, has an
office out of which the Executive would be primarily based that is located
within 35 miles of the Bank's home office. If any court or other tribunal having
jurisdiction to determine the validity or enforceability of this paragraph
determines that, strictly applied, it would be invalid or unenforceable, the
definition of "significant competitor" and the time provisions used shall be
deemed modified to the extent necessary (but only to that extent) so that the
restrictions in that subsection, as modified, will be valid and enforceable.
(c) In the event the employment of the Executive is
terminated by the Employers without Cause under Section 8(a) hereof and the
Employers fail to make timely payment of the amounts then owed to the Executive
under this Agreement, the Executive shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred by the Executive in taking
action to collect such amounts or otherwise to enforce this Agreement, plus
interest on such amounts at the rate of one percent above the prime rate
(defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by The Wall Street Journal), compounded monthly,
for the period from the date of employment termination until payment is made to
the Executive. Such reimbursement and interest shall be in addition to all
rights which the Executive is otherwise entitled to under this Agreement.
(d) In the event of the Executive's death during the
Employment Term, his estate shall be entitled to receive his salary for the
remaining Employment Term or six months, whichever is less. This Agreement shall
thereupon terminate, except that any vested rights of the Executive shall then
be exercised by his estate.
(e) In the event the Executive becomes disabled during the
Employment Term under circumstances that would entitle him to benefits under the
Bank's long-term disability plan and, as a result of such disability, he is
unable to perform his duties hereunder for an uninterrupted period of more than
six months, the Employers may terminate the Executive's employment without
liability under Section 8(a) hereof and this Agreement shall thereupon
terminate. Any such termination shall not affect the Executive's rights to
benefits pursuant to any applicable long-term disability plan of the Employers.
(f) Notwithstanding any other provision in this Agreement,
(i) the Employers may terminate or suspend this Agreement and the employment of
the
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Executive hereunder, as if such termination were for Cause under Section 8(a)
hereof, to the extent required by the applicable laws of the State of New York
related to banking, by applicable federal law relating to deposit insurance or
bank holding companies or by regulations or orders issued by the New York State
Banking Department, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation or other state or federal banking
regulatory agency having jurisdiction over Troy Financial or the Bank and (ii)
no payment shall be required to be made to or for the benefit of the Executive
under this Agreement to the extent such payment is prohibited by applicable law,
regulation or order issued by a banking agency or a court of competent
jurisdiction; provided, that it shall be the Employers' burden to prove that any
such action was so required.
9. CERTAIN ADDITIONAL PAYMENTS BY THE EMPLOYERS.
(a) Except as set forth below, in the event it shall be
determined that any payment or distribution by or for the account of the
Employers to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
collectively, the "Excise Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of the Excise Tax and all other taxes (including,
without limitation, income taxes) that are imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive,
the Payments, in the aggregate, made to the Executive shall not exceed the
Reduced Amount, and the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits that should be reduced or
eliminated to satisfy such requirement.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by
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KPMG LLP or such other certified public accounting firm as may be designated
by the Executive and shall be reasonably acceptable to the Employers (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Employers and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Employers. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting a change in
the ownership or effective control (as defined for purposes of Section 280G of
the Code) of the Employers, the Executive shall appoint another nationally
recognized accounting firm which is reasonably acceptable to the Employers to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Employers. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Employers to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Employers and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that additional Gross-Up
Payments shall be required to be made to compensate the Executive for amounts of
Excise Tax later determined to be due, consistent with the calculations required
to be made hereunder (an "Underpayment"). In the event that the Employers
exhaust their remedies pursuant to Section 9(c) and the Executive is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Employers to or for the benefit of the Executive.
(c) The Executive shall notify the Employers in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employers of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the Employers
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Employers
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Employers notify the Executive in writing
prior to the expiration of such period that they desire to contest such claim,
the Executive shall:
(i) give the Employers any information reasonably
requested by the Employers relating to such claim,
(ii) take such action in connection with contesting such
claim as the Employers shall reasonably request in writing from time to time,
including,
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without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Employers,
(iii) cooperate with the Employers in good faith in order
effectively to contest such claim, and
(iv) permit the Employers to participate in any
proceedings relating to such claim; provided, however, that the Employers shall
bear and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
Without limiting the foregoing provisions of this Section 9(c), the Employers
shall control all proceedings taken in connection with such contest and, at
their sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at their sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Employers shall determine; provided, however, that if
the Employers direct the Executive to pay such claim and sue for a refund, the
Employers shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that the Executive shall not be required to consent to any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
unless such extension is limited solely to such contested amount. Furthermore,
the Employers' control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Employers' complying with the material requirements of Section
9(c)) promptly pay to the Employers the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Employers pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with
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<PAGE> 11
respect to such claim and the Employers do not notify the Executive in writing
of their intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the information,
observations and data obtained by the Executive concerning the business and
affairs of the Employers during the course of the Executive's employment are the
property of the Employers, including information concerning acquisition
opportunities in or reasonably related to the business or industry of the
Employers of which the Executive becomes aware during such period. Therefore,
the Executive agrees that he will not at any time (whether during or after the
Employment Term) disclose to any unauthorized person or, directly or indirectly,
use for the Executive's own account, any of such information, observations or
data without the consent of the Boards, unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a direct or indirect result of the Executive's acts or
omissions to act or the acts or omissions to act of other employees of the
Employers. The Executive agrees to deliver to the Employers at the termination
of the Executive's employment, or at any other time the Employers may request in
writing (whether during or after the Employment Term), all memoranda, notes,
plans, records, reports and other documents, regardless of the format or media
(and copies thereof), relating to the business of the Employers and their
predecessors (including, without limitation, all acquisition prospects, lists
and contact information) which the Executive may then possess or have under the
Executive's control.
(b) The Executive acknowledges that the restrictions contained
in this Section 10 hereof are reasonable and necessary, in view of the nature of
the Employers' business, in order to protect the legitimate interests of the
Employers, and that any violation thereof would result in irreparable injury to
the Employers. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 10(a) hereof,
the Employers shall be entitled to obtain from any court of competent
jurisdiction, preliminary or permanent injunctive relief restraining the
Executive from disclosing or using any such confidential information. Nothing
herein shall be construed as prohibiting the Employers from pursuing any other
remedies available to them for such breach or threatened breach, including,
without limitation, recovery of damages from the Executive.
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<PAGE> 12
11. MISCELLANEOUS.
(a) No Assignment. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any of his or its rights or
obligations hereunder without first obtaining the written consent of the other
party hereto. However, in the event of the death of the Executive, all of his
rights to receive payments hereunder shall become rights of his estate as
provided in Section 8(d) hereof.
(b) Other Contracts. The Executive shall not, during the
Employment Term, have any other paid employment other than with a subsidiary or
affiliate of the Employers, except with the prior written approval of the
Boards.
(c) Amendments or Additions; Action by Boards. No amendments
or additions to this Agreement shall be binding unless in writing and signed by
all parties hereto. The prior approval by a majority affirmative vote of the
Boards shall be required in order for the Employers to authorize any amendments
or additions to this Agreement, to give any consents or waivers of provisions of
this Agreement, or to take any other action under this Agreement including any
termination of employment with or without Cause under Section 8(a) hereof.
(d) Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
(e) Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
(f) Governing Law. This Agreement shall be governed by the
laws of the United States, where applicable, and otherwise by the laws of the
State of New York other than the choice of law rules thereof.
(g) Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed, if to the
Employers:
THE TROY SAVINGS BANK
32 Second Street
Troy, New York 12180
Attention: Chairman of the Board of Directors
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<PAGE> 13
or if to the Executive: Daniel J. Hogarty, Jr.
32 Second Street
Troy, New York 12180
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
(h) Counterparts. This Agreement may be executed in several
counterparts, for the convenience of the parties, but shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the date and year first above written.
Attest: THE TROY SAVINGS BANK
By
- ------------------------------------ ----------------------------------
----------------------------------
Attest: TROY FINANCIAL CORPORATION
By
- ------------------------------------ ----------------------------------
----------------------------------
------------------------------------
Daniel J. Hogarty, Jr.
Executive
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<PAGE> 14
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this ____ day of ______________, 1999, by and
among THE TROY SAVINGS BANK, a New York-chartered capital stock savings bank
having its principal place of business in Troy, New York (the "Bank"), TROY
FINANCIAL CORPORATION, a Delaware corporation owning all of the issued and
outstanding shares of capital stock of the Bank ("Troy Financial") (the Bank and
Troy Financial, collectively, the "Employers"), and Michael C. Mahar, an
individual residing in _________, New York (the "Executive").
WHEREAS, the Employers and the Executive desire that the Executive be
employed as Senior Vice President of the Employers;
WHEREAS, the Boards of Directors of the Employers (collectively, the
"Boards"), have approved and authorized the Employers to enter into this
Agreement with the Executive;
WHEREAS, the parties desire to enter into this Agreement, setting forth
the terms and conditions for the employment relationship of the Executive with
the Employers:
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Executive is employed as Senior Vice President
of the Employers during the Employment Term (as defined in Section 5 below). As
the Senior Vice President of the Employers, the Executive shall render
executive, policy and other management services to the Employers of the type
customarily performed by persons serving in a similar officer capacity and shall
report to the Chief Executive Officer(s) of the Employers, except as such Chief
Executive Officer shall otherwise determine. The Executive shall also perform
such duties as the Chief Executive Officer(s) of the Employers or the Boards may
from time to time reasonably direct. During the Employment Term, there shall be
no material decrease in the duties and responsibilities of the Executive
otherwise than as provided herein, unless the parties otherwise agree in
writing. During the Employment Term, the Executive shall not be required to
relocate his place of employment to a location more than 50 miles away from the
Bank's Troy, New York location, or outside the State of New York, to perform his
duties hereunder, except for reasonably required travel by the Executive on the
business of the Employers.
2. COMPENSATION.
(a) The Employers agree to pay the Executive during the
Employment Term a salary at an initial annual rate of $100,000. The Executive's
salary shall be reviewed by the Boards prior to October 1, 1999, and thereafter
on an annual basis prior to October 1 of each year (or such date as from time to
time is
<PAGE> 15
the date used by the Employers for review of executive compensation)
during the Employment Term. In so reviewing the Executive's salary, the Boards
shall consider increases in the amount of the Executive's salary for increases
in the cost of living for Rensselaer County, New York, and based upon the
Executive's performance and scope of responsibility.
(b) The salary of the Executive shall not be decreased at any
time during the Employment Term from the amount then in effect, unless the
Executive otherwise agrees in writing. Participation in deferred compensation,
discretionary bonus, retirement and other employee benefit plans and in fringe
benefits, other than salary reduction programs in which the Executive elects to
participate, shall not reduce the salary payable to the Executive under this
Section 2. The salary under this Section 2 shall be payable to the Executive not
less frequently than monthly. The Executive shall not be entitled to receive
fees for serving as a director of the Employers or any of their subsidiaries or
for serving as a member of any committee of the Boards of Directors of the
Employers or any of their subsidiaries.
3. DISCRETIONARY BONUSES; BUSINESS EXPENSES.
(a) During the Employment Term, the Executive shall be
entitled to participate in an equitable manner with all other executive
employees of the Employers in such discretionary bonuses as may be authorized,
declared and paid by the Boards to executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the Executive's
right to participate in such bonuses when and as declared by the Boards. This
provision shall not preclude the grant of any other bonus to the Executive as
determined by the Boards.
(b) The Executive is expected and is authorized to incur
reasonable expenses in the performance of his duties hereunder, including the
costs of business entertainment, travel, and attendance at conventions and
meetings. The Employers shall reimburse the Executive for all such expenses
promptly upon periodic presentation by the Executive of an itemized account of
such expenses. The Employers shall provide the Executive with the use of an
automobile for business purposes or, at his election, shall pay the Executive an
automobile allowance for the business use of his personal vehicle.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE
BENEFITS. During the Employment Term, the Executive shall be entitled to
participate in any incentive, bonus, management recognition, equity
compensation, retirement, deferred compensation, fringe benefit or welfare
benefit plan of the Employers, including any plan providing for stock options,
restricted stock, employee stock purchases, pension or retirement income,
retirement savings, employee stock ownership, deferred compensation or medical,
prescription, dental, disability, employee life, group life, accidental death or
travel accident insurance
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<PAGE> 16
that the Employers may adopt for the benefit of executive employees, in
accordance with the terms of such plans.
5. TERM. The initial term of employment under this Agreement
shall be for a three-year period commencing on the date of this Agreement (the
"Initial Term"). Subject to annual review and approval by the Boards, this
Agreement may be extended by written notice from the Employers to the Employee
for an additional consecutive 12-month period (the "Extended Term") as of the
first anniversary of the date of this Agreement and every subsequent anniversary
of the date of this Agreement thereafter, unless the Executive has given
contrary written notice to the Employers at least three months before any such
renewal date. The Initial Term and all such Extended Terms are collectively
referred to herein as the "Employment Term."
6. STANDARDS. The Executive shall perform his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the Boards. The
reasonableness of such standards shall be measured against standards for
executive performance generally prevailing in the financial institutions
industry.
7. VOLUNTARY ABSENCES; VACATIONS. The Executive shall be
entitled, without loss of pay, to absent himself voluntarily for reasonable
periods of time from the performance of his duties and responsibilities under
this Agreement. All such voluntary absences shall count as paid vacation time,
unless the Boards otherwise approve. The Executive shall be entitled to an
annual paid vacation of ______ weeks per year or such longer period as the
Boards may approve. The timing of paid vacations shall be scheduled in a
reasonable manner by the Executive. The Executive shall not be entitled to
receive any additional compensation from the Employers on account of his failure
to take a paid vacation.
8. TERMINATION OF EMPLOYMENT.
(a) (i) The Employers may terminate the Executive's employment
at any time, but any termination by the Employers during the Employment Term
other than termination for Cause (as defined below) shall not prejudice the
Executive's right to compensation or other benefits under this Agreement.
(ii) The Executive shall have no right to receive
compensation or other benefits for any period after termination for Cause.
"Cause" shall mean the Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform material stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order. In determining incompetence, the acts or omissions shall
be measured against standards generally
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<PAGE> 17
prevailing in the financial institutions industry; provided, it shall be the
burden of the Employers to prove the alleged acts and omissions and the
prevailing nature of the standards the Employers shall have alleged are violated
by such acts and/or omissions.
(iii) The parties acknowledge and agree that damages that
will result to the Executive for termination without cause shall be extremely
difficult or impossible to establish or prove, and agree that, unless the
termination is for cause, the Employers shall be obligated, concurrently with
such termination, to make a lump sum cash payment to the Executive as liquidated
damages of an amount equal to three times the sum of (A) the Executive's then
current annual base salary under Section 2 of this Agreement and (B) the amount
of any bonuses that were payable to the Executive during the 12 months preceding
the termination (including bonuses that were earned during such period but the
payment of which was deferred to a later period). The Executive agrees that,
except for such other payments and benefits to which the Executive may be
entitled as expressly provided by the terms of this Agreement, such liquidated
damages shall be in lieu of all other claims which Executive may make by reason
of such termination. Such payment to the Executive shall be made on or before
the Executive's last day of employment with the Employers. The liquidated
damages amount shall not be reduced by any compensation which the Executive may
receive for other employment with another employer after termination of his
employment with the Employers.
(iv) In addition to the liquidated damages above described
that are payable to the Executive for termination without cause, in the event of
any such termination:
(1) concurrently with such termination, the Employers
shall pay to the Executive an amount equal to the excess of (A) the actuarial
equivalent (utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Bank's qualified defined benefit pension plan
before such termination) of the employer-provided benefits under the qualified
pension, 401(k), profit sharing, stock bonus and employee stock ownership plans
of Troy Financial and the Bank (the "Qualified Plans"), the Troy Savings Bank
Supplemental Executive Retirement Plan (including benefits determined by
reference to the Qualified Plans) and any other excess or supplemental
retirement plan in which the Executive participates (together, the "SERP") that
the Executive would have received if the Executive's employment had continued
for a period of three years after such termination (assuming for this purpose
that all accrued benefits are fully vested, that the Executive's compensation in
each of the three years is one-third of the amount of the liquidated damages
payable under Section 8(a)(iii) hereof and that the Executive makes the maximum
allowable pre-tax contributions under the Qualified Plans), over (B) the
actuarial equivalent (using such actuarial
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<PAGE> 18
assumptions) of the Executive's actual employer-provided benefits (paid or
payable), if any, under the Qualified Plans and the SERP as of the date of such
termination;
(2) for three years after such termination, or such
longer period as may be provided by the terms of the appropriate plan, the
Employers shall continue in effect all medical, prescription, dental,
disability, employee life, group life and accidental death insurance and other
employee welfare plans for the benefit of the Executive and, if applicable, the
Executive's family, which would have been provided to them in accordance with
Section 4 of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time after such termination with respect to executives of the Employers and
their families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, prescription or dental
benefits under another employer provided plan, the medical prescription and
dental benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, the Executive shall be
considered to have remained employed until three years after such termination
and to have retired on the last day of such period;
(3) except as otherwise required by applicable
federal or state banking regulations with respect to accelerated vesting of
options and restricted stock following the conversion of the Bank from mutual to
stock form of organization and the formation of Troy Financial, as of the time
of such termination of employment, the Executive shall be fully vested in all
stock options, restricted stock, deferred compensation and other employee
benefits that would otherwise be forfeited as a result of such termination of
employment (except that vesting under any qualified pension or retirement plan
shall be only in accordance with the terms of such plan);
(4) the Employers shall, at their sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(5) the Employers shall continue in effect for the
benefit of the Executive all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the Employers that were in
effect on the date of such termination with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against action that may be applicable to such acts or
omissions.
(v) If the Executive terminates his employment with the
Employers during the Employment Term for "Good Reason," such termination shall
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<PAGE> 19
be deemed to have been a termination by the Employers of the Executive's
employment without cause. "Good Reason" shall mean:
(1) the assignment to the Executive by the Employers
(or either of them) of duties materially inconsistent with the Executive's
position, duties, responsibilities, and status with the Employers, a material
adverse change in the Executive's titles or offices, any removal of the
Executive from or any failure to reelect the Executive to any of such positions,
except in connection with the termination of his employment for Cause, or any
action that would have a material adverse effect on the physical conditions in
which the Executive performs his employment duties;
(2) a reduction by the Employers in the Executive's
base salary as in effect on the date hereof or as the same may be increased from
time to time during the Employment Term;
(3) the taking of any action by the Employers that
would materially adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any employee benefit plan or deprive the
Executive of any material fringe benefit enjoyed by the Executive;
(4) any requirement that the Executive relocate to
any place more than 50 miles away from the Bank's Troy, New York location, or
outside the State of New York, to perform his duties hereunder, except for
reasonably required travel by the Executive on the business of the Employers;
(5) any other action or inaction that constitutes a
material breach by the Employers or either of them of this Agreement;
(6) any failure by the Employers to obtain the
assumption of this Agreement by any acquirors, successors or assigns of the
Employers; or
(7) any failure by the Employers to have renewed this
Agreement pursuant to Section 5 hereof such that the remaining Employment Term
shall at any time be less than two years.
(b) The Executive shall have no right to terminate his
employment under this Agreement before the end of the Employment Term, unless
(i) such termination is approved by the Boards or (ii) such termination is with
"Good Reason" as defined above. In the event that the Executive violates this
provision, the Employers shall be entitled, in addition to their other legal
remedies, to enjoin the employment of the Executive with any significant
competitor of the Employers (or either of them) for a period of one year or the
then remaining Employment Term plus six months, whichever is less. The term
"significant competitor" shall mean any commercial bank, savings bank, savings
and loan association, mortgage
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<PAGE> 20
banking company or a holding company affiliate of any of the foregoing which, at
the date of its employment of the Executive, has an office out of which the
Executive would be primarily based that is located within 35 miles of the Bank's
home office. If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this paragraph determines that, strictly applied,
it would be invalid or unenforceable, the definition of "significant competitor"
and the time provisions used shall be deemed modified to the extent necessary
(but only to that extent) so that the restrictions in that subsection, as
modified, will be valid and enforceable.
(c) In the event the employment of the Executive is terminated
by the Employers without Cause under Section 8(a) hereof and the Employers fail
to make timely payment of the amounts then owed to the Executive under this
Agreement, the Executive shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred by the Executive in taking action to
collect such amounts or otherwise to enforce this Agreement, plus interest on
such amounts at the rate of one percent above the prime rate (defined as the
base rate on corporate loans at large U.S. money center commercial banks as
published by The Wall Street Journal), compounded monthly, for the period from
the date of employment termination until payment is made to the Executive. Such
reimbursement and interest shall be in addition to all rights which the
Executive is otherwise entitled to under this Agreement.
(d) In the event of the Executive's death during the
Employment Term, his estate shall be entitled to receive his salary for the
remaining Employment Term or six months, whichever is less. This Agreement shall
thereupon terminate, except that any vested rights of the Executive shall then
be exercised by his estate.
(e) In the event the Executive becomes disabled during the
Employment Term under circumstances that would entitle him to benefits under the
Bank's long-term disability plan and, as a result of such disability, he is
unable to perform his duties hereunder for an uninterrupted period of more than
six months, the Employers may terminate the Executive's employment without
liability under Section 8(a) hereof and this Agreement shall thereupon
terminate. Any such termination shall not affect the Executive's rights to
benefits pursuant to any applicable long-term disability plan of the Employers.
(f) Notwithstanding any other provision in this Agreement, (i)
the Employers may terminate or suspend this Agreement and the employment of the
Executive hereunder, as if such termination were for Cause under Section 8(a)
hereof, to the extent required by the applicable laws of the State of New York
related to banking, by applicable federal law relating to deposit insurance or
bank holding companies or by regulations or orders issued by the New York State
Banking Department, the Board of Governors of the Federal Reserve System, the
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<PAGE> 21
Federal Deposit Insurance Corporation or other state or federal banking
regulatory agency having jurisdiction over Troy Financial or the Bank and (ii)
no payment shall be required to be made to or for the benefit of the Executive
under this Agreement to the extent such payment is prohibited by applicable law,
regulation or order issued by a banking agency or a court of competent
jurisdiction; provided, that it shall be the Employers' burden to prove that any
such action was so required.
9. CERTAIN ADDITIONAL PAYMENTS BY THE EMPLOYERS.
(a) Except as set forth below, in the event it shall be
determined that any payment or distribution by or for the account of the
Employers to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
collectively, the "Excise Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of the Excise Tax and all other taxes (including,
without limitation, income taxes) that are imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive,
the Payments, in the aggregate, made to the Executive shall not exceed the
Reduced Amount, and the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits that should be reduced or
eliminated to satisfy such requirement.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG LLP or such other certified public accounting firm as may be designated
by the Executive and shall be reasonably acceptable to the Employers (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Employers and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by
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<PAGE> 22
the Employers. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting a change in the ownership
or effective control (as defined for purposes of Section 280G of the Code) of
the Employers, the Executive shall appoint another nationally recognized
accounting firm which is reasonably acceptable to the Employers to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Employers. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Employers to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Employers and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that additional Gross-Up Payments shall be required to
be made to compensate the Executive for amounts of Excise Tax later determined
to be due, consistent with the calculations required to be made hereunder (an
"Underpayment"). In the event that the Employers exhaust their remedies pursuant
to Section 9(c) and the Executive is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Employers to or
for the benefit of the Executive.
(c) The Executive shall notify the Employers in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employers of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the Employers
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Employers
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Employers notify the Executive in writing
prior to the expiration of such period that they desire to contest such claim,
the Executive shall:
(i) give the Employers any information reasonably
requested by the Employers relating to such claim,
(ii) take such action in connection with contesting
such claim as the Employers shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Employers,
(iii) cooperate with the Employers in good faith in
order effectively to contest such claim, and
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<PAGE> 23
(iv) permit the Employers to participate in any
proceedings relating to such claim; provided, however, that the Employers shall
bear and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
Without limiting the foregoing provisions of this Section 9(c), the Employers
shall control all proceedings taken in connection with such contest and, at
their sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at their sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Employers shall determine; provided, however, that if
the Employers direct the Executive to pay such claim and sue for a refund, the
Employers shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that the Executive shall not be required to consent to any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
unless such extension is limited solely to such contested amount. Furthermore,
the Employers' control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Employers' complying with the material requirements of Section
9(c)) promptly pay to the Employers the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Employers pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Employers do not notify the
Executive in writing of their intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
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<PAGE> 24
10. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the information,
observations and data obtained by the Executive concerning the business and
affairs of the Employers during the course of the Executive's employment are the
property of the Employers, including information concerning acquisition
opportunities in or reasonably related to the business or industry of the
Employers of which the Executive becomes aware during such period. Therefore,
the Executive agrees that he will not at any time (whether during or after the
Employment Term) disclose to any unauthorized person or, directly or indirectly,
use for the Executive's own account, any of such information, observations or
data without the consent of the Boards, unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a direct or indirect result of the Executive's acts or
omissions to act or the acts or omissions to act of other employees of the
Employers. The Executive agrees to deliver to the Employers at the termination
of the Executive's employment, or at any other time the Employers may request in
writing (whether during or after the Employment Term), all memoranda, notes,
plans, records, reports and other documents, regardless of the format or media
(and copies thereof), relating to the business of the Employers and their
predecessors (including, without limitation, all acquisition prospects, lists
and contact information) which the Executive may then possess or have under the
Executive's control.
(b) The Executive acknowledges that the restrictions contained
in this Section 10 hereof are reasonable and necessary, in view of the nature of
the Employers' business, in order to protect the legitimate interests of the
Employers, and that any violation thereof would result in irreparable injury to
the Employers. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 10(a) hereof,
the Employers shall be entitled to obtain from any court of competent
jurisdiction, preliminary or permanent injunctive relief restraining the
Executive from disclosing or using any such confidential information. Nothing
herein shall be construed as prohibiting the Employers from pursuing any other
remedies available to them for such breach or threatened breach, including,
without limitation, recovery of damages from the Executive.
11. MISCELLANEOUS.
(a) No Assignment. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any of his or its rights or
obligations hereunder without first obtaining the written consent of the other
party hereto. However, in the event of the death of the Executive, all of his
rights to receive payments hereunder shall become rights of his estate as
provided in Section 8(d) hereof.
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<PAGE> 25
(b) Other Contracts. The Executive shall not, during the
Employment Term, have any other paid employment other than with a subsidiary or
affiliate of the Employers, except with the prior written approval of the
Boards.
(c) Amendments or Additions; Action by Boards. No amendments
or additions to this Agreement shall be binding unless in writing and signed by
all parties hereto. The prior approval by a majority affirmative vote of the
Boards shall be required in order for the Employers to authorize any amendments
or additions to this Agreement, to give any consents or waivers of provisions of
this Agreement, or to take any other action under this Agreement including any
termination of employment with or without Cause under Section 8(a) hereof.
(d) Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
(e) Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
(f) Governing Law. This Agreement shall be governed by the
laws of the United States, where applicable, and otherwise by the laws of the
State of New York other than the choice of law rules thereof.
(g) Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed, if to the
Employers:
THE TROY SAVINGS BANK
32 Second Street
Troy, New York 12180
Attention: Chief Executive Officer
or if to the Executive: -------------------------
32 Second Street
Troy, New York 12180
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
(h) Counterparts. This Agreement may be executed in several
counterparts, for the convenience of the parties, but shall constitute one and
the same instrument.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the date and year first above written.
Attest: THE TROY SAVINGS BANK
By
- ------------------------------ -----------------------------------
-----------------------------------
Attest: TROY FINANCIAL CORPORATION
By
- ------------------------------ -----------------------------------
-----------------------------------
-------------------------------------
Michael C. Mahar
Executive
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<PAGE> 27
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this ____ day of ______________, 1999, by and
among THE TROY SAVINGS BANK, a New York-chartered capital stock savings bank
having its principal place of business in Troy, New York (the "Bank"), TROY
FINANCIAL CORPORATION, a Delaware corporation owning all of the issued and
outstanding shares of capital stock of the Bank ("Troy Financial") (the Bank and
Troy Financial, collectively, the "Employers"), and Kevin M. O'Bryan, an
individual residing in _________, New York (the "Executive").
WHEREAS, the Employers and the Executive desire that the Executive be
employed as Senior Vice President of the Employers;
WHEREAS, the Boards of Directors of the Employers (collectively, the
"Boards"), have approved and authorized the Employers to enter into this
Agreement with the Executive;
WHEREAS, the parties desire to enter into this Agreement, setting forth
the terms and conditions for the employment relationship of the Executive with
the Employers:
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Executive is employed as Senior Vice President
of the Employers during the Employment Term (as defined in Section 5 below). As
the Senior Vice President of the Employers, the Executive shall render
executive, policy and other management services to the Employers of the type
customarily performed by persons serving in a similar officer capacity and shall
report to the Chief Executive Officer(s) of the Employers, except as such Chief
Executive Officer shall otherwise determine. The Executive shall also perform
such duties as the Chief Executive Officer(s) of the Employers or the Boards may
from time to time reasonably direct. During the Employment Term, there shall be
no material decrease in the duties and responsibilities of the Executive
otherwise than as provided herein, unless the parties otherwise agree in
writing. During the Employment Term, the Executive shall not be required to
relocate his place of employment to a location more than 50 miles away from the
Bank's Troy, New York location, or outside the State of New York, to perform his
duties hereunder, except for reasonably required travel by the Executive on the
business of the Employers.
2. COMPENSATION.
(a) The Employers agree to pay the Executive during the
Employment Term a salary at an initial annual rate of $160,000. The Executive's
salary shall be reviewed by the Boards prior to October 1, 1999, and thereafter
on an annual basis prior to October 1 of each year (or such date as from time to
time is
<PAGE> 28
the date used by the Employers for review of executive compensation) during the
Employment Term. In so reviewing the Executive's salary, the Boards shall
consider increases in the amount of the Executive's salary for increases in the
cost of living for Rensselaer County, New York, and based upon the Executive's
performance and scope of responsibility.
(b) The salary of the Executive shall not be decreased at any
time during the Employment Term from the amount then in effect, unless the
Executive otherwise agrees in writing. Participation in deferred compensation,
discretionary bonus, retirement and other employee benefit plans and in fringe
benefits, other than salary reduction programs in which the Executive elects to
participate, shall not reduce the salary payable to the Executive under this
Section 2. The salary under this Section 2 shall be payable to the Executive not
less frequently than monthly. The Executive shall not be entitled to receive
fees for serving as a director of the Employers or any of their subsidiaries or
for serving as a member of any committee of the Boards of Directors of the
Employers or any of their subsidiaries.
3. DISCRETIONARY BONUSES; BUSINESS EXPENSES.
(a) During the Employment Term, the Executive shall be
entitled to participate in an equitable manner with all other executive
employees of the Employers in such discretionary bonuses as may be authorized,
declared and paid by the Boards to executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the Executive's
right to participate in such bonuses when and as declared by the Boards. This
provision shall not preclude the grant of any other bonus to the Executive as
determined by the Boards.
(b) The Executive is expected and is authorized to incur
reasonable expenses in the performance of his duties hereunder, including the
costs of business entertainment, travel, and attendance at conventions and
meetings. The Employers shall reimburse the Executive for all such expenses
promptly upon periodic presentation by the Executive of an itemized account of
such expenses. The Employers shall provide the Executive with the use of an
automobile for business purposes or, at his election, shall pay the Executive an
automobile allowance for the business use of his personal vehicle.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE
BENEFITS. During the Employment Term, the Executive shall be entitled to
participate in any incentive, bonus, management recognition, equity
compensation, retirement, deferred compensation, fringe benefit or welfare
benefit plan of the Employers, including any plan providing for stock options,
restricted stock, employee stock purchases, pension or retirement income,
retirement savings, employee stock ownership, deferred compensation or medical,
prescription, dental, disability, employee life, group life, accidental death or
travel accident insurance
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<PAGE> 29
that the Employers may adopt for the benefit of executive employees, in
accordance with the terms of such plans.
5. TERM. The initial term of employment under this Agreement
shall be for a three-year period commencing on the date of this Agreement (the
"Initial Term"). Subject to annual review and approval by the Boards, this
Agreement may be extended by written notice from the Employers to the Employee
for an additional consecutive 12-month period (the "Extended Term") as of the
first anniversary of the date of this Agreement and every subsequent anniversary
of the date of this Agreement thereafter, unless the Executive has given
contrary written notice to the Employers at least three months before any such
renewal date. The Initial Term and all such Extended Terms are collectively
referred to herein as the "Employment Term."
6. STANDARDS. The Executive shall perform his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the Boards. The
reasonableness of such standards shall be measured against standards for
executive performance generally prevailing in the financial institutions
industry.
7. VOLUNTARY ABSENCES; VACATIONS. The Executive shall be
entitled, without loss of pay, to absent himself voluntarily for reasonable
periods of time from the performance of his duties and responsibilities under
this Agreement. All such voluntary absences shall count as paid vacation time,
unless the Boards otherwise approve. The Executive shall be entitled to an
annual paid vacation of ______ weeks per year or such longer period as the
Boards may approve. The timing of paid vacations shall be scheduled in a
reasonable manner by the Executive. The Executive shall not be entitled to
receive any additional compensation from the Employers on account of his failure
to take a paid vacation.
8. TERMINATION OF EMPLOYMENT.
(a) (i) The Employers may terminate the Executive's employment
at any time, but any termination by the Employers during the Employment Term
other than termination for Cause (as defined below) shall not prejudice the
Executive's right to compensation or other benefits under this Agreement.
(ii) The Executive shall have no right to receive
compensation or other benefits for any period after termination for Cause.
"Cause" shall mean the Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform material stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order. In determining incompetence, the acts or omissions shall
be measured against standards generally
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<PAGE> 30
prevailing in the financial institutions industry; provided, it shall be the
burden of the Employers to prove the alleged acts and omissions and the
prevailing nature of the standards the Employers shall have alleged are violated
by such acts and/or omissions.
(iii) The parties acknowledge and agree that damages that
will result to the Executive for termination without cause shall be extremely
difficult or impossible to establish or prove, and agree that, unless the
termination is for cause, the Employers shall be obligated, concurrently with
such termination, to make a lump sum cash payment to the Executive as liquidated
damages of an amount equal to three times the sum of (A) the Executive's then
current annual base salary under Section 2 of this Agreement and (B) the amount
of any bonuses that were payable to the Executive during the 12 months preceding
the termination (including bonuses that were earned during such period but the
payment of which was deferred to a later period). The Executive agrees that,
except for such other payments and benefits to which the Executive may be
entitled as expressly provided by the terms of this Agreement, such liquidated
damages shall be in lieu of all other claims which Executive may make by reason
of such termination. Such payment to the Executive shall be made on or before
the Executive's last day of employment with the Employers. The liquidated
damages amount shall not be reduced by any compensation which the Executive may
receive for other employment with another employer after termination of his
employment with the Employers.
(iv) In addition to the liquidated damages above described
that are payable to the Executive for termination without cause, in the event of
any such termination:
(1) concurrently with such termination, the Employers
shall pay to the Executive an amount equal to the excess of (A) the actuarial
equivalent (utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Bank's qualified defined benefit pension plan
before such termination) of the employer-provided benefits under the qualified
pension, 401(k), profit sharing, stock bonus and employee stock ownership plans
of Troy Financial and the Bank (the "Qualified Plans"), the Troy Savings Bank
Supplemental Executive Retirement Plan (including benefits determined by
reference to the Qualified Plans) and any other excess or supplemental
retirement plan in which the Executive participates (together, the "SERP") that
the Executive would have received if the Executive's employment had continued
for a period of three years after such termination (assuming for this purpose
that all accrued benefits are fully vested, that the Executive's compensation in
each of the three years is one-third of the amount of the liquidated damages
payable under Section 8(a)(iii) hereof and that the Executive makes the maximum
allowable pre-tax contributions under the Qualified Plans), over (B) the
actuarial equivalent (using such actuarial
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<PAGE> 31
assumptions) of the Executive's actual employer-provided benefits (paid or
payable), if any, under the Qualified Plans and the SERP as of the date of such
termination;
(2) for three years after such termination, or such
longer period as may be provided by the terms of the appropriate plan, the
Employers shall continue in effect all medical, prescription, dental,
disability, employee life, group life and accidental death insurance and other
employee welfare plans for the benefit of the Executive and, if applicable, the
Executive's family, which would have been provided to them in accordance with
Section 4 of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time after such termination with respect to executives of the Employers and
their families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, prescription or dental
benefits under another employer provided plan, the medical prescription and
dental benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, the Executive shall be
considered to have remained employed until three years after such termination
and to have retired on the last day of such period;
(3) except as otherwise required by applicable
federal or state banking regulations with respect to accelerated vesting of
options and restricted stock following the conversion of the Bank from mutual to
stock form of organization and the formation of Troy Financial, as of the time
of such termination of employment, the Executive shall be fully vested in all
stock options, restricted stock, deferred compensation and other employee
benefits that would otherwise be forfeited as a result of such termination of
employment (except that vesting under any qualified pension or retirement plan
shall be only in accordance with the terms of such plan);
(4) the Employers shall, at their sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(5) the Employers shall continue in effect for the
benefit of the Executive all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the Employers that were in
effect on the date of such termination with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against action that may be applicable to such acts or
omissions.
(v) If the Executive terminates his employment with the
Employers during the Employment Term for "Good Reason," such termination shall
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<PAGE> 32
be deemed to have been a termination by the Employers of the Executive's
employment without cause. "Good Reason" shall mean:
(1) the assignment to the Executive by the Employers
(or either of them) of duties materially inconsistent with the Executive's
position, duties, responsibilities, and status with the Employers, a material
adverse change in the Executive's titles or offices, any removal of the
Executive from or any failure to reelect the Executive to any of such positions,
except in connection with the termination of his employment for Cause, or any
action that would have a material adverse effect on the physical conditions in
which the Executive performs his employment duties;
(2) a reduction by the Employers in the Executive's
base salary as in effect on the date hereof or as the same may be increased from
time to time during the Employment Term;
(3) the taking of any action by the Employers that
would materially adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any employee benefit plan or deprive the
Executive of any material fringe benefit enjoyed by the Executive;
(4) any requirement that the Executive relocate to
any place more than 50 miles away from the Bank's Troy, New York location, or
outside the State of New York, to perform his duties hereunder, except for
reasonably required travel by the Executive on the business of the Employers;
(5) any other action or inaction that constitutes a
material breach by the Employers or either of them of this Agreement;
(6) any failure by the Employers to obtain the
assumption of this Agreement by any acquirors, successors or assigns of the
Employers; or
(7) any failure by the Employers to have renewed this
Agreement pursuant to Section 5 hereof such that the remaining Employment Term
shall at any time be less than two years.
(b) The Executive shall have no right to terminate his
employment under this Agreement before the end of the Employment Term, unless
(i) such termination is approved by the Boards or (ii) such termination is with
"Good Reason" as defined above. In the event that the Executive violates this
provision, the Employers shall be entitled, in addition to their other legal
remedies, to enjoin the employment of the Executive with any significant
competitor of the Employers (or either of them) for a period of one year or the
then remaining Employment Term plus six months, whichever is less. The term
"significant competitor" shall mean any commercial bank, savings bank, savings
and loan association, mortgage
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<PAGE> 33
banking company or a holding company affiliate of any of the foregoing which, at
the date of its employment of the Executive, has an office out of which the
Executive would be primarily based that is located within 35 miles of the Bank's
home office. If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this paragraph determines that, strictly applied,
it would be invalid or unenforceable, the definition of "significant competitor"
and the time provisions used shall be deemed modified to the extent necessary
(but only to that extent) so that the restrictions in that subsection, as
modified, will be valid and enforceable.
(c) In the event the employment of the Executive is terminated
by the Employers without Cause under Section 8(a) hereof and the Employers fail
to make timely payment of the amounts then owed to the Executive under this
Agreement, the Executive shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred by the Executive in taking action to
collect such amounts or otherwise to enforce this Agreement, plus interest on
such amounts at the rate of one percent above the prime rate (defined as the
base rate on corporate loans at large U.S. money center commercial banks as
published by The Wall Street Journal), compounded monthly, for the period from
the date of employment termination until payment is made to the Executive. Such
reimbursement and interest shall be in addition to all rights which the
Executive is otherwise entitled to under this Agreement.
(d) In the event of the Executive's death during the
Employment Term, his estate shall be entitled to receive his salary for the
remaining Employment Term or six months, whichever is less. This Agreement shall
thereupon terminate, except that any vested rights of the Executive shall then
be exercised by his estate.
(e) In the event the Executive becomes disabled during the
Employment Term under circumstances that would entitle him to benefits under the
Bank's long-term disability plan and, as a result of such disability, he is
unable to perform his duties hereunder for an uninterrupted period of more than
six months, the Employers may terminate the Executive's employment without
liability under Section 8(a) hereof and this Agreement shall thereupon
terminate. Any such termination shall not affect the Executive's rights to
benefits pursuant to any applicable long-term disability plan of the Employers.
(f) Notwithstanding any other provision in this Agreement, (i)
the Employers may terminate or suspend this Agreement and the employment of the
Executive hereunder, as if such termination were for Cause under Section 8(a)
hereof, to the extent required by the applicable laws of the State of New York
related to banking, by applicable federal law relating to deposit insurance or
bank holding companies or by regulations or orders issued by the New York State
Banking Department, the Board of Governors of the Federal Reserve System, the
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<PAGE> 34
Federal Deposit Insurance Corporation or other state or federal banking
regulatory agency having jurisdiction over Troy Financial or the Bank and (ii)
no payment shall be required to be made to or for the benefit of the Executive
under this Agreement to the extent such payment is prohibited by applicable law,
regulation or order issued by a banking agency or a court of competent
jurisdiction; provided, that it shall be the Employers' burden to prove that any
such action was so required.
9. CERTAIN ADDITIONAL PAYMENTS BY THE EMPLOYERS.
(a) Except as set forth below, in the event it shall be
determined that any payment or distribution by or for the account of the
Employers to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
collectively, the "Excise Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of the Excise Tax and all other taxes (including,
without limitation, income taxes) that are imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive,
the Payments, in the aggregate, made to the Executive shall not exceed the
Reduced Amount, and the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits that should be reduced or
eliminated to satisfy such requirement.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG LLP or such other certified public accounting firm as may be designated
by the Executive and shall be reasonably acceptable to the Employers (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Employers and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by
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the Employers. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting a change in the ownership
or effective control (as defined for purposes of Section 280G of the Code) of
the Employers, the Executive shall appoint another nationally recognized
accounting firm which is reasonably acceptable to the Employers to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Employers. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Employers to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Employers and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that additional Gross-Up Payments shall be required to
be made to compensate the Executive for amounts of Excise Tax later determined
to be due, consistent with the calculations required to be made hereunder (an
"Underpayment"). In the event that the Employers exhaust their remedies pursuant
to Section 9(c) and the Executive is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Employers to or
for the benefit of the Executive.
(c) The Executive shall notify the Employers in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employers of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the Employers
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Employers
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Employers notify the Executive in writing
prior to the expiration of such period that they desire to contest such claim,
the Executive shall:
(i) give the Employers any information reasonably
requested by the Employers relating to such claim,
(ii) take such action in connection with contesting
such claim as the Employers shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Employers,
(iii) cooperate with the Employers in good faith in
order effectively to contest such claim, and
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<PAGE> 36
(iv) permit the Employers to participate in any
proceedings relating to such claim; provided, however, that the Employers shall
bear and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
Without limiting the foregoing provisions of this Section 9(c), the Employers
shall control all proceedings taken in connection with such contest and, at
their sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at their sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Employers shall determine; provided, however, that if
the Employers direct the Executive to pay such claim and sue for a refund, the
Employers shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that the Executive shall not be required to consent to any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
unless such extension is limited solely to such contested amount. Furthermore,
the Employers' control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Employers' complying with the material requirements of Section
9(c)) promptly pay to the Employers the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Employers pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Employers do not notify the
Executive in writing of their intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
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<PAGE> 37
10. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the information,
observations and data obtained by the Executive concerning the business and
affairs of the Employers during the course of the Executive's employment are the
property of the Employers, including information concerning acquisition
opportunities in or reasonably related to the business or industry of the
Employers of which the Executive becomes aware during such period. Therefore,
the Executive agrees that he will not at any time (whether during or after the
Employment Term) disclose to any unauthorized person or, directly or indirectly,
use for the Executive's own account, any of such information, observations or
data without the consent of the Boards, unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a direct or indirect result of the Executive's acts or
omissions to act or the acts or omissions to act of other employees of the
Employers. The Executive agrees to deliver to the Employers at the termination
of the Executive's employment, or at any other time the Employers may request in
writing (whether during or after the Employment Term), all memoranda, notes,
plans, records, reports and other documents, regardless of the format or media
(and copies thereof), relating to the business of the Employers and their
predecessors (including, without limitation, all acquisition prospects, lists
and contact information) which the Executive may then possess or have under the
Executive's control.
(b) The Executive acknowledges that the restrictions contained
in this Section 10 hereof are reasonable and necessary, in view of the nature of
the Employers' business, in order to protect the legitimate interests of the
Employers, and that any violation thereof would result in irreparable injury to
the Employers. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of the provisions of Section 10(a) hereof,
the Employers shall be entitled to obtain from any court of competent
jurisdiction, preliminary or permanent injunctive relief restraining the
Executive from disclosing or using any such confidential information. Nothing
herein shall be construed as prohibiting the Employers from pursuing any other
remedies available to them for such breach or threatened breach, including,
without limitation, recovery of damages from the Executive.
11. MISCELLANEOUS.
(a) No Assignment. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any of his or its rights or
obligations hereunder without first obtaining the written consent of the other
party hereto. However, in the event of the death of the Executive, all of his
rights to receive payments hereunder shall become rights of his estate as
provided in Section 8(d) hereof.
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<PAGE> 38
(b) Other Contracts. The Executive shall not, during the
Employment Term, have any other paid employment other than with a subsidiary or
affiliate of the Employers, except with the prior written approval of the
Boards.
(c) Amendments or Additions; Action by Boards. No amendments
or additions to this Agreement shall be binding unless in writing and signed by
all parties hereto. The prior approval by a majority affirmative vote of the
Boards shall be required in order for the Employers to authorize any amendments
or additions to this Agreement, to give any consents or waivers of provisions of
this Agreement, or to take any other action under this Agreement including any
termination of employment with or without Cause under Section 8(a) hereof.
(d) Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
(e) Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
(f) Governing Law. This Agreement shall be governed by the
laws of the United States, where applicable, and otherwise by the laws of the
State of New York other than the choice of law rules thereof.
(g) Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed, if to the
Employers:
THE TROY SAVINGS BANK
32 Second Street
Troy, New York 12180
Attention: Chief Executive Officer
or if to the Executive: -----------------------
32 Second Street
Troy, New York 12180
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
(h) Counterparts. This Agreement may be executed in several
counterparts, for the convenience of the parties, but shall constitute one and
the same instrument.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the date and year first above written.
Attest: THE TROY SAVINGS BANK
By
- ------------------------------- ---------------------------------
---------------------------------
Attest: TROY FINANCIAL CORPORATION
By
- ------------------------------- ---------------------------------
---------------------------------
-----------------------------------
Kevin M. O'Bryan
Executive
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT PROTECTION AGREEMENT
This EMPLOYMENT PROTECTION AGREEMENT (the "Agreement") by and among THE
TROY SAVINGS BANK, a New York-chartered capital stock savings bank having its
principal place of business in Troy, New York (the "Bank"), TROY FINANCIAL
CORPORATION, a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("Troy Financial") (the Bank and Troy
Financial, collectively, the "Employers"), and ___________________________, an
individual residing in __________, New York (the "Employee").
WHEREAS, the Employee is currently serving as the
______________________ of the Bank; and
WHEREAS, the Boards of Directors of the Employers (the "Boards")
believe that it is in the best interests of the Employers to encourage the
Employee's continued employment with and dedication to the Bank in the face of
potentially distracting circumstances arising from the possibility of a change
of control of the Employers, although no such change is now contemplated; and
WHEREAS, the Boards have approved and authorized the entry into this
Agreement with the Employee; and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the payment of special compensation to the Employee
in the event of a termination of the Employee's employment in connection with or
as the result of a change of control of the Employers;
NOW, THEREFORE, it is AGREED as follows:
1. TERM. The initial term of this Agreement shall be for a three-year
period commencing on the date hereof. Subject to annual review and approval by
the Boards, this Agreement may be renewed by written notice to the Employee for
one additional year on the first and each subsequent anniversary date of this
Agreement. References herein to the term of this Agreement shall include the
initial term and any additional years for which this Agreement is renewed.
2. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE OF CONTROL.
(a) If during the term of this Agreement there is a "Change of
Control" (as defined below) and the Employee's employment is terminated,
voluntarily by the Employee with "Good Reason" (as defined below) or
involuntarily
<PAGE> 2
without "Cause" (as defined below), in either case (i) within two years after
such Change of Control, (ii) concurrently therewith or (iii) before and in
connection with such Change of Control (including, without limitation, after
Troy Financial has entered into an agreement or engaged in substantive
negotiations with respect to such Change of Control) then, subject to Sections
2(e) and (f) below, the following shall apply:
(i) Concurrently with such termination of employment, the
Employers shall pay to the Employee a lump sum cash payment equal to two times
the greater of (A) the Employee's base cash compensation from the Bank in effect
immediately before the Change of Control or (B) the annual base cash
compensation paid to the Employee by the Bank during the calendar year preceding
the year in which the Change of Control occurs;
(ii) For two years after such termination, the Employers
shall continue in effect all medical, prescription, dental, disability, employee
life, group life and accidental death insurance and other employee welfare plans
for the benefit of the Employee and, if applicable, the Employee's family, which
would have been provided to them if the Employee's employment had not been
terminated; provided, however, that if the Employee becomes reemployed with
another employer and is eligible to receive medical, prescription or dental
benefits under another employer provided plan, the medical, prescription and
dental benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility; and
(iii) Except as otherwise required by applicable federal or
state banking regulations with respect to accelerated vesting of options and
restricted stock following the conversion of the Bank from mutual to stock form
of organization and the formation of Troy Financial, as of the time of such
termination of employment, the Employee shall be fully vested in all stock
options, restricted stock, deferred compensation and other employee benefits
that would otherwise be forfeited as a result of such termination of employment
(except that vesting under any qualified pension or retirement plan shall be
only in accordance with the terms of such plan).
Payments under this Section 2(a) shall be in lieu of any amount that may be
otherwise owed to the Employee as damages for the loss of employment. Payments
under this Section 2(a) shall not be reduced by any compensation which the
Employee may receive from other employment with another employer after
termination of the Employee's employment with the Bank. No payment hereunder
shall affect the Employee's entitlement to any vested retirement benefits or
other compensation payments.
(b) For purposes of this Agreement, "Good Reason" shall mean a
material reduction in the Employee's position, authority, duties,
responsibilities,
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<PAGE> 3
compensation or perquisites, or a material adverse change in the conditions of
his or her employment or location of employment (in either case) from those that
existed before the Change of Control. To establish that a voluntary termination
was with Good Reason, the Employee shall provide the Employers with a written
notice of resignation setting out the reasons why the Employee believes that
Good Reason exists. Unless the Bank, within 30 days of the date of such notice
of resignation, shall reject the Employee's statement that Good Reason exists,
the Employee shall be conclusively deemed to have voluntarily resigned with Good
Reason. If the Bank rejects the Employee's statement that Good Reason exists,
the Bank shall have the burden of proving that such rejection of the Employee's
statement was proper.
(c) For purposes of this Agreement, "Cause" shall mean the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform material stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the financial institutions industry; provided, it shall
be the burden of the Employers to prove the alleged acts and omissions and the
prevailing nature of the standards the Employers shall have alleged are violated
by such acts and/or omissions.
(d) For purposes of this Agreement, a "Change of Control" shall mean:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of Troy Financial
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of Troy Financial entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (1), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from Troy Financial, (ii) any acquisition by Troy
Financial, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Troy Financial, the Bank or any other corporation
controlled by Troy Financial or (iv) any acquisition by any corporation pursuant
to a transaction that complies with clauses (i), (ii) and (iii) of subsection
(3) of this Section 2(d); or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of Troy Financial (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board of Directors (the "Troy Financial
Board"); provided, however, that any individual becoming a director subsequent
to
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<PAGE> 4
the date hereof whose election, or nomination for election by Troy Financial's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Troy Financial Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Troy Financial (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
Troy Financial or all or substantially all of Troy Financial's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of Troy Financial, the Bank, such corporation resulting from such
Business Combination or a corporation controlled by any of them) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(4) Approval by the shareholders of Troy Financial of a
complete liquidation or dissolution of Troy Financial without the establishment
of a successor corporation.
(e) (1) Notwithstanding any other provision of this Agreement or
of any other agreement, contract, or understanding heretofore or hereafter
entered into by the Employee and the Employers, except an agreement, contract,
or
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<PAGE> 5
understanding hereafter entered into that expressly modifies or excludes
application of this Section 2(e) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Employee (including groups or classes of
participants or beneficiaries of which the Employee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Employee (a "Benefit Plan"), the Employee shall not have any right to
receive any payment or other benefit under this Agreement, any Other Agreement,
or any Benefit Plan if such payment or benefit, taking into account all other
payments or benefits to or for the Employee under this Agreement, all Other
Agreements, and all Benefit Plans, would cause any payment to the Employee under
this Agreement to be considered a "parachute payment" within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (a
"Parachute Payment"). In the event that the receipt of any such payment or
benefit under this Agreement, any Other Agreement, or any Benefit Plan would
cause the Employee to be considered to have received a Parachute Payment under
this Agreement, then the Employee shall have the right, in the Employee's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements, and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Employee under this
Agreement be deemed to be a Parachute Payment.
(2) All determinations required to be made under this
Section 2(e), including whether and when the payments and benefits referred to
in Section 2(e)(1) shall be reduced, shall be made by KPMG LLP or such other
certified public accounting firm as may be designated by the Employee and shall
be reasonably acceptable to the Employers (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Employers and the Employee
within 15 business days of the receipt of notice from the Employee that such a
determination is required, or such earlier time as is requested by the
Employers. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting a change in the ownership
or effective control (as defined for purposes of Section 280G of the Code) of
the Employers, the Employee shall appoint another nationally recognized
accounting firm which is reasonably acceptable to the Employers to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Employers. Any determination by the Accounting
Firm shall be binding upon the Employers and the Employee. As a result of the
uncertainty in the application of Section 280G of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
additional adjustments may be required. The Employee shall promptly repay to the
Employers any amount that is later determined to constitute a Parachute Payment,
with interest at 120% of the applicable federal rate, as defined for purposes of
Section 280G of the Code and all such amounts shall be treated as loans from the
Employers to the Employee.
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<PAGE> 6
(f) Notwithstanding any other provision in this Agreement, (i)
the Employers may terminate or suspend this Agreement and the employment of the
Employee, as if such termination were for Cause, to the extent required by the
applicable laws of the State of New York related to banking, by applicable
federal law relating to deposit insurance or bank holding companies or by
regulations or orders issued by the New York State Banking Department, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation or other state or federal banking regulatory agency having
jurisdiction over Troy Financial or the Bank and (ii) no payment shall be
required to be made to or for the benefit of the Employee under this Agreement
to the extent such payment is prohibited by applicable law, regulation or order
issued by a banking agency or a court of competent jurisdiction; provided, that
it shall be the Employers' burden to prove that any such action was so required.
3. NO ASSIGNMENTS. This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto. However,
in the event of the death of the Employee, all rights to receive payments
hereunder shall become rights of the Employee's estate.
4. AMENDMENTS OR ADDITIONS; ACTION BY BOARD OF DIRECTORS. No amendments
or additions to this Agreement shall be binding unless in writing and signed by
both parties hereto. The prior approval by a majority affirmative vote of the
full Boards shall be required in order for the Employers to authorize any
amendments or additions to this Agreement.
5. SECTION HEADINGS. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
6. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable, and otherwise by the laws of the State
of New York (excluding the choice of law rules thereof).
TROY FINANCIAL CORPORATION
Attest: By:
------------------------------- -------------------------------
(Secretary) (President)
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<PAGE> 7
THE TROY SAVINGS BANK
Attest: By:
------------------------------- -------------------------------
(Secretary) (President)
EMPLOYEE:
----------------------------------
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<PAGE> 1
EXHIBIT 10.3
THE TROY SAVINGS BANK
EMPLOYEE CHANGE OF CONTROL
SEVERANCE PLAN
PLAN PURPOSE
The purpose of The Troy Savings Bank Employee Change of
Control Severance Plan (the "Plan") is to assure for The Troy Savings Bank (the
"Bank") the services of employees of the Bank and its affiliates in the event of
a Change of Control (as defined in section 2.1). In adopting the Plan, the Bank
recognizes that the prospect of a Change of Control may create uncertainties for
employees with respect to their future employment opportunities, compensation,
benefits, conditions and location of employment, supervision and management,
among other matters, that may distract them from their work or cause them to
seek other employment. Because of the value of their services and the importance
of their contributions to the success and profitability of the Bank, the Bank
believes that it is desirable to adopt the Plan to provide eligible full-time
employees with additional security to reduce the distractions and other adverse
effects on employees' performance and morale in the event of a Change of
Control.. The Bank further believes that the Plan will aid the Bank in
attracting and retaining highly qualified individuals who are essential to its
success.
For the foregoing reasons, the Board of Directors of the Bank
has determined that it is desirable and in the best interests of the Bank to
provide eligible full-time employees who have completed a minimum of one year of
service with a severance benefit under the Plan, in the event that their
employment is terminated under specified circumstances because of a Change of
Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan. As of the Effective Date, as
defined below, the Bank establishes an employee severance compensation plan to
be known as "The Troy Savings Bank Employee Change of Control Severance Plan."
1.2 Applicability of Plan. The benefits provided by this Plan
shall be available to all full-time employees, who, at or after the Effective
Date, meet the eligibility requirements of Article III, excluding executive
officers who have entered into, or who enter into in the future, and continue to
be parties to an employment or employment protection agreement with the
Employer.
<PAGE> 2
1.3 Contractual Right to Benefits. This Plan establishes and
vests in each Participant a contractual right to the benefits to which each
Participant is entitled hereunder, enforceable by the Participant against the
Employer and the Bank.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Whenever used in the Plan, the following
terms shall have the meanings set forth below.
(a) "ANNUAL COMPENSATION" of a Participant means and
includes all wages, salary, bonus, and cash compensation, if any, paid
(including accrued amounts) by an Employer as consideration for the
Participant's services during the 12 months ending on the date as of which
Annual Compensation is to be determined, that are or would be includible in the
gross income of such Participant for federal income tax purposes, plus amounts
not includible in such Participant's gross income because of a salary reduction
election made by such Participant pursuant to an employee benefit plan
maintained by the Employer.
(b) "BANK" means The Troy Savings Bank or any
successor as provided for in Article VII below.
(c) "CAUSE" means the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform material stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
financial institutions industry; provided, it shall be the burden of the
Employer to prove the alleged acts and omissions and the prevailing nature of
the standards the Employer shall have alleged are violated by such acts and/or
omissions.
(d) "CHANGE OF CONTROL" shall mean:
(1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE Act")) (a "PERSON")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of common
stock of Troy Financial (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the
combined voting power of the then outstanding voting securities of Troy
Financial entitled to vote generally in the election of directors (the
"OUTSTANDING COMPANY VOTING SECURITIES");
<PAGE> 3
provided, however, that for purposes of this subsection (1), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from Troy Financial, (ii) any acquisition by Troy Financial, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by Troy Financial, the Bank or any other corporation controlled by
Troy Financial or (iv) any acquisition by any corporation pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of subsection (3) of
this Section 2.1(d); or
(2) Individuals who, as of the Effective
Date, constitute the Board of Directors of Troy Financial (the "INCUMBENT
BOARD") cease for any reason to constitute at least a majority of such Board of
Directors (the "TROY FINANCIAL BOARD"); provided, however, that any individual
becoming a director subsequent to the Effective Date whose election, or
nomination for election by Troy Financial's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Troy Financial Board; or
(3) Consummation of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of Troy Financial (a "BUSINESS COMBINATION"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately before such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation that as a result of such transaction owns Troy
Financial or all or substantially all of Troy Financial's assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately before such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of Troy Financial,
the Bank, such corporation resulting from such Business Combination or a
corporation controlled by any of them) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then
<PAGE> 4
outstanding voting securities of such corporation except to the extent that such
ownership existed before the Business Combination and (iii) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(4) Approval by the shareholders of Troy
Financial of a complete liquidation or dissolution of Troy Financial without the
establishment of a successor corporation.
(e) "DISABILITY" means the permanent and total
inability by reason of mental or physical infirmity, or both, of an Employee to
perform the work customarily assigned to him or her. For such condition to be
deemed permanent, a medical doctor selected or approved by the Bank must advise
the Bank that it is either not possible to determine if or when such condition
will terminate or that it appears probable that such condition will continue to
exist during the remainder of the Employee's lifetime.
(f) "EFFECTIVE DATE" means the date the Plan is
approved by the Board of Directors of the Bank, or if later, the completion of
the conversion of the Bank from mutual to stock form.
(g) "EMPLOYEE" means any full-time employee of the
Bank or any other Employer, other than an executive officer who is a party to a
written employment or employment protection agreement with an Employer at the
time of a Change of Control.
(h) "EXPIRATION DATE" means a date 10 years from the
Effective Date unless earlier terminated pursuant to Section 7.2 or extended
pursuant to Section 7.1.
(i) "EMPLOYER" means the Bank or any subsidiary or
parent corporation of the Bank.
(j) "PAYMENT" means the payment of severance
compensation as provided in Article IV below.
(k) "PARTICIPANT" means an Employee who meets the
eligibility requirements of Article III below.
(l) "PLAN" means The Troy Savings Bank Employee
Change of Control Severance Plan.
<PAGE> 5
(m) "TROY FINANCIAL" means Troy Financial
Corporation, a Delaware corporation that is the holding company of the Bank.
2.2 Applicable Law. The laws of the State of New York (other
than choice of law rules that would cause the law of another jurisdiction to
apply) shall be the controlling law in all matters relating to the Plan to the
extent not preempted by Federal law.
2.3 Severability. If a provision of this Plan shall be held
illegal or invalid, the illegality or invalidity shall not affect the remaining
parts of the Plan and the Plan shall be construed and enforced as if the illegal
or invalid provision had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation. The term Participant shall include all
Employees who have completed at least one year of service with the Employers at
the time of any termination pursuant to Section 4.2 below. Notwithstanding the
foregoing, executive officers who are parties to written employment or change in
control agreements with an Employer shall not be entitled to participate in, or
receive benefits under, this Plan.
3.2 Duration of Participation. A Participant shall cease to be
a Participant in the Plan when the Participant ceases to be an Employee, unless
such Participant is entitled to a Payment as provided in the Plan. A Participant
entitled to receipt of a Payment shall remain a Participant in this Plan until
the full amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment. A Participant shall be entitled to
receive from the Bank a Payment in the amount provided in Section 4.3 if there
has been a Change of Control and, within one year thereafter, the Participant's
employment by the Employers shall terminate for any reason specified in Section
4.2. A Participant shall not be entitled to a Payment if termination occurs by
reason of death, voluntary retirement, voluntary termination other than for
reasons specified in Section 4.2, Disability, or for Cause or if immediately
after such termination the Participant is employed by another Employer.
<PAGE> 6
4.2 Reasons for Termination. Following a Change of Control, a
Participant shall be entitled to a Payment if his or her employment is
terminated, voluntarily or involuntarily, for any one or more of the following
reasons:
(a) The Employer materially reduces the Participant's
base salary or rate of compensation as in effect immediately before the Change
of Control.
(b) The Employer materially changes Participant's
function, duties or responsibilities in a way that would cause the Participant's
position to be one of lesser responsibility, importance or scope than
immediately before the Change of Control.
(c) The Employer requires the Participant to change
the location of the Participant's job or office, so that such Participant will
be based at a location more than 30 miles from the location of the Participant's
job or office immediately before the Change of Control, provided that such new
location is not closer to Participant's primary residence.
(d) The Employer materially reduces the benefits and
perquisites available to the Participant immediately before the Change of
Control, other than in connection with a reduction in benefits and perquisites
that is made applicable to Employees generally on a nondiscriminatory basis.
(e) A successor to the Bank fails or refuses to
assume the Bank's obligations under this Plan, as required by Article VI.
(f) The Bank or any successor to the Bank materially
breaches any other provision of this Plan.
(g) The Employer terminates the employment of a
Participant in connection with or after a Change of Control, other than for
Cause.
4.3 Amount of Payment.
(a) Each Participant who is entitled to a Payment
under this Plan shall receive from the Bank a lump sum cash payment equal to
1/26th of his or her Annual Compensation for each full year of service with the
Employers, up to a maximum of 100% of Annual Compensation.
(b) Notwithstanding the provisions of (a) above, if a
Payment to a Participant who is a Disqualified Individual shall be in an amount
that includes an Excess Parachute Payment, the Payment hereunder to that
Participant
<PAGE> 7
shall be reduced to the maximum amount that does not constitute an Excess
Parachute Payment. The terms "DISQUALIFIED INDIVIDUAL" and "EXCESS PARACHUTE
PAYMENT" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section thereof. The
Participant shall not be required to mitigate damages on the amount of the
Payment by seeking other employment or otherwise, nor shall the amount of such
Payment be reduced by any compensation earned by the Participant as a result of
employment after termination of employment hereunder.
4.4 Time of Payment. The Payment to which a Participant is
entitled shall be paid to the Participant by the Employer or the successor to
the Employer, in cash and in full, not later than 20 business days after the
termination of the Participant's employment. If any Participant should die after
termination of the employment but before all amounts have been paid, such unpaid
amounts shall be paid to the beneficiary designated for such purpose by the
Participant in writing, if any, otherwise to the personal representative on
behalf of or for the benefit of the Participant's estate.
4.5 Release. The obligation of the Bank to make payments here
under shall be conditioned upon the execution of a written release of claims
against the Employers relating to employment and the termination thereof by the
Participant, in form reasonably satisfactory to the Bank.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits. Neither the provisions of this Plan nor
the Payment provided for hereunder shall reduce any amounts otherwise payable to
the Participant under any incentive, retirement, stock option, stock bonus,
stock ownership, group insurance or other benefit plan or arrangement.
5.2 Employment Status. This Plan does not constitute a
contract of employment or impose on the Participant or the Participant's
Employer any obligation to continue or retain the Participant as an Employee, to
maintain the status of the Participant's employment, or to continue the
Employer's policies regarding termination of employment.
ARTICLE VI
SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and
<PAGE> 8
agree to perform the Bank's obligations under this Plan, in the same manner and
to the same extent that the Bank would be required to perform if no such
succession or assignment had taken place.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 Duration. If a Change of Control has not occurred, this
Plan shall expire as of the Expiration Date, unless sooner terminated as
provided in Section 7.2, or unless extended for an additional period or periods
by resolution adopted by the Board of Directors of the Bank. Notwithstanding the
foregoing, if a Change of Control occurs, this Plan shall continue in full force
and effect, and shall not terminate or expire until such date as all
Participants who become entitled to Payments hereunder shall have received such
Payments in full.
7.2 Amendment and Termination. The Plan may be terminated or
amended in any respect by the Board of Directors of the Bank, unless a Change of
Control has previously occurred. If a Change of Control occurs, the Plan shall
not be subject to any amendment, change, substitution, deletion, revocation or
termination that would adversely affect the rights of any Participant.
7.3 Form of Amendment. The form of any proper amendment or
termination of the Plan shall be a written instrument signed by a duly
authorized officer or officers of the Bank, certifying that the amendment or
termination has been approved by the Board of Directors. A proper amendment of
the Plan automatically shall effect a corresponding amendment to each
Participant's rights hereunder. A proper termination of the Plan automatically
shall effect a termination of all Participants' rights and benefits hereunder.
7.4 No Attachment.
(a) Except as required by law, no right to receive
payments under this Plan shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or
to execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect such action shall be
null, void, and of no effect.
(b) This Plan shall be binding upon, and inure to the
benefit of, Employee and the Bank and their respective successors and assigns.
<PAGE> 9
ARTICLE VIII
LEGAL FEES AND EXPENSES
All reasonable legal fees and other expenses paid or incurred
by a Participant in connection with the resolution of any dispute or question of
interpretation relating to this Plan shall be paid or reimbursed by the Bank, if
the position proposed by the Participant is adopted or substantially adopted in
such matter.
ARTICLE IX
REQUIRED PROVISIONS
9.1 Termination. The Bank may terminate an Employee's
employment at any time, but any termination by the Bank other than termination
for Cause shall not prejudice the Employee's right to compensation or other
benefits under this Plan. An Employee shall have no right to receive
compensation or other benefits for any period after termination for Cause.
9.2 Regulatory Requirements. Notwithstanding any other
provision in this Plan, (i) the Bank may terminate or suspend this Plan and the
employment of an Employee, as if such termination were for Cause, to the extent
required by the applicable laws of the State of New York related to banking, by
applicable federal law relating to deposit insurance or bank holding companies
or by regulations or orders issued by the New York State Banking Department, the
Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation or other state or federal banking regulatory agency having
jurisdiction over Troy Financial or the Bank and (ii) no payment shall be
required to be made to or for the benefit of an Employee under this Plan to the
extent such payment is prohibited by applicable law, regulation or order issued
by a banking agency or a court of competent jurisdiction; provided, that it
shall be the Bank's burden to prove that any such action was so required.
<PAGE> 1
EXHIBIT 10.4
THE TROY SAVINGS BANK
SUPPLEMENTAL RETIREMENT AND BENEFIT RESTORATION PLAN
(EFFECTIVE AS OF FEBRUARY __, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Preamble.......................................................................................................1
Article 1 - Definitions........................................................................................2
Article 2 - Eligibility and Participation......................................................................6
Article 3 - Retirement Dates...................................................................................7
Article 4 - Retirement Income Benefit..........................................................................8
Article 5 - ESOP Benefit.......................................................................................9
Article 6 - Savings Benefit....................................................................................10
Article 7 - Vesting............................................................................................11
Article 8 - Payment of Benefits................................................................................12
Article 9 - Modes of Benefit Payment ..........................................................................13
Article 10 - Death Benefits ...................................................................................14
Article 11 - Unfunded Plan ....................................................................................16
Article 12 - Administration ...................................................................................17
Article 13 - Amendment or Termination .........................................................................20
Article 14 - General Provisions................................................................................21
</TABLE>
i
<PAGE> 3
PREAMBLE
The Troy Savings Bank Supplemental Retirement and Benefit Restoration Plan (the
"Plan") is effective as of the completion of the conversion of The Troy Savings
Bank (the "Bank") from mutual to stock form. The purpose of the Plan is to
permit certain employees of the Bank to receive supplemental retirement income
from the Bank and adopting affiliated employers in addition to amounts payable
under The Retirement Plan of The Troy Savings Bank in RSI Retirement Trust (the
"Retirement Plan") and The Troy Savings Bank 401(k) Savings Plan in RSI
Retirement Trust (the "401(k) Plan"). The Plan also provides a supplemental
benefit to selected participants in the Bank's Employee Stock Ownership Plan
(the "ESOP") who retire or otherwise terminate employment before the ESOP has
repaid the loan it incurred to purchase stock of Troy Financial Corporation
("Troy Financial") in connection with the conversion of the Bank from mutual to
stock form.
The Plan is intended to be an unfunded, non-qualified deferred compensation
plan. Neither the Employer nor the Administrator shall segregate or otherwise
identify specific assets to be applied to the purposes of the Plan, nor shall
any of them be deemed to be a trustee of any amounts to be paid under the Plan.
Any liability of the Employer to any person with respect to benefits payable
under the Plan shall be based solely upon such contractual obligations, if any,
as shall be created by the Plan, and shall give rise only to a claim against the
general assets of the Employer. No such liability shall be deemed to be secured
by any pledge or any other encumbrance on any specific property of the Employer.
1
<PAGE> 4
ARTICLE 1
DEFINITIONS
The following words and phrases shall have the meanings hereafter ascribed to
them. Those words and phrases which have limited application are defined in the
respective Articles in which such terms appear.
1.1 "Accrual Ratio" means a fraction, the numerator of which is the
Participant's Vested Service at any relevant time and the denominator
of which is the Vested Service the Participant would have if the
Participant continued in the employment of the Bank until the
Participant attained age 65.
1.2 "Actuarial Reduction Factor" means the factor that would be applied to
calculate the reduced Early Retirement Income Benefit that is payable
commencing on a Participant's Early Retirement Date under the
Retirement Plan (except that, if the Participant is entitled to an
unreduced Early Retirement Income Benefit under the Retirement Plan,
the Actuarial Reduction Factor shall be 1.0).
1.3 "Administrator" means the plan administrator of the Plan, as appointed
by the Board pursuant to Article 12.
1.4 "Average Annual Earnings" means the Participant's average annual
Compensation during the 36 consecutive calendar months within the final
120 consecutive calendar months of the Participant's employment by the
Employer in which such Compensation is highest.
1.5 "Bank" means The Troy Savings Bank, a New York-chartered capital stock
savings bank having its principal place of business in Troy, New York,
or any successor to the Bank by merger, consolidation or otherwise by
operation of law.
1.6 "Basic Matching Contribution" means the maximum employer matching
contribution (if any) that would be allocated to the account of a
Participant under the 401(k) Plan with respect to a Plan Year, giving
effect to the Contribution Limitations, assuming that the Participant
made the maximum permissible amount of salary deferral contributions
under the 401(k) Plan for such Plan Year, giving effect to the
limitations under Section 401(k)(3) and Section 415 of the Code.
1.7 "Retirement Plan" means The Retirement Plan of The Troy Savings Bank in
RSI Retirement Trust, as amended from time to time.
2
<PAGE> 5
1.8 "Beneficiary" means the person or persons designated by a Participant
in a written notice delivered to the Administrator to receive amounts
payable hereunder after the Participant's death that are not required
to be paid to the Participant's surviving spouse under the terms of
this Plan, or, in the absence of an effective designation, the
surviving spouse of the Participant or, if there is no surviving
spouse, the Participant's surviving descendants or, if there are none,
the Participant's estate.
1.9 "Board" means the Board of Directors of the Bank, as duly constituted
from time to time.
1.10 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.11 "Compensation" means the total compensation receivable by an Employee
from the Employer for the calendar year, prior to any reduction
pursuant to any compensation reduction agreement, but not in excess of
$500,000 per year. Compensation excludes contributions (other than
pre-tax salary reduction contributions) made by the Employer to any
tax-qualified pension or savings plan, or insurance, welfare or other
employee benefit plan, as well as amounts accrued or paid pursuant to
this Plan or any other qualified or non-qualified deferred compensation
plan or arrangement.
1.12 "Contribution Limitation" means any provision of the 401(k) Plan that
limits the amount of compensation of a Participant that is taken into
account under such Plan to the amount specified pursuant to Section
401(a)(17) of the Code, that limits annual additions to such Plan in
accordance with Section 415 of the Code or that limits the amount of
employer matching contributions that are allocated to a Participant's
account under such Plan because of the actual contribution percentage
test under Section 401(m) of the Code or the actual deferral percentage
test under Section 401(k)(3) of the Code.
1.13 "Effective Date" means February __, 1999.
1.14 "Employee" means a person who is an employee of the Employer.
1.15 "Employer" means the Bank and any subsidiary or affiliated corporation
that, with the approval of the Board and subject to such conditions as
the Board may impose, adopts the Plan, and any successor or successors
of any of them.
1.16 "ESOP" means the Bank's Employee Stock Ownership Plan.
1.17 "ESOP Loan" means the loan incurred by the ESOP to acquire shares of
Stock at the time of the conversion of the Bank from mutual to stock
form, including any refinancing of such loan.
3
<PAGE> 6
1.18 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the determination date the Stock is listed on an
established national or regional stock exchange, is admitted to
quotation on an automated quotation system maintained by the NASD, or
otherwise is publicly traded on an established securities market, the
Fair Market Value of a share of Stock shall be the closing price of the
Stock on such exchange or in such market (the highest such closing
price if there is more than one such exchange or market) on the
determination date (or if there is no such reported closing price, the
Fair Market Value shall be the mean between the highest bid and lowest
asked prices or between the high and low sale prices on such trading
day) or, if no sale of Stock is reported for such trading day, on the
next preceding day on which any sale shall have been reported. If the
Stock is not listed on such an exchange, quoted on such system or
traded on such a market, Fair Market Value shall be the value of the
Stock as reasonably determined by the Administrator in good faith.
1.19 "401(k) Plan" means The Troy Savings Bank 401(k) Savings Plan in RSI
Retirement Trust, as amended from time to time.
1.20 "Full Matching Contribution" means the employer matching contribution
that would have been allocated to the account of a Participant under
the terms of the 401(k) Plan with respect to a Plan Year if the
Contribution Limitations did not apply and the Participant made the
maximum permissible amount of salary deferral contributions under the
401(k) Plan for such Plan Year under Section 402(g) of the Code,
determined without regard to the limitations under Section 401(k)(3)
and Section 415 of the Code.
1.21 "Full Retirement Income Benefit" means the excess of 65% of the
Participant's Average Annual Earnings over the Offset Amount.
1.22 "Offset Amount" means (a) $26,000 per annum in the case of Daniel J.
Hogarty, Jr. and (b) zero in the case of all Participants other than
Mr. Hogarty.
1.23 "Participant" means a management or highly compensated Employee who has
been designated by the Board as eligible to participate in the Plan and
who becomes a Participant by entering into a Supplemental Retirement
and Benefit Restoration Plan Agreement with the Bank pursuant to the
provisions of Article 2.
1.24 "Plan" means The Troy Savings Bank Supplemental Retirement and Benefit
Restoration Plan, as herein set forth, and as it may hereafter be
amended from time to time.
1.25 "Plan Year" means the calendar year.
4
<PAGE> 7
1.26 "Retirement Income Benefit" means the deferred compensation retirement
income benefit provided to Participants and their surviving spouse and
other Beneficiaries in accordance with the applicable provisions of the
Plan.
1.27 "Savings Benefit" means the deferred compensation savings benefit
provided to Participants and their beneficiaries in accordance with the
applicable provisions of the Plan.
1.28 "Savings Benefit Account" means a bookkeeping account maintained
pursuant to Article 6 to record a Participant's Savings Benefit.
1.29 "Stock" means shares of common stock, par value $.0001, of Troy
Financial.
1.30 "Troy Financial" means Troy Financial Corporation, a Delaware
corporation that is the holding company for the Bank.
1.31 "Vested Participant" means a Participant who is 100% vested in the
Retirement Income Benefit under Article 7.
1.32 "Vested Percentage" means a Participant's Vested Percentage under the
ESOP.
1.33 "Vested Service" means a Participant's Vested Service as defined in the
Retirement Plan.
Words referring to males shall be construed to include females and the
singular shall be construed to include the plural, and vice versa,
wherever appropriate.
5
<PAGE> 8
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility to participate in the Plan will be limited to a select
group of management or highly compensated Employees who are designated
by the Board to participate in the Plan. The Board shall have absolute
discretion as to the management and highly compensated Employees it
chooses to designate as Participants. The Bank shall enter into an
individual Supplemental Retirement and Benefit Restoration Plan
Agreement with each Participant in the Plan. As of the Effective Date,
the following individuals are Participants: Daniel J. Hogarty, Jr.,
Kevin M. O'Bryan and Michael C. Mahar.
From time to time, the Board may designate additional management and
highly compensated Employees as Participants, who shall participate as
of the date specified by the Board.
2.2 The Bank may, from time to time, remove any Participant from
participation in the Plan; provided, however, that such removal will
not reduce the benefits credited to the Participant under the Plan,
determined as of the date of such Participant's removal. A Participant
so removed shall remain a Participant until all benefits are
distributed in accordance with the provisions of the Plan.
2.3 The Administrator may provide each Participant with appropriate forms
in connection with participation in the Plan.
6
<PAGE> 9
ARTICLE 3
RETIREMENT DATES
3.1 A Participant's Retirement Date shall be his or her Normal, Early or
Postponed Retirement Date, whichever is applicable pursuant to the
following sections of this Article 3.
3.2 A Participant's Normal Retirement Date shall be the date coinciding
with the Participant's Normal Retirement Date under the Retirement
Plan.
3.3 A Participant may retire before the Participant's Normal Retirement
Date if the Participant has satisfied the requirements for an Early
Retirement Income Benefit under thenn provisions of the Retirement
Plan. The Participant's Early Retirement Date for purposes of this Plan
shall be the date on which the Participant begins receiving an Early
Retirement Income Benefit under the Retirement Plan.
3.4 If a Participant continues in the employment of the Employer beyond the
Normal Retirement Date, the date coinciding with postponed retirement
under the Retirement Plan shall be the Participant's Postponed
Retirement Date.
7
<PAGE> 10
ARTICLE 4
RETIREMENT INCOME BENEFIT
4.1 The Retirement Income Benefit shall be payable in the form of a single
life annuity commencing on the Participant's Normal Retirement Date or
Postponed Retirement Date and shall be equal to the excess (if any) of
(a) over (b) as stated below:
(a) the Full Retirement Income Benefit;
(b) the annual amount payable upon Normal or Postponed Retirement
Date, as the case may be, to the Participant as a single life
annuity under the Retirement Plan.
4.2 The Retirement Income Benefit payable to a Participant who retires on
an Early Retirement Date shall be equal to the excess (if any) of (a)
over (b) as stated below:
(a) the product of (1) the Participant's Accrual Ratio times (2)
the Actuarial Reduction Factor times (3) the Full Retirement
Income Benefit;
(b) the annual amount payable upon such Early Retirement Date to
the Participant as a single life annuity under the Retirement
Plan.
4.3 If a Vested Participant terminates employment with the Bank other than
on a Retirement Date specified in Article 3, the Retirement Income
Benefit payable in the form of a single life annuity, commencing on the
date the Participant is eligible for a vested retirement benefit under
the Retirement Plan, shall be equal to the excess (if any) of (a) over
(b) as stated below:
(a) the product of (1) the Accrual Ratio times (2) the Actuarial
Reduction Factor times (3) the Full Retirement Income Benefit;
(b) the annual amount payable following termination of service to
the Participant in a single life annuity under the Retirement
Plan.
If a Participant who is not a Vested Participant terminates employment
with the Bank other than on a Retirement Date specified in Article 3,
the Participant will not be entitled to any Retirement Income Benefit
under the Plan.
8
<PAGE> 11
ARTICLE 5
ESOP
BENEFIT
If a Participant terminates employment with the Bank at a time when the
ESOP holds shares of Stock that have not been allocated to the accounts
of ESOP participants because the ESOP has not repaid the ESOP Loan in
full, the Participant's ESOP Benefit shall be equal to the product of
(a), (b), (c) and (d), as stated below:
(a) the number of shares of Stock that were allocated to the
account of the Participant under the ESOP for the ESOP plan
year preceding the plan year in which such Participant's
employment terminates;
(b) the number of years and fractions of years remaining in the
term of the ESOP Loan as of the date on which such
Participant's employment terminates;
(c) the Fair Market Value of a share of Stock as of the date on
which such Participant's employment terminates; and
(d) the Participant's Vested Percentage.
9
<PAGE> 12
ARTICLE 6
SAVINGS
BENEFIT
6.1 The Bank shall establish on its books a separate Savings Benefit
Account in the name of each Participant for each Plan Year. As of not
later than the end of each Plan Year, the Bank shall credit each
Participant's Savings Benefit Account for such Plan Year with the
excess (if any) of the Full Matching Contribution over the Basic
Matching Contribution for such Plan Year.
6.2 The balance of each Participant's Savings Benefit Account shall be
increased by deemed earnings and gains (as set out below) and decreased
by deemed losses (as set out below), by forfeitures (as specified
below) and by payments of such Savings Benefit to the Participant or
the Participant's surviving spouse or Beneficiary under the Plan.
6.3 The deemed earnings and losses of each Savings Benefit Account shall be
determined as follows. The balance in each such Account from time to
time shall be deemed to have been invested in such publicly-traded
stocks and other securities and investments (including shares of
regulated investment companies) that are readily available for purchase
by the Bank and that shall have been designated for such account by the
Participant from time to time by written notice to the Administrator,
and each such account shall be increased by the earnings and gains, and
decreased by the losses, that would have accrued had the Bank actually
purchased such investments with the balance in such Account pursuant to
such directions of the Participant, determined without regard to any
taxes that would have been payable on such earnings and gains had such
investments actually been made, but reduced by applicable fees,
commissions and expenses that would have been paid with respect to such
investments.
10
<PAGE> 13
ARTICLE 7
VESTING
A Participant shall be 100% vested in the Participant's Savings Benefit
at all times. A Participant's Vested Percentage in the ESOP Benefit
shall be determined in accordance with the vesting provisions of the
ESOP. A Participant's Retirement Income Benefit shall be 100% vested,
and the Participant shall be a Vested Participant, from and after the
earlier of:
(a) the date on which the Participant completes five years of
Vested Service or the Effective Date, later; or
(b) the Participant's attainment of age 65 while employed by the
Bank.
11
<PAGE> 14
ARTICLE 8
PAYMENT OF BENEFITS
8.1 The Retirement Income Benefit shall commence at the same time as
distributions under the Retirement Plan and shall be paid over the same
period, to the same persons and in the same benefit form as the
Participant shall have elected with respect to his or her retirement
benefit under the Retirement Plan.
8.2 The Savings Benefit payable to a Participant following termination of
employment shall be equal to the amount credited to the Participant's
Savings Benefit Account at such time and, unless an optional mode of
payment is elected pursuant to Section 9.2, shall be payable in a
single lump sum to the Participant not later than the time that a
distribution is payable to such Participant under the 401(k) Plan.
8.3 The ESOP Benefit shall be payable in a single lump sum to a Participant
as soon as reasonably practicable after termination of the
Participant's employment, unless an optional mode of payment is elected
pursuant to Section 9.2.
12
<PAGE> 15
ARTICLE 9
MODES OF BENEFIT PAYMENT
9.1 Except as otherwise provided in the following paragraph, any Retirement
Income Benefit and Savings Benefit payable under the Plan to a
Participant, Beneficiary, joint or contingent annuitant or eligible
child, shall be payable in the modes provided by, and subject to the
provisions of, the Retirement Plan and the 401(k) Plan, respectively.
Retirement Income Benefits paid in a form other than a life annuity
shall be the actuarial equivalent of a life annuity, utilizing the
actuarial equivalent factors set forth in the Retirement Plan and
applied to obtain the optional mode of payment thereunder.
The Administrator, in its sole discretion and consistent with the best
interests of the Employer, may distribute any Retirement Income Benefit
or Savings Benefit payable under the Plan to a Participant,
Beneficiary, joint or contingent annuitant, or eligible child, as a
single lump sum benefit, using, in the case of a Retirement Income
Benefit, the actuarial equivalent factors set forth in the Retirement
Plan for lump-sum cashouts. In exercising its discretion hereunder, the
Administrator shall not be bound by any request by a Participant,
beneficiary, joint or contingent annuitant, or eligible child, to
receive the Retirement Income Benefit or Savings Benefit as a single
lump-sum benefit.
9.2 Except with respect to receipt of a lump sum benefit under Section 9.1,
any election of an optional mode of benefit payment made by a
Participant under the Retirement Plan, ESOP or 401(k) Plan, as
applicable, shall also be effective with respect to any Retirement
Income Benefit, ESOP Benefit or Savings Benefit, as the case may be,
payable under the Plan to a Participant, Beneficiary, joint or
contingent annuitant, or eligible child.
9.3 Except with respect to receipt of a lump sum benefit under Section 9.1,
payment of any Retirement Income Benefit or Savings Benefit under the
Plan shall commence on the same date as payment of a Retirement Plan or
Savings Plan distribution payable to a Participant or beneficiary, and
shall terminate on the date of last payment of Retirement Plan or
Savings Plan distribution, as the case may be.
13
<PAGE> 16
ARTICLE 10
DEATH BENEFITS
10.1 Upon the death of a Participant who (i) has not terminated employment
with the Employers before a Retirement Date as defined in Section 3.1
or (ii) retires on a Retirement Date as defined in Section 3.1 and dies
prior to the complete distribution of benefits under the Retirement
Plan, a death benefit shall be payable as set forth in Section 10.2 and
10.3.
10.2 If a preretirement survivor annuity or post retirement survivor annuity
is payable to a Participant's surviving spouse or eligible children
under the Retirement Plan, a supplemental preretirement survivor
annuity or post retirement survivor annuity, as the case may be, shall
also be payable to such surviving spouse or eligible children under the
Plan. The annual preretirement survivor annuity or post retirement
survivor annuity payable to such surviving spouse or eligible children
shall be equal to the difference between (a) and (b) as stated below:
(a) the annual amount of the preretirement survivor annuity or
post retirement survivor annuity, as applicable, to which such
surviving spouse or eligible children would have been entitled
under the Retirement Plan, if the Participant's normal
retirement benefit under the Retirement Plan were equal to the
Full Retirement Income Benefit;
(b) the annual amount of the preretirement survivor annuity or
post retirement survivor annuity, as the case may be, actually
payable to such surviving spouse or eligible children under
the Retirement Plan.
10.3 The supplemental preretirement survivor annuity or post retirement
survivor annuity shall be payable over the lifetime of the surviving
spouse or eligible children to the extent provided in the Retirement
Plan, in monthly installments commencing as of the same date as payment
of the preretirement survivor annuity or post retirement survivor
annuity, as the case may be, occurs under the Retirement Plan and
terminating as of the date of the last payment of the preretirement
survivor annuity or post retirement survivor annuity, as the case may
be, under the Retirement Plan.
10.4 Upon the death of a Participant, the amount credited to the
Participant's Savings Benefit Account and any portion of the
Participant's ESOP Benefit that has not been paid to the Participant
shall be payable to the Participant's surviving spouse, if any, or if
the Participant has no surviving spouse, to the Participant's
Beneficiary, in a single lump sum unless, in the case of the Savings
Benefit, an optional mode has been elected pursuant to Article 9.
14
<PAGE> 17
10.5 Upon the death of a Participant under the circumstances set forth in
clause (i) or (ii) of Section 10.1, if no survivor benefit is payable
under the Retirement Plan, no further Retirement Income Benefit shall
be payable hereunder.
15
<PAGE> 18
ARTICLE 11
UNFUNDED PLAN
11.1 The Plan shall be administered as an unfunded plan and is not intended
to meet the qualification requirements of Sections 401(a) and 401(k) of
the Code. No Participant or beneficiary shall be entitled to receive
any payment or benefits under the Plan from the qualified trusts
maintained in connection with the Retirement Plan, ESOP and 401(k)
Plan.
11.2 The Employer shall have the right to establish a reserve, establish a
grantor trust or make any investment for the purposes of satisfying its
obligation hereunder for payment of benefits, including, but not
limited to, investments in one or more registered investment companies
under the Investment Company Act of 1940, as amended, to the extent
permitted by applicable banking or other law; provided, however, that
no Participant or Beneficiary shall have any interest in such
investment, trust, or reserve.
11.3 To the extent that any Participant or Beneficiary acquires a right to
receive benefits under the Plan, such right shall be no greater than
the rights of an unsecured creditor of the Employer.
11.4 A Participant's benefit under the Plan may not be encumbered or
assigned by a Participant or any Beneficiary.
16
<PAGE> 19
ARTICLE 12
ADMINISTRATION
12.1 Except for the functions reserved to the Employer or its Board, the
administration of the Plan shall be the responsibility of the
Administrator. The Administrator shall be an individual director or
employee of the Bank, or a committee consisting of two or more
directors or employees of the Bank, and shall be appointed by the
Board. The Administrator shall serve for such terms as the Board shall
determine and until a successor or successors are designated and
qualified. The Administrator may resign upon at least 60 days written
notice to the Bank, or may be removed from office by the Board at any
time, with or without notice.
12.2 If a committee is appointed to serve as Administrator (the
"Committee"), the Committee shall hold meetings upon notice at such
times and places as it may determine. Notice shall not be required if
waived in writing. Any action of the Committee shall be taken pursuant
to a majority vote at a meeting, or pursuant to the written consent of
a majority of its members without a meeting, and such action shall
constitute the action of the Committee and shall be binding in the same
manner as if all members of the Committee had joined therein. A
majority of the members of the Committee shall constitute a quorum. No
member of the Committee shall vote or be counted for quorum purposes on
any matter relating solely to himself or herself or his or her rights
under the Plan. The Committee shall record minutes of any actions taken
at its meetings or of any other official action of the Committee. Any
person dealing with the Committee shall be fully protected in relying
upon any written notice, instruction, direction or other communication
signed by the Secretary of the Committee or by any of the members of
the Committee or by a representative of the Committee authorized by the
Committee to sign the same in its behalf.
12.3 The Administrator shall have the power and the duty to take all actions
and to make all decisions necessary or proper to carry out the Plan.
The determination of the Administrator as to any question involving the
Plan shall be final, conclusive and binding. Any discretionary actions
to be taken under the Plan by the Administrator shall be uniform in
their nature and applicable to all persons similarly situated. Without
limiting the generality of the foregoing, the Administrator shall have
the following powers and duties:
(a) the duty to furnish to all Participants, upon request, copies
of the Plan;
17
<PAGE> 20
(b) the power to require any person to furnish such information as
it may request for the purpose of the proper administration of
the Plan as a condition to receiving any benefits under the
Plan;
(c) the power to make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for
the efficient administration of the Plan;
(d) the power to interpret the Plan, and to resolve ambiguities,
inconsistencies and omissions, which findings shall be
binding, final and conclusive;
(e) the power to decide on questions concerning the Plan in
accordance with the provisions of the Plan;
(f) the power to determine the amount of benefits which shall be
payable to any person in accordance with the provisions of the
Plan and to provide a full and fair review to any Participant
whose claim for benefits has been denied in whole or in part;
(g) the power to allocate any such powers and duties to or among
individual members of the Committee; and
(i) the power to designate persons other than the Administrator to
carry out any duty or power which would otherwise be a
responsibility of the Administrator, under the terms of the
Plan.
12.4 To the extent permitted by law, the Administrator and any person to
whom it may delegate any duty or power in connection with administering
the Plan, the Bank and any other Employer, and their respective
officers and directors shall be entitled to rely conclusively upon, and
shall be fully protected in any action taken or suffered by them in
good faith in the reliance upon, any actuary, counsel, accountant,
benefits specialist or other person selected by the Administrator, or
in reliance upon any tables, valuations, certificates, opinions or
reports which shall be furnished by any of them. Further, to the extent
permitted by law, the Administrator, members of the Committee, the Bank
and any other Employer, and their respective officers and directors
shall not be liable for any neglect, omission or wrongdoing of any
other Administrator, member of the Committee, agent, officer or
employee of the Bank or any Employer. Any person claiming benefits
under the Plan shall look solely to the Employer for redress.
12.5 All expenses incurred prior to the termination of the Plan that shall
arise in connection with the administration of the Plan (including, but
not limited to administrative expenses, proper charges and
disbursements, compensation and other expenses and charges of any
actuary, counsel, accountant,
18
<PAGE> 21
specialist, or other person who shall be employed by the Administrator
in connection with the administration of the Plan), shall be paid by
the Employer.
19
<PAGE> 22
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 The Board shall have the power to suspend or terminate the Plan in
whole or in part at any time, and from time to time to extend, modify,
amend or revise the Plan in such respects as the Board, by resolution,
may deem advisable; provided, however, that no such extension,
modification, amendment, revision, or termination shall deprive a
Participant or any Beneficiary of any vested benefit accrued under the
Plan.
13.2 In the event of a termination or partial termination of the Plan, the
rights of all affected parties, if any, to benefits accrued to the date
of such termination or partial termination, shall become nonforfeitable
to the same extent that such rights would be nonforfeitable if such
benefits were provided under the Retirement Plan, ESOP or 401(k) Plan
and such plans were terminated on such date.
13.3 No amendment of the Plan shall reduce the vested and accrued benefits,
if any, of a Participant under this Plan, except to the extent that
such a reduction would be permitted if such benefits were provided
under the Retirement Plan, ESOP or 401(k) Plan, as applicable.
13.4 In the event of the termination or partial termination of the Plan: (a)
the Bank shall pay in one lump sum to affected Participants or their
Beneficiaries the ESOP Benefit and Savings Benefit, if any, to which
they are entitled, as if such Participants' termination of service had
occurred on the date the Plan is terminated, and (b) the supplemental
Retirement Income Benefit, if any, to which they are entitled shall be
payable in accordance with the terms of the Plan.
20
<PAGE> 23
ARTICLE 14
GENERAL PROVISIONS
14.1 The Plan shall not be deemed to constitute an employment contract
between the Employer and any Employee or other person, whether or not
in the employ of the Employer, nor shall anything herein contained be
deemed to give any Employee or other person, whether or not in the
employ of the Employer, any right to be retained in the employ of the
Employer, or to interfere with the right of the Employer to discharge
any Employee at any time and to treat such Employee without any regard
to the effect which such treatment might have upon such Employee as a
Participant of the Plan.
14.2 Except as may otherwise be required by law, no distribution or payment
under the Plan to any Participant or Beneficiary shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, whether voluntary or involuntary, and
any attempt to so anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge the same shall be void; nor shall any such
distribution or payment be in any way liable for or subject to the
debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment. If any Participant or
Beneficiary is adjudicated bankrupt or purports to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge any such
distribution or payment, voluntarily or involuntarily, the
Administrator, in its sole discretion, may cancel such distribution or
payment or may hold or cause to be held or applied such distribution or
payment, or any part thereof, to or for the benefit of such Participant
or Beneficiary, in such manner as the Administrator shall direct.
14.3 If the Employer determines that any person entitled to payments under
the Plan is incompetent by reason of physical or mental disability, it
may cause all payments thereafter becoming due to such person to be
made to any other person for his or her benefit, without responsibility
to follow application of amounts so paid. Payments made pursuant to
this provision shall completely discharge the Plan, the Employer and
the Administrator.
14.5 The Employer shall be the sole source of benefits under the Plan, and
each Employee, Participant, Beneficiary, or any other person who shall
claim the right to any payment or benefit under the Plan shall be
entitled to look solely to the Employer for payment of benefits.
14.6 If the Employer is unable to make payment to any Participant,
Beneficiary, or any other person to whom a payment is due under the
Plan, because it cannot ascertain the identity or whereabouts of such
Participant, Beneficiary, or other person after reasonable efforts have
been made to identify or locate
21
<PAGE> 24
such person (including a notice of the payment so due mailed to the
last known address of such Participant, beneficiary, or other person
shown on the records of the Employer), such payment and all subsequent
payments otherwise due to such Participant, Beneficiary or other person
shall be forfeited 24 months alter the date such payment first became
due; provided, however, that such payment and any subsequent payments
shall be reinstated, retroactively, no later than 60 days after the
date on which the Participant, Beneficiary, or other person shall make
application therefor. Neither the Bank nor the Administrator nor any
other person shall have any duty or obligation under the Plan to make
any effort to locate or identify any person entitled to benefits under
the Plan, other than to mail a notice to such person's last known
mailing address.
14.7 If upon the payment of any benefits under the Plan, the Employer shall
be required to withhold any amounts with respect to such payment by
reason of any federal, state or local tax laws, rules or regulations,
then the Employer shall be entitled to deduct and withhold such amounts
from any such payments. In any event, such person shall make available
to the Employer, promptly when requested by the Employer, sufficient
funds or other property to meet the requirements of such withholding.
Furthermore, at any time the Employer shall be obligated to withhold
taxes, the Employer shall be entitled to take and authorize such steps
as it may deem advisable in order to have the amounts required to be
withheld made available to the Employer out of any funds or property
due to become due to such person, whether under the Plan or otherwise.
14.8 The Administrator, in its discretion, may increase or decrease the
amount of any benefit payable hereunder if and to the extent that it
determines, in good faith, that an increase is necessary in order to
avoid the omission of a benefit intended to be payable under this Plan
or that a decrease is necessary in order to avoid a duplication of the
benefits intended to be payable under this Plan.
14.9 The provisions of the Plan shall be construed, administered and
governed under applicable federal laws and the laws of the State of New
York. In applying the laws of the State of New York, no effect shall be
given to conflict of laws principles that would cause the law of
another jurisdiction to apply.
22
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANT'S CONSENT
The Board of Trustees
The Troy Savings Bank
We consent to the use in Amendment No. 2 to the Registration Statement
(No. 333-68813) on Form S-1 and in the Application for Conversion on Form
86-AC and in the Notice and Application for Conversion of Troy Financial
Corporation of our report dated October 30, 1998, on the Consolidated
Financial Statements of The Troy Savings Bank and subsidiaries as of September
30, 1998 and 1997, and for each of the years in the three-year period ended
September 30, 1998.
We also consent to the reference to our firm under the heading "Experts" in the
related prospectus.
/s/ KPMG LLP
Albany, New York
February 11, 1999
<PAGE> 1
EXHIBIT 99.1
January 28, 1999
Board of Trustees
The Troy Savings Bank
32 2nd Street
Troy, NY 12180
Dear Board Members:
This report represents FinPro, Inc.'s ("FinPro") updated independent appraisal
of the estimated pro forma market value of the common stock (the "Common Stock")
of Troy Financial Corporation (the "Company") in connection with the Plan of
Conversion (the "Conversion") of Troy Savings Bank, (the "Bank") from a New York
state chartered mutual savings bank to a stock savings bank. As part of this
conversion, the Bank will become a wholly owned subsidiary of the Company. In
addition, the Company intends to establish the Troy Savings Bank Community
Foundation as part of the Conversion with a contribution of its common stock.
This appraisal update is furnished pursuant to the Bank's result of operations
for the year ended September 30, 1998 and market pricing as of January 22, 1999.
FinPro's original appraisal report dated December 10, 1998 included the Bank's
results for the year ended September 30, 1998 and market pricing as of December
3, 1998. FinPro's original appraisal report is incorporated herein by reference.
FinPro's original appraisal was based on the following assumptions:
1. The Bank would undertake a full conversion;
2. The Bank would implement an 8% ESOP, funded internally and amortized
over 10 years;
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Troy Financial Corporation, Appraisal Update Page 1
<PAGE> 2
3. The Bank would implement a 4% MRP, amortized over 5 years;
4. The net proceeds would be reinvested at a rate equal to the 1 year
Treasury of 4.29% as of September 30, 1998, adjusted for the Bank's
effective tax rate of 35% to 2.79%;
5. The conversion expenses would be $1.2 million plus the underwriters
commission of 1.1% on the non ESOP, director or executive officer
purchases;
6. The Troy Savings Bank Charitable Foundation (the "Charitable
Foundation"), to which the Bank had contributed $1.0 million in cash
in fiscal 1998 and had entered into a binding, irrevocable commitment
to make a total of $4.0 million in additional scheduled payments in
the years 1999, 2000 and 2001; and
7. Upon completion of the Conversion, the establishment of The Troy
Savings Bank Community Foundation (the "Community Foundation") to
which the Company would transfer common stock equal to 8% of the
shares sold in the Conversion.
This appraisal update is based on the same assumptions, with the exception of
the percentage of the common stock to be transferred to the Community
Foundation. The appraisal update is based on the transfer of common stock equal
to 2.05% of the shares sold in the Conversion. The purpose of the reduction from
8% to 2.05% is to limit the total value donated to both foundations to 8% of the
value of the shares sold in the conversion, at $10.00 per share.
In preparing this appraisal update, FinPro reviewed its original appraisal, and
the Bank's prospectus. FinPro considered, among other factors, recent
developments in stock market conditions and changes in the interest rate
environment. FinPro reviewed sources of public information that FinPro believes
are reliable; however, FinPro cannot guarantee the accuracy and completeness of
such information.
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Troy Financial Corporation, Appraisal Update Page 2
<PAGE> 3
FinPro's appraisal update is based upon the Bank's representation that the
information contained in its prospectus and additional information furnished to
us by same is truthful, accurate, and complete. FinPro did not independently
verify the financial statements, and other information provided by the Bank, nor
did FinPro independently value any of the Bank's assets or liabilities. This
appraisal update considers the Bank only as a going concern and should not be
considered as an indication of its liquidation value.
FINPRO'S VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SHARES OF COMMON
STOCK IN THE CONVERSION. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED
UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT
TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS WHO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH
SHARES AT PRICES RELATED TO THE FOREGOING ESTIMATE OF THE BANK'S PRO FORMA
MARKET VALUE. FINPRO, INC. IS NOT A SELLER OF SECURITIES WITHIN THE MEANING OF
ANY FEDERAL OR STATE SECURITIES LAWS, AND ANY REPORT PREPARED BY FINPRO, INC.
SHALL NOT BE USED AS AN OFFER OR SOLICITATION WITH RESPECT TO THE PURCHASE OR
SALE OF ANY SECURITIES.
FinPro's opinion is based upon circumstances as of the date hereof, including
current conditions in the United States securities markets. Events occurring
after the date hereof, including, but not limited to, changes affecting the
United States securities markets and subsequent results of operations of Troy
Savings Bank could materially affect the assumptions used in preparing this
opinion.
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Troy Financial Corporation, Appraisal Update Page 3
<PAGE> 4
UPDATED COMPARABLE GROUP
FINANCIAL COMPARISONS
As the results of operations for the Bank are not yet available for the quarter
ended December 31, 1998, the following figure presents the financial ratios for
the Bank as of September 30, 1998 and the Comparable Group as of December 3,
1998 and January 22, 1999.
FIGURE 1 - KEY FINANCIAL INDICATORS
<TABLE>
<CAPTION>
THE BANK AT OR
FOR THE YEAR
ENDED COMPARABLE COMPARABLE
SEPTEMBER 30, GROUP MEDIAN AS GROUP MEDIAN AS
1998 OF 1/22/99 OF 12/3/98
<S> <C> <C> <C>
BALANCE SHEET DATA
Gross Loans to Deposits 80.52% 109.66% 109.29%
Total Net Loans to Assets 63.81% 71.17% 73.03%
Deposits to Assets 80.68% 67.52% 67.63%
Borrowed Funds to Assets 6.62% 21.52% 20.33%
BALANCE SHEET GROWTH
Asset Growth Rate 8.18% 8.90% 4.36%
Loan Growth Rate -2.32% 5.77% 4.77%
Deposit Growth Rate 1.01% 8.14% 3.81%
CAPITAL
Equity to Assets 9.91% 9.37% 9.50%
Tangible Equity to Assets 9.80% 8.90% 9.14%
Intangible Assets to Equity 1.15% 0.13% 0.48%
Regulatory Core Capital to Assets 9.89% 7.53% 7.94%
Equity + Reserves to Assets 11.06% 9.73% 9.91%
Total Capital to Risk Adjusted Assets 15.27% 11.56% 12.86%
</TABLE>
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Troy Financial Corporation, Appraisal Update Page 4
<PAGE> 5
<TABLE>
<CAPTION>
THE BANK AT OR
FOR THE YEAR
ENDED COMPARABLE COMPARABLE
SEPTEMBER 30, GROUP MEDIAN AS GROUP MEDIAN AS
1998 OF 1/22/99 OF 12/3/98
<S> <C> <C> <C>
ASSET QUALITY
Non-Performing Loans to Loans 2.50% 0.19% 0.38%
Reserves to Non-Performing Loans 70.91% 161.65% 263.81%
Non-Performing Assets to Assets 1.89% 0.24% 0.30%
Non-Performing Assets to Equity 19.03% 4.06% 4.59%
Reserves to Net Loans 1.81% 0.63% 0.68%
Reserves to Non-Performing Assets + 90 Days Del. 61.09% 138.79% 235.23%
PROFITABILITY
Return on Average Assets -0.13% 0.99% 1.03%
Return on Average Equity -1.20% 10.29% 11.03%
INCOME STATEMENT
Net Interest Margin 3.84% 3.10% 3.10%
Interest Income to Average Assets 7.09% 7.21% 7.26%
Interest Expense to Average Assets 3.57% 4.20% 4.27%
Net Interest Income to Average Assets 3.52% 3.01% 3.01%
Noninterest Income to Average Assets 0.38% 0.60% 0.58%
Noninterest Expense to Average Assets 3.70% 2.11% 2.07%
Efficiency Ratio 78.28% 57.81% 56.30%
Overhead Ratio 75.32% 46.47% 46.45%
</TABLE>
Source: Offering Prospectus and SNL Securities.
Note: The Comparable Group data is the most recent available at the time
indicated.
The Comparable Group's balance sheet ratios did not materially change, and
therefore, neither has the relationship of the Bank to Comparable Group.
In terms of growth, the Comparable Group median asset and deposit growth rates
more than doubled, however, the original appraisal provided a downward
adjustment based partially on the Bank's lower levels of loan and deposit
growth. No additional adjustment is warranted at this time.
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 5
<PAGE> 6
The Comparable Group's capital ratios declined slightly, but the original
appraisal provided a downward adjustment based partially on the higher capital
level the Bank will have after the conversion. No additional adjustment is
warranted at this time.
The Comparable Group's median reserve ratios declined, due more to a lack of
reported data than to actual decrease in individual ratios. Therefore, no
adjustment is warranted at this time.
The Comparable Group's median ROAA and ROAE declined slightly, but retain their
advantage over the Bank's core ratios as reported in the original appraisal.
Combined with the lack of material change in the Comparable Group's income
statement ratios, no change is warranted to the original downward adjustment for
earnings.
The relationship of the Bank's financial condition and results from operations
to the Comparable Group's has not materially changed. As such, no changes from
the original adjustments are warranted.
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 6
<PAGE> 7
THRIFT EQUITY MARKET
This section presents an analysis of the change in the equity market between
December 3, 1998 and January 22, 1999. Since December 3, 1998 (the date of the
market prices in FinPro's original appraisal), stock prices, as measured by the
S&P 500 and Dow Jones indices, increased 6.53% and 2.71%, respectively. The
market for thrift stocks, as measured by the SNL thrift index, has increased
2.54%. The index changes are as follows:
FIGURE 2 - PERIOD INDEX CHANGE
<TABLE>
<CAPTION>
INDEX 12/3/98 1/22/99 $ Change % Change
<S> <C> <C> <C> <C>
SNL Index 686.0 703.4 17.43 2.54%
S&P 500 1,150.1 1,225.2 75.05 6.53%
Dow Jones Industrial Average 8,879.7 9,120.7 240.99 2.71%
All Fully Converted Thrifts Median Price to LTM Core EPS 16.3 15.7 (0.63) -3.87%
State Fully Converted Thrifts Median Price to LTM Core EPS 17.8 17.8 0.05 0.28%
Comparables Median Price to LTM Core EPS 15.8 16.3 0.44 2.78%
All Fully Converted Thrifts Median Price to Book 116.9 116.0 (0.86) -0.74%
State Fully Converted Thrifts Median Price to Book 125.7 124.4 (1.30) -1.04%
Comparables Median Price to Book 155.2 167.1 11.86 7.64%
All Fully Converted Thrifts Median Price to Tangible Book 122.4 120.5 (1.90) -1.55%
State Fully Converted Thrifts Median Price to Tangible Book 128.7 128.5 (0.19) -0.14%
Comparables Median Price to Tangible Book 155.9 163.9 8.02 5.15%
All Fully Converted Thrifts Median Price to Assets 14.7 14.1 (0.59) -4.01%
State Fully Converted Thrifts Median Price to Assets 18.0 15.4 (2.66) -14.77%
Comparables Median Price to Assets 13.7 13.5 (0.23) -1.65%
</TABLE>
Source: SNL Securities and FinPro Calculations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 7
<PAGE> 8
The median New York fully converted thrift stock price increase was 2.11%.
FIGURE 3 - NEW YORK FULLY CONVERTED THRIFTS PRICE CHANGE
<TABLE>
<CAPTION>
1/22/99 1/22/99 12/3/98
Market Stock Stock Dollar Percentage
Value Price Price Change Change
Ticker Short Name ($M) ($) ($)
- ----------------------------------------------------------------------------------------------------
NEW YOUR FULLY CONVERTED
<S> <C> <C> <C> <C> <C> <C>
AHCI Ambanc Holding Co., Inc. 65.52 16.00 16.00 0.00 0.00%
ALBC Albion Banc Corp. 6.96 9.25 9.00 0.25 2.78%
ALBK ALBANK Financial Corporation 67.75
ASFC Astoria Financial Corporation 2,505.36 45.75 45.44 0.31 0.69%
CATB Catskill Financial Corporation 64.29 14.75 14.00 0.75 5.36%
CNY Carver Bancorp, Inc. 17.79 7.69 8.50 (0.81) -9.55%
CNYF CNY Financial Corp. 54.48 10.38 9.50 0.88 9.21%
DCOM Dime Community Bancshares, Inc. 246.43 21.25 24.88 (3.63) -14.57%
DME Dime Bancorp, Incorporated 2,782.28 24.94 26.00 (1.06) -4.08%
ESBK Elmira Savings Bank, FSB 17.35 23.88 22.50 1.38 6.11%
FFIC Flushing Financial Corporation 172.72 15.38 16.00 (0.63) -3.91%
FIBC Financial Bancorp, Inc. 39.00
GOSB GSB Financial Corporation 30.39 14.00 14.00 0.00 0.00%
GPT GreenPoint Financial Corporation 3,092.54 32.00 36.75 (4.75) -12.93%
HAVN Haven Bancorp, Inc. 127.25 14.38 17.00 (2.63) -15.44%
HRBT Hudson River Bancorp Inc. 207.55 11.63 11.25 0.38 3.33%
ICBC Independence Community Bank Corp. 1,213.79 16.38 13.98 2.39 17.10%
JSB JSB Financial, Inc. 544.62 56.88 52.00 4.88 9.38%
PEEK Peekskill Financial Corporation 46.18 16.25 13.50 2.75 20.37%
QCSB Queens County Bancorp, Inc. 642.84 30.25 29.63 0.63 2.11%
RCBK Richmond County Financial Corp. 414.25 16.25 16.06 0.19 1.16%
RELY Reliance Bancorp, Inc. 265.53 30.50 28.88 1.63 5.63%
ROSE TR Financial Corp. 646.81 36.69 36.63 0.06 0.17%
RSLN Roslyn Bancorp, Inc. 879.75 21.25 18.38 2.88 15.65%
SFED SFS Bancorp, Inc. 25.68 21.25 20.38 0.88 4.29%
SIB Staten Island Bancorp, Inc. 814.00 18.63 19.75 (1.13) -5.70%
SKAN Skaneateles Bancorp Inc. 27.56 19.00 15.00 4.00 26.67%
WSBI Warwick Community Bancorp, Inc. 106.53 16.13 16.63 (0.50) -3.01%
YFCB Yonkers Financial Corporation 41.92 15.38 13.81 1.56 11.31%
State Average 557.79 21.34 23.18 0.39 2.67%
State Median 172.72 16.38 17.00 0.31 2.11%
</TABLE>
Source: SNL Securities and FinPro Calculations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 8
<PAGE> 9
The Comparable Group experienced an average increase in stock price of 1.03% and
median increase of 0.31%.
FIGURE 4 - COMPARABLE PRICE CHANGE
<TABLE>
<CAPTION>
1/22/99 1/22/99 12/3/98
Market Stock Stock Dollar Percentage
Value Price Price Change Change
Ticker Short Name ($M) ($) ($)
- ----------------------------------------------------------------------------------------------------
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 95.86 18.75 18.50 0.25 1.35%
CFSB CFSB Bancorp, Inc. 187.75 23.00 23.13 (0.13) -0.54%
FFYF FFY Financial Corp. 135.02 34.88 32.88 2.00 6.08%
FBBC First Bell Bancorp, Inc. 95.32 15.63 15.63 0.00 0.00%
FNGB First Northern Capital Corporation 107.37 12.25 12.75 (0.50) -3.92%
HMNF HMN Financial, Inc. 64.65 12.00 13.25 (1.25) -9.43%
HOMF Home Federal Bancorp 116.82 23.00 26.75 (3.75) -14.02%
MECH MECH Financial, Inc. 170.86 32.25 27.75 4.50 16.22%
MWBX MetroWest Bank 89.11 6.25 6.75 (0.50) -7.41%
OFCP Ottawa Financial Corporation 130.15 23.50 21.50 2.00 9.30%
PBKB People's Bancshares, Inc. 68.00 20.50 20.38 0.13 0.61%
SFIN Statewide Financial Corp. 77.34 18.25 16.00 2.25 14.06%
Comparable Average 111.52 20.02 19.60 0.42 1.03%
Comparable Median 101.62 19.63 19.44 0.06 0.31%
</TABLE>
Source: SNL Securities and FinPro Calculations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 9
<PAGE> 10
The median change in price to LTM Core EPS for all New York fully converted
thrifts was 2.08% and the median change in price to book and price to tangible
book value was 2.76%.
FIGURE 5 - NEW YORK FULLY CONVERTED THRIFTS MULTIPLE CHANGES
<TABLE>
<CAPTION>
1/22/99 12/3/98 1/22/99 12/3/98
Core Core Percentage Book Book Percentage
LTM EPS LTM EPS Change Value Value Change
Ticker Short Name (x) (x) (x) (%) (%) (%)
- --------------------------------------------------------------------------------------------------------------------------
NEW YORK FULLY CONVERTED
<S> <C> <C> <C> <C> <C> <C> <C>
AHCI Ambanc Holding Co., Inc. 26.23 26.23 0.00% 109.29 109.29 0.00%
ALBC Albion Banc Corp. 18.14 17.65 2.78% 109.21 106.26 2.78%
ALBK ALBANK Financial Corporation 20.35 230.52
ASFC Astoria Financial Corporation 15.40 14.90 3.36% 177.39 132.67 33.71%
CATB Catskill Financial Corporation 16.21 15.38 5.40% 94.79 89.97 5.36%
CNY Carver Bancorp, Inc. 17.88 19.77 -9.56% 49.19 54.38 -9.54%
CNYF CNY Financial Corp. NA NA NA NA NA NA
DCOM Dime Community Bancshares, Inc. 18.32 21.44 -14.55% 138.26 161.84 -14.57%
DME Dime Bancorp, Incorporated 11.71 14.29 -18.05% 200.79 217.39 -7.64%
ESBK Elmira Savings Bank, FSB 16.24 15.31 6.07% 113.96 107.40 6.11%
FFIC Flushing Financial Corporation 15.85 16.49 -3.88% 127.07 132.23 -3.90%
FIBC Financial Bancorp, Inc. 22.67 228.34
GOSB GSB Financial Corporation 35.00 35.00 0.00% 98.31 98.31 0.00%
GPT GreenPoint Financial Corporation 16.24 17.75 -8.51% 148.77 171.73 -13.37%
HAVN Haven Bancorp, Inc. 15.63 18.48 -15.42% 103.87 122.83 -15.44%
HRBT Hudson River Bancorp Inc. NA NA NA 84.00 81.76 2.74%
ICBC Independence Community Bank Corp. NA NA NA 132.81 113.23 17.29%
JSB JSB Financial, Inc. 13.41 12.26 9.38% 145.57 133.09 9.38%
PEEK Peekskill Financial Corporation 23.55 19.57 20.34% 108.12 89.82 20.37%
QCSB Queens County Bancorp, Inc. 24.59 24.09 2.08% 378.60 370.78 2.11%
RCBK Richmond County Financial Corp. NA NA NA 136.78 128.71 6.27%
RELY Reliance Bancorp, Inc. 14.95 14.96 -0.07% 150.54 139.83 7.66%
ROSE TR Financial Corp. 18.25 18.22 0.16% 231.18 230.78 0.17%
RSLN Roslyn Bancorp, Inc. 17.86 15.44 15.67% 148.60 128.50 15.64%
SFED SFS Bancorp, Inc. 22.61 21.68 4.29% 115.99 111.22 4.29%
SIB Staten Island Bancorp, Inc. 17.74 NA NA 121.65 128.83 -5.57%
SKAN Skaneateles Bancorp Inc. 18.10 14.29 26.66% 146.60 115.74 26.66%
WSBI Warwick Community Bancorp, Inc. NA NA NA 117.44 121.09 -3.01%
YFCB Yonkers Financial Corporation 14.64 13.16 11.25% 100.29 90.10 11.31%
State Average 18.57 18.67 1.78% 138.04 140.95 3.80%
State Median 17.80 17.75 2.08% 124.36 125.67 2.76%
</TABLE>
<TABLE>
<CAPTION>
1/22/99 12/3/98
Tangible Tangible Percentage 1/22/99 12/3/98
Bk Value Bk Value Change Assets Assets
Ticker Short Name (%) (%) (%) (%) (%)
- ----------------------------------------------------------------------------------------------------------------
NEW YORK FULLY CONVERTED
<S> <C> <C> <C> <C> <C> <C>
AHCI Ambanc Holding Co., Inc. 109.29 109.29 0.00% 11.85 11.85
ALBC Albion Banc Corp. 109.21 106.26 2.78% 9.53 9.27
ALBK ALBANK Financial Corporation 287.08 21.81
ASFC Astoria Financial Corporation 214.79 182.34 17.80% 12.17 9.50
CATB Catskill Financial Corporation 94.79 89.97 5.36% 20.42 19.39
CNY Carver Bancorp, Inc. 50.78 56.14 -9.55% 4.14 4.57
CNYF CNY Financial Corp. NA NA NA NA NA
DCOM Dime Community Bancshares, Inc. 158.94 186.05 -14.57% 14.28 16.71
DME Dime Bancorp, Incorporated 240.95 263.16 -8.44% 12.47 13.71
ESBK Elmira Savings Bank, FSB 113.96 107.40 6.11% 7.46 7.03
FFIC Flushing Financial Corporation 131.97 137.34 -3.91% 15.25 15.87
FIBC Financial Bancorp, Inc. 229.14 20.91
GOSB GSB Financial Corporation 98.31 98.31 0.00% 23.47 23.47
GPT GreenPoint Financial Corporation 341.88 400.76 -14.69% 22.14 25.68
HAVN Haven Bancorp, Inc. 108.49 128.30 -15.44% 5.48 6.48
HRBT Hudson River Bancorp Inc. 84.12 81.88 2.74% 24.89 24.17
ICBC Independence Community Bank Corp. 140.44 119.83 17.20% 22.84 20.62
JSB JSB Financial, Inc. 145.57 133.09 9.38% 35.75 32.69
PEEK Peekskill Financial Corporation 108.12 89.82 20.37% 23.25 19.32
QCSB Queens County Bancorp, Inc. 378.60 370.78 2.11% 37.97 37.18
RCBK Richmond County Financial Corp. 137.25 129.12 6.30% 23.59 25.08
RELY Reliance Bancorp, Inc. 221.34 203.06 9.00% 10.74 10.40
ROSE TR Financial Corp. 231.18 230.78 0.17% 15.46 15.43
RSLN Roslyn Bancorp, Inc. 149.23 129.04 15.65% 23.65 20.45
SFED SFS Bancorp, Inc. 115.99 111.22 4.29% 14.57 13.97
SIB Staten Island Bancorp, Inc. 125.00 132.11 -5.38% 21.55 26.60
SKAN Skaneateles Bancorp Inc. 149.84 118.30 26.66% 10.13 7.99
WSBI Warwick Community Bancorp, Inc. 117.44 121.09 -3.01% 25.18 25.96
YFCB Yonkers Financial Corporation 100.29 90.10 11.31% 10.94 9.83
State Average 152.99 158.63 3.16% 17.66 17.71
State Median 128.49 128.67 2.76% 15.36 18.02
</TABLE>
Source SNL Securities and FinPro Calculations
The median change in the Comparable Group's price to LTM Core EPS was (1.80%),
and the median change in the price to book and price to tangible book values
were (0.56%) and (0.54%), respectively.
FIGURE 6 - COMPARABLE MULTIPLE CHANGES
<TABLE>
<CAPTION>
1/22/99 12/3/98 1/22/99 12/3/98
Core Core Percentage Book Book Percentage
LTM EPS LTM EPS Change Value Value Change
Ticker Short Name (x) (x) (x) (%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 13.11 13.70 -4.31% 111.34 111.99 -0.58%
CFSB CFSB Bancorp, Inc. 17.16 17.26 -0.58% 276.77 278.28 -0.54%
FFYF FFY Financial Corp. 17.35 16.77 3.46% 163.89 154.78 5.89%
FBBC First Bell Bancorp, Inc. 11.57 11.93 -3.02% 129.03 131.30 -1.73%
FNGB First Northern Capital Corporation 16.33 17.00 -3.94% 141.13 148.77 -5.14%
HMNF HMN Financial, Inc. 16.22 17.91 -9.44% 94.71 104.58 -9.44%
HOMF Home Federal Bancorp 11.98 13.93 -14.00% 170.24 198.00 -14.02%
MECH MECH Financial, Inc. 19.79 15.86 24.78% 179.17 155.64 15.12%
MWBX MetroWest Bank 10.96 12.27 -10.68% 176.55 193.41 -8.72%
OFCP Ottawa Financial Corporation 17.28 15.81 9.30% 177.36 162.26 9.31%
PBKB People's Bancshares, Inc. 10.46 10.40 0.58% 207.70 206.43 0.62%
SFIN Statewide Financial Corp. 23.10 20.25 14.07% 127.80 112.04 14.07%
Comparable Average 15.44 15.26 0.52% 162.97 163.12 0.40%
Comparable Median 16.28 15.84 -1.80% 167.07 155.21 -0.56%
</TABLE>
<TABLE>
<CAPTION>
1/22/99 12/3/98
Tangible Tangible Percentage 1/22/99 12/3/98
Bk Value Bk Value Change Assets Assets
Ticker Short Name (%) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 115.24 115.84 -0.52% 8.42 9.06
CFSB CFSB Bancorp, Inc. 276.77 278.28 -0.54% 21.65 21.77
FFYF FFY Financial Corp. 163.89 154.78 5.89% 20.07 19.77
FBBC First Bell Bancorp, Inc. 129.03 131.30 -1.73% 12.42 12.97
FNGB First Northern Capital Corporation 141.13 148.77 -5.14% 14.92 15.80
HMNF HMN Financial, Inc. 103.36 114.13 -9.44% 9.13 10.09
HOMF Home Federal Bancorp 174.51 202.96 -14.02% 16.37 19.04
MECH MECH Financial, Inc. NA 156.96 NA 16.76 15.31
MWBX MetroWest Bank 176.55 193.41 -8.72% 12.91 14.38
OFCP Ottawa Financial Corporation 216.79 198.34 9.30% 13.99 12.80
PBKB People's Bancshares, Inc. 211.12 209.84 0.61% 7.63 7.58
SFIN Statewide Financial Corp. 127.98 112.20 14.06% 11.99 10.51
Comparable Average 166.94 168.07 -0.93% 13.86 14.09
Comparable Median 163.89 155.87 -0.54% 13.45 13.68
</TABLE>
Source: SNL Securities and FinPro Calculations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 10
<PAGE> 11
ACQUISITION MARKET
The number of acquisitions fell off the pace in the fourth quarter of 1998.
FIGURE 7 - DEALS BY COUNT FOR LAST FIFTEEN QUARTERS
<TABLE>
<CAPTION>
Bank Thrift
<S> <C> <C>
1995-2 85 35
1995-3 92 27
1995-4 80 22
1996-1 79 22
1996-2 87 29
1996-3 91 21
1996-4 82 19
1997-1 66 25
1997-2 79 32
1997-3 102 17
1997-4 97 37
1998-1 97 26
1998-2 126 26
1998-3 100 25
1998-4 29 9
1999-1* 7 1
</TABLE>
* - 1999-1 is quarter to date through 1/22/99.
Source: SNL Securities
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 11
<PAGE> 12
Thrift acquisition prices increased in 1997 and either increased again in 1998
or remained high relative to 1995 and 1996. The 1999 multiples, though up on a
book, asset and deposit basis, represent only one deal and are, therefore, not
truly comparable to the multiples for the 86 deals in 1998.
FIGURE 8 - THRIFT ACQUISITION MULTIPLES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MEDIAN PRICE TO LTM EARNINGS 1995 1996 1997 1998 1999 YTD
<S> <C> <C> <C> <C> <C>
Thrifts - Nationwide 18.4 17.6 24.6 27.2 24.5
Thrifts - Mid-Atlantic 17.9 17.0 21.7 26.6 NA
Thrifts - Deal Value $100 - $500 Million 17.4 15.2 24.4 25.8 24.5
AVERAGE PRICE TO BOOK
Thrifts - Nationwide 144.7 149.5 184.2 211.9 223.2
Thrifts - Mid-Atlantic 156.5 156.9 212.5 203.8 NA
Thrifts - Deal Value $100 - $500 Million 149.4 148.6 195.7 219.5 223.2
AVERAGE PRICE TO TANGIBLE BOOK
Thrifts - Nationwide 150.0 153.6 191.0 219.4 223.2
Thrifts - Mid-Atlantic 157.6 159.4 228.7 212.1 NA
Thrifts - Deal Value $100 - $500 Million 155.8 162.4 214.0 232.3 223.2
AVERAGE PRICE TO ASSETS
Thrifts - Nationwide 14.8 15.0 18.3 22.2 30.8
Thrifts - Mid-Atlantic 15.3 17.7 16.5 23.4 NA
Thrifts - Deal Value $100 - $500 Million 15.5 14.1 19.8 23.7 30.8
AVERAGE PRICE TO DEPOSITS
Thrifts - Nationwide 19.2 19.9 24.8 30.1 51.0
Thrifts - Mid-Atlantic 20.3 24.5 26.1 32.4 NA
Thrifts - Deal Value $100 - $500 Million 20.8 20.2 28.6 34.9 51.0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 12
<PAGE> 13
RECENT STANDARD CONVERSIONS
The following table illustrates the performance of recent standard conversions
traded on a major exchange. Since September 30, 1998, seven of the nine
conversions are trading within 15% of their IPO price.
FIGURE 9 -RECENT STANDARD CONVERSIONS
<TABLE>
<CAPTION>
---------------------------------------------------
PERCENT CHANGE FROM IPO
---------------------------------------------------
AFTER AFTER AFTER AFTER
IPO PRICE 1 DAY 1 WEEK 1 MONTH 3 MONTHS TO DATE
TICKER SHORT NAME IPO DATE ($) (%) (%) (%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COHB Cohoes Bancorp Inc. 01/04/99 10.000 13.75% 15.31% N/A N/A 9.38%
FPFC First Place Financial Corp. 01/04/99 10.000 7.50% 14.38% N/A N/A 9.38%
------------------------------------------------------------------------------------------------------------------------
Q1`99 AVERAGE 10.63% 14.85% - - 9.38%
MEDIAN 10.63% 14.85% - - 9.38%
------------------------------------------------------------------------------------------------------------------------
LNCB Lincoln Bancorp 12/30/98 10.000 8.75% 10.00% N/A N/A 10.63%
SPN Security of Pennsylvania Financial Corp. 12/30/98 10.000 5.63% 0.00% N/A N/A -3.75%
ISFC Innes Street Financial Corp. 12/29/98 10.000 N/A 31.25% N/A N/A 36.25%
VCAP Virginia Capital Bancshares, Inc. 12/23/98 10.000 26.88% 30.63% N/A N/A 34.38%
SCFS Seacoast Financial Services Corporation 11/20/98 10.000 3.13% 0.63% -1.25% N/A 10.00%
FNFI First Niles Financial Inc. 10/27/98 10.000 15.00% 8.75% 13.75% N/A 10.00%
CNYF CNY Financial Corp. 10/06/98 10.000 -5.00% -4.37% -7.50% 2.50% 3.75%
------------------------------------------------------------------------------------------------------------------------
Q4`98 AVERAGE 9.07% 10.98% 1.67% 2.50% 14.47%
MEDIAN 7.19% 8.75% -1.25% 2.50% 10.00%
------------------------------------------------------------------------------------------------------------------------
CITZ CFS Bancorp Inc. 07/24/98 10.000 14.38% 10.63% 0.00% -2.50% 2.50%
UCFC United Community Finl Corp. 07/09/98 10.000 50.00% 50.00% 57.50% 30.00% 36.25%
HRBT Hudson River Bancorp 07/01/98 10.000 25.63% 33.75% 33.75% 1.25% 16.25%
------------------------------------------------------------------------------------------------------------------------
Q3`98 AVERAGE 30.00% 31.46% 30.42% 9.58% 18.33%
MEDIAN 25.63% 33.75% 33.75% 1.25% 16.25%
------------------------------------------------------------------------------------------------------------------------
FKAN First Kansas Financial Corp. 06/29/98 10.000 23.13% 23.75% 16.88% 3.75% 5.00%
CFKY Columbia Financial of Kentucky 04/15/98 10.000 71.25% 57.50% 62.50% 38.75% 38.75%
EFC EFC Bancorp Inc. 04/07/98 10.000 47.50% 48.75% 43.75% 32.50% 11.25%
HBSC Heritage Bancorp Inc. 04/07/98 15.000 48.75% 46.25% 45.83% 32.50% 37.09%
NEP Northeast PA Financial Corp. 04/01/98 10.000 55.00% 53.13% 55.00% 41.25% 8.75%
------------------------------------------------------------------------------------------------------------------------
Q2`98 AVERAGE 49.13% 45.88% 44.79% 29.75% 20.17%
MEDIAN 48.75% 48.75% 45.83% 32.50% 11.25%
------------------------------------------------------------------------------------------------------------------------
BYS Bay State Bancorp, Inc. 03/30/98 20.000 46.88% 49.38% 50.00% 34.38% 9.38%
HLFC Home Loan Financial Corp. 03/26/98 10.000 52.50% 58.75% 67.50% 51.25% 25.00%
CAVB Cavalry Bancorp, Inc. 03/17/98 10.000 105.63% 133.75% 141.25% 122.50% 109.38%
ICBC Independence Community Bank Corp. 03/17/98 10.000 72.50% 76.88% 78.75% 57.50% 63.75%
RCBK Richmond County Financial Corp. 02/18/98 10.000 63.13% 59.38% 73.75% 86.88% 62.50%
HFBC HopFed Bancorp, Inc. 02/09/98 10.000 68.13% 60.00% 67.50% 118.75% 77.50%
TSBK Timberland Bancorp, Inc. 01/13/98 10.000 45.00% 61.88% 58.75% 80.00% 24.38%
MYST Mystic Financial, Inc. 01/09/98 10.000 44.38% 50.63% 50.63% 76.25% 22.50%
UTBI United Tennessee Bankshares, Inc. 01/05/98 10.000 47.50% 40.00% 38.75% 50.00% 22.50%
------------------------------------------------------------------------------------------------------------------------
Q1`98 AVERAGE 60.63% 65.63% 69.65% 75.28% 46.32%
MEDIAN 52.50% 59.38% 67.50% 76.25% 25.00%
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
1998 YTD AVERAGE 40.68% 41.30% 47.35% 47.64% 28.08%
MEDIAN 46.88% 47.50% 50.32% 40.00% 22.50%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CURRENT
STOCK PRICE
TICKER SHORT NAME 1/22/99
- -----------------------------------------------------------------------
<S> <C> <C>
COHB Cohoes Bancorp Inc. 10.938
FPFC First Place Financial Corp. 10.938
------------------------------------------------------------
Q1`99 AVERAGE 10.938
MEDIAN 10.938
------------------------------------------------------------
LNCB Lincoln Bancorp 11.063
SPN Security of Pennsylvania Financial Corp. 9.625
ISFC Innes Street Financial Corp. 13.625
VCAP Virginia Capital Bancshares, Inc. 13.438
SCFS Seacoast Financial Services Corporation 11.000
FNFI First Niles Financial Inc. 11.000
CNYF CNY Financial Corp. 10.375
------------------------------------------------------------
Q4`98 AVERAGE 11.447
MEDIAN 11.000
------------------------------------------------------------
CITZ CFS Bancorp Inc. 10.250
UCFC United Community Finl Corp. 13.625
HRBT Hudson River Bancorp 11.625
------------------------------------------------------------
Q3`98 AVERAGE 11.833
MEDIAN 11.625
------------------------------------------------------------
FKAN First Kansas Financial Corp. 10.500
CFKY Columbia Financial of Kentucky 13.875
EFC EFC Bancorp Inc. 11.125
HBSC Heritage Bancorp Inc. 20.563
NEP Northeast PA Financial Corp. 10.875
------------------------------------------------------------
Q2`98 AVERAGE 13.388
MEDIAN 11.125
------------------------------------------------------------
BYS Bay State Bancorp, Inc. 21.875
HLFC Home Loan Financial Corp. 12.500
CAVB Cavalry Bancorp, Inc. 20.938
ICBC Independence Community Bank Corp. 16.375
RCBK Richmond County Financial Corp. 16.250
HFBC HopFed Bancorp, Inc. 17.750
TSBK Timberland Bancorp, Inc. 12.438
MYST Mystic Financial, Inc. 12.250
UTBI United Tennessee Bankshares, Inc. 12.250
------------------------------------------------------------
Q1`98 AVERAGE 15.847
MEDIAN 16.250
------------------------------------------------------------
------------------------------------------------------------
1998 YTD AVERAGE 13.55
MEDIAN 12.34
------------------------------------------------------------
</TABLE>
Source: SNL Securities and FinPro Calculations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 13
<PAGE> 14
PENDING STANDARD CONVERSIONS
The following charts illustrate the relationship of the Bank's price to book
and price to earnings multiples to other pending standard conversions.
FIGURE 10 -PENDING STANDARD CONVERSIONS P/B
Comparison of P/B Multiples at Midpoint of EVR for Pending Standard Conversions
[CHART]
Source: The SNL Conversion Watch
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 14
<PAGE> 15
FIGURE 11 -PENDING STANDARD CONVERSIONS P/E
Comparison of P/E Multiples at Midpoint of EVR for Pending Standard Conversions
[CHART]
Source: The SNL Conversion Watch
As the following table demonstrates, the price to book discount to the average
pending conversion is (2.44%) and to the median is (0.81%). The price to
earnings premium to the average pending conversion, however, is 26.41% and the
median is 17.39%.
FIGURE 12 -PREMIUM/(DISCOUNT) TO PENDING CONVERSIONS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Institution P/B P/E
----------------------------------------------------------------------
<S> <C> <C>
First Bancorp of Indiana 61.01 19.23
Palmyra Savings & Building Assoc. FA 61.92 18.52
Community Savings Bank 62.00 26.30
Woronoco Bancorp 64.94 10.93
South Jersey Financial Corp 65.32 11.01
----------------------------------------------------------------------
Average 63.04 17.20
Median 62.00 18.52
----------------------------------------------------------------------
Troy 61.50 21.74
----------------------------------------------------------------------
Premium/(Discount): Average -2.44% 26.41%
Median -0.81% 17.39%
----------------------------------------------------------------------
</TABLE>
Source: The SNL Conversion Watch and FinPro computations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 15
<PAGE> 16
VALUATION DETERMINATION
As in our initial appraisal, FinPro has analyzed the pro forma price to
earnings, pro forma price to tangible book and pro forma price to book ratios
in combination with one another in determining an appropriate pro forma
estimated market value for the Bank. FinPro has considered the price to assets
ratio as well in its valuation approach. Additional supporting data is as
follows:
Exhibit 4 - Multiples of the Comparable Group - Pricing Data as of
December 3, 1998 and January 22, 1999
Exhibit 5 - Industry Multiples as of January 22, 1999
Exhibit 6 - Selected Data on the Comparable Group
Exhibit 7 - Standard Conversions - 1997 to Date
Since the date of the original appraisal, the median change in Comparable Group
stock price was 0.31% (Figure 4) and the median change in the New York fully
converted thrift stock price was 2.11% (Figure 3). The SNL index increased
2.54%, while the S&P and Dow Jones indices increased 6.53% and 2.71%,
respectively (Figure 2). The relatively minimal shift in the Comparable stock
prices, the thrift indices, recent standard conversions and the relationship of
the pro forma multiples to pending conversions would indicate that no change is
warranted to the original pro forma pricing multiples.
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 16
<PAGE> 17
Based upon these factors, FinPro believes that the valuation range without a
foundation should not change from the original appraisal and is still
$92,500,000 at the midpoint, $78,625,000 at the minimum and $106,375,000 at the
maximum ($122,331,250 at the supermaximum).
FIGURE 13 - VALUATION RANGE OF FULL OFFERING WITHOUT FOUNDATION
<TABLE>
<CAPTION>
Total Shares Price Total
Conclusion Shares Per Share Value
- -------------------------------- ------------------------------------------------
<S> <C> <C> <C>
Appraised Value - Midpoint 9,250,000 $ 10 $ 92,500,000
Range:
- Minimum 7,862,500 $ 10 78,625,000
- Maximum 10,637,500 10 106,375,000
- Super Maximum 12,233,125 10 122,331,250
</TABLE>
Source: FinPro Computations
At the midpoint, the $10.00 stock price remains at 61.50% of pro forma book
value, 61.84% of pro forma tangible book value, 21.74 times the pro forma core
earnings per share and 11.62% of pro forma assets.
FIGURE 14 - PRICING MULTIPLES OF FULL OFFERING WITHOUT FOUNDATION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Bank Comparables State National
-------------------------------------------------------------------------
Mean Median Mean Median Mean Median
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Min 19.61
Price-Core Earnings Ratio P/E Mid 21.74 15.44 16.28 18.57 17.80 19.91 15.67
- ----------------------------- Max 24.39
Smax 26.32
Min 56.85%
Price-to-Book Ratio P/B Mid 61.50% 162.97% 167.70% 138.04% 124.30% 130.48% 115.99%
- ----------------------- Max 65.49%
Smax 69.35%
Min 57.18%
Price-to-Tangible Book Ratio P/TB Mid 61.84% 166.94% 163.89% 152.99% 128.49% 137.83% 120.54%
- --------------------------------- Max 65.83%
Smax 69.69%
Min 10.03%
Price-to-Assets Ratio P/A Mid 11.62% 13.86% 13.45% 17.66% 15.36% 15.50% 14.12%
- ------------------------- Max 13.16%
Smax 14.88%
</TABLE>
Source: FinPro Computations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 17
<PAGE> 18
The valuation range with a foundation increases, due to the reduction of the
foundation percentage from 8% to 2.05%, to $89,100,000 at the midpoint,
$75,735,000 at the minimum and $102,465,000 at the maximum ($117,834,750 at the
maximum as adjusted).
FIGURE 15 - UPDATED VALUATION RANGE OF FULL OFFERING WITH A FOUNDATION
<TABLE>
<CAPTION>
Total Shares Price Total
Conclusion Shares Per Share Value
- --------------------------------- ------------------------------------------------
<S> <C> <C> <C>
Appraised Value - Midpoint 8,910,000 $ 10 $ 89,100,000
Range:
- Minimum 7,573,500 $ 10 75,735,000
- Maximum 10,246,500 10 102,465,000
- Super Maximum 11,783,475 10 117,834,750
</TABLE>
Source: FinPro Computations
At the midpoint, the $10.00 stock price remains at 61.50% of pro forma book
value, drops to 61.84% (from 61.88%) of pro forma tangible book value, remains
21.74 times the pro forma core earnings per share and increases to 11.62% (from
10.91%) of pro forma assets.
FIGURE 16 - UPDATED PRICING MULTIPLES OF FULL OFFERING WITH A FOUNDATION
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Bank Comparables State National
-----------------------------------------------------------------------
Mean Median Mean Median Mean Median
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Min 19.61
Price-Core Earnings Ratio P/E Mid 21.74 15.44 16.28 18.57 17.80 19.91 15.67
- ----------------------------- Max 24.39
Smax 27.03
Min 56.75%
Price-to-Book Ratio P/B Mid 61.50% 162.97% 167.70% 138.04% 124.30% 130.48% 115.99%
- ----------------------- Max 65.57%
Smax 69.49%
Min 57.11%
Price-to-Tangible Book Ratio P/TB Mid 61.84% 166.94% 163.89% 152.99% 128.49% 137.83% 120.54%
- --------------------------------- Max 65.92%
Smax 69.83%
Min 9.89%
Price-to-Assets Ratio P/A Mid 11.46% 13.86% 13.45% 17.66% 15.36% 15.50% 14.12%
- ------------------------- Max 12.99%
Smax 14.69%
</TABLE>
Source: FinPro Computations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 18
<PAGE> 19
The pro forma multiples for a full conversion with a foundation are at a
(63.33%) discount on a book basis and a 33.54% premium on a core earnings
basis, relative to the Comparable Group.
FIGURE 17 - PRICING MULTIPLE PREMIUMS/(DISCOUNTS) TO COMPARABLE GROUP
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Price Relative to
--------------------------------------------------------------------------
Earnings Core Earnings Book Tangible Book Assets
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Bank (at midpoint) Full Conversion w/ Foundation 333.33 21.74 61.50% 61.84% 11.46%
- ---------------------------------------------------------------------------------------------------------------------------------
Comparable Group Median 16.50 16.28 167.70% 163.89% 13.45%
- ---------------------------------------------------------------------------------------------------------------------------------
(Discount) Premium 1920.18% 33.54% -63.33% -62.27% -14.80%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Computations
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 19
<PAGE> 20
VALUATION CONCLUSION
As of January 28, 1999, it is FinPro's opinion that the estimated value range
for a full conversion without a foundation established at December 3, 1998 is
still valid. The estimated value range for a full conversion with a
foundation, however, has increased due to the decrease in the foundation
percentage from 8% to 2.05%. Based on the foundation reduction, it is our
opinion that, as of January 28, 1999, the estimated pro forma market value of
the Bank in a full offering with a foundation is $89,100,000 at the midpoint,
$75,735,000 at the minimum, $102,465,000 at the maximum and $117,834,750 at the
maximum, as adjusted.
Respectfully Submitted,
FinPro, Inc.
- --------------------------------------------------------------------------------
Troy Financial Corporation, Appraisal Update Page 20
<PAGE> 21
================================================================================
TROY FINANCIAL
CORPORATION
CONVERSION
VALUATION
APPRAISAL
DATE ISSUED: DECEMBER 10, 1998
DATE OF MARKET PRICES: DECEMBER 3, 1998
================================================================================
<PAGE> 22
Table of Contents
Troy Financial Corporation
Troy, New York
INTRODUCTION
- --------------------------------------------------------------------------------
1. OVERVIEW AND FINANCIAL ANALYSIS
- --------------------------------------------------------------------------------
GENERAL OVERVIEW
HISTORY
STRATEGIC DIRECTION
BALANCE SHEET TRENDS
LOAN PORTFOLIO
INVESTMENTS
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
ASSET QUALITY
FUNDING COMPOSITION
ASSET/LIABILITY MANAGEMENT
NET WORTH AND CAPITAL
INCOME AND EXPENSE TRENDS
SUBSIDIARIES
LEGAL PROCEEDINGS
2. MARKET AREA ANALYSIS
- --------------------------------------------------------------------------------
MARKET AREA DEMOGRAPHICS
MARKET AREA DEPOSIT CHARACTERISTICS
3. COMPARISONS WITH PUBLICLY TRADED THRIFTS
- --------------------------------------------------------------------------------
INTRODUCTION
SELECTION SCREENS
SELECTION CRITERIA
COMPARABLE GROUP PROFILES
4. MARKET VALUE DETERMINATION
- --------------------------------------------------------------------------------
INTRODUCTION
BALANCE SHEET STRENGTH
ASSET QUALITY
EARNINGS QUALITY, PREDICTABILITY AND GROWTH
DIVIDENDS
<PAGE> 23
LIQUIDITY OF THE ISSUE
RECENT REGULATORY MATTERS
MARKET FOR SEASONED THRIFT STOCKS
ACQUISITION MARKET
ADJUSTMENTS TO VALUE IN RELATION TO THE COMPARABLE GROUP
5. OTHER ADJUSTMENTS
- --------------------------------------------------------------------------------
MANAGEMENT
MARKET AREA
SUBSCRIPTION INTEREST
ADJUSTMENTS TO VALUE IN RELATION TO OTHER COMPARISONS
6. VALUATION
- --------------------------------------------------------------------------------
FULL OFFERING VALUE IN RELATION TO COMPARABLES
FULL OFFERING VALUE WITH FOUNDATION IN RELATION TO COMPARABLES
VALUATION CONCLUSION
<PAGE> 24
List of Figures
Troy Financial Corporation
Troy, New York
FIGURE 1 - CURRENT FACILITIES LIST
FIGURE 2 - ASSET AND RETAINED EARNINGS CHART
FIGURE 3 - KEY BALANCE SHEET DATA
FIGURE 4 - KEY RATIOS
FIGURE 5 - NET LOANS RECEIVABLE CHART
FIGURE 6 - LOAN MIX AS OF SEPTEMBER 30, 1998 CHART
FIGURE 7 - LOAN MIX
FIGURE 8 - SECURITIES CHART
FIGURE 9 - INVESTMENT MIX
FIGURE 10 - NON-PERFORMING ASSETS CHART
FIGURE 11 - NON-PERFORMING LOANS
FIGURE 12 - ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES CHART
FIGURE 13 - DEPOSIT AND BORROWING TREND CHART
FIGURE 14 - DEPOSIT MIX
FIGURE 15 - INTEREST SENSITIVE ASSET/LIABILITY REPRICING REPORT
FIGURE 16 - CAPITAL ANALYSIS
FIGURE 17 - NET INCOME CHART
FIGURE 18 - AVERAGE YIELDS AND COSTS
FIGURE 19 - SPREAD AND MARGIN CHART
FIGURE 20 - INCOME STATEMENT TRENDS
FIGURE 21 - PROFITABILITY TREND CHART
FIGURE 22 - POPULATION DEMOGRAPHICS
FIGURE 23 - HOUSEHOLD CHARACTERISTICS
FIGURE 24 - ALBANY MARKET SHARE
FIGURE 25 - CLIFTON PARK MARKET SHARE
FIGURE 26 - COLONIE MARKET SHARE
FIGURE 27 - EAST GREENBUSH MARKET SHARE
FIGURE 28 - GUILDERLAND MARKET SHARE
FIGURE 29 - HUDSON VALLEY / TROY MARKET SHARE
FIGURE 30 - LATHAM (COLONIE) MARKET SHARE
FIGURE 31 - QUEENSBURY MARKET SHARE
FIGURE 32 - SCHENECTADY MARKET SHARE
FIGURE 33 - TROY MARKET SHARE
FIGURE 34 - WATERVLIET MARKET SHARE
FIGURE 35 - WHITEHALL MARKET SHARE
FIGURE 36 - POTENTIAL COMPARABLES
FIGURE 37 - COMPARABLES ELIMINATED
FIGURE 38 - COMPARABLE GROUP
FIGURE 39 - KEY FINANCIAL INDICATORS
FIGURE 40 - KEY BALANCE SHEET DATA
FIGURE 41 - BALANCE SHEET GROWTH DATA
FIGURE 42 - CAPITAL DATA
FIGURE 43 - ASSET QUALITY TABLE
FIGURE 44 - NET INCOME TREND
FIGURE 45 - PROFITABILITY DATA
FIGURE 46 - INCOME STATEMENT DATA
FIGURE 47 - DIVIDEND DATA
<PAGE> 25
FIGURE 48 - MARKET CAPITALIZATION DATA
FIGURE 49 - SNL THRIFT INDEX CHART
FIGURE 50 - HISTORICAL SNL INDEX
FIGURE 51 - EQUITY INDICES
FIGURE 52 - HISTORICAL MARKET INDICES
FIGURE 53 - HISTORICAL RATES
FIGURE 54 - SNL INDEX & STOCK PRICE COMPARISON
FIGURE 55 - DEALS FOR LAST FIFTEEN QUARTERS
FIGURE 56 - DEAL MULTIPLES
FIGURE 57 - DEMOGRAPHIC MARKET SUMMARY
FIGURE 58 - RECENT STANDARD CONVERSION PERFORMANCE
FIGURE 59 - VALUE RANGE FULL OFFERING DATA
FIGURE 60 - VALUE RANGE OFFERING DATA
FIGURE 61 - COMPARABLE PRICING MULTIPLES TO THE BANK'S PRO FORMA MIDPOINT
FIGURE 62 - VALUE RANGE WITH FOUNDATION OFFERING DATA
FIGURE 63 - VALUE RANGE OFFERING DATA
FIGURE 64 - COMPARABLE PRICING MULTIPLES TO THE BANK'S PRO FORMA MIDPOINT
<PAGE> 26
List of Exhibits
Troy Financial Corporation
Troy, New York
<TABLE>
<CAPTION>
EXHIBIT
- ------------------
<C> <S>
1 Profile of FinPro, Inc.
2 Consolidated Statements of Condition
3 Consolidated Statements of Income
4 Consolidated Statements of Changes in Equity
5 Consolidated Statements of Cash Flows
6 Selected Data on All Public Thrifts
7 Industry Multiples
8 Recent Standard Conversions 1997 to Date
9 Appraisal Pro Forma September 30, 1998 - Full Offering 12 Months Data Adjusted - Without Foundation
10 Appraisal Pro Forma September 30, 1998 - 12 Months Data Adjusted - With Foundation
11 Offering Circular Pro Forma September 30, 1997 - 12 Months Data Unadjusted - With Foundation
12 Comparison With and Without a Foundation
</TABLE>
<PAGE> 27
Conversion Valuation Appraisal Report Page: 1 - 6
================================================================================
INTRODUCTION
This report represents FinPro, Inc.'s ("FinPro") independent appraisal of the
estimated pro forma market value of the common stock (the "Common Stock") of
Troy Financial Corporation (the "Corporation" or the "Company") in connection
with the Plan of Conversion (the "Conversion") of Troy Savings Bank (the "Bank")
from a New York state chartered mutual savings bank to a stock savings bank. In
this Conversion, the Bank will become a wholly owned subsidiary of Troy
Financial Corporation.
It is our understanding that the Company will offer its common stock in a
Subscription Offering to the Bank's Eligible Account Holders, to the
tax-qualified Employee Stock Ownership Plan (ESOP), and to Supplemental Eligible
Account Holders of the Bank. In the event that not all of the shares are common
stock are not subscribed for in the Subscription Offering, the Company will
offer the remaining shares for sale to the public as part of a Community
Offering and/or a Syndicated Community Offering. This appraisal has been
prepared in accordance with Regulation 563b.7 and with the "Guidelines for
Appraisal Reports for the Valuation of Savings and Loan Associations Converting
from Mutual to Stock Form of Organization" of the Office of Thrift Supervision
("OTS") which have been adopted in practice by the Federal Deposit Insurance
Corporation ("FDIC"), including the most recent revisions as of October 21,
1994, and applicable regulatory interpretations thereof.
In the course of preparing our report, we reviewed the financial statements of
the Bank's operations for the year ended September 30, 1998 and the Bank's
operations and financials for the prior years ended September 30, 1994 through
September 30, 1997. We also reviewed the Bank's Application for Approval of
Conversion including the Proxy Statement and the Company's Form S-1 registration
statement as filed with the Securities and Exchange Commission ("SEC"). We have
conducted due diligence analysis of the Bank and the Company (hereinafter,
collectively referred to as "the Bank") and held due diligence related
discussions with the Bank's management and board, KPMG Peat Marwick LLP, (the
Bank's independent auditor), Sandler O'Neill & Partners, L.P. (the Bank's
underwriter), and Hogan & Hartson L.L.P (the Bank's special counsel). The
valuation parameters set forth in the appraisal were predicated on these
discussions but all conclusions related to the valuation were reached and made
independent of such discussions.
Where appropriate, we considered information based upon other publicly available
sources, which we believe to be reliable; however, we cannot guarantee the
accuracy or completeness of such information. We visited the Bank's primary
market area and reviewed the economic condition of the market area. We also
reviewed the competitive environment in which the Bank
<PAGE> 28
Conversion Valuation Appraisal Report Page: 1 - 7
================================================================================
operates and its relative strengths and weaknesses. We compared the Bank's
performance with selected publicly traded thrift institutions. We reviewed
conditions in the securities markets in general and in the market for savings
institutions in particular. Our analysis included a review of the estimated
effects of the Conversion of the Bank, and operational and expected financial
performance as they related to the Bank's estimated pro forma value.
In preparing our valuation, we relied upon and assumed the accuracy and
completeness of financial and other information provided to us by the Bank and
its independent accountants. We did not independently verify the financial
statements and other information provided by the Bank and its independent
accountants, nor did we independently value any of the Bank's assets or
liabilities. This estimated valuation considers the Bank only as a going concern
and should not be considered as an indication of its liquidation value.
OUR VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, TO BE A RECOMMENDATION
OF ANY KIND AS THE ADVISABILITY OF PURCHASING SHARES OF COMMON STOCK IN THE
STOCK ISSUANCE. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS WHO PURCHASE
SHARES OF COMMON STOCK IN THE STOCK ISSUANCE WILL THEREAFTER BE ABLE TO SELL
SUCH SHARES AT PRICES RELATED TO THE FOREGOING VALUATION OF THE PRO FORMA MARKET
VALUE THEREOF. FINPRO IS NOT A SELLER OF SECURITIES WITHIN THE MEANING OF ANY
FEDERAL OR STATE SECURITIES LAWS AND ANY REPORT PREPARED BY FINPRO SHALL NOT BE
USED AS AN OFFER OR SOLICITATION WITH RESPECT TO THE PURCHASE OR SALE OF ANY
SECURITIES.
The estimated valuation herein will be updated as appropriate. These updates
will consider, among other factors, any developments or changes in the Bank's
financial condition, operating performance, management policies and procedures
and current conditions in the securities market for thrift institution common
stock. Should any such developments or changes, in our opinion, be material to
the estimated pro forma market value of the Bank, appropriate adjustments to the
estimated pro forma market value will be made. The reasons for any such
adjustments will be explained at that time.
1. OVERVIEW AND FINANCIAL ANALYSIS
GENERAL OVERVIEW
The Bank, after the Conversion, will be a New York chartered stock savings bank.
As of September 30, 1998, the Bank had $716.6 million in total assets, $578.2
million in deposits, $457.3 million in net loans and $71.0 million in equity.
<PAGE> 29
Conversion Valuation Appraisal Report Page: 1 - 8
================================================================================
The following table shows the Bank's facilities as of September 30, 1998.
FIGURE - CURRENT FACILITIES LIST
<TABLE>
<CAPTION> NET BOOK VALUE OF
PROPERTY OR
LEASEHOLD
ORIGINAL YEAR IMPROVEMENTS
LEASED OR DATE OF LEASE AT SEPTEMBER
LEASED OR OWNED ACQUIRED EXPIRATION 30, 1998
LOCATION
- ----------------------------------------------------------------------------------------------------------------------
HEADQUARTERS:
<S> <C> <C> <C> <C>
Troy Office Owned 1823 N/A $4,505,971
32 Second Street
Troy, NY 12180
BRANCH OFFICES:
Hudson Valley Plaza Office Leased 1983 12/31/05 $26,150
75 Vandenburgh Avenue
Troy, NY 12180
East Greenbush Office Owned 1969 N/A $113,004
615 Columbia Pike
East Greenbush, NY 12061
Albany Office Owned 1995 N/A $1,743,465
120 State Street
Albany, NY 12207
Watervliet Office Leased 1984 3/1/03 $31,856
1601 Broadway
Watervliet, NY 12189
Latham Office Leased 1989 6/30/99 $407,433
545 Troy-Schenectady Rd.
Schenectady, NY 12309
Colonie Office Leased 1994 3/31/07 $32,943
103 Wolf Road
Colonie, NY 12205
</TABLE>
<PAGE> 30
Conversion Valuation Appraisal Report Page: 1 - 9
================================================================================
<TABLE>
<S> <C> <C> <C> <C>
Leased 1997 6/9/07 $324,790
Guilderland Office
1704 Western Avenue
Guilderland, NY 12203
Schenectady Office Owned 1987 N/A $233,496
1626 Union Street
Schenectady, NY 12309
Clifton Park Office Owned 1972 N/A $199,842
Routes 9 and 146
Clifton Park, NY 12065
Clifton Park-Hannaford Office Leased 1995 8/14/00 $115,537
9 Clifton Country Road
Clifton Park, NY 12065
Quaker Road Office Owned 1995 N/A $1,713,275
44 Quaker Road
Queensbury, NY 12804
Queensbury Office Leased 1979 9/30/04 $171,449
739 Upper Glen Street
Queensbury, NY 12804
Whitehall Office Owned 1971 N/A $246,247
184 Broadway
Whitehall, NY 12887
</TABLE>
<PAGE> 31
Conversion Valuation Appraisal Report Page: 1 - 10
================================================================================
HISTORY
- - The Troy Savings Bank was chartered on April 23, 1823.
- - 1823 - The Bank opened its original office.
- - 1875 - The Bank opened its current Main Office.
- - 1969 - The bank opened its East Greenbush Branch.
- - 1971 - The Bank opened its second branch in the Village of Whitehall.
- - 1972 - The Bank opened its third branch in the Village of Clifton Park.
- - 1979 - The Bank opened its Glen Falls Office.
- - 1984 - The Bank established Family Insurance., Co., Inc.
- The Bank opened its Watervliet Office.
- The Bank opened its Hudson Valley Office.
- - 1987 - The Bank established Family Mortgage Co., Inc.
- The Bank opened its Schenectady Office.
- - 1988 - The Bank established its Commercial Lending Department.
- - 1989 - The Bank established Family Investment Services Co., Inc.
- The Bank opened its Latham Office.
- - 1992 - The Bank established its Trust Department.
- - 1994 - The Bank opened its Wolf Road Office.
- - 1995 - The Bank opened its Quaker Road Office.
- The Bank opened its State Street Office.
- The Bank opened its Clifton Country Road Office.
- - 1997 - The Bank established its Municipal Financing Department.
- The Bank opened its Guilderland Office.
- - 1998 - The Bank determined to go public.
<PAGE> 32
Conversion Valuation Appraisal Report Page: 1 - 11
================================================================================
STRATEGIC DIRECTION
The Bank's business strategy is to serve as a community based, full service
financial services firm by offering a wide variety of business and retail
banking products, as well as trust, insurance, investment management and
brokerage services to its potential and existing customers throughout its six
county market area.
Historically, the Bank has operated as a traditional thrift by making
residential mortgage loans and taking customers' deposits. In recent years, the
Bank has emphasized more commercial banking strategies including the origination
of commercial real estate loans and to a lesser, but increasing, extent
commercial business and consumer loans in its market area. In addition to its
lending program, the Bank also purchases securities, including U.S. government
securities and agency obligations. The Bank's primary source of funds is through
attracting deposits and borrowings. The Bank seeks to continue to manage its
growth strategy, emphasizing asset quality and maintenance of favorable interest
rate margins.
In the future, management intends to seek growth opportunities and intends to
seek means of lessening its exposure to interest rate risk while avoiding
investments the Bank believes bear risks inconsistent with the Bank's investment
policies. Management intends to grow by expanding the products and services it
offers, as necessary, in order to improve its market share in its primary market
area as well as seeking opportunities to expand its market share and product
line. The Company intends to establish or acquire a commercial bank and trust
company that can accept municipal deposits to complement the Bank's municipal
investment activities. In addition, the Bank may also open new branches to
better serve its existing customers and to increase its market share, especially
in those areas in which the Bank originates residential mortgage loans. The Bank
believes that its relationships to its communities and its operation as a full
service community bank distinguish it from its competitors and provide it with a
competitive advantage.
<PAGE> 33
Conversion Valuation Appraisal Report Page: 1 - 12
================================================================================
BALANCE SHEET TRENDS
The Bank's balance sheet increased by $109.4 million, or 18.01%, from $607.3
million at September 30, 1994 to $716.6 million at September 30, 1998.
Retained earnings have increased $15.6 million from $55.4 million at September
30, 1994 to $71.0 million at September 30, 1998. The retained earnings to assets
ratio is currently 9.91%.
FIGURE 2 - ASSET AND RETAINED EARNINGS CHART
[GRAPH depicting assets and retained earnings for
the fiscal years ended September 1994 through September 1998]
Source: Offering Prospectus
<PAGE> 34
Conversion Valuation Appraisal Report Page: 1 - 13
================================================================================
The following tables set forth certain information concerning the financial
position of the Bank along with selected ratios at the dates indicated.
FIGURE 3 - KEY BALANCE SHEET DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA: (In Thousands)
<S> <C> <C> <C> <C> <C>
Total Assets $ 716,649 $ 662,448 $ 657,524 $ 629,652 607,259
Loans receivable, net 457,321 468,160 451,822 408,615 381,828
Securities available for sale (fair value):
U.S. Government Securities and Agency obligations 117,220 57,620 81,053 32,575 64,115
Obligations of states and political subdivisions 51,681 20,833 1,548 862 220
Mortgage-backed securities 3,744 4,653 5,374 4,727 4,842
Corporate debt securities 16,984 27,168 53,959 - -
Mutual funds and marketable equity securities 4,822 3,971 3,704 3,496 3,251
Non-marketable equity securities 3,307 3,307 3,279 3,065 2,907
Securities held to maturity (amortized): 3,483 4,000 4,515 102,096 93,519
Deposits 578,202 572,397 564,606 552,462 535,903
Borrowings 47,464 4,728 9,899 842 1,581
Total equity 71,029 71,542 67,408 62,782 55,426
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
FIGURE 4 - KEY RATIOS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AT OR FOR THE YEAR ENDING SEPTEMBER 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: ($ in thousands)
-------------------------------------------------------------
PERFORMANCE RATIOS:
<S> <C> <C> <C> <C> <C>
Return (loss) on average assets -0.13% 0.55% 0.79% 1.15% 0.69%
Return (loss) on average equity -1.20% 5.22% 7.84% 11.97% 7.63%
Average equity to average total assets 10.80% 10.57% 10.05% 9.56% 9.02%
Equity to total assets 9.91% 10.80% 10.25% 9.97% 9.13%
Average interest earning assets to average interest
bearing liabilities 113.96% 112.29% 110.80% 110.12% 109.24%
Net interest rate spread 3.32% 3.50% 3.49% 3.65% 3.47%
Net interest rate margin 3.84% 3.96% 3.90% 4.01% 3.75%
Efficiency ratio 87.44% 65.48% 66.27% 63.22% 59.42%
Operating expenses to average assets 3.54% 2.74% 2.75% 2.66% 2.40%
ASSET QUALITY RATIOS:
Nonperforming loans to total loans 2.50% 1.84% 2.74% 2.85% 3.18%
Nonperforming assets to total assets 1.89% 1.72% 2.28% 2.22% 2.80%
Allowance for loan losses to total loans 1.77% 1.35% 0.94% 1.04% 1.09%
Allowance for loan losses to non-performing loans 70.91% 73.77% 34.49% 36.54% 34.16%
CAPITAL RATIOS:
Leverage capital 9.89% 10.64% 10.20% 9.83% 9.04%
Tier 1 Risk-based capital 14.02% 15.01% 14.48% 15.21% 15.15%
Risk-based capital 15.27% 16.37% 15.41% 16.27% 16.30%
OTHER DATA:
Full-service banking offices 14 14 13 13 11
Number of deposit accounts 70,057 70,185 71,458 72,531 68,649
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
Conversion Valuation Appraisal Report Page: 1 - 14
================================================================================
Source: Offering Prospectus
<PAGE> 36
Conversion Valuation Appraisal Report Page: 1 - 15
================================================================================
LOAN PORTFOLIO
The Bank's loan portfolio has increased by $75.5 million from September 30, 1994
to September 30, 1998, and as a percent of assets, the loan portfolio has
increased slightly from 62.88% at September 30, 1994 to 63.81% at September 30,
1998, although this ratio peaked in 1997 and was slightly off in 1998.
FIGURE 5 - NET LOANS RECEIVABLE CHART
[CHART depicting net loans receivable and net loans to assets ratios for the
fiscal years ended September 1994 through September 1998]
Source: Offering Prospectus
<PAGE> 37
Conversion Valuation Appraisal Report Page: 1 - 16
================================================================================
The Bank is primarily a real estate secured lender, but has done a nice job of
diversifying its loan mix toward commercial and consumer loans.
FIGURE 6 - LOAN MIX AS OF SEPTEMBER 30, 1998 CHART
<TABLE>
<S> <C>
Residential Mortgage 43.46%
Commercial Mortgage 35.67%
Construction 2.16%
Commercial Business 9.69%
HELOC 1.84%
Other Consumer 7.18%
</TABLE>
Source: Offering Prospectus
<PAGE> 38
Conversion Valuation Appraisal Report Page: 1 - 17
================================================================================
While the proportion of real estate loans (residential and commercial mortgages
and construction loans) to total net loans has decreased over the last several
years, the Bank's loan mix continues to be primarily based on real estate loans.
Consumer loans and commercial business loans have increased as a percentage of
total net loans.
FIGURE 7 - LOAN MIX
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30,
-------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------------------------------------------------------------------------
($ in thousands)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential mortgage $ 202,511 43.50% $ 214,638 45.23% $ 204,879 44.92%
Commercial 166,186 35.69% 184,561 38.89% 191,624 42.01%
Construction 10,052 2.16% 15,508 3.27% 12,999 2.85%
---------- ---- --------- ---- --------- ----
Total real estate loans 378,749 81.35% 414,707 87.39% 409,502 89.78%
Commercial business loans 45,156 9.70% 29,961 6.31% 24,762 5.43%
Consumer loans:
Home equity lines of credit 8,575 1.84% 9,883 2.08% 9,387 2.06%
Other consumer 33,445 7.18% 20,539 4.33% 13,159 2.88%
---------- ---- --------- ---- --------- ----
Total consumer loans 42,020 9.02% 30,422 6.41% 22,546 4.94%
Net deferred loan costs and unearned discount (344) -0.07% (501) -0.11% (684) -0.15%
---------- ---- --------- ---- --------- ----
Total loans 465,581 100.00% 474,589 100.00% 456,126 100.00%
Less: Allowance for loan losses (8,260) (6,429) (4,304)
---------- --------- ---------
Total loans receivable, net $ 457,321 $ 468,160 $ 451,822
========== ========= =========
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
At September 30,
--------------------------------------------------------
1995 1994
--------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
--------------------------------------------------------
($ in thousands)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate loans:
Residential mortgage $ 193,720 46.92% $ 175,769 45.53%
Commercial 171,830 41.61% 170,744 44.23%
Construction 9,354 2.77% 5,949 1.54%
--------- ---- --------- ----
Total real estate loans 374,904 90.80% 352,462 91.30%
Commercial business loans 19,038 4.61% 16,046 4.16%
Consumer loans:
Home equity lines of credit 8,620 2.09% 10,144 2.63%
Other consumer 11,140 2.69% 8,133 2.11%
--------- ---- --------- ----
Total consumer loans 19,760 4.78% 18,277 4.74%
Net deferred loan costs and unearned discount (790) -0.19% (767) -0.20%
--------- ---- --------- ----
Total loans 412,912 100.00% 386,018 100.00%
Less: Allowance for loan losses (4,297) (4,190)
--------- ---------
Total loans receivable, net $ 408,615 $ 381,828
========= =========
- --------------------------------------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE> 39
Conversion Valuation Appraisal Report Page: 1 - 18
================================================================================
INVESTMENTS
The Bank maintains a high level of liquidity in its investment portfolio, which
has increased from $153.4 million at September 30, 1996, to $201.2 million at
September 30, 1998.
FIGURE 8 - SECURITIES CHART
[GRAPH depicting the Bank's investment securities and mortgage-backed
securities at fiscal year-end September 1996 September 1997 and
September 1998.]
Source: Offering Prospectus
<PAGE> 40
Conversion Valuation Appraisal Report Page: 1 - 19
================================================================================
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The Bank currently invests in United State Government, federal agency, corporate
debt and equity securities. The following table illustrates the Bank's
investment portfolio.
FIGURE 9 - INVESTMENT MIX
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30,
--------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value total Value total Value total
--------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale (fair value):
U.S. Government securities and agency obligations $ 117,220 59.27% $ 57,620 49.02% $ 81,053 54.43%
Obligations of states and political subdivisions 51,681 26.13% 20,833 17.72% 1,548 1.04%
Mortgage-backed securities 3,744 1.89% 4,653 3.96% 5,374 3.61%
Corporate debt securities 16,984 8.59% 27,168 23.11% 53,959 36.23%
Mutual funds and marketable equity securities 4,822 2.44% 3,971 3.38% 3,704 2.49%
Non-marketable equity securities 3,307 1.68% 3,307 2.81% 3,279 2.20%
---------- ---- --------- ---- --------- ----
Total securities available for sale 197,758 100.00% 117,552 100.00% 148,917 100.00%
---------- ------ --------- ------ --------- ------
Investment securities held to maturity (amortized cost):
U.S. Government securities and agency obligations - - - - - -
Mortgage-backed securities 1,980 56.85% 2,497 62.42% 3,012 66.71%
Corporate and other debt securities 1,503 43.15% 1,503 37.58% 1,503 33.29%
---------- ---- --------- ----- --------- -----
Total investment securities held to maturity 3,483 100.00% 4,000 100.00% 4,515 100.00%
---------- ------ --------- ------ --------- ------
Total securities portfolio 201,241 121,552 153,432
---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE> 41
Conversion Valuation Appraisal Report Page: 1 - 20
================================================================================
ASSET QUALITY
The Bank's non-performing assets to total assets ratio has declined from 2.80%
at September 30, 1994 to 1.89% at September 30, 1998.
FIGURE 10 - NON-PERFORMING ASSETS CHART
[GRAPH depicting REO, Non-Performing Loans, Non-Performing Assets to Period-End
Assets Ratios, for the fiscal years ended September 1994 through September 1998]
Source: Offering Prospectus
<PAGE> 42
Conversion Valuation Appraisal Report Page: 1 - 21
================================================================================
At September 30, 1998, the Bank's non-performing loans to loan ratio was 2.50%
and the non-performing assets to total assets ratio was 1.89%.
FIGURE 11 - NON-PERFORMING LOANS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
AT SEPTEMBER 30, 1998
($ IN THOUSANDS)
- ----------------------------------------------------------------
<S> <C>
Non-performing loans $11,648
Real estate owned, net 1,872
- ----------------------------------------------------------------
Total non-performing assets $13,520
Non-performing loans as a percentage
of loans 2.50%
Non-performing assets as a percentage
of total assets 1.89%
- ----------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE> 43
Conversion Valuation Appraisal Report Page: 1 - 22
================================================================================
The ALLL has increased from $4.2 million at September 30, 1994 to $8.3 million
at September 30, 1998. The Bank's ALLL to loans ratio was 1.77% at September 30,
1998.
FIGURE 12 - ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES CHART
[GRAPH depicting Allowance for Possible Loan and Lease Losses, and Allowance
for Possible Loan and Lease Losses to Loans ratios for the fiscal
years ended September 1994 through September 1998]
Source: Offering Prospectus
<PAGE> 44
Conversion Valuation Appraisal Report Page: 1 - 23
================================================================================
FUNDING COMPOSITION
Overall, deposits have increased from $535.9 million at September 30, 1994 to
$578.2 million at June 30, 1998. To a small extent, the Bank has utilized
borrowings as an alternative to retail deposits to fund its operations. The Bank
had $47.5 million in outstanding borrowings at September 30, 1998.
FIGURE 13 - DEPOSIT AND BORROWING TREND CHART
($ in thousands)
<TABLE>
<CAPTION>
Total Borrowed
Deposits Funds
<S> <C> <C>
Sep-94 $535,903 $1,581
Sep-95 $552,462 $842
Sep-96 $564,606 $9,899
Sep-97 $572,397 $4,728
Sep-98 $578,202 $47,464
</TABLE>
Source: Offering Prospectus
<PAGE> 45
Conversion Valuation Appraisal Report Page: 1 - 24
================================================================================
The Bank's deposit mix as of September 30, 1998 is presented below. Time
deposits comprised 44.39% of total deposits.
FIGURE 14 - DEPOSIT MIX
<TABLE>
<S> <C>
Total certificate accounts 44.39%
Savings 34.33%
N.O.W. and Super N.O.W. accounts 13.18%
Demand accounts 5.38%
Money market accounts 2.72%
</TABLE>
Source: Offering Prospectus
<PAGE> 46
Conversion Valuation Appraisal Report Page: 1 - 25
================================================================================
ASSET/LIABILITY MANAGEMENT
The following chart depicts the Bank's cumulative gap for September 30, 1998.
The cumulative one and three year gap's are 5.26% and -7.00%, respectively.
FIGURE 15 - GAP TABLE
CUMULATIVE STATIC GAP AT SEPTEMBER 30, 1998
<TABLE>
<S> <C>
<3 Month 3.68%
3-6 Months 7.36%
6-12 Months 5.26%
13-26 Months (7.00)%
37-60 Months (4.00)%
>60 Months 12.10%
</TABLE>
Source: Offering Prospectus
<PAGE> 47
Conversion Valuation Appraisal Report Page: 1 - 26
================================================================================
NET WORTH AND CAPITAL
At September 30, 1998, the Bank had capital in excess of the minimum
requirements for all capital ratios.
FIGURE 16 - CAPITAL ANALYSIS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
REGULATORY CAPITAL POSITION AMOUNT RATIO
- --------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
SEPTEMBER 30, 1998
Leverage (Tier l) Capital $ 70,114 9.89%
Risk-based Capital
Tier l $ 70,114 14.02%
Total $ 76,368 15.27%
- --------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE> 48
Conversion Valuation Appraisal Report Page: 1 - 27
================================================================================
INCOME AND EXPENSE TRENDS
The Bank had a net loss of $878,000 for the year ended September 30, 1998. In
fiscal 1998, the Bank established and contributed to The Troy Savings Bank
Charitable Foundation $1.0 million in cash and entered into a binding,
irrevocable commitment to make a total of $4.0 million in scheduled payments to
the Charitable Foundation. The scheduled payments will occur in each of fiscal
years 1999, 2000 and 2001. In connection with the Bank's cash contribution and
future binding commitment, the Bank recorded a contribution expense of $4.5
million, which represents the $1.0 million cash contributed and the present
value of the $4.0 million in future scheduled contributions. In fiscal 1998, the
Bank recognized the entire tax benefit associated with the contribution expense.
Notwithstanding the tax benefit, the contribution expense contributed
significantly to the Bank's fiscal 1998 net loss of $878,000. If this
contribution expense had not been incurred in fiscal 1998, the Bank's net income
would have been approximately $1.8 million.
For appraisal purposes, an additional $922 thousand in after tax adjustments for
non-recurring expenses in fiscal 1998 have been included in net income resulting
in adjusted net income for fiscal year ended September 30, 1998 of approximately
$2.7 million.
FIGURE 17 - NET INCOME CHART
($ in thousands)
<TABLE>
<S> <C>
Sep-94 $4,099
Sep-95 $7,068
Sep-96 $5,078
Sep-97 $3,658
Sep-98 ($878)
</TABLE>
Source: Offering Prospectus
<PAGE> 49
Conversion Valuation Appraisal Report Page: 1 - 28
================================================================================
Interest rate spread and margin decreased for the fiscal year ended September
30, 1998 from the ratios for the fiscal year ended September 30, 1997.
FIGURE 18 - AVERAGE YIELDS AND COSTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------
AVG. AVG. AVG.
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earnings assets:
Real estate loans:
Residential mortgage $208,520 $16,240 7.79% $210,501 $16,389 7.79% $199,367 $15,455 7.75%
Commercial mortgage 177,144 15,480 8.74% 189,953 16,695 8.79% 180,202 15,938 8.84%
Construction 14,823 898 6.06% 16,869 1,172 6.95% 12,234 1,047 8.56%
------ --- ---- ------ ----- ---- ------ ----- ----
Total real estate loans 400,487 32,618 8.14% 417,323 34,256 8.21% 391,803 32,440 8.28%
Commercial business 37,234 3,211 8.62% 25,964 2,287 8.81% 21,242 1,932 9.10%
Consumer loans:
Home equity lines of credit 9,160 792 8.65% 9,572 824 8.61% 9,014 798 8.85%
Other consumer 20,525 1,694 8.25% 18,920 1,484 7.84% 10,510 983 9.35%
------ ----- ---- ------ ----- ---- ------ --- ----
Total consumer loans 29,685 2,486 8.37% 28,492 2,308 8.10% 19,524 1,781 9.12%
------ ----- ---- ------ ----- ---- ------ --- ----
Total loans 467,406 38,315 8.20% 471,779 38,851 8.23% 432,569 36,153 8.36%
Loans held for sale 6,829 527 7.72% 2,743 199 7.25% 3,509 260 7.41%
Securities held to maturity 3,753 300 7.99% 4,266 353 8.27% 4,988 410 8.22%
Securities available for sale
(amortized cost)
Taxable 69,171 4,121 5.96% 121,483 7,262 5.98% 142,758 8,521 5.97%
Tax-exempt 55,996 3,286 5.87% 3,195 184 5.76% 0 0 0.00%
------ ----- ---- ----- --- ---- - - ----
Total securities available for sale
(amortized cost) 125,167 7,407 5.92% 124,678 7,446 5.97% 142,758 8,521 5.97%
Other Federal securities sold
and short term investments 45,631 2,553 5.59% 27,560 1,503 5.45% 27,984 1,518 5.42%
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest earning assets 648,786 49,102 7.57% 631,026 48,352 7.66% 611,808 46,862 7.66%
------- ------ ---- ------- ------ ---- ------- ------ ----
LIABILITIES
Interest bearing liabilities:
Deposits:
N.O.W. and Super N.O.W. accounts 77,010 1,696 2.20% 71,581 1,590 2.22% 69,908 1,547 2.21%
Money market accounts 13,995 431 3.08% 14,168 433 3.06% 12,600 379 3.01%
Savings accounts 195,177 6,451 3.31% 201,612 6,647 3.30% 206,719 6,798 3.29%
Time deposit accounts 264,538 14,701 5.56% 261,032 14,087 5.40% 251,005 13,758 5.48%
Escrow accounts 3,704 60 1.62% 3,941 55 1.40% 3,602 75 2.08%
----- -- ---- ----- -- ---- ----- -- ----
Total interest bearing deposits 554,424 23,339 4.21% 552,334 22,812 4.13% 543,834 22,557 4.15%
------- ------ ------- ------ ------- ------
Borrowings:
Securities sold under agreement
to repurchase 1,222 33 2.70% 704 29 4.12% 386 13 3.37%
Short-term borrowings - - 0.00% 4,403 242 5.50% 4,220 217 5.14%
Long-term debt 13,681 821 6.00% 4,540 268 5.90% 3,711 230 6.20%
------ --- ---- ----- --- ---- ----- --- ----
Total borrowings 14,903 854 5.73% 9,647 539 5.59% 8,317 460 5.53%
------ --- ---- ----- --- ---- ----- --- ----
Total interest bearing liabilities 569,327 24,193 4.25% 561,981 23,351 4.16% 552,151 23,017 4.17%
------- ------ ---- ------- ------ ---- ------- ------ ----
Net interest spread 3.32% 3.50% 3.49%
Net interest income/net interest margin 24,909 3.84% 25,001 3.96% 23,845 3.90%
Ratio of interest earning assets to
interest bearing liabilities 113.96% 112.29% 110.80%
Tax equivalent adjustment 1,072 65 0
----- -- -
Net interest income as per consolidated
financial statements $23,837 $24,936 $23,845
====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Offering Prospectus
<PAGE> 50
Conversion Valuation Appraisal Report Page: 1 - 29
================================================================================
The following chart illustrates that the Bank's spread and margin have declined
since September 30, 1995.
FIGURE 19 - SPREAD AND MARGIN CHART
[CHART depicting spread and margin for the fiscal years ended
September 1994 through September 1998]
Source: Offering Prospectus
<PAGE> 51
Conversion Valuation Appraisal Report Page: 1-30
================================================================================
The Bank had net loss of $878 thousand for the year ended September 30, 1998,
compared with $3.66 million for the year ended September 30, 1997. This loss, as
discussed earlier, was due to the establishment of and recording of
contributions to The Troy Savings Bank Charitable Foundation.
FIGURE 20 - INCOME STATEMENT TRENDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
SUMMARY OF OPERATIONS: (In thousands)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $48,030 $48,287 $46,862 $44,578 $39,129
Interest expense 24,193 23,351 23,017 20,883 17,591
------ ------ ------ ------ ------
Net interest income 23,837 24,936 23,845 23,695 21,538
Provision for loan losses 4,050 3,900 928 965 1,930
----- ----- --- --- -----
Net interest income after provision for loan losses 19,787 21,036 22,917 22,730 19,608
Operating income:
Service charges on deposits 858 822 802 809 787
Loan servicing fees 432 460 443 430 441
Trust income 459 362 293 234 106
Net gains from securities sales or calls 8 4 1 34 136
Net gains (losses) from mortgage loan sales 76 14 (14) 18 172
Other income 719 1,075 1,340 784 998
--- ----- ----- --- ---
Total other operating income 2,552 2,737 2,865 2,309 2,640
Other operating expenses:
Compensation and employee benefits 10,218 9,573 9,009 7,596 6,984
Occupancy 2,101 2,089 1,956 1,519 1,317
Furniture, fixtures, and equipment 1,080 901 961 884 523
Computer charges 1,424 1,322 1,248 1,221 1,208
Professional, legal, and other fees 924 726 658 670 605
OREO expense (income) 1,087 380 499 (1,343) 528
Printing, postage and telephone 614 559 543 521 438
Contribution expense 4,759 102 479 90 89
Other expenses 2,884 2,887 2,845 3,918 3,122
----- ----- ----- ----- -----
Total other operating expenses 25,091 18,539 18,198 15,076 14,814
Income (loss) before income tax (benefit) expense (2,752) 5,234 7,584 9,963 7,434
Income tax (1,874) 1,576 2,506 2,895 3,335
----- ----- ----- ----- -----
Net income (loss) $ (878) $ 3,658 $ 5,078 $ 7,068 $ 4,099
======= ======= ======= ======= =======
</TABLE>
Source: Offering Prospectus
<PAGE> 52
Conversion Valuation Appraisal Report Page: 1 - 31
================================================================================
The ROAA and ROAE have steadily declined from September 1995 through September
1997 the result of increased equity and lower earnings. These measures are
adversely impacted at September 30, 1998 due to the Charitable Foundation
expense.
FIGURE 21 - PROFITABILITY TREND CHART
[CHART depicting return on average assets and return on average equity, for the
fiscal years ended September 1994 through September 1998]
Source: Offering Prospectus
<PAGE> 53
Conversion Valuation Appraisal Report Page: 1 - 32
================================================================================
SUBSIDIARIES
The following are descriptions of the Bank's wholly owned subsidiaries, which,
following the Conversion, will be indirectly owned by the Company.
The Family Investment Services Co., Inc. The Family Investment Services Co.
("FISC"), which was incorporated in May 1980, is the Bank's wholly owned
full-service brokerage firm, offering a complete range of investment products,
including mutual funds and debt, equity and government securities, on a
fee-per-transaction basis. As a complement to the Bank's municipal investment
activities, FISC's goal is to market its products and services to the Bank's
existing customers who seek alternatives to traditional financial institution
savings products. FISC intends to begin underwriting general obligation
securities of state and political subdivisions. FISC has two full time employees
who interface with the Bank's branches to facilitate referrals from the CSSRs
and branch managers, as well as one officer who assists customers with
investment decisions and trading. As of September 30, 1998, FISC held
approximately $61.3 million of customer assets. FISC is a member of the National
Association of Securities Dealers and is insured by the Securities Insurance
Protection Corporation.
Family Mortgage Banking Co. FMB, which was incorporated in April 1987, is the
Bank's wholly owned mortgage banking subsidiary. The Bank originates the
majority of its residential real estate and residential construction loans
through FMB.
Other Subsidiaries. The Bank has nine other wholly owned subsidiaries: The
Family Advertising Co. is an advertising agency; T.S Capital has applied to the
Small Business Administration to become a licensed Small Business Investment
Corporation in order to offer small business loans and make investments in small
businesses; The Family Insurance Agency, Inc. is an insurance agency that offers
a full range of life and health insurance products, as well as taxed-deferred
annuities; and T.S. Real Property Inc., Troy SB Real Estate Co., 32 Second
Street, Camel Hill Corporation, 507 Heights Corp. and Realty Umbrella, Ltd. are
all related to the management of, or investment in, the Bank's foreclosed or
purchased real estate.
LEGAL PROCEEDINGS
The Bank is not a party to, nor is its property the subject of, any material
pending legal proceeding, other than ordinary routine litigation incidental to
the business of the Bank.
2. MARKET AREA ANALYSIS
MARKET AREA DEMOGRAPHICS
The following tables summarize the demographics for the Bank's markets. The
analysis defines the Bank's market as the town (MCD) for each branch location.
FIGURE 22 - POPULATION DEMOGRAPHICS
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
East
Albany Colonie Watervliet Greenbush Troy
- -----------------------------------------------------------------------------------------------------
POPULATION CHARACTERISTICS
<S> <C> <C> <C> <C> <C>
LAND AREA (miles) 21.41 56.09 1.31 24.05 10.42
POPULATION
1990 CENSUS 101,082 76,494 11,061 14,076 54,269
1997 ESTIMATE 106,962 80,251 9,551 14,444 50,435
2002 PROJECTION 109,633 81,699 8,637 14,534 47,953
GROWTH 1990 TO 1997 5.82% 4.91% -13.65% 2.61% -7.06%
PROJECTED GROWTH 1997 TO 2002 2.50% 1.80% -9.57% 0.62% -4.92%
POPULATION DENSITY 1997
(persons / sq mile) 4,996.6 1,430.7 7,302.0 600.5 4,842.5
POPULATION BY SEX - 1997 EST 106,962 80,251 9,551 14,444 50,435
MALE 46.72% 47.98% 45.52% 48.16% 49.55%
FEMALE 53.28% 52.02% 54.48% 51.84% 50.45%
MARITAL STATUS (POP AGE 15+) 88,682 66,435 7,616 11,630 40,843
PERSONS SINGLE 67.53% 44.47% 55.83% 41.84% 61.57%
PERSONS MARRIED 32.47% 55.53% 44.17% 58.16% 38.43%
FEMALES NEVER MARRIED 23.89% 13.66% 16.27% 12.19% 17.69%
FEMALES MARRIED 16.11% 27.72% 21.95% 28.88% 19.10%
FEMALES WIDOWED/DIVORCED/SEPARATED 14.11% 11.27% 17.38% 11.39% 13.83%
MALES NEVER MARRIED 23.63% 14.78% 15.90% 13.67% 24.47%
MALES MARRIED 16.37% 27.80% 22.22% 29.28% 19.33%
MALES WIDOWED/DIVORCED/SEPARATED 5.90% 4.77% 6.28% 4.58% 5.58%
POPULATION BY AGE - 1997 EST 106,962 80,251 9,551 14,444 50,435
UNDER 6 YEARS 7.16% 6.61% 8.26% 7.85% 8.14%
6 TO 17 YEARS 12.67% 14.37% 15.55% 15.35% 14.20%
15 TO 24 YEARS 15.16% 9.47% 8.60% 8.01% 17.42%
25 TO 34 YEARS 17.32% 13.64% 16.46% 14.81% 16.31%
35 TO 44 YEARS 14.92% 16.17% 15.28% 17.76% 13.45%
45 TO 54 YEARS 10.73% 14.30% 10.41% 14.82% 9.62%
55 TO 64 YEARS 6.57% 9.53% 7.92% 8.46% 6.37%
65 + YEARS 15.48% 15.91% 17.54% 12.95% 14.49%
MEDIAN AGE 33.7 38.7 35.7 37.2 31.3
EDUCATION ATTAINMENT (POP AGE 25+) 69,541 55,815 6,456 9,936 30,381
ELEMENTARY 8.88% 6.48% 11.23% 5.25% 12.20%
SOME HIGH SCHOOL 13.24% 10.89% 15.35% 9.71% 16.02%
HIGH SCHOOL GRADUATE 26.26% 31.31% 38.01% 31.01% 30.54%
SOME COLLEGE 21.91% 25.06% 24.85% 27.24% 22.60%
COLLEGE DEGREE 29.72% 26.26% 10.56% 26.78% 18.64%
POPULATION BY RACE - 1997 EST 106,962 80,251 9,551 14,444 50,435
WHITE 69.40% 92.10% 95.76% 94.02% 83.31%
BLACK 23.05% 3.17% 2.01% 2.35% 9.34%
INDIAN 0.28% 0.13% 0.23% 0.21% 0.24%
ASIAN 3.07% 3.03% 0.60% 2.10% 4.13%
HISPANIC 4.21% 1.57% 1.40% 1.32% 2.99%
POPULATION BY ANCESTRY - 1997 EST
MEXICAN 0.27% 0.14% 0.17% 0.16% 0.26%
CUBAN 0.14% 0.09% 0.01% 0.09% 0.13%
PUERTO RICAN 2.26% 0.54% 0.60% 0.39% 1.52%
ENGLISH/SCOTTISH 5.57% 8.46% 6.31% 10.32% 7.25%
FRENCH 2.89% 5.28% 10.91% 5.07% 8.75%
GERMAN 11.66% 16.34% 11.33% 18.06% 11.77%
GREEK 0.78% 0.72% 0.19% 0.33% 0.72%
IRISH 15.87% 19.43% 22.93% 20.55% 21.01%
ITALIAN 12.08% 15.37% 15.71% 12.77% 12.60%
POLISH 4.39% 6.36% 8.33% 4.92% 4.94%
PORTUGESE 0.18% 0.14% 0.00% 0.15% 0.08%
RUSSIAN 2.36% 1.53% 0.99% 0.92% 0.73%
NORWEGIAN/SWEDISH 0.67% 0.77% 0.48% 0.88% 0.62%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Clifton
Park Schenectady Queensbury Whitehall New York
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LAND AREA (miles) 48.57 10.85 63.01 57.62 47,223.84
POPULATION
1990 CENSUS 30,117 65,566 22,630 4,409 17,990,455
1997 ESTIMATE 32,491 62,116 27,105 4,199 18,177,296
2002 PROJECTION 33,474 59,680 29,136 4,049 18,151,717
GROWTH 1990 TO 1997 7.88% -5.26% 19.77% -4.76% 1.04%
PROJECTED GROWTH 1997 TO 2002 3.03% -3.92% 7.49% -3.57% -0.14%
POPULATION DENSITY 1997
(persons / sq mile) 669.0 5,723.9 430.2 72.9 384.9
POPULATION BY SEX - 1997 EST 32,491 62,116 27,105 4,199 18,177,296
MALE 49.69% 47.19% 48.21% 47.94% 48.04%
FEMALE 50.31% 52.81% 51.79% 52.06% 51.96%
MARITAL STATUS (POP AGE 15+) 25,333 49,205 21,504 3,241 14,518,258
PERSONS SINGLE 33.29% 56.78% 39.06% 41.90% 49.84%
PERSONS MARRIED 66.71% 43.22% 60.94% 58.10% 50.16%
FEMALES NEVER MARRIED 10.91% 15.89% 10.22% 10.71% 15.14%
FEMALES MARRIED 33.46% 21.58% 30.64% 29.07% 24.89%
FEMALES WIDOWED/DIVORCED/SEPARATED 6.36% 16.33% 11.75% 12.56% 12.68%
MALES NEVER MARRIED 12.76% 17.42% 11.99% 12.31% 16.86%
MALES MARRIED 33.25% 21.64% 30.30% 29.03% 25.27%
MALES WIDOWED/DIVORCED/SEPARATED 3.26% 7.14% 5.11% 6.33% 5.17%
POPULATION BY AGE - 1997 EST 32,491 62,116 27,105 4,199 18,177,296
UNDER 6 YEARS 8.49% 9.07% 7.78% 9.43% 8.17%
6 TO 17 YEARS 18.44% 14.70% 17.61% 17.62% 15.68%
15 TO 24 YEARS 7.67% 10.09% 8.38% 8.48% 9.06%
25 TO 34 YEARS 12.02% 16.48% 13.00% 13.93% 15.29%
35 TO 44 YEARS 19.64% 15.13% 16.12% 14.53% 16.10%
45 TO 54 YEARS 16.63% 10.35% 14.35% 11.29% 12.96%
55 TO 64 YEARS 8.85% 6.96% 8.55% 8.84% 8.86%
65 + YEARS 8.27% 17.21% 14.22% 15.88% 13.87%
MEDIAN AGE 36.9 34.8 37.0 35.4 36.1
EDUCATION ATTAINMENT (POP AGE 25+) 21,248 41,080 17,953 2,707 12,194,214
ELEMENTARY 1.23% 8.65% 5.33% 15.77% 10.09%
SOME HIGH SCHOOL 3.77% 16.63% 12.40% 19.58% 14.91%
HIGH SCHOOL GRADUATE 18.72% 34.04% 30.11% 36.98% 29.44%
SOME COLLEGE 27.37% 23.12% 28.59% 20.35% 22.21%
COLLEGE DEGREE 48.91% 17.58% 23.57% 7.31% 23.35%
POPULATION BY RACE - 1997 EST 32,491 62,116 27,105 4,199 18,177,296
WHITE 94.35% 83.76% 97.26% 98.40% 61.79%
BLACK 1.40% 10.63% 0.44% 0.17% 17.95%
INDIAN 0.15% 0.32% 0.15% 0.12% 0.39%
ASIAN 2.75% 1.49% 1.08% 0.38% 5.05%
HISPANIC 1.35% 3.79% 1.08% 0.93% 14.82%
POPULATION BY ANCESTRY - 1997 EST
MEXICAN 0.18% 0.18% 0.14% 0.33% 0.64%
CUBAN 0.11% 0.11% 0.06% 0.10% 0.51%
PUERTO RICAN 0.50% 2.35% 0.42% 0.14% 7.22%
ENGLISH/SCOTTISH 12.62% 7.36% 14.13% 10.31% 6.23%
FRENCH 3.41% 5.76% 12.66% 28.46% 2.09%
GERMAN 17.70% 12.75% 13.02% 7.24% 11.76%
GREEK 0.43% 0.50% 0.35% 0.00% 0.78%
IRISH 17.70% 13.31% 14.70% 10.50% 10.13%
ITALIAN 14.55% 19.44% 8.20% 7.98% 13.26%
POLISH 7.06% 8.24% 3.62% 3.29% 4.65%
PORTUGESE 0.07% 0.11% 0.04% 0.00% 0.19%
RUSSIAN 1.35% 1.25% 0.65% 1.00% 2.55%
NORWEGIAN/SWEDISH 1.87% 0.92% 1.03% 0.00% 0.88%
</TABLE>
Source: Claritas
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FIGURE 23-HOUSEHOLD CHARACTERISTICS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Albany Colonie Watervliet East Troy
Greenbush
- -----------------------------------------------------------------------------------------
HOUSEHOLD CHARACTERISTICS
<S> <C> <C> <C> <C> <C>
HOUSEHOLDS
1990 CENSUS 42,121 28,578 4,885 5,375 20,761
1997 ESTIMATE 44,965 29,950 4,209 5,579 19,168
2002 PROJECTION 46,206 30,498 3,809 5,658 18,162
GROWTH 1990 TO 1997 6.75% 4.80% -13.84% 3.80% -7.67%
PROJECTED GROWTH 1997 TO 2002 2.76% 1.83% -9.50% 1.42% -5.25%
HOUSEHOLD SIZE 44,965 29,950 4,209 5,579 19,168
HHs WITH 1 PERSON 24.84% 12.71% 23.64% 13.34% 21.30%
HHs WITH 2 PERSONS 19.79% 17.88% 19.61% 18.39% 18.86%
HHs WITH 3-4 PERSONS 16.04% 18.19% 17.19% 19.64% 17.51%
HHs WITH 5+ PERSONS 4.00% 4.88% 4.76% 4.79% 5.43%
AVG PERSONS PER HH 1990 2.40 2.68 2.26 2.62 2.61
AVG PERSONS PER HH 1997 EST 2.38 2.68 2.27 2.59 2.63
AVG PERSONS PER HH 2002 PROJ 2.37 2.68 2.27 2.57 2.64
CHANGE 1990 TO 1997 -0.02 0.00 0.00 -0.03 0.02
HOUSEHOLDS BY TYPE - 1997 EST
FAMILY HOUSEHOLDS 47.89% 70.40% 57.31% 69.80% 56.48%
NON-FAMILY HOUSEHOLDS 52.11% 29.60% 42.69% 30.20% 43.52%
PERSONS IN GROUP QUARTERS 8.42% 3.98% 0.08% 0.75% 10.21%
HOUSEHOLDS WITH CHILDREN 44,965 29,950 4,209 5,579 19,168
HOUSEHOLDS WITH CHILDREN 47.31% 44.94% 48.34% 48.82% 50.72%
HOUSEHOLDS WITHOUT CHILDREN 161.50% 97.11% 126.16% 94.45% 126.32%
HOUSEHOLDS BY INCOME - 1997 EST 44,965 29,950 4,209 5,579 19,168
UNDER $15,000 23.13% 8.93% 23.78% 6.49% 25.18%
$15,000 TO $25,000 16.82% 10.63% 16.06% 8.78% 18.80%
$25,000 TO $35,000 14.45% 12.51% 14.78% 12.28% 15.41%
$35,000 TO $50,000 16.52% 17.62% 19.53% 18.26% 15.60%
$50,000 TO $75,000 16.43% 25.75% 18.63% 29.16% 16.34%
$75,000 TO $100,000 7.13% 13.81% 4.56% 14.20% 5.30%
$75,000 TO $150,000 4.23% 7.50% 2.19% 9.37% 2.61%
$150,000 TO $250,000 0.93% 2.24% 0.26% 1.24% 0.55%
$250,000 TO $500,000 0.27% 0.69% 0.17% 0.18% 0.15%
$500,000 OR MORE 0.08% 0.34% 0.05% 0.04% 0.07%
AVERAGE HOUSEHOLD INCOME - 1990 $32,108 $47,079 $29,176 $46,022 $29,592
AVERAGE HOUSEHOLD INCOME - 1997 EST $42,542 $62,699 $38,057 $59,719 $37,917
GROWTH 1990 TO 1997 32.50% 33.18% 30.44% 29.76% 28.13%
AVERAGE HOUSEHOLD WEALTH - 1997 EST $98,688 $174,850 $89,583 $174,067 $90,026
AVERAGE HOUSEHOLD WEALTH - 2002 PROJ $110,702 $201,106 $100,108 $200,367 $100,208
PROJ GROWTH 1997 TO 2002 12.17% 15.02% 11.75% 15.11% 11.31%
HOUSEHOLDS BY INCOME SOURCE
AGGREGATE INCOME - 1997 (IN MILLIONS) $1,913 $1,878 $160 $333 $727
AGG HH INC: SELF-EMPLOYMENT 4.43% 6.53% 2.41% 5.74% 3.86%
AGG HH INC: WAGES OR SALARY 87.07% 85.69% 89.51% 88.50% 89.14%
AGG HH INC: INT/DIV/RENT/ROYALTY 8.50% 7.78% 8.08% 5.76% 7.01%
HOUSEHOLDS BY NUMBER OF VEHICLES 44,965 29,950 4,209 5,579 19,168
NO VEHICLES 26.81% 6.22% 21.72% 3.80% 22.50%
1 VEHICLE 42.89% 34.00% 44.67% 35.17% 43.22%
2 VEHICLES 23.58% 42.80% 28.11% 43.66% 26.64%
3+ VEHICLES 6.72% 16.98% 5.51% 17.37% 7.63%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Clifton Schenectady Queensbury Whitehall New York
Park
- ----------------------------------------------------------------------------------------------------
HOUSEHOLD CHARACTERISTICS
<S> <C> <C> <C> <C> <C>
HOUSEHOLDS
1990 CENSUS 10,418 27,748 8,310 1,664 6,639,322
1997 ESTIMATE 11,409 26,355 10,143 1,583 6,684,831
2002 PROJECTION 11,858 25,377 11,011 1,529 6,681,969
GROWTH 1990 TO 1997 9.51% -5.02% 22.06% -4.87% 0.69%
PROJECTED GROWTH 1997 TO 2002 3.94% -3.71% 8.56% -3.41% -0.04%
HOUSEHOLD SIZE 11,409 26,355 10,143 1,583 6,684,831
HHs WITH 1 PERSON 8.80% 23.18% 12.17% 13.41% 14.86%
HHs WITH 2 PERSONS 16.15% 19.55% 18.36% 18.73% 16.01%
HHs WITH 3-4 PERSONS 22.84% 16.94% 20.40% 20.10% 17.40%
HHs WITH 5+ PERSONS 5.91% 4.48% 5.56% 6.24% 6.56%
AVG PERSONS PER HH 1990 2.89 2.36 2.72 2.65 2.71
AVG PERSONS PER HH 1997 EST 2.85 2.36 2.67 2.65 2.72
AVG PERSONS PER HH 2002 PROJ 2.82 2.35 2.65 2.65 2.72
CHANGE 1990 TO 1997 -0.04 -0.01 -0.05 0.00 0.01
HOUSEHOLDS BY TYPE - 1997 EST
FAMILY HOUSEHOLDS 79.00% 56.30% 73.56% 72.14% 66.84%
NON-FAMILY HOUSEHOLDS 21.00% 43.70% 26.44% 27.86% 33.16%
PERSONS IN GROUP QUARTERS 0.00% 4.34% 0.82% 0.00% 3.03%
HOUSEHOLDS WITH CHILDREN 11,409 26,355 10,143 1,583 6,684,831
HOUSEHOLDS WITH CHILDREN 55.35% 48.72% 51.86% 50.18% 49.76%
HOUSEHOLDS WITHOUT CHILDREN 71.23% 128.91% 84.09% 88.44% 99.84%
HOUSEHOLDS BY INCOME - 1997 EST 11,409 26,355 10,143 1,583 6,684,831
UNDER $15,000 3.84% 24.65% 13.09% 29.44% 19.36%
$15,000 TO $25,000 4.24% 18.03% 12.00% 14.34% 12.66%
$25,000 TO $35,000 6.67% 15.64% 13.54% 18.38% 12.41%
$35,000 TO $50,000 12.71% 17.74% 20.40% 17.75% 15.82%
$50,000 TO $75,000 28.42% 15.75% 22.33% 13.46% 19.02%
$75,000 TO $100,000 21.49% 5.27% 9.03% 4.61% 9.68%
$75,000 TO $150,000 17.05% 2.26% 7.20% 2.02% 7.59%
$150,000 TO $250,000 4.18% 0.47% 1.37% 0.00% 2.10%
$250,000 TO $500,000 1.15% 0.17% 0.67% 0.00% 0.88%
$500,000 OR MORE 0.25% 0.03% 0.37% 0.00% 0.48%
AVERAGE HOUSEHOLD INCOME - 1990 $62,142 $29,086 $45,159 $27,622 $44,214
AVERAGE HOUSEHOLD INCOME - 1997 EST $80,897 $37,342 $55,588 $32,983 $57,084
GROWTH 1990 TO 1997 30.18% 28.38% 23.09% 19.41% 29.11%
AVERAGE HOUSEHOLD WEALTH - 1997 EST $208,032 $99,397 $157,100 $120,965 $134,251
AVERAGE HOUSEHOLD WEALTH - 2002 PROJ $241,305 $112,653 $172,282 $131,396 $147,502
PROJ GROWTH 1997 TO 2002 15.99% 13.34% 9.66% 8.62% 9.87%
HOUSEHOLDS BY INCOME SOURCE
AGGREGATE INCOME - 1997 (IN MILLIONS) $923 $984 $564 $52 $381,599
AGG HH INC: SELF-EMPLOYMENT 5.76% 4.68% 8.14% 6.68% 7.62%
AGG HH INC: WAGES OR SALARY 88.57% 86.01% 83.19% 85.95% 83.99%
AGG HH INC: INT/DIV/RENT/ROYALTY 5.67% 9.32% 8.68% 7.37% 8.38%
HOUSEHOLDS BY NUMBER OF VEHICLES 11,409 26,355 10,143 1,583 6,684,831
NO VEHICLES 1.39% 21.68% 4.66% 15.79% 29.76%
1 VEHICLE 20.96% 43.17% 32.03% 42.45% 32.24%
2 VEHICLES 52.44% 26.90% 46.40% 33.80% 26.70%
3+ VEHICLES 25.21% 8.26% 16.91% 7.96% 11.30%
</TABLE>
Source: Claritas
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MARKET AREA DEPOSIT
CHARACTERISTICS
The Bank's branches are located in Albany, Rensselaer, Saratoga, Schenectady,
Warren, and Washington Counties, New York. Due to the nature of the Bank's
service area, the competition was defined by Bank management for each particular
market.
FIGURE 24 - ALBANY MARKET SHARE
ALBANY: MARKET SHARE BY INSTITUTION TYPE
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $2,233,417 100.00% $790,799 54.82% $279,177 8 100.0%
==========================================================================================================================
Banks $1,876,752 84.03% $765,962 68.96% $938,376 2 336.1%
Community Banks $177,254 7.94% $12,692 7.71% $59,085 3 21.2%
Savings Banks $54,167 2.43% $28,070 107.56% $27,084 2 9.7%
Thrifts $125,244 5.61% ($15,925) -11.28% $125,244 1 44.9%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
ALBANY: MARKET SHARE BY INSTITUTION
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $2,233,417 100.00% $790,799 54.82% $279,177 8 100.0%
==========================================================================================================================
ALBANK, FSB $125,244 5.61% ($15,925) -11.28% $125,244 1 44.9%
EVERGREEN BK NA $14,626 0.65% ($2,216) -13.16% $14,626 1 5.2%
FLEET BK OF NY $1,835,020 82.16% $1,248,429 212.83% $1,835,020 1 657.3%
HUDSON CITY SVGS INST $41,200 1.84% $15,103 57.87% $41,200 1 14.8%
KEY BK USA NA $0 0.00% ($488,108) -100.00% $0 0 0.0%
MARINE MIDLAND BK $41,732 1.87% $5,641 15.63% $41,732 1 14.9%
M&T BANK $64,423 2.88% $37,020 135.09% $64,423 1 23.1%
TROY SVGS BK $12,967 0.58% $12,967 100.00% $12,967 1 4.6%
TRUSTCO BK NA $98,205 4.40% ($22,112) -18.38% $98,205 1 35.2%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
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FIGURE 25 - CLIFTON PARK MARKET SHARE
CLIFTON PARK: MARKET SHARE BY INSTITUTION TYPE
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $510,427 100.00% $138,004 37.06% $30,025 17 100.0%
==========================================================================================================================
Banks $122,033 23.91% $49,070 67.25% $61,017 2 203.2%
Community Banks $221,015 43.30% $57,100 34.84% $27,627 8 92.0%
Savings Banks $134,449 26.34% $13,715 11.36% $26,890 5 89.6%
Thrifts $7,434 1.46% $7,434 0.00% $7,434 1 24.8%
Credit Unions $25,496 5.00% $10,685 72.14% $25,496 1 84.9%
</TABLE>
CLIFTON PARK: MARKET SHARE BY INSTITUTION
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $510,427 100.00% $138,004 37.06% $30,025 17 100.0%
==========================================================================================================================
FLEET BK OF NY $82,788 16.22% $63,085 320.18% $82,788 1 275.7%
TROY SVGS BK $57,774 11.32% $1,854 3.32% $28,887 2 96.2%
COHOES SVGS BK $43,593 8.54% ($4,606) -9.56% $43,593 1 145.2%
TRUSTCO BK NA $120,519 23.61% $23,886 24.72% $30,130 4 100.3%
ALBANK, FSB $44,290 8.68% $20,160 83.55% $22,145 2 73.8%
MARINE MIDLAND BK $33,278 6.52% $3,941 13.43% $33,278 1 110.8%
TCT FCU $25,496 5.00% $10,685 72.14% $25,496 1 84.9%
AMSTERDAM SAVINGS
BANK, FSB $24,049 4.71% $7,434 44.74% $24,049 1 80.1%
BALSTON SPA NB $17,738 3.48% $3,923 28.40% $17,738 1 59.1%
PIONEER SVGS BK $9,033 1.77% $9,033 100.00% $9,033 1 30.1%
KEYBANK NA $39,245 7.69% ($14,015) -26.31% $39,245 1 130.7%
EVERGREEN BK NA $12,624 2.47% $12,624 100.00% $12,624 1 42.0%
SEFCU $0 0.00% $0 100.00% $0 0 0.0%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
FIGURE 26 - COLONIE MARKET SHARE
COLONIE: MARKET SHARE BY INSTITUTION TYPE
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $621,805 100.00% $258,891 71.34% $36,577 17 100.0%
==========================================================================================================================
Banks $194,415 31.27% $106,195 120.38% $38,883 5 106.3%
Community Banks $272,809 43.87% $119,423 77.86% $30,312 9 82.9%
Savings Banks $154,581 24.86% $33,273 27.43% $51,527 3 140.9%
Thrifts $0 0.00% $0 0.00% $0 0 0.0%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
COLONIE: MARKET SHARE BY INSTITUTION
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $637,710 100.00% $266,620 71.85% $35,428 18 100.0%
==========================================================================================================================
TRUSTCO BK NA $141,108 22.13% $14,076 11.08% $47,036 3 132.8%
KEYBANK NA $142,937 22.41% $86,552 153.50% $47,646 3 134.5%
FLEET BK OF NY $51,478 8.07% $19,643 61.70% $25,739 2 72.7%
TROY SVGS BK $24,774 3.88% $24,774 100.00% $24,774 1 69.9%
FIRST NB OF SCOTIA $21,885 3.43% $3,707 20.39% $21,885 1 61.8%
EVERGREEN BK NA $21,294 3.34% $21,294 100.00% $21,294 1 60.1%
M&T BANK $19,515 3.06% $19,515 100.00% $19,515 1 55.1%
ALBANK, FSB $139,689 21.90% $18,381 15.15% $69,845 2 197.1%
MARINE MIDLAND BK $31,810 4.99% $15,458 94.53% $15,905 2 44.9%
CAPITAL BK&TC $35,172 5.52% $35,172 100.00% $35,172 1 99.3%
COHOES SVGS BK $8,048 1.26% $8,048 100.00% $8,048 1 22.7%
</TABLE>
<PAGE> 58
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================================================================================
Source: Sheshunoff data, FinPro calculations.
FIGURE 27 - EAST GREENBUSH MARKET SHARE
E GREENBUSH: MARKET SHARE BY INSTITUTION TYPE
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $320,690 100.00% $35,197 12.33% $35,632 9 100.0%
==========================================================================================================================
Banks $64,194 20.02% $1,430 2.28% $16,049 4 45.0%
Community Banks $81,224 25.33% $4,403 5.73% $40,612 2 114.0%
Savings Banks $104,998 32.74% $16,293 18.37% $52,499 2 147.3%
Thrifts $70,274 21.91% $13,071 22.85% $70,274 1 197.2%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
E GREENBUSH: MARKET SHARE BY INSTITUTION
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $320,690 100.00% $35,197 12.33% $35,632 9 100.0%
==========================================================================================================================
TROY SVGS BK $89,618 27.95% $913 1.03% $89,618 1 251.5%
ALBANK, FSB $70,274 21.91% $13,071 22.85% $70,274 1 197.2%
TRUSTCO BK NA $42,033 13.11% $3,891 10.20% $42,033 1 118.0%
EVERGREEN BK NA $39,191 12.22% $512 1.32% $39,191 1 110.0%
HUDSON CITY SVGS INST $15,380 4.80% $15,380 100.00% $15,380 1 43.2%
FLEET BK OF NY $12,768 3.98% $708 5.87% $12,768 1 35.8%
KEYBANK NA $51,426 16.04% $722 1.42% $17,142 3 48.1%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
FIGURE 28 - GUILDERLAND MARKET SHARE
GUILDERLAND: MARKET SHARE BY INSTITUTION TYPE
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $347,283 100.00% $53,499 18.21% $31,571 11 100.0%
==========================================================================================================================
Banks $89,269 25.70% ($16,336) -15.47% $29,756 3 94.3%
Community Banks $193,450 55.70% $48,293 33.27% $38,690 5 122.5%
Savings Banks $10,782 3.10% $10,782 0.00% $10,782 1 34.2%
Thrifts $53,782 15.49% $10,760 25.01% $26,891 2 85.2%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
GUILDERLAND: MARKET SHARE BY INSTITUTION
<TABLE>
<CAPTION>
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $347,283 100.00% $53,499 18.21% $31,571 11 100.0%
==========================================================================================================================
TRUSTCO BK NA $143,734 41.39% $19,362 15.57% $47,911 3 151.8%
KEYBANK NA $73,965 21.30% ($14,631) -16.51% $36,983 2 117.1%
ALBANK, FSB $52,176 15.02% $9,154 21.28% $52,176 1 165.3%
ONBANK & TC $39,853 11.48% $27,643 226.40% $39,853 1 126.2%
FLEET BK OF NY $15,304 4.41% ($1,705) -10.02% $15,304 1 48.5%
AMSTERDAM SAVINGS
BANK, FSB $1,606 0.46% $1,606 100.00% $1,606 1 5.1%
FIRST NATIONAL BANK
OF SCOTIA $9,863 2.84% $1,288 15.02% $9,863 1 31.2%
COHOES SVGS BK $10,782 3.10% $10,782 100.00% $10,782 1 34.2%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
<PAGE> 59
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================================================================================
FIGURE 29 - HUDSON VALLEY/TROY MARKET SHARE
<TABLE>
<CAPTION>
TROY: MARKET SHARE BY INSTITUTION TYPE
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $78,087 100.00% $18,392 30.81% $39,044 2 100.0%
==========================================================================================================================
Banks $23,879 30.58% $4,065 20.52% $23,879 1 61.2%
Community Banks $0 0.00% $0 0.00% $0 0 0.0%
Savings Banks $54,208 69.42% $14,327 35.92% $54,208 1 138.8%
Thrifts $0 0.00% $0 0.00% $0 0 0.0%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
<TABLE>
<CAPTION>
TROY: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $78,087 100.00% $18,392 30.81% $39,044 2 100.0%
==========================================================================================================================
TROY SVGS BK $54,208 69.42% $14,327 35.92% $54,208 1 138.8%
M&T $23,879 30.58% $4,065 20.52% $23,879 1 61.2%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
FIGURE 30 - LATHAM (COLONIE) MARKET SHARE
<TABLE>
<CAPTION>
COLONIE: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $577,104 100.00% $127,829 28.45% $38,474 15 100.0%
==========================================================================================================================
Banks $117,554 20.37% $12,704 12.12% $39,185 3 101.8%
Community Banks $170,823 29.60% $73,965 76.36% $28,471 6 74.0%
Savings Banks $233,707 40.50% $22,441 10.62% $58,427 4 151.9%
Thrifts $31,762 5.50% $15,827 99.32% $31,762 1 82.6%
Credit Unions $23,258 4.03% $2,892 14.20% $23,258 1 60.5%
</TABLE>
<TABLE>
<CAPTION>
COLONIE: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $577,104 100.00% $127,829 28.45% $38,474 15 100.0%
==========================================================================================================================
ALBANK, FSB $49,692 8.61% $33,757 211.84% $24,846 2 64.6%
PIONEER SVGS BK $106,228 18.41% $14,432 15.72% $106,228 1 276.1%
COHOES SVGS BK $83,162 14.41% ($15,530) -15.74% $83,162 1 216.2%
ONBANK & TC $58,473 10.13% $46,681 395.87% $58,473 1 152.0%
FLEET BK OF NY $78,271 13.56% $13,125 20.15% $39,136 2 101.7%
KEYBANK NA $39,283 6.81% ($421) -1.06% $39,283 1 102.1%
MARINE MIDLAND BK $37,709 6.53% $6,325 20.15% $37,709 1 98.0%
TROY SVGS BK $33,860 5.87% $13,082 62.96% $33,860 1 88.0%
COMMUNITY RESOURCE FCU $23,258 4.03% $2,892 14.20% $23,258 1 60.5%
TRUSTCO BK NA $56,711 9.83% $3,029 5.64% $18,904 3 49.1%
AMSTERDAM SAVINGS
BANK, FSB $10,457 1.81% $10,457 100.00% $10,457 1 27.2%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
<PAGE> 60
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================================================================================
FIGURE 31 - QUEENSBURY MARKET SHARE
<TABLE>
<CAPTION>
QUEENSBURY: MARKET SHARE BY INSTITUTION TYPE
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $328,125 100.00% $90,123 37.87% $32,813 10 100.0%
==========================================================================================================================
Banks $20,993 6.40% $9,832 88.09% $20,993 1 64.0%
Community Banks $201,816 61.51% $45,987 29.51% $40,363 5 123.0%
Savings Banks $102,642 31.28% $31,630 44.54% $34,214 3 104.3%
Thrifts $2,674 0.81% $2,674 0.00% $2,674 1 8.1%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
<TABLE>
<CAPTION>
QUEENSBURY: MARKET SHARE BY INSTITUTION TYPE
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $328,125 100.00% $90,123 37.87% $32,813 10 100.0%
==========================================================================================================================
EVERGREEN BK NA $88,678 27.03% $20,276 29.64% $44,339 2 135.1%
GLENS FALLS NB&TC $68,029 20.73% $18,650 37.77% $68,029 1 207.3%
TROY SVGS BK $39,245 11.96% $39,245 100.00% $19,623 2 59.8%
TRUSTCO BK NA $45,109 13.75% $7,061 18.56% $22,555 2 68.7%
KEYBANK NA $20,993 6.40% $9,832 88.09% $20,993 1 64.0%
ALBANK, FSB $66,071 20.14% ($4,941) (6.96%) $33,036 2 100.7%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
FIGURE 32 - SCHENECTADY MARKET SHARE
<TABLE>
<CAPTION>
SCHENECTADY: MARKET SHARE BY INSTITUTION TYPE
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $526,128 100.00% ($1,663) -0.32% $35,075 15 100.0%
==========================================================================================================================
Banks $180,915 34.39% ($62,757) -25.75% $45,229 4 128.9%
Community Banks $207,457 39.43% $14,466 7.50% $41,491 5 118.3%
Savings Banks $48,414 9.20% $25,342 109.84% $16,138 3 46.0%
Thrifts $2,838 0.54% $2,838 0.00% $2,838 1 8.1%
Credit Unions $86,504 16.44% $18,448 27.11% $43,252 2 123.3%
</TABLE>
<TABLE>
<CAPTION>
SCHENECTADY: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $526,128 100.00% ($1,663) -0.32% $35,075 15 100.0%
==========================================================================================================================
FLEET BK OF NY $148,684 28.26% ($61,900) -29.39% $74,342 2 212.0%
TRUSTCO BK NA $182,019 34.60% $7,497 4.30% $60,673 3 173.0%
FIRST TEACHERS FCU $82,235 15.63% $18,509 29.04% $82,235 1 234.5%
TROY SVGS BK $31,192 5.93% $9,164 41.60% $31,192 1 88.9%
KEYBANK NA $29,745 5.65% ($3,343) -10.10% $29,745 1 84.8%
AMSTERDAM SAVINGS
BANK, FSB $9,166 1.74% $9,166 100.00% $9,166 1 26.1%
COHOES SVGS BK $8,056 1.53% $7,012 671.65% $8,056 1 23.0%
MOHAWK PROGRESSIVE FCU $4,269 0.81% ($61) -1.41% $4,269 1 12.2%
SCHENECTADY FEDERAL
SAVINGS $2,838 0.54% $2,838 100.00% $2,838 1 8.1%
ALBANK, FSB $2,486 0.47% $2,486 100.00% $2,486 1 7.1%
FIRST NATIONAL BANK
OF SCOTIA $21,895 4.16% $3,426 18.55% $21,895 1 62.4%
EVERGREEN BK NA $3,543 0.67% $3,543 100.00% $3,543 1 10.1%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
<PAGE> 61
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================================================================================
FIGURE 33 - TROY MARKET SHARE
<TABLE>
<CAPTION>
TROY: MARKET SHARE BY INSTITUTION TYPE
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $604,115 100.00% $8,384 1.41% $75,514 8 100.0%
==========================================================================================================================
Banks $75,233 12.45% $6,787 9.92% $37,617 2 49.8%
Community Banks $137,982 22.84% $26,132 23.36% $68,991 2 91.4%
Savings Banks $345,909 57.26% ($27,532) -7.37% $115,303 3 152.7%
Thrifts $44,991 7.45% $2,997 7.14% $44,991 1 59.6%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
<TABLE>
<CAPTION>
TROY: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $604,115 100.00% $8,384 1.41% $75,514 8 100.0%
==========================================================================================================================
TROY SVGS BK $182,675 30.24% ($32,697) -15.18% $182,675 1 241.9%
PIONEER SVGS BK $111,342 18.43% $6,485 6.18% $111,342 1 147.4%
M&T $70,921 11.74% $32,297 83.62% $70,921 1 93.9%
MARINE MIDLAND BK $67,061 11.10% ($6,165) -8.42% $67,061 1 88.8%
COHOES SVGS BK $51,892 8.59% ($1,320) -2.48% $51,892 1 68.7%
KEYBANK NA $45,577 7.54% $20,377 80.86% $45,577 1 60.4%
ALBANK, FSB $44,991 7.45% $2,997 7.14% $44,991 1 59.6%
FLEET BK OF NY $29,656 4.91% ($13,590) -31.42% $29,656 1 39.3%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
FIGURE 34 - WATERVLIET MARKET SHARE
<TABLE>
<CAPTION>
WATERVLIET: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $241,670 100.00% $23,269 10.65% $48,334 5 100.0%
==========================================================================================================================
Banks $103,175 42.69% $2,554 2.54% $34,392 3 71.2%
Community Banks $0 0.00% $0 0.00% $0 0 0.0%
Savings Banks $138,495 57.31% $20,715 17.59% $69,248 2 143.3%
Thrifts $0 0.00% $0 0.00% $0 0 0.0%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
<TABLE>
<CAPTION>
WATERVLIET: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $241,670 100.00% $23,269 10.65% $48,334 5 100.0%
==========================================================================================================================
PIONEER SVGS BK $98,907 40.93% $14,007 16.50% $98,907 1 204.6%
TROY SVGS BK $39,588 16.38% $6,708 20.40% $39,588 1 81.9%
FLEET BK OF NY $19,726 8.16% ($2,254) -10.25% $19,726 1 40.8%
KEYBANK NA $50,993 21.10% ($505) -0.98% $50,993 1 105.5%
M&T $32,456 13.43% $5,313 19.57% $32,456 1 67.1%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
<PAGE> 62
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================================================================================
FIGURE 35 - WHITEHALL MARKET SHARE
<TABLE>
<CAPTION>
WHITEHALL: MARKET SHARE BY INSTITUTION TYPE
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $35,490 100.00% $615 1.76% $17,745 2 100.0%
==========================================================================================================================
Banks $0 0.00% $0 0.00% $0 0 0.0%
Community Banks $0 0.00% $0 0.00% $0 0 0.0%
Savings Banks $22,337 62.94% $502 2.30% $22,337 1 125.9%
Thrifts $13,153 37.06% $113 0.87% $13,153 1 74.1%
Credit Unions $0 0.00% $0 0.00% $0 0 0.0%
</TABLE>
<TABLE>
<CAPTION>
WHITEHALL: MARKET SHARE BY INSTITUTION
TOTAL MKT SHARE $ GROWTH % GROWTH AVG BRANCH EFFICIENCY
INSTITUTION 1997 1997 1993 - 1997 1993 - 1997 1997 COUNT RATIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total $35,490 100.00% $615 1.76% $17,745 2 100.0%
==========================================================================================================================
TROY SVGS BK $22,337 62.94% $502 2.30% $22,337 1 125.9%
ALBANK, FSB $13,153 37.06% $113 0.87% $13,153 1 74.1%
</TABLE>
Source: Sheshunoff data, FinPro calculations.
3. COMPARISONS WITH PUBLICLY TRADED THRIFTS
INTRODUCTION
This chapter presents an analysis of the Bank's operations against a Comparable
Group of publicly traded savings institutions. The Comparable Group was selected
from a universe of 367 public thrifts as of December 3, 1998. The Comparable
Group was selected based upon similarity of characteristics to the Bank. The
Comparable Group multiples provide the basis for the fair market valuation of
the Bank. Factors that influence the Bank's value such as balance sheet
structure and size, profitability, income and expense trends, capital levels,
credit risk, and recent operating results can be measured against the Comparable
Group. The Comparable Group current market pricing, coupled with the appropriate
adjustments for differences between the Bank and the Comparable Group, will then
be utilized as the basis for the pro forma valuation of the Bank to-be-issued
common stock.
<PAGE> 63
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================================================================================
SELECTION SCREENS
When selecting the Comparables, it was determined that the balance sheet size of
the institution was of greater importance than geography. As important as asset
size was the level of equity capital. Institutions with low equity to assets
were excluded as the Bank will have an extremely high equity to assets ratio
after the conversion.
THE SELECTION SCREENS UTILIZED TO IDENTIFY POSSIBLE COMPARABLES FROM THE LIST OF
367 PUBLIC THRIFTS AT DECEMBER 3, 1998 INCLUDED:
1. The IPO date had to be before June 30, 1997, eliminating any new
conversions.
2. The conversion type had to be a full standard conversion.
3. The total asset size had to be greater than $650 million and less than
$1.1 billion.
4. The Comparables gross loans to assets ratio had to be greater than or
equal to 50.00%.
5. The Comparables could not be involved in a pending merger or acquisition.
6. The Comparables had to be from the Mid-Atlantic, New England, or Midwest
Regions.
7. The Comparables must be traded on the AMSE, NYSE, or NASDAQ.
<PAGE> 64
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================================================================================
Applying these criteria against the 367 public thrifts resulted in the following
13 institutions.
FIGURE 36 - POTENTIAL COMPARABLES
<TABLE>
<CAPTION>
NUMBER
OF
TICKER SHORT NAME EXCHANGE CITY STATE OFFICES IPO DATE
- ------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. AMSE Burlington MA 10 10/24/95
CFSB CFSB Bancorp, Inc. NASDAQ Lansing MI 17 06/22/90
FFYF FFY Financial Corp. NASDAQ Youngstown OH 10 06/28/93
FBBC First Bell Bancorp, Inc. NASDAQ Pittsburgh PA 7 06/29/95
FNGB First Northern Capital Corporation NASDAQ Green Bay WI 19 12/29/83
HMNF HMN Financial, Inc. NASDAQ Spring Valley MN 10 06/30/94
HOMF Home Federal Bancorp NASDAQ Seymour IN 16 01/23/88
MECH MECH Financial, Inc. NASDAQ Hartford CT 16 06/26/96
MWBX MetroWest Bank NASDAQ Framingham MA 15 10/10/86
NSSY NSS Bancorp, Inc. NASDAQ Norwalk CT 8 06/16/94
OFCP Ottawa Financial Corporation NASDAQ Holland MI 26 08/19/94
PBKB People's Bancshares, Inc. NASDAQ New Bedford MA 12 10/30/86
SFIN Statewide Financial Corp. NASDAQ Jersey City NJ 16 10/02/95
</TABLE>
One institution was eliminated from this list as it is an announced acquisition
target.
FIGURE 37 - COMPARABLES ELIMINATED
<TABLE>
<CAPTION>
TICKER SHORT NAME CITY STATE
-------------------------------- -----------------------
<S> <C>
ANNOUNCED ACQUISITION TARGET
NSSY NSS Bancorp, Inc. Norwalk CT
</TABLE>
<PAGE> 65
Conversion Valuation Appraisal Report Page: 1 - 44
================================================================================
The twelve comparable institutions after the screening process are as follows:
FIGURE 38 - COMPARABLE GROUP
<TABLE>
<CAPTION>
NUMBER
OF
TICKER SHORT NAME EXCHANGE CITY STATE OFFICES IPO DATE
- ------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. AMSE Burlington MA 10 10/24/95
CFSB CFSB Bancorp, Inc. NASDAQ Lansing MI 17 06/22/90
FFYF FFY Financial Corp. NASDAQ Youngstown OH 10 06/28/93
FBBC First Bell Bancorp, Inc. NASDAQ Pittsburgh PA 7 06/29/95
FNGB First Northern Capital Corporation NASDAQ Green Bay WI 19 12/29/83
HMNF HMN Financial, Inc. NASDAQ Spring Valley MN 10 06/30/94
HOMF Home Federal Bancorp NASDAQ Seymour IN 16 01/23/88
MECH MECH Financial, Inc. NASDAQ Hartford CT 16 06/26/96
MWBX MetroWest Bank NASDAQ Framingham MA 15 10/10/86
OFCP Ottawa Financial Corporation NASDAQ Holland MI 26 08/19/94
PBKB People's Bancshares, Inc. NASDAQ New Bedford MA 12 10/30/86
SFIN Statewide Financial Corp. NASDAQ Jersey City NJ 16 10/02/95
</TABLE>
SELECTION CRITERIA
Excluded from the Comparable Group were institutions that were involved in
pending mergers or acquisitions. Also, institutions that completed their
conversions within the last year were also excluded as the earnings of newly
converted institutions do not reflect a full years benefit from the reinvestment
of proceeds, and thus the price/earnings multiples and return on equity measures
for these institutions tend to be skewed upward and downward respectively.
In an ideal world, all of the Comparable Group would contain the exact
characteristics of the Bank. The goal of the selection criteria process is to
find those institutions that most closely match those of the Bank. None of the
Comparables selected will be exact clones of the Bank.
<PAGE> 66
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The members of the Comparable Group were selected based upon the following
criteria:
1. Asset size
2. Profitability
3. Capital Level
4. Balance Sheet Mix
5. Operating Strategy
6. Date of conversion
1. ASSET SIZE The Comparable Group should have a similar asset size to
the Bank. The Comparable Group ranged in size from $652.6 million to $1.1
billion in total assets with a median of $736.5 million. The Bank's asset size
was $716.6 million as of September 30, 1998 and will be $784.9 million on a pro
forma basis at the midpoint of the estimated valuation range.
2. PROFITABILITY The Comparable Group had a median ROAA of 1.03% and a
median ROAE of 11.03% for the most recent quarter available. The Comparable
Group profitability measures had a dispersion about the mean for the ROAA
measure ranging from a low of (0.24%) to a high of 1.44% while the ROAE measure
ranged from a low of (2.48%) to a high of 26.67%. The Bank had a ROAA of (0.13%)
and ROAE of (1.20%) as of September 30, 1998.
3. CAPITAL LEVEL The median equity to assets ratio for the Comparable
Group was 9.50% with a high of 12.77% and a low of 3.67%. At September 30, 1998,
the Bank had an equity to assets ratio of 9.91%. On a pro forma basis, at the
midpoint, the Bank would have an equity to assets ratio of 17.74%.
4. BALANCE SHEET MIX At September 30, 1998, the Bank had a net loan to asset
ratio of 63.81%. The median loan to asset ratio for the Comparables was 73.03%,
ranging from a low of 51.74% to a high of 90.00%. On the liability side the
Bank's deposit to asset ratio was 80.68% at September 30, 1998 while the
Comparable median was 67.63%, ranging from 47.18% to 83.68%. Additionally, the
Bank's borrowings to assets ratio was 6.62% as of September 30, 1998 and the
Comparable median borrowings to assets ratio was 20.33% with a range of 7.65% to
46.37%.
5. OPERATING STRATEGY An institution's operating characteristics are important
because they determine future performance. They also affect expected rates of
return and investor's general perception of the quality, risk and attractiveness
of a given company. Specific operating
<PAGE> 67
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characteristics include profitability, balance sheet growth, asset quality,
capitalization, and non-financial factors such as management strategies and
lines of business.
6. DATE OF CONVERSION Recent conversions, those completed after June 30, 1997,
were excluded since the earnings of a newly converted institution do not reflect
a full year's benefits of reinvestment of conversion proceeds. Additionally, new
issues tend to trade at a discount to the market averages.
COMPARABLE GROUP PROFILES
(1) BOSTONFED BANCORP INC. BFD is a SAIF insured institution that had the
highest assets of the comparable group at $1.1 billion, is headquartered
in Burlington, Massachusetts, and operates 10 branches. BFD had the second
highest loans to deposits ratio, 132.95%, borrowings to assets ratio,
29.50%, reserves to NPAs plus 90 days ratio, 552.16%, and asset growth
rate, 14.45%. BFD had the second lowest deposits to assets ratio, 61.68%.
BFD was selected to the Group based on its number of offices and interest
income to average assets ratio.
(2) CFSB BANCORP, INC. CFSB is a SAIF insured thrift that operates 17
offices, is headquartered in Lansing, Michigan, and had assets of $867.4
million. CFSB had the highest loans to deposits ratio, 135.13%, loans to
assets ratio, 90.00%, and the second highest ROAA and ROAE, 1.34% and
17.08% respectively. CFSB was selected to the Group based on its number of
offices, interest income to average assets, and total assets.
(3) FFY FINANCIAL CORP. FFYF is a SAIF insured thrift that operates 10
offices, is headquartered in Youngstown, Ohio, and had assets of $658.6
million. FFYF had the highest equity to assets ratio, 12.77%, equity plus
reserves to assets ratio, 13.18%, and non-performing loans ratio, 0.80%.
FFYF had the lowest reserves to non-performing assets plus 90 day ratio,
70.83%, and loan growth rate, (11.51%). It was selected as a comparable
based on its asset size, number of offices, reserves to non-performing
assets plus 90 day ratio, net interest margin, non-interest income to
average assets, and asset growth rate.
(4) FIRST BELL BANCORP, INC. FBBC is a SAIF insured institution with 7
offices, is headquartered in Pittsburgh, Pennsylvania, and had assets of
$750.4 million. FBBC had the highest regulatory core capital to assets
ratio, 9.73%, total capital to risk adjusted assets ratio, 22.24%. FBBC
had the lowest reserves to loans ratio, 0.14%, noninterest
<PAGE> 68
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income to average assets ratio, 0.06%, noninterest expense to
average assets ratio, 0.76%, and efficiency ratio, 30.64%. FBBC was
selected as a comparable based on its asset size, equity to assets,
and interest income to average assets.
(5) FIRST NORTHERN CAPITAL CORPORATION FNGB is a SAIF insured
institution with 19 offices, headquartered in Green Bay, Wisconsin,
and had $710.4 million in assets. FNGB had the highest reserves to
non-performing loans ratio, 773.48%, reserves to nonperforming
assets plus 90 days ratio, 578.49%, and the second highest loans to
assets ratio, 87.45%, and equity to assets ratio, 10.62%. FNGB had
the lowest nonperforming loans to loans ratio, 0.07%. FNGB was
selected to the Group based on its total assets, equity to assets
ratio, and interest income to average assets.
(6) HMN FINANCIAL, INC. HMNF is a SAIF insured thrift that is
headquartered in Spring Valley, Minnesota, operates 10 branches, and
had $706.3 million in assets. HMNF had the second highest intangible
assets to equity ratio, 8.40% and reserves to nonperforming loans,
734.16%. HMNF had the lowest nonperforming assets to assets ratio,
0.06%, nonperforming assets to equity ratio, 0.62%, return on
average assets, (0.24%), return on average equity, (2.48%), net
interest margin, 2.34%, net interest income to average assets ratio,
2.26%, asset growth rate, (10.43%), and deposit growth rate,
(17.81%). It was included as a comparable based on its number of
branches, asset size, equity to assets, profitability, and interest
income to average assets.
(7) HOME FEDERAL BANCORP HOMF is a SAIF insured institution that
operates 16 offices, is headquartered in Seymour, Indiana, and had
assets of $722.6 million. HOMF had the highest nonperforming assets
to assets ratio, 0.72%, nonperforming assets to equity ratio, 7.45%,
return on average assets, 1.44%, interest income to average assets
ratio, 7.62%, and noninterest income to average assets ratio, 1.22%.
HOMF had the lowest overhead ratio, 25.36%. HOMF was selected as a
comparable based on its number of offices, asset size, equity to
assets, net interest income to average assets, and deposit growth
rate.
(8) MECH FINANCIAL, INC. MECH is a BIF insured thrift that operates
16 offices, is headquartered in Hartford, Connecticut, and had the
second highest level of assets of the comparable group at $960.0
million. MECH had the second highest regulatory core capital to
assets ratio, 9.71%, equity plus reserves to assets ratio, 11.16%,
and reserves to loans ratio, 2.05%. MECH was selected to the Group
based on its number of offices, loans to assets ratio, capital
levels, net interest margin, and interest expense to average assets.
(9) METROWEST BANK MWBX is a BIF insured institution with 15
offices, is headquartered in Framingham, Massachusetts, and had
$669.1 million in total assets. MWBX had the highest deposits to
assets ratio, 83.68%, reserves to loans ratio, 2.29%,
<PAGE> 69
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net interest margin, 3.98%, and net interest income to average
assets ratio, 3.81%. MWBX had the lowest borrowings to assets ratio,
7.65%. MWBX was selected as a comparable based on its number of
offices, net interest margin, noninterest income to average assets,
and loan growth rate.
(10) OTTAWA FINANCIAL CORPORATION OFCP is a SAIF insured
institution with 26 offices, is headquartered in Holland, Michigan,
and had total assets of $930.2 million. OFCP had the highest
intangible equity to assets ratio, 18.18%. OFCP had the second
lowest total capital to risk adjusted assets ratio, 9.59%. OFCP was
selected as a comparable based on its asset size and asset growth
rate.
(11) PEOPLE'S BANCSHARES, INC. PBKB is a BIF insured institution
with 12 offices, is headquartered in New Bedford, Massachusetts, and
had $891.8 million in total assets. PBKB had the highest borrowings
to assets ratio, 46.37%, return on average equity, 27.46%, interest
expense to average assets ratio, 4.64%, asset growth rate, 15.72%,
and deposit growth rate, 27.91%. PBKB had the lowest loans to assets
ratio, 51.74%, deposits to assets ratio, 47.18%, equity to assets
ratio, 3.67%, regulatory core capital to assets, 5.13%, equity plus
reserves to assets ratio, 4.18%, and total capital to risk adjusted
assets ratio, 9.43%. PBKB was selected to the group based on its
asset size and number of offices.
(12) STATEWIDE FINANCIAL CORP. SFIN is a SAIF insured institution
with 16 offices, is headquartered in Jersey City, New Jersey, and
had $652.6 million in total assets. SFIN had the highest noninterest
expense to average assets ratio, 2.93%, efficiency ratio, 104.22%,
overhead ratio, 104.91%, and loan growth rate, 27.26%. SFIN had the
lowest total assets, $652.6 million, loans to deposits ratio,
81.58%, interest income to average assets ratio, 5.96%, and interest
expense to average assets ratio, 3.56%. SFIN was selected to the
group based on its loan to deposit ratio, equity to assets ratio,
profitability, interest expense to average assets, asset growth
rate, and deposit growth rate.
<PAGE> 70
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All data presented in Figure 39 for the Comparable Group is from SNL Securities
utilizing the most recent quarter for balance sheet and income statement related
items. All data for the Bank is from the offering circular.
FIGURE 39 - KEY FINANCIAL INDICATORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
THE BANK FOR
THE YEAR ENDED COMPARABLE
SEPTEMBER 30, GROUP QUARTER
1998 MEDIAN (MOST
RECENT QUARTER)
- -------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA
- -------------------------------------------------------------------------------------
Gross Loans to Deposits 80.52% 109.29%
- -------------------------------------------------------------------------------------
Total Net Loans to Assets 63.81% 73.03%
- -------------------------------------------------------------------------------------
Deposits to Assets 80.68% 67.63%
- -------------------------------------------------------------------------------------
Borrowed Funds to Assets 6.62% 20.33%
- -------------------------------------------------------------------------------------
BALANCE SHEET GROWTH
- -------------------------------------------------------------------------------------
Asset Growth Rate 8.18% 4.36%
- -------------------------------------------------------------------------------------
Loan Growth Rate -2.32% 4.77%
- -------------------------------------------------------------------------------------
Deposit Growth Rate 1.01% 3.81%
- -------------------------------------------------------------------------------------
CAPITAL
- -------------------------------------------------------------------------------------
Equity to Assets 9.91% 9.50%
- -------------------------------------------------------------------------------------
Tangible Equity to Assets 9.80% 9.14%
- -------------------------------------------------------------------------------------
Intangible Assets to Equity 1.15% 0.48%
- -------------------------------------------------------------------------------------
Regulatory Core Capital to Assets 9.89% 7.94%
- -------------------------------------------------------------------------------------
Equity + Reserves to Assets 11.06% 9.91%
- -------------------------------------------------------------------------------------
Total Capital to Risk Adjusted Assets 15.27% 12.86%
- -------------------------------------------------------------------------------------
</TABLE>
Source: The Bank Offering Circular, FinPro calculations and SNL Securities
Note: All of the Bank data is for the year ended September 30, 1998.
Note: All of the Comparable data is as of the most recent quarter.
<PAGE> 71
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================================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
THE BANK FOR
THE YEAR ENDED COMPARABLE
SEPTEMBER 30, GROUP QUARTER
1998 AVERAGE (MOST
RECENT QUARTER)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET QUALITY
- ------------------------------------------------------------------------------------------
Non-Performing Loans to Loans 2.50% 0.38%
- ------------------------------------------------------------------------------------------
Reserves to Non-Performing Loans 70.91% 263.81%
- ------------------------------------------------------------------------------------------
Non-Performing Assets to Assets 1.89% 0.30%
- ------------------------------------------------------------------------------------------
Non-Performing Assets to Equity 19.03% 4.59%
- ------------------------------------------------------------------------------------------
Reserves to Net Loans 1.81% 0.68%
- ------------------------------------------------------------------------------------------
Reserves to Non-Performing Assets + 90 Days Del. 61.09% 235.23%
- ------------------------------------------------------------------------------------------
PROFITABILITY
- ------------------------------------------------------------------------------------------
Return on Average Assets -0.13% 1.03%
- ------------------------------------------------------------------------------------------
Return on Average Equity -1.20% 11.03%
- ------------------------------------------------------------------------------------------
INCOME STATEMENT
- ------------------------------------------------------------------------------------------
Net Interest Margin 3.84% 3.10%
- ------------------------------------------------------------------------------------------
Interest Income to Average Assets 7.09% 7.26%
- ------------------------------------------------------------------------------------------
Interest Expense to Average Assets 3.57% 4.27%
- ------------------------------------------------------------------------------------------
Net Interest Income to Average Assets 3.52% 3.01%
- ------------------------------------------------------------------------------------------
Noninterest Income to Average Assets 0.38% 0.58%
- ------------------------------------------------------------------------------------------
Noninterest Expense to Average Assets 3.70% 2.07%
- ------------------------------------------------------------------------------------------
Efficiency Ratio 78.28% 56.30%
- ------------------------------------------------------------------------------------------
Overhead Ratio 75.32% 46.45%
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 72
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Source: The Bank Offering Circular, FinPro calculations and SNL Securities
Note: All of the Bank data is for the year ended September 30, 1998.
Note: All of the Comparable data is as of the most recent quarter.
4. MARKET VALUE DETERMINATION
INTRODUCTION
The estimated pro forma market value of the Bank, along with certain adjustments
to its value relative to market values for the Comparable Group are delineated
in this section. The adjustments delineated in this section are made from
potential investors' viewpoint and are adjusted as necessary when comparing the
Bank to the Comparable Group. A potential investor includes depositors holding
subscription rights and unrelated parties who may purchase stock in the
community offering and who are assumed to be aware of all relevant and necessary
facts as they pertain to the value of the Bank relative to other publicly traded
thrift institutions and relative to alternative investment opportunities.
There are numerous criteria on which the market value adjustments are based, but
the major ones utilized for purposes of this report include:
1 Balance Sheet Strength
2 Asset Quality
3 Earnings Quality, Predictability and Growth
4 Dividends
5 Liquidity of the Issue
6 Subscription Interest
7 Recent Regulatory Matters
8 Market for Seasoned Thrift Stocks
9 Acquisition Market
To ascertain the market value of the Bank, the median trading multiple values
for the Comparable Group are utilized as the starting point. Adjustments, up or
down, to the Comparable Group median multiple values are made based on the
comparison of the Bank to the Comparable Group.
<PAGE> 73
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The Bank's value is further adjusted for other factors as shown in Section 5.
The resultant values are then compared to recent conversions, state totals, and
national totals for reasonableness and appropriateness.
After adjusting the Bank's market value in relation to the Comparable Group,
consideration was given to the type of conversion the Bank is undertaking. In
this particular case it was appropriate to compare and adjust the Bank's market
value in relation to the performance of other fully converted institutions.
<PAGE> 74
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BALANCE SHEET STRENGTH
The balance sheet strength of an institution is an important market value
determinant, as the investment community considers such factors as bank
liquidity, capitalization, asset composition, funding mix, intangible levels and
interest rate risk in assessing the attractiveness of investing in the common
stock of a thrift. The following tables summarize the key financial elements of
the Bank measured against the Comparable Group.
FIGURE 40 - KEY BALANCE SHEET DATA
<TABLE>
<CAPTION>
KEY FINANCIAL DATA AS OF THE MOST RECENT QUARTER
--------------------------------------------------------------------
TOTAL LOANS/ LOANS/ DEPOSITS/ BORROWINGS/
ASSETS DEPOSITS ASSETS ASSETS ASSETS
TICKER SHORT NAME ($000) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 1,096,441 132.95 82.00 61.68 29.50
CFSB CFSB Bancorp, Inc. 867,387 135.13 90.00 66.60 24.03
FFYF FFY Financial Corp. 658,591 105.07 71.55 68.10 17.43
FBBC First Bell Bancorp, Inc. 750,365 116.67 74.51 63.86 23.99
FNGB First Northern Capital Corporation 710,428 118.47 87.45 73.82 13.53
HMNF HMN Financial, Inc. 706,269 105.18 66.47 63.20 26.15
HOMF Home Federal Bancorp 722,614 108.92 81.94 75.23 14.21
MECH MECH Financial, Inc. 960,017 89.30 64.25 71.94 17.45
MWBX MetroWest Bank 669,111 82.12 68.72 83.68 7.65
OFCP Ottawa Financial Corporation 930,244 115.94 84.37 72.77 18.25
PBKB People's Bancshares, Inc. 891,758 109.66 51.74 47.18 46.37
SFIN Statewide Financial Corp. 652,628 81.58 54.79 67.16 22.41
- ---------------------------------------------------------------------------------------------------------------------
Average 801,321 108.42 73.15 67.94 21.75
Median 736,490 109.29 73.03 67.63 20.33
Maximum 1,096,441 135.13 90.00 83.68 46.37
Minimum 652,628 81.58 51.74 47.18 7.65
TROY FINANCIAL CORPORATION 716,649 80.52 63.81 80.68 6.62
VARIANCE TO THE COMPARABLE MEDIAN (19,841) (28.77) (9.22) 13.05 (13.71)
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
Asset Composition - The Bank's net loan to asset ratio of 63.81% is
below the median for the Comparable Group of 73.03%.
Funding Mix - The Bank is funded primarily through deposits, 80.68%
of assets, and retained earnings, 9.91% of assets. The Comparable
Group has a greater reliance on borrowings than the Bank with a
median borrowing ratio of 20.33% of assets. The Bank has a low level
of borrowings, 6.62%, which leaves room for an additional funding
source in the future.
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Liquidity - The liquidity of the Bank and the Comparable Group
appear similar and were sufficient to meet all regulatory
guidelines.
The Bank is at a disadvantage with respect to the loan and deposit
growth ratios.
FIGURE 41 - BALANCE SHEET GROWTH DATA
<TABLE>
<CAPTION>
BALANCE SHEET GROWTH AS OF THE MRQ
------------------------------------------
ASSET LOAN DEPOSIT
GROWTH GROWTH GROWTH
RATE RATE RATE
TICKER SHORT NAME (%) (%) (%)
- ----------------------------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 14.45 16.72 14.67
CFSB CFSB Bancorp, Inc. 9.26 17.20 (0.13)
FFYF FFY Financial Corp. 4.20 (11.51) 4.04
FBBC First Bell Bancorp, Inc. (3.32) (8.84) 4.19
FNGB First Northern Capital Corporation 11.62 5.57 13.08
HMNF HMN Financial, Inc. (10.43) 5.77 (17.81)
HOMF Home Federal Bancorp 1.70 3.96 (0.28)
MECH MECH Financial, Inc. 2.24 8.83 3.36
MWBX MetroWest Bank 6.47 1.70 6.30
OFCP Ottawa Financial Corporation 4.51 3.95 3.57
PBKB People's Bancshares, Inc. 15.72 0.55 27.91
SFIN Statewide Financial Corp. (2.44) 27.26 (1.97)
- ----------------------------------------------------------------------------------------------
Average 4.50 5.93 4.74
Median 4.36 4.77 3.81
Maximum 15.72 27.26 27.91
Minimum (10.43) (11.51) (17.81)
TROY FINANCIAL CORPORATION 8.18 (2.32) 1.01
VARIANCE TO THE COMPARABLE MEDIAN 3.83 (7.09) (2.80)
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
<PAGE> 76
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FIGURE 42 - CAPITAL DATA
<TABLE>
<CAPTION>
CAPITAL AS OF THE MOST RECENT QUARTER
--------------------------------------------------------------------------------------
TANGIBLE INTANGIBLE REGULATORY EQUITY + TOTAL CAPITAL/
EQUITY/ EQUITY/ ASSETS/ CORE CAP/ RESERVES/ RISK ADJUSTED
ASSETS TANG ASSETS EQUITY ASSETS ASSETS ASSETS
TICKER SHORT NAME (%) (%) (%) (%) (%)
- ---------------------------------------- --------------------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 7.68 7.44 3.36 7.50 8.40 NA
CFSB CFSB Bancorp, Inc. 7.82 7.82 0.00 7.53 8.38 12.86
FFYF FFY Financial Corp. 12.77 12.77 0.00 8.48 13.18 13.48
FBBC First Bell Bancorp, Inc. 9.88 9.88 0.00 9.73 9.98 22.24
FNGB First Northern Capital Corporation 10.62 10.62 0.00 9.53 11.10 14.93
HMNF HMN Financial, Inc. 9.64 8.90 8.40 5.97 10.06 12.08
HOMF Home Federal Bancorp 9.61 9.40 2.41 8.35 10.21 11.03
MECH MECH Financial, Inc. 9.84 9.76 0.83 9.71 11.16 15.45
MWBX MetroWest Bank 7.43 7.43 0.00 7.53 9.00 10.31
OFCP Ottawa Financial Corporation 7.89 6.55 18.18 6.26 8.28 9.59
PBKB People's Bancshares, Inc. 3.67 3.61 1.60 5.13 4.18 9.43
SFIN Statewide Financial Corp. 9.38 9.37 0.13 9.11 9.84 17.78
- ---------------------------------------- --------------------------------------------------------------------------------------
Average 8.85 8.63 2.91 7.90 9.48 13.56
Median 9.50 9.14 0.48 7.94 9.91 12.86
Maximum 12.77 12.77 18.18 9.73 13.18 22.24
Minimum 3.67 3.61 0.00 5.13 4.18 9.43
TROY FINANCIAL CORPORATION 9.91 9.80 1.15 9.89 11.06 15.27
VARIANCE TO THE COMPARABLE MEDIAN 0.42 0.66 0.67 1.95 1.15 2.41
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
Capitalization - The Comparable Group's median equity to assets
ratio of 9.50% is lower than the Bank's ratio of 9.91%, and this
ratio will be even larger after the conversion. The Bank's pro forma
equity to assets ratio is projected to be 17.74% at the midpoint of
the valuation range.
Intangible Levels - One of the most important factors influencing
market values is the level of intangibles that an institution
carries on its books. Thrifts trade more on tangible book than on
book. Seven of the Comparables has intangible assets. The Bank had
intangible assets of 1.15% of equity.
The Bank's loan to asset mix, current capital levels, and intangible levels are
in-line with the Comparables. The Comparables have a higher reliance on
borrowings. A slight downward adjustment is warranted due to the excessive
capital level the Bank will have post conversion, lower loan to asset ratio and
demonstrated weakness in both loan and deposit growth.
<PAGE> 77
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ASSET QUALITY
The asset quality of an institution is an important determinant of market value.
The investment community considers levels of nonperforming loans, REO and levels
of ALLL in assessing the attractiveness of investing in the common stock of an
institution.
FIGURE 43 - ASSET QUALITY TABLE
<TABLE>
<CAPTION>
ASSET QUALITY AS OF THE MOST RECENT QUARTER
-----------------------------------------------------------------------
NPLS/ RESERVES/ NPAS/ NPAS/ RESERVES/ RESERVES/
LOANS NPLS ASSETS EQUITY LOANS NPAS + 90
TICKER SHORT NAME (%) (%) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 0.15 575.40 0.13 1.71 0.88 552.16
CFSB CFSB Bancorp, Inc. 0.10 626.05 0.19 2.37 0.63 304.47
FFYF FFY Financial Corp. 0.80 70.83 0.58 4.50 0.57 70.83
FBBC First Bell Bancorp, Inc. 0.09 151.07 0.08 0.86 0.14 121.66
FNGB First Northern Capital Corporation 0.07 773.48 0.08 0.79 0.55 578.49
HMNF HMN Financial, Inc. 0.09 734.16 0.06 0.62 0.63 405.75
HOMF Home Federal Bancorp 0.75 97.59 0.72 7.45 0.73 83.53
MECH MECH Financial, Inc. 0.71 288.20 0.51 5.16 2.05 259.89
MWBX MetroWest Bank 0.34 676.27 0.37 4.92 2.29 345.13
OFCP Ottawa Financial Corporation 0.45 105.83 0.47 5.96 0.47 82.47
PBKB People's Bancshares, Inc. 0.41 239.42 0.23 6.13 0.99 210.57
SFIN Statewide Financial Corp. 0.60 138.18 0.44 4.68 0.83 92.49
- ---------------------------------------------------------------------------------------------------------------------
Average 0.38 373.04 0.32 3.76 0.90 258.95
Median 0.38 263.81 0.30 4.59 0.68 235.23
Maximum 0.80 773.48 0.72 7.45 2.29 578.49
Minimum 0.07 70.83 0.06 0.62 0.14 70.83
TROY FINANCIAL CORPORATION 2.50 70.91 1.89 19.03 1.81 61.09
VARIANCE TO THE COMPARABLE MEDIAN 2.13 (192.90) 1.59 14.44 1.13 (174.14)
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
The Bank has a higher level of non-performing loans ("NPL") to total loans at
2.50% when compared to the Comparable Group at 0.38%. The Bank had a
non-performing assets to assets ratio of 1.89%, which was higher than the
Comparable median of 0.30%. The Bank's reserve level, 1.81% of total loans, is
higher than the Comparable median of 0.68% of loans, but the Bank's reserves to
non-performing assets plus 90 day delinquency level of 61.09% is well below the
comparable group median of 235.23%, indicating that all of the reserve is
required to cover existing problem loans. The Bank's weaker asset quality
warrants a downward adjustment.
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================================================================================
EARNINGS QUALITY,
PREDICTABILITY AND GROWTH
The earnings quality, predictability and growth are critical components in the
establishment of market values for thrifts. Thrift earnings are primarily a
function of:
(1) net interest income
(2) loan loss provision
(3) non-interest income
(4) non-interest expense
The quality and predictability of earnings is dependent on both internal and
external factors. Some internal factors include the mix of the balance sheet,
the interest rate sensitivity of the balance sheet, the asset quality, and the
infrastructure in place to deliver the assets and liabilities to the public.
External factors include the competitive market for both assets and liabilities,
the global interest rate scenario, local economic factors and regulatory issues.
Each of these factors can influence the earnings of an institution, and each of
these factors is volatile. Investors prefer stability and consistency. As such,
solid, consistent earnings are preferred to high but risky earnings. Investors
also prefer earnings to be diversified and not entirely dependent on interest
income.
<PAGE> 79
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================================================================================
The Bank had a net loss of $878,000 for the year ended September 30, 1998. In
fiscal 1998, the Bank established and contributed to The Troy Savings Bank
Charitable Foundation $1.0 million in cash and entered into a binding,
irrevocable commitment to make a total of $4.0 million in scheduled payments to
the Charitable Foundation. The scheduled payments will occur in each of fiscal
years 1999, 2000 and 2001. In connection with the Bank's cash contribution and
future binding commitment, the Bank recorded a contribution expense of $4.5
million, which represents the $1.0 million cash contributed and the present
value of the $4.0 million in future scheduled contributions. In fiscal 1998, the
Bank recognized the entire tax benefit associated with the contribution expense.
Notwithstanding the tax benefit, the contribution expense contributed
significantly to the Bank's fiscal 1998 net loss of $878,000. If this
contribution expense had not been incurred in fiscal 1998, the Bank's net income
would have been approximately $1.8 million.
For appraisal purposes, an additional $922 thousand in after tax adjustments for
non-recurring expenses in fiscal 1998 have been included in net income resulting
in adjusted net income for fiscal year ended September 30, 1998 of approximately
$2.7 million.
FIGURE 44 - NET INCOME TREND
<TABLE>
<CAPTION>
$ IN THOUSAND
<S> <C>
Sep-94 $4,099
Sep-95 $7,068
Sep-96 $5,078
Sep-97 $3,658
Sep-98 ($878)
</TABLE>
Sources: Offering Circular
<PAGE> 80
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================================================================================
<PAGE> 81
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The return on asset and return on equity ratios were below the Comparable Group
median, due to the net loss for the fiscal year 1998. Based on the $1.8 million
in adjusted income, the ROAA and ROAE would be 0.27% and 2.46%, respectively.
Based on the $2.7 million in net income used in the appraisal, ROAA and ROAE
would be 0.40% and 3.71%, respectively.
FIGURE 45 - PROFITABILITY DATA
<TABLE>
<CAPTION>
PROFITABILITY AS OF THE MOST RECENT QUARTER
----------------------------------------------------------
RETURN ON RETURN ON
AVG ASSETS AVG EQUITY
TICKER SHORT NAME (%) (%)
- -----------------------------------------------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 0.71 8.99
CFSB CFSB Bancorp, Inc. 1.34 17.08
FFYF FFY Financial Corp. 1.15 9.10
FBBC First Bell Bancorp, Inc. 1.03 10.67
FNGB First Northern Capital Corporation 1.01 9.44
HMNF HMN Financial, Inc. (0.24) (2.48)
HOMF Home Federal Bancorp 1.44 15.30
MECH MECH Financial, Inc. 1.11 11.38
MWBX MetroWest Bank 1.26 16.99
OFCP Ottawa Financial Corporation 0.94 11.64
PBKB People's Bancshares, Inc. 1.03 26.67
SFIN Statewide Financial Corp. (0.21) (2.25)
- -----------------------------------------------------------------------------------------------------------------
Average 0.88 11.04
Median 1.03 11.03
Maximum 1.44 26.67
Minimum (0.24) (2.48)
TROY FINANCIAL CORPORATION (0.13) (1.20)
VARIANCE TO THE COMPARABLE MEDIAN (1.16) (12.23)
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
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FIGURE 46 - INCOME STATEMENT DATA
<TABLE>
<CAPTION>
INCOME STATEMENT AS OF THE MOST RECENT QUARTER
--------------------------------------------------------
NET INTEREST INTEREST NET INTEREST
INTEREST INCOME/ EXPENSE/ INCOME/
MARGIN AVG ASSETS AVG ASSETS AVG ASSETS
TICKER SHORT NAME (%) (%) (%) (%)
- ------------------------------------------ --------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 3.10 7.09 4.12 2.98
CFSB CFSB Bancorp, Inc. 3.10 7.33 4.29 3.04
FFYF FFY Financial Corp. 3.48 7.42 4.10 3.33
FBBC First Bell Bancorp, Inc. 2.45 7.05 4.64 2.41
FNGB First Northern Capital Corporation 3.06 7.18 4.24 2.94
HMNF HMN Financial, Inc. 2.34 6.86 4.60 2.26
HOMF Home Federal Bancorp 3.54 7.62 4.31 3.31
MECH MECH Financial, Inc. 3.56 6.94 3.58 3.36
MWBX MetroWest Bank 3.98 7.61 3.80 3.81
OFCP Ottawa Financial Corporation 3.26 7.37 4.34 3.03
PBKB People's Bancshares, Inc. 2.83 7.41 4.67 2.74
SFIN Statewide Financial Corp. 2.49 5.96 3.56 2.40
- ------------------------------------------ --------------------------------------------------------
Average 3.10 7.15 4.19 2.97
Median 3.10 7.26 4.27 3.01
Maximum 3.98 7.62 4.67 3.81
Minimum 2.34 5.96 3.56 2.26
TROY FINANCIAL CORPORATION 3.84 7.09 3.57 3.52
VARIANCE TO THE COMPARABLE MEDIAN 0.74 (0.17) (0.70) 0.51
<CAPTION>
INCOME STATEMENT AS OF THE MOST RECENT QUARTER
-------------------------------------------------------
NONINTEREST NONINTEREST
INCOME/ EXPENSE/ EFFICIENCY OVERHEAD
AVG ASSETS AVG ASSETS RATIO RATIO
TICKER SHORT NAME (%) (%) (%) (%)
- -------------------------------------------- -------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 0.56 2.18 61.15 53.83
CFSB CFSB Bancorp, Inc. 0.91 1.88 48.10 32.54
FFYF FFY Financial Corp. 0.34 1.92 52.36 47.52
FBBC First Bell Bancorp, Inc. 0.06 0.76 30.64 28.83
FNGB First Northern Capital Corporation 0.60 1.94 54.93 45.79
HMNF HMN Financial, Inc. 0.50 1.91 62.92 54.68
HOMF Home Federal Bancorp 1.22 2.01 45.50 25.36
MECH MECH Financial, Inc. 0.80 2.38 57.30 47.11
MWBX MetroWest Bank 0.35 2.48 59.73 56.07
OFCP Ottawa Financial Corporation 0.85 2.28 55.44 42.94
PBKB People's Bancshares, Inc. 0.99 2.13 57.16 41.67
SFIN Statewide Financial Corp. 0.40 2.93 104.22 104.91
- -------------------------------------------- -------------------------------------------------------
Average 0.63 2.07 57.45 48.44
Median 0.58 2.07 56.30 46.45
Maximum 1.22 2.93 104.22 104.91
Minimum 0.06 0.76 30.64 25.36
TROY FINANCIAL CORPORATION 0.38 3.70 78.28 75.32
VARIANCE TO THE COMPARABLE MEDIAN (0.20) 1.63 21.98 28.87
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
Compared to the Comparable Group AVERAGE, the Bank's yield on assets was 6 basis
points lower and the cost of funds was 62 basis points lower. The 56 basis point
net interest income advantage is more than offset by the Bank's higher level of
noninterest expense, which was 163 basis points higher than the Comparables.
Taken collectively, the income of the Bank can be measured by the efficiency
ratio, where the Bank has a disadvantage of 21.98% as compared to the Comparable
median.
Currently, investors are focusing on earnings sustainability as the interest
rate volatility has caused a wide variation in income levels. With the intense
competition for both assets and deposits, banks can not easily replace lost
spread and margin with balance sheet growth.
Based on the above factors and the Bank's historical earnings performance, a
downward adjustment is warranted to the market value for earnings.
<PAGE> 83
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DIVIDENDS
Historically, banks have not established dividend policies immediately at or
after conversion to stock ownership. Rather, newly converted institutions, in
general, have preferred to establish an earnings track record, fully invest the
conversion proceeds, and allow for seasoning of the stock before establishing a
dividend policy. In the late 1980's and early 1990's however, there has been a
tendency toward initiating dividend policies concurrent with the conversion as a
means of increasing the attractiveness of the issue and to utilize the proceeds.
The last few years have seen yet another shift away from dividend policies
concurrent with conversion. Recent issues have been fully or over-subscribed
without the need for the additional enticement of dividends. This, however, is a
different issue subsequent to conversion. Recent pressures on ROE and on
internal rate of returns to investors has prompted the industry toward cash
dividends. This trend is exacerbated by the lack of growth potential. Typically,
when institutions are in a growth mode, they issue stock dividends or do not
declare a dividend. When growth is stunted, these institutions shift toward
reducing equity levels and thus utilize cash dividends as a tool in this regard.
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FIGURE 47 - DIVIDEND DATA
<TABLE>
<CAPTION>
DIVIDENDS
--------------------------------
CURRENT LTM DIVIDEND
DIVIDEND PAYOUT
YIELD RATIO
TICKER SHORT NAME ($) (%)
- --------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 2.160 25.19
CFSB CFSB Bancorp, Inc. 2.250 35.83
FFYF FFY Financial Corp. 2.740 39.80
FBBC First Bell Bancorp, Inc. 2.560 30.53
FNGB First Northern Capital Corporation 2.820 46.67
HMNF HMN Financial, Inc. 1.810 18.52
HOMF Home Federal Bancorp 1.640 20.18
MECH MECH Financial, Inc. 2.160 17.05
MWBX MetroWest Bank 2.960 34.55
OFCP Ottawa Financial Corporation 2.050 27.40
PBKB People's Bancshares, Inc. 3.730 26.60
SFIN Statewide Financial Corp. 3.250 54.12
- --------------------------------------------------------------------------
Average 2.51 31.37
Median 2.41 28.97
Maximum 3.73 54.12
Minimum 1.64 17.05
TROY FINANCIAL CORPORATION NA NA
VARIANCE TO THE COMPARABLE MEDIAN NA NA
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
All of the Comparable institutions had declared dividends. The median dividend
payout ratio for the Comparable Group was 28.97%, ranging from a high of 54.12%
to a low of 17.05%. The Bank on a pro forma basis (at the mid point of the value
range) will have an equity to assets ratio of 17.74% compared to the Comparable
Group's median of 9.50%. It will therefore, be able to afford to pay dividends.
As such, no adjustment is indicated for this factor.
<PAGE> 85
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LIQUIDITY OF THE ISSUE
The Comparable Group is by definition composed only of companies that trade in
the public markets with all of the Comparables trading on NASDAQ. Typically, the
number of shares outstanding and the market capitalization provides an
indication of how much liquidity there will be in a given stock. The actual
liquidity can be measured by volume traded over a given period of time.
FIGURE 48 - MARKET CAPITALIZATION DATA
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
--------------------------------------------------------------------------------------
MRQ MRQ LTM LTM MRQ PUBLICLY MRQ TANGIBLE
MARKET PRICE PRICE PRICE REPORTED PUBLICLY REP
VALUE PER SHARE HIGH LOW BOOK VALUE BOOK VALUE
TICKER SHORT NAME ($) ($) ($) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARABLE THRIFT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 96.43 18.500 18.875 14.000 16.52 15.97
CFSB CFSB Bancorp, Inc. 188.83 23.125 25.000 20.000 8.31 8.31
FFYF FFY Financial Corp. 129.17 32.875 33.375 26.250 21.24 21.24
FBBC First Bell Bancorp, Inc. 97.33 15.625 16.000 12.875 11.90 11.90
FNGB First Northern Capital Corporation 112.01 12.750 13.250 9.500 8.57 8.57
HMNF HMN Financial, Inc. 71.38 13.250 15.000 11.000 12.67 11.61
HOMF Home Federal Bancorp 137.68 26.750 26.750 20.500 13.51 13.18
MECH MECH Financial, Inc. 146.94 27.750 28.500 20.625 17.83 17.68
MWBX MetroWest Bank 96.24 6.750 7.000 5.750 3.49 3.49
OFCP Ottawa Financial Corporation 119.07 21.500 24.000 18.875 13.25 10.84
PBKB People's Bancshares, Inc. 67.59 20.375 21.250 15.875 9.87 9.71
SFIN Statewide Financial Corp. 67.80 16.000 18.125 15.250 14.28 14.26
- ------------------------------------------------------------------------------------------------------------------------------------
Average 110.87 19.60 20.59 15.88 12.62 12.23
Median 104.67 19.44 20.06 15.56 12.96 11.76
Maximum 188.83 32.88 33.38 26.25 21.24 21.24
Minimum 67.59 6.75 7.00 5.75 3.49 3.49
TROY FINANCIAL CORPORATION 85.60 10.00 NA NA NA NA
VARIANCE TO THE COMPARABLE MEDIAN (19.07) (9.44) NA NA NA NA
</TABLE>
Sources: SNL and Offering Circular Data, FinPro Computations
The market capitalization values of the Comparable Group range from a low of
$67.59 million to a high of $188.83 million with a median market capitalization
of $104.67 million. All of the Comparables trade actively on a national
exchange. The Bank expects to have $85.6 million of market capital at the
midpoint on a pro forma basis.
No adjustment for this factor appears warranted.
<PAGE> 86
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RECENT REGULATORY MATTERS
Regulatory matters influence the market for thrift conversions. Much of the
recent regulatory activity has centered on limiting the availability of capital
market alternatives available to recently converted institutions. The major
limitations include:
- - discouraging capital redistribution
- - enforcing limits of stock repurchases to 0% in the first year, 5% in the
second year and 5% in the third year.
In addition, regulators have historically focused on controlling the price
appreciation of newly converted institutions' stock prices. In their zeal to
control price appreciation, appraisal values were driven-up to record levels in
early 1998.
The rapid decline of thrift stock prices, coupled with the collapse of the
market for second step conversions in the August-September 1998 timeframe has
driven potential investors from thrift stocks. The result is that recent
conversions have been under-subscribed and many have not experienced price
appreciation in the aftermarket. Recognizing this trend, the regulators have
relaxed the stock buyback rules for any institution that is trading below its
IPO price.
Although helpful, this action in and of itself has not been enough to stir a
recovery in the thrift market for recently converted institutions.
This threat to newly converted institutions, of not being able to use all of the
capital markets tools available to its comparables, will hurt the stock's
attractiveness, as it will put the Bank at a significant competitive
disadvantage to the rest of the industry.
As such, a slight downward adjustment for this measure is warranted based on the
uncertainty surrounding the regulatory environment.
<PAGE> 87
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================================================================================
MARKET FOR SEASONED THRIFT
STOCKS
Data for all public thrifts as of December 3, 1998 is provided in Exhibit 6. A
common measure utilized as a proxy for the performance of the thrift industry is
the SNL thrift index graphically shown below and tabularly shown on the
following page:
FIGURE 49 - SNL THRIFT INDEX CHART
SNL INDEX PERFORMANCE
[GRAPHIC depicting the tabular information in Figure 50]
Source: SNL Securities
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FIGURE 50 - HISTORICAL SNL INDEX
SNL THRIFT INDEX MONTHLY PERFORMANCE
January 2, 1992 to December 3, 1998
<TABLE>
<CAPTION>
SNL % Change % Change % Change % Change % Change % Change % Change
Thrift Since Since Since Since Since Since Since
Date Index 1/2/92 1/4/93 1/3/94 12/30/94 12/29/95 12/31/96 12/31/97
- ---------------- -------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan-92 143.9 - - - - - - -
Jul-92 175.1 21.7% - - - - - -
Jan-93 201.1 39.7% - - - - - -
Jul-93 220.5 53.2% 9.6% - - - - -
Jan-94 252.5 75.5% 25.6% - - - - -
Jul-94 273.8 90.3% 36.2% 8.4% - - - -
Jan-95 256.1 78.0% 27.3% 1.4% - - - -
Jul-95 328.2 128.1% 63.2% 30.0% 28.2% - - -
Jan-96 370.7 157.6% 84.3% 46.8% 44.7% - - -
Jul-96 389.9 171.0% 93.9% 54.4% 52.2% 5.2% - -
Jan-97 520.1 261.4% 158.6% 106.0% 103.1% 40.3% - -
Jul-97 684.5 375.7% 240.4% 171.1% 167.3% 84.7% 31.6%
Jan-98 768.3 433.9% 282.0% 204.3% 217.1% 104.1% 58.9% -5.6%
Jul-98 783.7 444.6% 289.7% 210.4% 223.4% 108.2% 62.1% -3.7%
December 3, 1998 686.0 376.7% 241.1% 171.7% 183.1% 82.2% 41.9% -15.7%
</TABLE>
Source: SNL Securities
FIGURE 51 - EQUITY INDICES
[GRAPH depicting the tabular information in Figure 52]
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FIGURE 52 - HISTORICAL MARKET INDICES
<TABLE>
<CAPTION>
- ----------------------------------------------
DATE SNL S&P DJIA
- ----------------------------------------------
<S> <C> <C> <C>
6/30/94 269.6 444.3 3,625.0
12/30/94 244.7 459.3 3,834.4
6/30/95 313.5 544.8 4,556.1
12/29/95 376.5 615.9 5,117.1
6/28/96 387.2 670.6 5,654.6
12/31/96 483.6 740.7 6,448.3
6/30/97 624.5 885.2 7,672.8
12/30/97 814.1 970.4 7,903.0
6/30/98 833.5 1,133.8 8,952.0
12/3/98 686.0 1,150.1 8,879.7
- ----------------------------------------------
</TABLE>
As Figures 49 and 50 illustrate, the performance of the SNL index was robust
through 1994, 1995, 1996 and 1997. The dip in the index, occurring in late 1994,
was the product of the interest rate rise during that period along with the
overall uneasiness in the stock market in general. In August, September and
October 1998, the indices experienced a dramatic dip in value with a recapture
of value in November 1998. As a result of this uncertainty, investors have
pulled-back from financial institution stocks, and, as such, the SNL index for
thrifts has not recovered. The rate scenario covering the same period as the SNL
index can be seen in the following chart.
FIGURE 53 - HISTORICAL RATES
[GRAPH depicting historical rate data from fourth quarter 1993
through third quarter 1998]
Source: Prudential Bache Securities
As the graph demonstrates, the rate rise in late 1994 correlates closely to the
fall in thrift prices. The drop in rates in 1995 was one of the primary drivers
of the rapid rise in the SNL index. During 1996, rates increased slightly and
then remained stable, fueling the rise in the conversion
<PAGE> 90
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prices. 1997 has seen a continuation of this trend, with the median IPO pricing
at 71.1%, 71.4%, 73.0%, and 77.2% of book value for the first, second, third,
and fourth quarters of 1997, respectively, and 78.4%, 76.6%, 77.8%, and 62.7% in
the first, second, third, and fourth quarters of 1998, respectively.
As Figures 51 and 53 show, in 1997, the flat interest rate environment
contributed to the appreciation in the SNL index. However, thrift market prices
in 1998 have leveled off and not kept pace with the S&P 500 and the Dow Jones
Industrial Average and most recently are experiencing a significant downward
trend.
The stock prices for the Comparable Group have lagged the SNL index trend over
the last year, as evidenced in the following figure.
FIGURE 54 - SNL INDEX & STOCK PRICE COMPARISON
<TABLE>
<CAPTION>
COMPARATIVE PRICE CHANGES
COMPARABLE GROUP VS. SNL INDEX
MARKET DATA AS OF 12/03/98
--------------------------- ---------------------------
PERCENT CHANGE FROM PRIOR PERCENT CHANGE FROM PRIOR
--------------------------- ---------------------------
CURRENT SNL
STOCK PRICE 1 MONTH 3 MONTHS 1 YEAR INDEX 1 MONTH 3 MONTHS 1 YEAR
TICKER SHORT NAME ($) (%) (%) (%) (#) (%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. 18.500 0.00% 7.43% -10.81% 685.990 1.41% 12.74% -12.00%
CFSB CFSB Bancorp, Inc. 23.125 -3.78% 6.49% 8.60%
FFYF FFY Financial Corp. 32.875 5.70% 14.07% 7.22%
FBBC First Bell Bancorp, Inc. 15.625 1.60% -2.40% -12.00%
FNGB First Northern Capital Corporation 12.750 13.73% 16.67% -7.84%
HMNF HMN Financial, Inc. 13.250 0.00% -7.55% -29.56%
HOMF Home Federal Bancorp 26.750 13.08% 7.48% -0.93%
MECH MECH Financial, Inc. 27.750 9.01% 13.51% 4.50%
MWBX MetroWest Bank 6.750 2.77% 3.70% -32.41%
OFCP Ottawa Financial Corporation 21.500 0.00% -10.76% -17.87%
PBKB People's Bancshares, Inc. 20.375 -4.29% 12.88% 0.61%
SFIN Statewide Financial Corp. 16.000 0.78% -3.13% -36.72%
-----------------------------------------------------------------------------------------------------------------
AVERAGE 3.22% 4.87% -10.60% 1.41% 12.74% -12.00%
MEDIAN 1.19% 6.96% -9.33% 1.41% 12.74% -12.00%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Source: SNL Securities and FinPro calculations
A downward adjustment for this measure is warranted since the institution will
trade at a discount to the market until the capital is adequately invested, as
the Comparable Group has followed the SNL Index trend and since investors have a
stated preference to see a few full quarters of earnings in a newly converted
institution.
<PAGE> 91
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ACQUISITION MARKET
FIGURE 55 - DEALS FOR LAST FIFTEEN QUARTERS
<TABLE>
<CAPTION>
Bank Thrift
<S> <C> <C>
1995-2 85 35
1995-3 92 27
1995-4 80 22
1996-1 79 22
1996-2 87 29
1996-3 91 21
1996-4 82 19
1997-1 66 25
1997-2 79 32
1997-3 102 17
1997-4 97 37
1998-1 97 26
1998-2 126 26
1998-3 100 25
1998-4* 29 9
</TABLE>
* 1998-4 is quarter to date through 12/3/98
Source: SNL Securities
<PAGE> 92
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From 1994 through December 3, 1998, thrift deal prices remained high. Nationally
and Deals $50-100 million have higher pricing multiples in 1998, compared to
1997. For the Region, price to book and price to tangible book values have
increased in 1998.
FIGURE 56 - DEAL MULTIPLES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
MEDIAN PRICE TO LTM EARNINGS 1995 1996 1997 1998 YTD
<S> <C> <C> <C> <C>
Thrifts - Nationwide 18.4 17.6 24.6 26.8
Thrifts - Mid-Atlantic 17.9 17.0 21.7 26.9
Thrifts - Deal Value $50 - $100 Million 19.6 17.5 22.5 26.8
AVERAGE PRICE TO BOOK
Thrifts - Nationwide 144.7 149.5 184.2 212.5
Thrifts - Mid-Atlantic 156.5 156.9 212.5 204.2
Thrifts - Deal Value $50 - $100 Million 157.9 162.2 204.3 221.7
AVERAGE PRICE TO TANGIBLE BOOK
Thrifts - Nationwide 150.0 153.6 191.0 219.2
Thrifts - Mid-Atlantic 157.6 159.4 228.7 208.3
Thrifts - Deal Value $50 - $100 Million 158.7 166.2 206.8 230.9
AVERAGE PRICE TO ASSETS
Thrifts - Nationwide 14.8 15.0 18.3 22.2
Thrifts - Mid-Atlantic 15.3 17.7 16.5 23.5
Thrifts - Deal Value $50 - $100 Million 19.6 15.3 17.8 22.5
AVERAGE PRICE TO DEPOSITS
Thrifts - Nationwide 19.2 19.9 24.8 30.3
Thrifts - Mid-Atlantic 20.3 24.5 26.1 32.8
Thrifts - Deal Value $50 - $100 Million 24.7 20.2 23.7 30.1
- ------------------------------------------------------------------------------------------
</TABLE>
Currently there are three thrift acquisitions pending in New York. ALBANK
Financial Corp is being acquired by Charter One Financial of Ohio. ALBANK was
priced at 258% of book and 23.1X LTM earnings. Financial Bancorp is being
acquired by Dime Community Bancshares for 247% of book and 24.4X earnings.
Roslyn Bancorp Inc. is acquiring TR Financial Corp. for 403% of book value and
27.2X earnings. The AFSALA / Ambanc merger was recently completed. AFSALA was
acquired for 145% of book and 22.6X earnings.
No adjustment is warranted for this factor as the Bank will not be readily
available for acquisition immediately following the reorganization and the
Comparable Group has been screened to attempt to eliminate stocks with
speculation included in their pricing.
<PAGE> 93
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ADJUSTMENTS TO VALUE IN
RELATION TO THE COMPARABLE
GROUP
Overall, FinPro believes that the Bank pro forma market value should be
discounted relative to the Comparable Group, reflecting the following
adjustments.
<TABLE>
<S> <C>
Key Valuation Parameters Valuation Adjustment
- ------------------------------------------------------------------------------------------------------
Balance Sheet Strength Slight Downward
Asset Quality Downward
Earnings Quality, Predictability and Growth Downward
Dividends No Adjustment
Liquidity of the Issue No Adjustment
Recent Regulatory Matters Slight Downward
Market for Seasoned Thrift Stocks Downward
Acquisition Market No Adjustment
</TABLE>
As a result of all the factors discussed, a full offering discount of
approximately 60% on a price to book basis appears to be reasonable.
<PAGE> 94
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5. OTHER ADJUSTMENTS
MANAGEMENT
The Bank has developed a good management team with considerable banking
experience and stability within the Bank. The Bank's organizational chart is
reasonable for an institution of its size and complexity. The Board is active
and oversees and advises on all key strategic and policy decisions and holds the
management team to high performance standards.
As such, no adjustment appears to be warranted for this factor.
<PAGE> 95
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MARKET AREA
The market area that an institution serves has a significant impact on value, as
future success is interrelated with the economic, demographic and competitive
aspects of the market. Specifics on the Bank's markets were delineated in
Section 2 - Market Area Analysis. The following are discussions with respect to
the various data sets utilized for the market analysis.
DEMOGRAPHIC DATA - The market area that the Bank serves has experienced a
minimal population growth between 1990 and 1997 of 2.07%, while
households have grown 2.34% over the same time period. Both population
and households for the total market area is projected to grow between
1997 and 2002 at 0.32% and 0.49% respectively, with three of the
individual markets projected to have a decrease in population. Household
income in the market is $49,126 which is below the state average of
$57,084. Three of the Banks individual markets have a household income
greater than the state average. The market area has a slightly higher
educational attainment level than the state.
<PAGE> 96
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================================================================================
FIGURE 57 - DEMOGRAPHIC MARKET SUMMARY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1 - MKT TOTAL NEW YORK MKT TOTAL
- -----------------------------------------------------------------------------------------------
POPULATION CHARACTERISTICS
<S> <C> <C>
LAND AREA (miles) 47,223.84 293.32
POPULATION
1990 CENSUS 17,990,455 379,704
1997 ESTIMATE 18,177,296 387,554
2002 PROJECTION 18,151,717 388,795
GROWTH 1990 TO 1997 1.04% 2.07%
PROJECTED GROWTH 1997 TO 2002 -0.14% 0.32%
POPULATION DENSITY 1997 (persons / sq mile) 384.9 1,321.3
POPULATION BY SEX - 1997 EST 18,177,296 387,554
MALE 48.04% 47.81%
FEMALE 51.96% 52.19%
MARITAL STATUS (POP AGE 15+) 14,518,258 314,489
PERSONS SINGLE 49.84% 54.00%
PERSONS MARRIED 50.16% 46.00%
FEMALES NEVER MARRIED 15.14% 16.94%
FEMALES MARRIED 24.89% 22.95%
FEMALES WIDOWED/DIVORCED/SEPARATED 12.68% 13.00%
MALES NEVER MARRIED 16.86% 18.55%
MALES MARRIED 25.27% 23.05%
MALES WIDOWED/DIVORCED/SEPARATED 5.17% 5.51%
POPULATION BY AGE - 1997 EST 18,177,296 387,554
UNDER 6 YEARS 8.17% 7.71%
6 TO 17 YEARS 15.68% 14.60%
15 TO 24 YEARS 9.06% 11.86%
25 TO 34 YEARS 15.29% 15.39%
35 TO 44 YEARS 16.10% 15.61%
45 TO 54 YEARS 12.96% 12.16%
55 TO 64 YEARS 8.86% 7.68%
65 + YEARS 13.87% 14.99%
MEDIAN AGE 36.1 35.2
EDUCATION ATTAINMENT (POP AGE 25+) 12,194,214 255,117
ELEMENTARY 10.09% 7.82%
SOME HIGH SCHOOL 14.91% 12.73%
HIGH SCHOOL GRADUATE 29.44% 29.37%
SOME COLLEGE 22.21% 24.07%
COLLEGE DEGREE 23.35% 26.02%
POPULATION BY RACE - 1997 EST 18,177,296 387,554
WHITE 61.79% 84.13%
BLACK 17.95% 10.22%
INDIAN 0.39% 0.22%
ASIAN 5.05% 2.65%
HISPANIC 14.82% 2.76%
POPULATION BY ANCESTRY - 1997 EST
MEXICAN 0.64% 0.20%
CUBAN 0.51% 0.11%
PUERTO RICAN 7.22% 1.41%
ENGLISH/SCOTTISH 6.23% 8.11%
FRENCH 2.09% 5.89%
GERMAN 11.76% 13.60%
GREEK 0.78% 0.62%
IRISH 10.13% 17.23%
ITALIAN 13.26% 14.02%
POLISH 4.65% 5.76%
PORTUGESE 0.19% 0.12%
RUSSIAN 2.55% 1.49%
NORWEGIAN/SWEDISH 0.88% 0.85%
HOUSEHOLD CHARACTERISTICS
HOUSEHOLDS
1990 CENSUS 6,639,322 149,860
1997 ESTIMATE 6,684,831 153,361
2002 PROJECTION 6,681,969 154,108
GROWTH 1990 TO 1997 0.69% 2.34%
PROJECTED GROWTH 1997 TO 2002 -0.04% 0.49%
HOUSEHOLD SIZE 6,684,831 153,361
HHs WITH 1 PERSON 14.86% 18.67%
HHs WITH 2 PERSONS 16.01% 18.75%
HHs WITH 3-4 PERSONS 17.40% 17.91%
HHs WITH 5+ PERSONS 6.56% 4.78%
AVG PERSONS PER HH 1990 2.71 2.53
AVG PERSONS PER HH 1997 EST 2.72 2.53
AVG PERSONS PER HH 2002 PROJ 2.72 2.52
CHANGE 1990 TO 1997 0.01 -0.01
HOUSEHOLDS BY TYPE - 1997 EST
FAMILY HOUSEHOLDS 66.84% 60.12%
NON-FAMILY HOUSEHOLDS 33.16% 39.88%
PERSONS IN GROUP QUARTERS 3.03% 5.26%
HOUSEHOLDS WITH CHILDREN 6,684,831 153,361
HOUSEHOLDS WITH CHILDREN 49.76% 48.68%
HOUSEHOLDS WITHOUT CHILDREN 99.84% 117.65%
HOUSEHOLDS BY INCOME - 1997 EST 6,684,831 153,361
UNDER $15,000 19.36% 18.25%
$15,000 TO $25,000 12.66% 14.47%
$25,000 TO $35,000 12.41% 13.73%
$35,000 TO $50,000 15.82% 16.96%
$50,000 TO $75,000 19.02% 19.90%
$75,000 TO $100,000 9.68% 9.24%
$75,000 TO $150,000 7.59% 5.58%
$150,000 TO $250,000 2.10% 1.31%
$250,000 TO $500,000 0.88% 0.40%
$500,000 OR MORE 0.48% 0.15%
AVERAGE HOUSEHOLD INCOME - 1990 $44,214 $37,675
AVERAGE HOUSEHOLD INCOME - 1997 EST $57,084 $49,126
GROWTH 1990 TO 1997 29.11% 30.40%
AVERAGE HOUSEHOLD WEALTH - 1997 EST $134,251 $127,321
AVERAGE HOUSEHOLD WEALTH - 2002 PROJ $147,502 $144,354
PROJ GROWTH 1997 TO 2002 9.87% 13.38%
HOUSEHOLDS BY INCOME SOURCE
AGGREGATE INCOME - 1997 (IN MILLIONS) $381,599 $7,534
AGG HH INC: SELF-EMPLOYMENT 7.62% 5.43%
AGG HH INC: WAGES OR SALARY 83.99% 86.79%
AGG HH INC: INT/DIV/RENT/ROYALTY 8.38% 7.78%
HOUSEHOLDS BY NUMBER OF VEHICLES 6,684,831 153,361
NO VEHICLES 29.76% 16.92%
1 VEHICLE 32.24% 38.66%
2 VEHICLES 26.70% 32.90%
3+ VEHICLES 11.30% 11.52%
- -----------------------------------------------------------------------------------------------
</TABLE>
Source: Claritas
COMPETITIVE DATA - Deposits in the Albany market have grown $791 million
between 1993 and 1997. The Bank has grown the branch to $13 million over
the 2 years that the branch has been in the market. The Clifton Park
market has grown $138 million while the Bank has only grown $1.9 million
over the past five years. Deposits in Colonie have increased $266.6
million while the Bank has grown its branch to $24.8 million over the
past four years. The East Greenbush market has had a deposit increase of
only $913 thousand over the past five years. Guilderland has experienced
a deposit growth of $53.5
<PAGE> 97
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================================================================================
million. The Bank recently entered this market so no data was available.
The Hudson Valley market has grown $18.4 million while the Bank has had a
majority of the growth, growing $14.3 million. Deposits in Latham have
increased $127.8 million while the Bank grew $13.1 million. The
Queensbury market has grown $90.1 million over the past five years. The
Bank has two branches in this market; the 702 Glen Street branch has
declined $3.7 million since 1994, while the Quaker Road branch has grown
to $2.7 million since opening in 1995. Deposits in the Schenectady market
has declined $1.7 million while the Bank has grown $9.2 million over the
past five years. The Troy market has experienced a deposit growth of $8.4
million, while the Bank has experienced a decline in deposits of $32.7
million over the past five years. Deposits in the Watervliet market have
increased $23.3 million, while the Bank has grown $6.7 million. The
Whitehall market has experienced deposit growth of $615 thousand. The
Bank has taken a majority of this growth, growing $502 thousand over the
past five years.
Based on these factors no adjustment is warranted for this factor.
<PAGE> 98
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================================================================================
SUBSCRIPTION INTEREST
Based on the stock appreciation for both thrift stocks and for the U.S. equity
market in general, the market for public offerings has attracted a significant
level of attention. The market for public offerings is driven by the lack of
supply of stocks to meet the demand created primarily by the growth of mutual
funds. Thrift IPO's have received a greater amount of attention due to the price
"pops" of recent standard conversions.
<PAGE> 99
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================================================================================
FIGURE 58 - RECENT STANDARD CONVERSION PERFORMANCE
<TABLE>
<CAPTION>
------------------------------
PERCENT CHANGE FROM IPO
------------------------------
AFTER AFTER
IPO PRICE 1 DAY 1 WEEK
TICKER SHORT NAME IPO DATE ($) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SCFS Seacoast Financial Services Corporation 11/20/98 10.000 3.13% 0.63%
FNFI First Niles Financial Inc. 10/27/98 10.000 15.00% 8.75%
CNYF CNY Financial Corp. 10/06/98 10.000 -5.00% -4.37%
-----------------------------------------------------------------------------------------------------------------
Q4`98 AVERAGE 4.38% 1.67%
MEDIAN 3.13% 0.63%
-----------------------------------------------------------------------------------------------------------------
CITZ CFS Bancorp Inc. 07/24/98 10.000 14.38% 10.63%
UCFC United Community Finl Corp. 07/09/98 10.000 50.00% 50.00%
HRBT Hudson River Bancorp 07/01/98 10.000 25.63% 33.75%
-----------------------------------------------------------------------------------------------------------------
Q3`98 AVERAGE 30.00% 31.46%
MEDIAN 25.63% 33.75%
-----------------------------------------------------------------------------------------------------------------
FKAN First Kansas Financial Corp. 06/29/98 10.000 23.13% 23.75%
CFKY Columbia Financial of Kentucky 04/15/98 10.000 71.25% 57.50%
EFC EFC Bancorp Inc. 04/07/98 10.000 47.50% 48.75%
HBSC Heritage Bancorp Inc. 04/07/98 15.000 48.75% 46.25%
NEP Northeast PA Financial Corp. 04/01/98 10.000 55.00% 53.13%
-----------------------------------------------------------------------------------------------------------------
Q2`98 AVERAGE 49.13% 45.88%
MEDIAN 48.75% 48.75%
-----------------------------------------------------------------------------------------------------------------
BYS Bay State Bancorp 03/30/98 20.000 46.88% 49.38%
HLFC Home Loan Financial Corp. 03/26/98 10.000 52.50% 58.75%
CAVB Cavalry Bancorp Inc. 03/17/98 10.000 105.63% 133.75%
ICBC Independence Comm. Bank Corp. 03/17/98 10.000 72.50% 76.88%
RCBK Richmond County Financial Corp 02/18/98 10.000 63.13% 59.38%
HFBC HopFed Bancorp Inc. 02/09/98 10.000 68.13% 60.00%
TSBK Timberland Bancorp Inc. 01/13/98 10.000 45.00% 61.88%
MYST Mystic Financial Inc. 01/09/98 10.000 44.38% 50.63%
UTBI United Tennessee Bankshares 01/05/98 10.000 47.50% 40.00%
-----------------------------------------------------------------------------------------------------------------
Q1`98 AVERAGE 60.63% 65.63%
MEDIAN 52.50% 59.38%
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
1998 YTD AVERAGE 44.72% 45.97%
MEDIAN 47.50% 49.69%
-----------------------------------------------------------------------------------------------------------------
PEDE Great Pee Dee Bancorp 12/31/97 10.000 61.25% 56.25%
UCBC Union Community Bancorp 12/29/97 10.000 46.88% 43.13%
WSBI Warwick Community Bancorp 12/23/97 10.000 56.25% 66.88%
SIB Staten Island Bancorp Inc. 12/22/97 12.000 58.86% 59.90%
HCBC High Country Bancorp Inc. 12/10/97 10.000 44.38% 51.25%
FSFF First SecurityFed Financial 10/31/97 10.000 50.63% 51.88%
OTFC Oregon Trail Financial Corp. 10/06/97 10.000 67.50% 64.38%
RVSB Riverview Bancorp Inc. 10/01/97 10.000 31.88% 35.00%
-----------------------------------------------------------------------------------------------------------------
Q4 `97 AVERAGE 52.20% 53.58%
MEDIAN 53.44% 54.07%
-----------------------------------------------------------------------------------------------------------------
FSPT FirstSpartan Financial Corp. 07/09/97 10.000 83.44% 85.00%
GOSB GSB Financial Corp. 07/09/97 20.000 46.25% 47.50%
FBNW FirstBank Corp. 07/02/97 10.000 58.13% 57.50%
-----------------------------------------------------------------------------------------------------------------
Q3`97 AVERAGE 62.61% 63.33%
MEDIAN 58.13% 57.50%
-----------------------------------------------------------------------------------------------------------------
HCBB HCB Bancshares Inc. 05/07/97 10.000 26.25% 26.25%
PSFC Peoples-Sidney Financial Corp. 04/28/97 10.000 25.63% 30.00%
HMLK Hemlock Federal Financial Corp 04/02/97 10.000 28.75% 28.75%
GSLA GS Financial Corp. 04/01/97 10.000 33.75% 35.00%
-----------------------------------------------------------------------------------------------------------------
Q2 '97 AVERAGE 28.60% 30.00%
MEDIAN 27.50% 29.38%
-----------------------------------------------------------------------------------------------------------------
MRKF Market Financial Corp. 03/27/97 10.000 29.38% 25.00%
EFBC Empire Federal Bancorp Inc. 01/27/97 10.000 32.50% 32.50%
FAB FIRSTFED AMERICA BANCORP INC. 01/15/97 10.000 36.25% 41.25%
RSLN Roslyn Bancorp Inc. 01/13/97 10.000 50.00% 58.75%
AFBC Advance Financial Bancorp 01/02/97 10.000 28.75% 28.75%
-----------------------------------------------------------------------------------------------------------------
Q1 '97 AVERAGE 35.38% 37.25%
MEDIAN 32.50% 32.50%
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
1997 AVERAGE 44.84% 46.25%
MEDIAN 45.32% 45.32%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
PERCENT CHANGE FROM IPO
-------------------------------------------
AFTER AFTER CURRENT
1 MONTH 3 MONTHS TO DATE STOCK PRICE
TICKER SHORT NAME (%) (%) (%) 12/3/98
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SCFS Seacoast Financial Services Corporation N/A N/A -0.31% 9.969
FNFI First Niles Financial Inc. N/A N/A 11.88% 11.188
CNYF CNY Financial Corp. -7.50% N/A -5.00% 9.500
---------------------------------------------------------------------------------------------------------------
Q4`98 AVERAGE -7.50% - 2.19% 10.219
MEDIAN -7.50% - -0.31% 9.969
---------------------------------------------------------------------------------------------------------------
CITZ CFS Bancorp Inc. 0.00% -2.50% -3.12% 9.688
UCFC United Community Finl Corp. 57.50% 30.00% 30.00% 13.000
HRBT Hudson River Bancorp 33.75% 1.25% 12.50% 11.250
---------------------------------------------------------------------------------------------------------------
Q3`98 AVERAGE 30.42% 9.58% 13.13% 11.313
MEDIAN 33.75% 1.25% 12.50% 11.250
---------------------------------------------------------------------------------------------------------------
FKAN First Kansas Financial Corp. 16.88% 3.75% 5.63% 10.563
CFKY Columbia Financial of Kentucky 62.50% 38.75% 27.50% 12.750
EFC EFC Bancorp Inc. 43.75% 32.50% 16.25% 11.625
HBSC Heritage Bancorp Inc. 45.83% 32.50% 31.25% 19.688
NEP Northeast PA Financial Corp. 55.00% 41.25% 28.75% 12.875
---------------------------------------------------------------------------------------------------------------
Q2`98 AVERAGE 44.79% 29.75% 21.88% 13.500
MEDIAN 45.83% 32.50% 27.50% 12.750
---------------------------------------------------------------------------------------------------------------
BYS Bay State Bancorp 50.00% 34.38% 18.75% 23.750
HLFC Home Loan Financial Corp. 67.50% 51.25% 40.00% 14.000
CAVB Cavalry Bancorp Inc. 141.25% 122.50% 115.00% 21.500
ICBC Independence Comm. Bank Corp. 78.75% 57.50% 39.84% 13.984
RCBK Richmond County Financial Corp 73.75% 86.88% 60.63% 16.063
HFBC HopFed Bancorp Inc. 67.50% 118.75% 75.00% 17.500
TSBK Timberland Bancorp Inc. 58.75% 80.00% 30.00% 13.000
MYST Mystic Financial Inc. 50.63% 76.25% 25.00% 12.500
UTBI United Tennessee Bankshares 38.75% 50.00% 13.75% 11.375
---------------------------------------------------------------------------------------------------------------
Q1`98 AVERAGE 69.65% 75.28% 46.44% 15.964
MEDIAN 67.50% 76.25% 39.84% 14.000
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
1998 YTD AVERAGE 51.92% 50.29% 28.67% 13.79
MEDIAN 52.82% 41.25% 26.25% 12.81
---------------------------------------------------------------------------------------------------------------
PEDE Great Pee Dee Bancorp 48.75% 60.00% 40.00% 14.000
UCBC Union Community Bancorp 39.38% 58.13% 10.63% 11.063
WSBI Warwick Community Bancorp 56.25% 76.25% 66.25% 16.625
SIB Staten Island Bancorp Inc. 58.33% 74.48% 64.58% 19.750
HCBC High Country Bancorp Inc. 45.00% 50.00% 27.50% 12.750
FSFF First SecurityFed Financial 60.63% 46.88% 32.50% 13.250
OTFC Oregon Trail Financial Corp. 60.00% 70.00% 36.25% 13.625
RVSB Riverview Bancorp Inc. 32.50% 77.50% 20.00% 12.000
---------------------------------------------------------------------------------------------------------------
Q4 `97 AVERAGE 50.11% 64.16% 37.21% 14.133
MEDIAN 52.50% 65.00% 34.38% 13.438
---------------------------------------------------------------------------------------------------------------
FSPT FirstSpartan Financial Corp. 78.13% 93.75% 217.50% 31.750
GOSB GSB Financial Corp. 43.75% 57.50% -30.00% 14.000
FBNW FirstBank Corp. 77.50% 73.75% 53.75% 15.375
---------------------------------------------------------------------------------------------------------------
Q3`97 AVERAGE 66.46% 75.00% 80.42% 20.375
MEDIAN 77.50% 73.75% 53.75% 15.375
---------------------------------------------------------------------------------------------------------------
HCBB HCB Bancshares Inc. 28.75% 39.38% 28.75% 12.875
PSFC Peoples-Sidney Financial Corp. 32.50% 56.25% 62.50% 16.250
HMLK Hemlock Federal Financial Corp 27.50% 38.75% 43.75% 14.375
GSLA GS Financial Corp. 40.63% 53.75% 20.00% 12.000
---------------------------------------------------------------------------------------------------------------
Q2 '97 AVERAGE 32.35% 47.03% 38.75% 13.875
MEDIAN 30.63% 46.57% 36.25% 13.625
---------------------------------------------------------------------------------------------------------------
MRKF Market Financial Corp. 26.25% 35.00% 20.00% 12.000
EFBC Empire Federal Bancorp Inc. 37.50% 31.25% 30.00% 13.000
FAB FIRSTFED AMERICA BANCORP INC. 48.75% 37.50% 28.75% 12.875
RSLN Roslyn Bancorp Inc. 60.00% 58.75% 83.75% 18.375
AFBC Advance Financial Bancorp 40.00% 38.75% 40.00% 14.000
---------------------------------------------------------------------------------------------------------------
Q1 '97 AVERAGE 42.50% 40.25% 40.50% 14.050
MEDIAN 40.00% 37.50% 30.00% 13.000
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
1997 AVERAGE 47.11% 56.38% 44.82% 14.997
MEDIAN 44.38% 56.88% 34.38% 13.813
---------------------------------------------------------------------------------------------------------------
</TABLE>
Source: SNL Securities, FinPro calculations
As illustrated, thrift stocks have appreciated substantially on the first day of
trading, however, this trend is decreasing, with one day price appreciations of
52.50%, 48.75%, 25.63%, and 3.13% for the first, second, third, and fourth
quarters of 1998. Recently there has been a significant
<PAGE> 100
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================================================================================
flight from thrift stocks and conversions in process have begun to experience
difficulty in getting full subscriptions. For the first time in the twenty month
period presented in Figure 58, three full conversions are trading below their
IPO prices. Additional evidence of the weakening demand/interest in thrift
stocks is the relationship of the 1 month price appreciation to the IPO to Date
price appreciation. The average 1 month and to date appreciation percentages for
1997 were 47.11% and 44.82%, respectively. For 1998 the average 1 month and to
date appreciation percentages were 51.92% and 28.67%, respectively, indicating
strong after market appreciations, but little stability. The 1997 relationship
indicates a greater level of stability.
Thrift prices in general experienced strong declines in August 1998, threatening
the subscription levels for all conversions. The recent second stage
conversions, in particular, have experienced difficulty in attaining midpoint
subscription levels (evidenced by the extended subscription periods and tier
three allocations). All second stage conversions that closed in 1998 have
experienced a price drop to a level below their IPO price.
As such, a downward adjustment for subscription interest is warranted at this
time.
<PAGE> 101
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================================================================================
- ---------------------------------------------------------
ADJUSTMENTS TO VALUE IN RELATION TO OTHER
COMPARISONS
- ---------------------------------------------------------
Overall, FinPro believes that the Bank pro forma market value should be
discounted relative to other comparisons, reflecting the following adjustments.
<TABLE>
<S> <C>
Key Valuation Parameters Valuation Adjustment
- ----------------------------------------------------------------------------------------------------------
Management No Adjustment
Market Area No Adjustment
Subscription Interest Downward
</TABLE>
6. VALUATION
In applying the accepted valuation methodology promulgated by the regulators,
i.e., the pro forma market value approach, four key pricing multiples were
considered. The four multiples include:
Price to earnings ("P/E")
Price to tangible book value ("P/TB")
Price to book value ("P/B")
Price to assets ("P/A")
All of the approaches were calculated on a pro forma basis including the effects
of the conversion proceeds. All of the assumptions utilized are presented in
Exhibits 9, 10, and 11.
To ascertain the pro forma estimated market value of the Bank, the market
multiples for the Comparable Group, all publicly traded thrifts and the recent
(1997 to date) standard conversions were assessed.
Since thrift earnings in general have had a high degree of volatility over the
past decade, the P/B approach had gained in importance and is utilized
frequently as the benchmark for market value. It is interesting to note that the
P/B approach is more of a benchmark than a reliable valuation technique. A
better approach is the P/TB approach. In general, investors tend to price
financial
<PAGE> 102
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================================================================================
institutions on a tangible book basis, because it incorporates the P/B approach
adjusted for intangibles. Most recently, the P/E approach has regained favor
among investors.
As such, in estimating the market value for the Bank, equal emphasis was placed
on the P/E approach and the P/TB approach. The P/B was given much less weight
and the P/A ratio was not given much weight at all.
In terms of the market multiples, most weight was given to the Comparable Group.
The second highest weight was afforded to recent standard conversions. Less
weight was ascribed to all public thrifts and all New York thrifts. The
multiples for the Comparable Group, all publicly traded thrifts, and New York
publicly traded thrifts are shown in Exhibit 7.
FULL OFFERING VALUE IN RELATION TO COMPARABLES
Based upon the premiums and discounts defined in the section above, the Bank
pricing at the midpoint for a FULL STANDARD CONVERSION WITHOUT A FOUNDATION is
estimated to be $92,500,000. Based upon a range below and above the midpoint
value, the relative values are $78,625,000 at the minimum and $106,375,000 at
the maximum respectively. At the supermaximum of the range the offering value
would be $122,331,250.
At the various levels of the estimated value range, the full offering would
result in the following offering data:
FIGURE 59 - VALUE RANGE FULL OFFERING DATA
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Appraised Value
---------------------------------------------------------------------------------
Conclusion Minimum Midpoint Maximum SuperMaximum *
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Shares 7,862,500 9,250,000 10,637,500 12,233,125
Price per Share $ 10 $ 10 $ 10 $ 10
Full Conversion Value $ 78,625,000 $ 92,500,000 $ 106,375,000 $ 122,331,250
Exchange Shares 0 0 0 0
Exchange Percent 0.00% 0.00% 0.00% 0.00%
Conversion Shares 7,862,500 9,250,000 10,637,500 12,233,125
Conversion Percent 100.00% 100.00% 100.00% 100.00%
Gross Proceeds $ 78,625,000 $ 92,500,000 $ 106,375,000 $ 122,331,250
Exchange Value $ - $ - $ - $ -
Exchange Ratio 0.0000 0.0000 0.0000 0.0000
---------------------------------------------------------------------------------
</TABLE>
* SuperMaximum is an overallotment option that is 15% above the maximum amount.
Source: FinPro Inc. Pro forma Model
<PAGE> 103
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================================================================================
FIGURE 60 - VALUE RANGE OFFERING DATA
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Bank Comparables State National
--------------------------------------------------------------------------------
Mean Median Mean Median Mean Median
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Min 19.61
Price-Core Earnings Ratio P/E Mid 21.74 15.26 15.84 18.67 17.75 20.29 16.30
- ----------------------------- Max 24.39
Smax 26.32
Min 56.85%
Price-to-Book Ratio P/B Mid 61.50% 163.12% 155.21% 140.95% 125.67% 133.45% 116.85%
- ----------------------- Max 65.49%
Smax 69.35%
Min 57.18%
Price-to-Tangible Book Ratio P/TB Mid 61.84% 168.07% 155.87% 158.63% 128.67% 140.15% 122.44%
- --------------------------------- Max 65.83%
Smax 69.69%
Min 10.03%
Price-to-Assets Ratio P/A Mid 11.62% 14.09% 13.68% 17.71% 18.02% 16.04% 14.71%
- ------------------------- Max 13.16%
Smax 14.88%
</TABLE>
This equates to the following multiples:
FIGURE 61 - COMPARABLE PRICING MULTIPLES TO THE BANK'S PRO FORMA MIDPOINT
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Price Relative to
------------------------------------------------------------------------
Earnings Core Earnings Book Tangible Book Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Bank (at midpoint) Full Conversion 250 21.74 61.50% 61.84% 11.62%
- --------------------------------------------------------------------------------------------------------------------
Comparable Group Median 15.79 15.84 155.21% 155.87% 13.68%
- --------------------------------------------------------------------------------------------------------------------
(Discount) Premium 1483.28% 37.25% -60.38% -60.33% -15.06%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Calculations
As Figure 61 demonstrates, at the midpoint of the estimated valuation range the
Bank is priced at a premium of 37.25% on a core earnings basis which is offset
by a discount of 60.33% applied to the Bank relative to the Comparable Group on
a price to tangible book basis.
<PAGE> 104
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================================================================================
FULL OFFERING VALUE WITH
FOUNDATION IN RELATION TO
COMPARABLES
The Bank pricing at the midpoint for a FULL CONVERSION WITH A FOUNDATION is
estimated to be $79,300,000. Based upon a range below and above the midpoint
value, the relative values are $67,405,000 at the minimum and $91,195,000 at the
maximum, respectively. At the supermaximum of the range the offering value would
be $104,874,250.
At the various levels of the estimated value range, the full offering would
result in the following offering data:
FIGURE 62 - VALUE RANGE WITH FOUNDATION OFFERING DATA
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Appraised Value
---------------------------------------------------------------------------------
Conclusion Minimum Midpoint Maximum SuperMaximum *
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Shares 6,740,500 7,930,000 9,119,500 10,487,425
Price per Share $ 10 $ 10 $ 10 $ 10
Full Conversion Value $ 67,405,000 $ 79,300,000 $ 91,195,000 $ 104,874,250
Exchange Shares 0 0 0 0
Exchange Percent 0.00% 0.00% 0.00% 0.00%
Conversion Shares 6,740,500 7,930,000 9,119,500 10,487,425
Conversion Percent 100.00% 100.00% 100.00% 100.00%
Gross Proceeds $ 67,405,000 $ 79,300,000 $ 91,195,000 $ 104,874,250
Exchange Value $ - $ - $ - $ -
Exchange Ratio 0.0000 0.0000 0.0000 0.0000
---------------------------------------------------------------------------------
* SuperMaximum is an overallotment option that is 15% above the maximum amount.
</TABLE>
Source: FinPro Inc. Pro forma Model
FIGURE 63 - VALUE RANGE OFFERING DATA
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Bank Comparables State National
-------------------------------------------------------------------------------
Mean Median Mean Median Mean Median
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Min 19.61
Price-Core Earnings Ratio P/E Mid 21.74 15.26 15.84 18.67 17.75 20.29 16.30
- ----------------------------- Max 24.39
Smax 26.32
Min 56.47%
Price-to-Book Ratio P/B Mid 61.50% 163.12% 155.21% 140.95% 125.67% 133.45% 116.85%
- ----------------------- Max 65.88%
Smax 70.18%
Min 56.82%
Price-to-Tangible Book Ratio P/TB Mid 61.88% 168.07% 155.87% 158.63% 128.67% 140.15% 122.44%
- --------------------------------- Max 66.23%
Smax 70.52%
Min 9.40%
Price-to-Assets Ratio P/A Mid 10.91% 14.09% 13.68% 17.71% 18.02% 16.04% 14.71%
- ------------------------- Max 12.39%
Smax 14.04%
</TABLE>
<PAGE> 105
Conversion Valuation Appraisal Report Page: 1 - 85
================================================================================
This equates to the following multiples:
FIGURE 64 - COMPARABLE PRICING MULTIPLES TO THE BANK'S PRO FORMA MIDPOINT
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Price Relative to
-----------------------------------------------------------------------
Earnings Core Earnings Book Tangible Book Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Bank (at midpoint) Full Conversion w/ Foundation 1,000.00 21.74 61.50% 61.88% 10.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Comparable Group Median 15.79 15.84 155.21% 155.87% 13.68%
- ----------------------------------------------------------------------------------------------------------------------------------
(Discount) Premium 6233.12% 37.25% -60.38% -60.30% -20.25%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: FinPro Calculations
As Figure 64 demonstrates, at the midpoint of the valuation range the Bank is
priced at a premium of 37.25% on a core earnings basis offset by a discount of
60.30% applied to the Bank relative to the comparable median price to tangible
book multiple.
<PAGE> 106
Conversion Valuation Appraisal Report Page: 1 - 86
================================================================================
VALUATION CONCLUSION
It is, therefore, our opinion that as of December 3, 1998, the estimated pro
forma market value of the Bank in a full offering with foundation was
$79,300,000 at the midpoint of a range with a minimum of $67,405,000 to a
maximum of $91,195,000 at 15% below and 15% above the midpoint of the range
respectively. Assuming an adjusted maximum value of 15% above the maximum value,
the adjusted maximum value or supermaximum value in a full offering is
$104,874,250. The stock will be issued at $10.00 per share.
Using the pro forma market values for a full offering shown above, the amount of
stock publicly offered as part of the 8% foundation will equal 539,240 shares,
634,400 shares, 729,560 shares and 838,994 shares at the minimum, midpoint,
maximum and supermaximum, respectively.
Pro forma comparisons of the Bank's value range with the Comparable Group, all
public thrifts, and New York public thrifts is shown in Exhibits 9, 10, and 11.
<PAGE> 1
EXHIBIT 99.2
FORM OF MARKETING MATERIALS
THE TROY SAVINGS BANK
PROPOSED LETTERS/QUESTION & ANSWER BROCHURE
INDEX
<TABLE>
<S> <C> <C>
1. Dear Depositor Letter*......................................
2. Dear Depositor Letter for Non Eligible States...............
3. Dear Friend Letter -- Non Voting Depositors*................
4. Dear Potential Investor Letter*.............................
Dear Customer Letter -- Used as a Cover Letter for States
5. Requiring "Agent" Mailing*..................................
6. Proxy Request...............................................
7. Proxy and Stock Question & Answer Brochure*.................
8. Mailing Insert/Lobby Poster.................................
9. Invitation Letter -- Informational Meetings.................
Dear Subscriber/Acknowledgment Letter -- Initial Response to
10. Stock Order Received........................................
11. Dear Charter Shareholder -- Confirmation Letter.............
12. Dear Interested Investor -- No Shares Available Letter......
Welcome Shareholder Letter -- For Initial Certificate
13. Mailing.....................................................
Dear Interested Subscriber Letter -- Subscription
14. Rejection...................................................
15. Letter for Sandler O'Neill Mailing to Clients*..............
</TABLE>
- ---------------
* Accompanied by a Prospectus
Note: Items 1 through 8 are produced by the Financial Printer and Items 9
through 15 are produced by the Conversion Center.
<PAGE> 2
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LOGO: Troy Financial Corporation
Subscription & Community Offering Stock Order Form
------------------------------- ----------------------------
Bank Use
------------------------------- THE TROY SAVINGS BANK
IMPORTANT-PLEASE NOTE: A CONVERSION CENTER
properly completed original XXX ______________
stock order form must be used Troy, NY XXXXX
to subscribe for Common Stock. (XXX) XXX-XXXX
Copies of this form are not ----------------------------
required to be accepted Please
read the Stock Ownership Guide EXPIRATION DATE
and Stock Order Form for Stock Order Forms:
Instructions as you complete Day, Month X, 1999
this form. 12:00 Noon, New York Time
- ------------------------------------------------------------------------------------------------------------------------------
The minimum number of shares that may be
(1) NUMBER OF SHARES (2) TOTAL PAYMENT DUE subscribed for is 25 and the maximum number
- --------------------------- SUBSCRIPTION PRICE ------------------------------- of shares that may be subscribed for in the
X $ 10.00 = Subscription Offering is 50,000 shares. See
- --------------------------- ------------------------------- Instructions.
- ------------------------------------------------------------------------------------------------------------------------------
[ ](3) EMPLOYEE/OFFICER/TRUSTEE/DIRECTOR INFORMATION (6) PURCHASER INFORMATION
Check here if you are an employee, officer, trustee or director a. [ ] Check here if you are an Eligible Account
of The Troy Savings Bank or Troy Financial Corporation or a member Holder with a deposit account(s) totalling
of such person's immediate family living in the same household. $100.00 or more on June 30, 1997. List
- ---------------------------------------------------------------------- account(s) below.
(4) METHOD OF PAYMENT/CHECK -------------------
Enclosed is a check or money order made Check Amount b. [ ] Check here if you are a Supplemental
payableto The Troy Savings Bank in the Eligible Account Holder with a deposit
amount indicated in this box. ------------------- account(s) totalling $100.00 or more on
- ---------------------------------------------------------------------- December 31, 1998. List account(s) below.
(5) METHOD OF PAYMENT/WITHDRAWAL ------------------------------------------------------
The undersigned authorizes withdrawal from the following account(s) Account Title Account Number(s) Bank Use
at The Troy Savings Bank. Individual Retirement Accounts maintained (Names on Accounts)
at The Troy Savings Bank cannot be used. See "Questions and Answers" ------------------------------------------------------
in the Prospectus. There is no early withdrawal penalty for this
form of payment. ------------------------------------------------------
- -----------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s) Bank Use ------------------------------------------------------
- -----------------------------------------------------------------------
------------------------------------------------------
- -----------------------------------------------------------------------
------------------------------------------------------
- ----------------------------------------------------------------------- PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY
RESULT IN THE LOSS OF PART OR ALL OF YOUR SUBSCRIPTION
- ----------------------------------------------------------------------- RIGHTS. IF ADDITIONAL SPACE IS NEEDED, PLEASE UTILIZE
Total Withdrawal Amount THE BACK OF THIS STOCK ORDER FORM.
- -----------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP ---- ---- ---- ---- ---- ---- ---- ----
- -
[ ] Individual [ ] Joint Tenants [ ] Tenants in Common ---- ---- ---- ---- ---- ---- ---- ----
[ ] Fiduciary [ ] Company/Corp/Partnership [ ] Uniform Transfers [ ] IRA or other Qualified Plan -
(i.e. trust, estate, etc.) to Minors Act Beneficial Owners SS#
(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT CLEARLY) -
ADDING THE NAMES OF OTHER PERSON(S) WHO ARE NOT OWNERS OF YOUR QUALIFYING ACCOUNT(S) WILL RESULT IN YOUR ORDER
BECOMING NULL AND VOID.
- ------------------------------------------------------------------------------------------------------------------------------
Names(s) Social Security # or Tax ID
- ------------------------------------------------------------------------------------------------------------------------------
Name(s) continued Social Security # or Tax ID
- ------------------------------------------------------------------------------------------------------------------------------
Street Address County of Residence
- ------------------------------------------------------------------------------------------------------------------------------
City State Zip Code
- -------------------------------------------------------------------------------------------------
(9) TELEPHONE - Daytime ( ) Evening ( )
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
[ ] (10) NASD AFFILIATION - Check here if you are a member of the (11) ASSOCIATES - ACTING IN CONCERT
National Association of Securities Dealers, Inc. ("NASD"), a person Check here, and complete the reverse
associated with an NASD member, a member of the immediate family of side of this form, if you or any
any such person to whose support such person contributes, directly associates (as defined on the reverse
or indirectly, or the holder of an account in which an NASD member side of this form) or persons acting in
or person associated with an NASD member has a beneficial interest. concert with you have submitted other
To comply with conditions under which an exemption from the NASD's orders for shares in the Subscription
Interpretation With Respect to Free-Riding and Withholding is and/or Community Offerings.
available, you agree, if you have checked the NASD Affiliation box,
(i) not to sell, transfer or hypothecate the stock for a period of
three months following issuance, and (ii) to report this
subscription in writing to the applicable NASD member within one day
of payment therefor.
- ------------------------------------------------------------------------------------------------------------------------------
(12) ACKNOWLEDGMENT - To be effective, this Stock Order Form and accompanying BANK USE ONLY
Certification Form and your payment must be properly completed and physically received --------------------
by The Troy Savings Bank no later than 12:00 noon, New York time, on ____ , ____ X, --------------------
1999, unless extended; otherwise this Stock Order Form and all subscription rights will
be void. The undersigned agrees that after receipt by The Troy Savings Bank, this Stock
Order Form may not be modified, withdrawn or canceled without the Bank's consent and if
authorization to withdraw from deposit accounts at the Bank has been given as payment
for shares; the amount authorized for withdrawal shall not otherwise be available for
withdrawal by the undersigned. Under penalty of perjury, I hereby certify that the --------------------
Social Security or Tax ID Number and the information provided on this Stock Order Form --------------------
is true, correct and complete, that I am not subject to back-up withholding, and that I
am purchasing solely for my own account and that there is no agreement or understanding
regarding the sale or transfer of such shares, or my right to subscribe for shares
herewith. it is understood that this Stock Order Form will be accepted in accordance
with, and subject to, the terms and conditions of the Plan of Conversion of the Bank
described in the accompanying Prospectus. The undersigned hereby acknowledges receipt of
the Prospectus at least 48 hours prior to delivery of this Stock Order Form to the Bank.
FEDERAL REGULATIONS PROHIBIT ANY PERSON FROM TRANSFERRING, OR ENTERING INTO ANY
AGREMENT, DIRECTLY OR INDIRECTLY, TO TRANSFER THE LEGAL OR BENEFICIAL OWNERSHIP OF
SUBSCRIPTION RIGHTS OR THE UNDERLYING SECURITIES TO THE ACCOUNT OF ANOTHER. THE TROY --------------------
SAVINGS BANK AND TROY FINANCIAL CORPORATION WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE BANK USE ONLY
REMEDIES IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL --------------------
NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE SUCH TRANSFER. --------------------
------------------------------------- ----------------------------------------
SIGNATURE DATE SIGNATURE DATE
------------------------------------- ----------------------------------------
THE CERTIFICATION FORM ON THE REVERSE SIDE MUST BE SIGNED
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
ITEM (6) a, b -- (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------- -------------------------------------------------------
Account Title Account Number(s) Bank Use Account Title Account Number(s) Bank Use
(Names on Accounts) (Names on Accounts)
- --------------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------- -------------------------------------------------------
- --------------------------------------------------------------------- -------------------------------------------------------
- --------------------------------------------------------------------- -------------------------------------------------------
- --------------------------------------------------------------------- -------------------------------------------------------
ITEM (11) -- (CONTINUED) "Associate" is defined as: (i) any corporation or organization (other than Troy Financial
List below all other orders Corporation, the Bank or a majority-owned subsidiary of the Bank or The Troy Savings Bank
submitted by you or Associates Community Foundation) of which such person is an officer or partner or is, directly or
(as defined) or by persons indirectly, the beneficial owner of 10% or more of any class of equity securities; (ii) any
acting in concert with you. trust or other estate in which such person has a substantial beneficial interest or as to which
- -------------------------------- such person serves as a trustee or in a similar fiduciary capacity; provided, however, such term
Name(s) listed on Number shall not include Troy Financial Corporation's or The Troy Savings Bank's employee benefit plans
other Stock Order of Shares in which such person has a substantial beneficial interest or serves as a trustee or in a
Forms Ordered similar fiduciary capacity; and (iii) ANY RELATIVE OR SPOUSE OF SUCH PERSON, OR ANY RELATIVE OF
- -------------------------------- SUCH SPOUSE, WHO EITHER HAS THE SAME HOME AS SUCH PERSON or who is a trustee, director or
<S> <C> officer of the Bank or Troy Financial Corporation or any of its parents or subsidiaries thereof.
- -------------------------------- Trustees or directors of the Bank or Troy Financial Corporation are not treated as associates
solely because of their Board memberships.
- --------------------------------
- --------------------------------
- --------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN ORDER TO PURCHASE STOCK
CERTIFICATION FORM
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, AND IS NOT INSURED OR GUARANTEED BY THE TROY SAVINGS BANK, THE FEDERAL GOVERNMENT, OR BY ANY
GOVERNMENT AGENCY. THE ENTIRE AMOUNT OF AN INVESTOR'S PRINCIPAL IS SUBJECT TO LOSS.
I further certify that, before purchasing the Common Stock, par value $0.0001 per share, of Troy Financial Corporation (the
"Company"), the proposed holding company for The Troy Savings Bank, I received a Prospectus of the Company dated ,
1999 relating to such offer of Common Stock.
The Prospectus that I received contains disclosure concerning the nature of the Common Stock being offered by the Company and
describes in the "Risk Factors" section beginning on page __ of the Prospectus the risks involved in the investment in this
Common Stock, including but not limited to the:
1. Factors Which Will Negatively Impact Earnings
2. Our Return on Equity in the Future May be Below the Industry Average
3. The Year 2000 Problem Could Significantly Impact Our Consolidated
Financial Condition and Results of Operations
4. Risk of Anti-Takeover Provisions and Actions
5. If Real Estate Values in Our Market Area Worsen, Our Financial
Condition and Earnings Could Be Adversely Affected
6. You Could Have Difficulty Selling Our Stock If an Active Trading
Market Does Not Develop
7. Distribution of Subscription Rights Could Result in Adverse Income Tax
Consequences to You
THIS CERTIFICATION MUST BE SIGNED IN ORDER TO PURCHASE STOCK
---------------------------------------------------- -------------------------------------------------------
SIGNATURE DATE SIGNATURE DATE
---------------------------------------------------- -------------------------------------------------------
---------------------------------------------------- -------------------------------------------------------
NAME (PLEASE PRINT) NAME (PLEASE PRINT)
---------------------------------------------------- -------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
[LOGO] TROY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
STOCK OWNERSHIP GUIDE
INDIVIDUAL
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
- --------------------------------------------------------------------------------
JOINT TENANTS
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership Is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
- --------------------------------------------------------------------------------
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common.
- --------------------------------------------------------------------------------
UNIFORM TRANSFERS TO MINORS ACT ("UTMA")
Stock may be held in the name of a custodian for a minor under the Uniform
Transfers to Minors Act of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST", while the Uniform Transfers to Minors Act is "UTMA". Standard U.S.
Postal Service state abbreviations should be used to describe the appropriate
state. For example, stock held by John Doe as custodian for Susan Doe under the
New Jersey Uniform Transfers to Minors Act will be abbreviated John Doe, CUST
Susan Doe UTMA NJ (use minor's social security number).
- --------------------------------------------------------------------------------
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
- - The name(s) of the fiduciary. If an individual, last the first name, middle
initial and last name. If a corporation, list the full corporate title (name).
If an individual and a corporation, list the corporation's title before the
individual.
- - The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
- - A description of the document governing the fiduciary relationship, such as a
trust agreement or court order. Documentation establishing a fiduciary
relationship may be required to register your stock in a fiduciary capacity.
- - The date of the document governing the relationship, except that the date of a
trust created by a will need not be included in the description.
- - The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
- --------------------------------------------------------------------------------
STOCK ORDER FORM INSTRUCTIONS
ITEMS 1 AND 2 - NUMBER OF SHARES AND TOTAL PAYMENT DUE
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares by the
subscription price of $10.00 per share. The minimum purchase in the Subscription
Offering is 25 shares. As more fully described in the Plan of Conversion
outlined in the Prospectus, the maximum purchase by each Eligible Account Holder
or Supplemental Eligible Account Holder in the Subscription Offering is $500,000
(50,000 shares), and the maximum purchase in the Community Offering by any
person, together with associates or persons acting in concert, is $500,000
(50,000 shares). However, no person, together with associates and persons acting
in concert with such person, may purchase in the aggregate more than $1,000,000
(100,000 shares) of Common Stock.
- --------------------------------------------------------------------------------
ITEM 3 - EMPLOYEE/OFFICER/TRUSTEE/DIRECTOR INFORMATION
Please check this box to indicate whether you are an employee, officer, trustee
or director of The Troy Savings Bank or Troy Financial Corporation or a member
of such person's immediate family living in the same household.
- --------------------------------------------------------------------------------
ITEM 4 - METHOD OF PAYMENT BY CHECK
Payment for shares may be made in cash (only if delivered by you in person to a
branch office of The Troy Savings Bank) or by check, or money order payable to
The Troy Savings Bank. Your funds will earn interest at the Bank's passbook rate
of interest from the date of receipt until the Conversion is completed. DO NOT
MAIL CASH TO PURCHASE STOCK! Please indicate the total check(s) amount in this
box if your method of payment is by check or money order.
- --------------------------------------------------------------------------------
ITEM 5 - METHOD OF PAYMENT BY WITHDRAWAL
If you pay for your stock by a withdrawal from a deposit account at The Troy
Savings Bank, indicate the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the
amount of your stock purchase. There will be no penalty assessed for early
withdrawals from certificate accounts used for stock purchases. THIS FORM OF
PAYMENT MAY NOT BE USED IF YOUR ACCOUNT IS AN INDIVIDUAL RETIREMENT ACCOUNT OR
QUALIFIED PLAN.
- --------------------------------------------------------------------------------
ITEM 6 - PURCHASER INFORMATION
a. Please check this box if you are an Eligible Account Holder with a deposit
account(s) totalling $100.00 or more on June 30, 1997.
b. Please check this box if you are a Supplemental Eligible Account Holder with
a deposit account(s) totalling $100.00 or more on December 31, 1999.
Please list all names and all account numbers on accounts you had at these dates
in order to insure proper identification of your purchase rights.
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY RESULT IN THE LOSS OF PART OR
ALL OF YOUR SUBSCRIPTION RIGHTS.
- --------------------------------------------------------------------------------
ITEMS 7, 8 AND 9 - STOCK REGISTRATION/FORM OF STOCK OWNERSHIP, NAMES AND
TELEPHONE NUMBER
The stock transfer industry has developed a uniform system of shareholder
registrations that will be used in the issuance of your Troy Financial
Corporation Common Stock. Please complete items 7, 8 and 9 as fully and
accurately as possible, and be certain to supply your social security or Tax
I.D. number(s) and your daytime and evening telephone number(s). We may need to
call you if we cannot execute your order as given. If you have any questions
regarding the registration of your stock, please consult your legal advisor.
Stock ownership must be registered in one of the ways described above under
"Stock Ownership Guide". ADDING THE NAMES OF OTHER PERSONS WHO ARE NOT OWNERS OF
YOUR QUALIFYING ACCOUNT(S) WILL RESULT IN YOUR ORDER BECOMING VOID.
- --------------------------------------------------------------------------------
ITEM 10 - NASD AFFILIATION
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
- --------------------------------------------------------------------------------
ITEM 11 - ASSOCIATES ACTING IN CONCERT
Please check this box if you or any associate (as defined on the reverse side of
the Stock Order Form) or person acting in concert with you has submitted another
order for shares and complete the reverse side of the Stock Order Form.
- --------------------------------------------------------------------------------
ITEM 12 - ACKNOWLEDGEMENT
Please sign and date the Stock Order Form and Certification Form where
indicated. Before you sign, review the Stock Order Form, including the
acknowledgement, and the Certification Form. Normally, one signature is
required. An additional signature is required only when payment is to be made by
withdrawal from a deposit account that requires multiple signatures to withdraw
funds.
- --------------------------------------------------------------------------------
You may mail your completed Stock Order Form and Certification Form in the
envelope that has been provided, or you may deliver your Stock Order Form and
Certification Form to any branch office of The Troy Savings Bank. Your Stock
Order Form and Certification Form, properly completed, and payment in full (or
withdrawal authorization) at the subscription price must be physically received
by The Troy Savings Bank no later than 12:00 noon, New York time, on ______,
________ XX, 1999 or it will become void. If you have any remaining questions,
or if you would like assistance in completing your Stock Order Form and
Certification Form, you may call our Conversion Center at (XXX) XXX-XXXX within
New York, or (XXX) XXX-XXXX, Monday through Friday, between the hours of 10:00
a.m. and 4:00 p.m. The Conversion Center will be closed for the ____________
holiday.
- --------------------------------------------------------------------------------
<PAGE> 5
[TROY FINANCIAL CORPORATION]
Dear Depositor:
The Board of Trustees of The Troy Savings Bank has voted unanimously in
favor of a plan to convert from a state chartered mutual savings bank to a state
chartered stock savings bank. As part of this plan, we have formed a holding
company, Troy Financial Corporation, which will become the parent company of The
Troy Savings Bank. We are converting so that The Troy Savings Bank will be
structured in the form of ownership used by a growing number of savings
institutions and to allow our Bank to become even stronger.
In addition, as part of the conversion and in furtherance of its
long-standing commitment to its community, the Bank intends to establish a
charitable foundation to be known as The Troy Savings Bank Community Foundation.
This foundation will be dedicated to charitable and educational purposes.
TO ACCOMPLISH THE CONVERSION, YOUR PARTICIPATION IS EXTREMELY
IMPORTANT. On behalf of the Board, I ask that you help us meet our goal by
reading the enclosed material and then casting your vote in favor of the Plan of
Conversion and mailing your signed proxy card immediately in the enclosed
postage-paid envelope marked "PROXY RETURN." Should you choose to
attend the Special Meeting of Voting Depositors and wish to vote in person, you
may do so by revoking any previously executed proxy. If you have an IRA or other
Qualified Plan account for which the Bank acts as trustee and we do not receive
a proxy from you, the Bank, as trustee for such account, intends to vote in
favor of the Plan of Conversion on your behalf.
If the Plan of Conversion is approved let me assure you that:
- Deposit accounts will continue to be federally insured to the same extent
permitted by law.
- Existing deposit accounts and loans will not undergo any change as a
result of the conversion.
- Voting for approval will not obligate you to buy any shares of Common
Stock.
As a qualifying account holder, you may also take advantage of your
nontransferable rights to subscribe for shares of Troy Financial Corporation's
Common Stock on a priority basis, before the stock is offered to the general
public. The enclosed Proxy Statement and Prospectus describes the stock offering
and the operations of the Bank. If you wish to purchase stock, please complete
the stock order and certification form and mail it along with full payment for
the shares (or appropriate instructions authorizing withdrawal from a deposit
account with the Bank) to The Troy Savings Bank in the enclosed YELLOW
postage-paid envelope marked "STOCK ORDER RETURN", or return it to any branch
office of the Bank. Your order must be physically received by the Bank no later
than 12:00 noon New York time on , X, 1999. PLEASE READ THE
PROSPECTUS CAREFULLY BEFORE MAKING AN INVESTMENT DECISION.
If you wish to use funds in your IRA or Qualified Plan at The Troy Savings
Bank to subscribe for Common Stock, please be aware that applicable law requires
that such funds first be transferred to a self-directed retirement account with
a trustee other than The Troy Savings Bank. The transfer of such funds to a new
trustee takes time, so please make arrangements as soon as possible.
If you have any questions after reading the enclosed material, please call
our Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the
hours of 10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be
closed for Bank holidays.
Sincerely,
Daniel J. Hogarty, Jr.
Chairman of the Board, President and
Chief Executive Officer
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
#1
<PAGE> 6
[TROY FINANCIAL CORPORATION]
Dear Depositor:
The Board of Trustees of The Troy Savings Bank has voted unanimously in
favor of a plan to convert from a state chartered mutual savings bank to a state
chartered stock savings bank. As part of this plan, we have formed a holding
company, Troy Financial Corporation, which will become the parent company of The
Troy Savings Bank. We are converting so that The Troy Savings Bank will be
structured in the form of ownership used by a growing number of savings
institutions and to allow our Bank to become even stronger.
In addition, as part of the conversion and in furtherance of its
long-standing commitment to its community, the Bank intends to establish a
charitable foundation to be known as The Troy Savings Bank Community Foundation.
This foundation will be dedicated to charitable and educational purposes.
TO ACCOMPLISH THE CONVERSION, YOUR PARTICIPATION IS EXTREMELY
IMPORTANT. On behalf of the Board, I ask that you help us meet our goal by
reading the enclosed material and then casting your vote in favor of the Plan of
Conversion and mailing your signed proxy card immediately in the enclosed
postage-paid envelope. Should you choose to attend the Special Meeting of Voting
Depositors and wish to vote in person, you may do so by revoking any previously
executed proxy. If you have an IRA or other Qualified Plan account for which the
Bank acts as trustee and we do not receive a proxy from you, the Bank, as
trustee for such account, intends to vote in favor of the Plan of Conversion on
your behalf.
If the Plan of Conversion is approved let me assure you that:
- Deposit accounts will continue to be federally insured to the same extent
permitted by law.
- Existing deposit accounts and loans will not undergo any change as a
result of the conversion.
We regret that we are unable to offer you Common Stock in the Subscription
Offering, because the laws of your state or jurisdiction require us to register
either (1) the to-be-issued Common Stock of Troy Financial Corporation, or (2)
an agent of The Troy Savings Bank to solicit the sale of such stock, and the
number of eligible subscribers in your state or jurisdiction does not justify
the expense of such registration.
If you have any questions after reading the enclosed material, please call
our Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the
hours of 10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be
closed for Bank holidays.
Sincerely,
Daniel J. Hogarty, Jr.
Chairman of the Board, President and
Chief Executive Officer
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
#2
<PAGE> 7
[TROY FINANCIAL CORPORATION]
Dear Friend of The Troy Savings Bank:
The Troy Savings Bank is in the process of converting from a state
chartered mutual savings bank to a state chartered stock savings bank. As part
of this plan, we have formed a holding company, Troy Financial Corporation,
which will become the parent company of the Bank. We are converting so that the
Bank will be structured in the form of ownership used by a growing number of
savings institutions and to allow our Bank to become even stronger. The
conversion will in no way affect the insurance of deposit accounts or other
services offered by the Bank.
In addition, as part of the conversion and in furtherance of its
long-standing commitment to its community, the Bank intends to establish a
charitable foundation to be known as The Troy Savings Bank Community Foundation.
This foundation will be dedicated to charitable and educational purposes.
As a qualifying account holder, you may take advantage of your
nontransferable rights to subscribe for shares of Troy Financial Corporation's
Common Stock on a priority basis, before the stock is offered to the general
public. The enclosed Prospectus describes the stock offering and the operations
of the Bank. If you wish to purchase stock, please complete the stock order and
certification form and mail it along with full payment for the shares (or
appropriate instructions authorizing withdrawal from a deposit account with the
Bank) to The Troy Savings Bank in the enclosed postage-paid envelope, or return
it to any branch office of the Bank Your order must be physically received by
the Bank no later than 12:00 noon New York time on , X, 1999.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE MAKING AN INVESTMENT DECISION.
If you have any questions after reading the enclosed material, please call
our Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the
hours of 10:00 a.m. and 4:00 p.m. Please note that the Conversion Center will be
closed for Bank holidays.
Sincerely,
Daniel J. Hogarty, Jr.
Chairman of the Board, President and
Chief Executive Officer
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
#3
<PAGE> 8
[TROY FINANCIAL CORPORATION]
Dear Potential Investor:
We are pleased to provide you with the enclosed material regarding the
conversion of The Troy Savings Bank from a state chartered mutual savings bank
to a state chartered stock savings bank.
This information packet includes the following:
PROSPECTUS: This document provides detailed information about The Troy
Savings Bank's operations, the proposed stock offering by Troy Financial
Corporation, a holding company formed by Troy Savings to become its
parent company upon completion of the conversion and the establishment
of a charitable foundation as part of the conversion. Please read it
carefully prior to making an investment decision.
QUESTION AND ANSWER BROCHURE: This answers commonly asked questions
about the stock offering and establishment of the charitable foundation.
STOCK ORDER AND CERTIFICATION FORM: Use this form to subscribe for stock
and return it together with full payment for the shares (or appropriate
instructions authorizing withdrawal from a deposit account with the
Bank) in the enclosed postage-paid envelope. Your order must be
physically received by the Bank no later than 12:00 noon, New York time
on , X, 1999.
We are pleased to offer you this opportunity to become one of our charter
shareholders. If you have any questions regarding the conversion or the
Prospectus, please call our Conversion Center at (XXX) XXX-XXXX, Monday through
Friday, between the hours of 10:00 a.m. and 4:00 p.m. Please note that the
Conversion Center will be closed for Bank holidays.
Sincerely,
Daniel J. Hogarty, Jr.
Chairman of the Board, President and
Chief Executive Officer
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
#4
<PAGE> 9
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
Dear Customer of The Troy Savings Bank:
At the request of The Troy Savings Bank and Troy Financial Corporation, a
holding company formed by Troy Savings to become its parent company, we have
enclosed material regarding the offering of Common Stock in connection with the
conversion of Troy Savings from a state chartered mutual savings bank to a state
chartered stock savings bank. These materials include a Prospectus and a stock
order and certification form, which offer you the opportunity to subscribe for
shares of Common Stock of Troy Financial Corporation .
We recommend that you read this material carefully. If you decide to
subscribe for shares, you must return the properly completed and signed stock
order and certification form, along with full payment for the shares (or
appropriate instructions authorizing withdrawal from a deposit account with the
Bank), no later than 12:00 noon, New York time on , X, 1999 in
the accompanying YELLOW postage-paid envelope marked "STOCK ORDER RETURN". If
you have any questions after reading the enclosed material, please call the
Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the hours of
10:00 a.m. and 4:00 p.m., and ask for a Sandler O'Neill representative. Please
note that the Conversion Center will be closed for Bank holidays.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your jurisdiction. We should not be
understood as recommending or soliciting in any way any action by you with
regard to the enclosed material.
Sincerely,
Sandler O'Neill & Partners, L.P.
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Enclosure
#5
<PAGE> 10
PROXY REQUEST
TROY SAVINGS BANK
----------------------------
WE NEED YOUR VOTE!
----------------------------
DEAR CUSTOMER OF THE TROY SAVINGS BANK:
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT YET BEEN RECEIVED. YOUR VOTE IS
VERY IMPORTANT TO US. PLEASE VOTE AND MAIL THE ENCLOSED PROXY TODAY. IF YOU HAVE
MORE THAN ONE ACCOUNT YOU MAY RECEIVE MORE THAN ONE PROXY.
REMEMBER: VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO BUY
STOCK. THE BOARD OF TRUSTEES OF THE TROY SAVINGS BANK HAS UNANIMOUSLY
APPROVED THE PLAN OF CONVERSION, INCLUDING THE ESTABLISHMENT OF THE TROY
SAVINGS BANK COMMUNITY FOUNDATION, AND URGES YOU TO VOTE IN FAVOR OF THE
PLAN OF CONVERSION. YOUR TROY SAVINGS DEPOSIT ACCOUNTS OR LOANS WILL NOT
BE AFFECTED IN ANY WAY. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY
INSURED BY THE FDIC UP TO APPLICABLE LIMITS.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR CONVERSION CENTER AT (XXX) XXX-XXXX.
PLEASE VOTE TODAY BY RETURNING ALL PROXY FORMS RECEIVED.
SINCERELY,
THE TROY SAVINGS BANK
#6
<PAGE> 11
QUESTIONS
& ANSWERS
About the
Conversion
[holding company logo]
7-1
<PAGE> 12
QUESTIONS AND
ANSWERS
About the Conversion
The Board of Trustees of The Troy Savings Bank has unanimously adopted a Plan of
Conversion whereby Troy Savings will convert from a New York State chartered
mutual savings bank to a New York State chartered stock savings bank and at the
same time become a wholly-owned subsidiary of Troy Financial Corporation, a
Delaware corporation formed by Savings Bank to acquire all of its outstanding
stock. As part of the conversion, Troy Financial Corporation will be offering
its Common Stock for sale pursuant to the terms of the Plan of Conversion.
The Troy Savings Bank is converting to be structured in the form of ownership
used by a growing number of savings institutions and to allow it to become even
stronger. In addition, as part of the conversion, Troy Savings intends to
establish The Troy Savings Bank Community Foundation which will be dedicated to
charitable and educational purposes.
It is necessary for Troy Savings to receive the approval of: 1) at least 75% of
the votes cast by Voting Depositors in person or by proxy at the Special
Meeting; and 2) at least a majority of the votes eligible to be cast at the
Special Meeting, so YOUR VOTE IS VERY IMPORTANT. Please return your proxy in the
enclosed postage-paid envelope marked "PROXY RETURN". YOUR BOARD OF
TRUSTEES URGES YOU TO VOTE "FOR" THE CONVERSION AND TO RETURN YOUR PROXY TODAY.
Effect on Deposits and Loans
Q. WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
A. No. The conversion will have no effect on the balance or terms of any deposit
account or loan. Your deposits will continue to be federally insured by the
FDIC to the fullest extent permissible by law.
7-2
<PAGE> 13
About Voting
Q. WHO IS ELIGIBLE TO VOTE ON THE CONVERSION?
A. Only depositors with accounts totalling $100 or more on December 31, 1998
("Voting Record Date") are eligible to vote.
Q. HOW DO I VOTE?
A. You may vote by mailing your signed proxy card(s) in the postage-paid
envelope marked "PROXY RETURN." Should you choose to attend the Special
Meeting of Depositors and decide to change your vote, you may do so by
revoking any previously executed proxy.
Q. AM I REQUIRED TO VOTE?
A. No. Voting Depositors are not required to vote. However, because the
conversion will produce a fundamental change in The Troy Savings Bank's
corporate structure, the Board of Trustees encourages all Voting Depositors
to vote.
Q. WHY DID I RECEIVE SEVERAL PROXIES?
A. If you have more than one account you may have received more than one proxy
depending upon the ownership structure of your accounts. PLEASE VOTE, SIGN
AND RETURN ALL PROXY CARDS THAT YOU RECEIVED.
Q. DOES MY VOTE FOR CONVERSION MEAN THAT I MUST BUY COMMON STOCK OF TROY
FINANCIAL CORPORATION?
A. No. Voting for the Plan of Conversion does not obligate you to buy shares of
Common Stock of Troy Financial Corporation.
Q. I HAVE A JOINT SAVINGS ACCOUNT. MUST BOTH PARTIES SIGN THE PROXY CARD?
A. Only one signature is required, but both parties should sign if possible.
Q. WHO MUST SIGN PROXIES FOR TRUST OR CUSTODIAN ACCOUNTS?
A. The trustee or custodian must sign proxies for such accounts, not the
beneficiary.
Q. I AM THE EXECUTOR (ADMINISTRATOR) FOR A DECEASED DEPOSITOR. CAN I SIGN THE
PROXY CARD?
A. Yes. Please indicate on the card the capacity in which you are signing the
card.
7-3
<PAGE> 14
About The Troy Savings Bank Community Foundation
Q. WHAT IS THE TROY SAVINGS BANK COMMUNITY FOUNDATION AND WHY IS IT BEING
ESTABLISHED?
A. In keeping with Troy Savings' long standing commitment to its community, Troy
Savings' Plan of Conversion provides for the establishment of a community
foundation to be known as The Troy Savings Bank Community Foundation. This
foundation will be dedicated to charitable and educational purposes.
Q. HOW WILL THE FOUNDATION BE FUNDED?
A. Troy Financial Corporation will fund the foundation with shares of its Common
Stock. Immediately following the conversion, Troy Financial will contribute
up to $2.9 million of its Common Stock to the foundation.
Q. WHAT IS THE IMPACT OF THE FOUNDATION ON STOCKHOLDERS' EQUITY AND EARNINGS?
A. The funding of the foundation will impact Troy Financial Corporation
stockholders' equity and will have an adverse effect on its earnings in the
period in which the foundation is funded, which is expected to be the second
quarter of fiscal year 1999.
The establishment of the foundation, however, was considered in the
independent appraisal of the aggregate pro forma market value of Troy
Financial Corporation Common Stock. In addition, there are certain tax
effects, regulatory considerations and other matters with respect to the
foundation. A prospective stockholder should carefully review
"Summary -- Commitment to Our Community," "Risk Factors -- Factors Which Will
Negatively Impact Earnings," and "The Conversion -- Establishment of the
Community Foundation" in the Prospectus.
Q. IF I PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION, WILL MY EQUITY AND
VOTING INTERESTS BE DILUTED AS A RESULT OF THE ESTABLISHMENT AND FUNDING OF
THE FOUNDATION?
A. Upon completion of the conversion and the establishment of the foundation,
the foundation will receive up to $2.9 million of Common Stock of Troy
Financial Corporation. As a result, persons purchasing shares in the
conversion will have their ownership and voting interests diluted by 2.73%.
7-4
<PAGE> 15
About The Stock
Investment in Common Stock involves certain risks. For a discussion of these
risks and other factors, investors are urged to read the accompanying
Prospectus.
Q. WHAT ARE THE PRIORITIES OF PURCHASING THE COMMON STOCK?
A. The Common Stock of Troy Financial Corporation will be offered in the
Subscription Offering in the following order of priority:
- Eligible Account Holders (depositors with accounts totaling $100 or
more as of June 30, 1997).
- Employee Stock Ownership Plan (ESOP).
- Supplemental Eligible Account Holders (depositors with accounts
totaling $100 or more as of December 31, 1998).
Upon completion of the Subscription Offering and the Community
Offering, Common Stock that is not sold in the Subscription and
Community Offerings will be offered to members of the general public
in a Syndicated Community Offering.
Q. WILL ANY ACCOUNT I HOLD WITH TROY SAVINGS BE CONVERTED INTO COMMON STOCK?
A. No. All accounts remain as they were prior to the conversion. As an Eligible
Account Holder or Supplemental Eligible Account Holder, you receive priority
over the general public in exercising your right to subscribe for shares of
Common Stock.
Q. WILL I RECEIVE A DISCOUNT ON THE PRICE OF THE STOCK?
A. No. Conversion regulations require that the offering price of the stock be
the same for everyone: customers, trustees, officers and employees of Troy
Savings, and the general public.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. Troy Financial Corporation is offering for sale up to 10,200,500 shares of
Common Stock at a subscription price of $10 per share. Under certain
circumstances, Troy Financial Corporation may sell up to 11,730,575 shares
(not including any shares contributed to the Foundation).
7-5
<PAGE> 16
Q. HOW MUCH STOCK CAN I PURCHASE?
A. The minimum purchase is 25 shares. As more fully discussed in the Plan of
Conversion outlined in the Prospectus, the maximum purchase by any person in
the Subscription Offering is $500,000 (50,000 shares); in the Community
Offering and Syndicated Community Offering, the maximum purchase by any
person, including purchases by associates of such person or entity, is
$500,000 (50,000 shares); and the maximum purchase by any person, including
purchases by associates of such person or entity in the Subscription and
Community Offerings is $1,000,000 (or 100,000 shares) X.0% of the shares
offered, or XXX,XXX shares.
Q. HOW DO I ORDER STOCK?
A. You may subscribe for shares of Common Stock by completing and returning the
stock order form and certification form, together with your payment, either
in person to any branch office of The Troy Savings Bank or by mail in the
YELLOW postage-paid envelope marked "STOCK ORDER RETURN." Stock order forms
may not be delivered to a walk up or drive through window located at any of
the Bank's branch offices.
Q. HOW CAN I PAY FOR MY SHARES OF STOCK?
A. You can pay for the Common Stock by check, cash, money order or withdrawal
from your deposit account at Troy Savings. If you choose to pay by cash, you
must deliver the stock order form and payment in person to any branch office
of Troy Savings and it will be converted to a bank check or a money order.
PLEASE DO NOT SEND CASH IN THE MAIL.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. An executed stock order form and certification form with the required full
payment must be physically received by Troy Savings by 12:00 noon New York
time, on XXX, XXX, 1999.
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY IRA/QUALIFIED PLAN AT TROY
SAVINGS?
A. Applicable regulations do not permit the purchase of Common Stock with your
existing IRA or Qualified Plan at Troy Savings. To use such funds to
subscribe for Common Stock, you need to establish a "self-directed" trust
account with an outside trustee. Please call our Conversion Center if you
require additional information. TRANSFER OF SUCH FUNDS TAKES TIME, SO PLEASE
MAKE ARRANGEMENTS AS SOON AS POSSIBLE.
7-6
<PAGE> 17
Q. CAN I SUBSCRIBE FOR SHARES AND ADD SOMEONE ELSE WHO IS NOT ON MY ACCOUNT TO
MY STOCK REGISTRATION?
A. No. Applicable regulations prohibit the transfer of subscription rights.
Adding the names of other persons who are not owners of your qualifying
account(s) will result in your order becoming null and void.
Q. WILL PAYMENTS FOR COMMON STOCK EARN INTEREST UNTIL THE CONVERSION CLOSES?
A. Yes. Any payments made by cash, check or money order will earn interest at
Troy Savings' passbook rate from the date of receipt to the completion or
termination of the conversion. Withdrawals from a deposit account or a
certificate of deposit at Troy Savings may be made without penalty to buy
Common Stock. Depositors who elect to pay for their Common Stock by
withdrawal will continue to receive interest on their accounts until the
funds are withdrawn.
Q. WILL DIVIDENDS BE PAID ON THE STOCK?
A. The Board of Directors of Troy Financial Corporation has not made a decision
as to the payment of dividends.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE?
A. No. The Common Stock cannot be insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the FDIC or any other government agency
nor is it insured or guaranteed by Troy Financial Corporation or Troy Savings
or its holding company.
Q. WHERE WILL THE STOCK BE TRADED?
A. Upon completion of the conversion, Troy Financial Corporation anticipates
having its stock quoted on the Nasdaq National Market under the symbol
"TRYF".
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After receipt, your order may not be modified or withdrawn.
7-7
<PAGE> 18
Additional Information
Q. WHAT IF I HAVE ADDITIONAL QUESTIONS OR REQUIRE MORE INFORMATION?
A. Troy Savings' Proxy Statement and Prospectus describes the conversion and the
Troy Savings Bank Community Foundation in detail. Please read the Proxy
Statement and Prospectus carefully before voting or subscribing for stock. If
you have any questions after reading the enclosed material you may call our
Conversion Center at (XXX) XXX-XXXX, Monday through Friday, between the hours
of 10:00 a.m. and 4:00 p.m. Additional material may only be obtained from the
Conversion Center. Please note that the Conversion Center will be closed for
Bank holidays. TO ENSURE THAT EACH PURCHASER RECEIVES A PROSPECTUS AT LEAST
48 HOURS PRIOR TO THE EXPIRATION DATE OF XXX, 1998 AT 12:00 NOON, NEW YORK
TIME, IN ACCORDANCE WITH RULE 15c2-8 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO
SUCH DATE OR HAND DELIVERED ANY LATER THAN TWO DAYS PRIOR TO SUCH DATE.
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency nor is the Common Stock insured or
guaranteed by The Troy Savings Bank or Troy Financial Corporation.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
7-8
<PAGE> 19
L O G O
THE TROY SAVINGS BANK
PLEASE SUPPORT US
VOTE YOUR
PROXY CARD TODAY
IF YOU HAVE MORE THAN ONE ACCOUNT, YOU MAY HAVE RECEIVED MORE THAN ONE PROXY
DEPENDING UPON THE OWNERSHIP STRUCTURE OF YOUR ACCOUNTS. PLEASE VOTE, SIGN AND
RETURN ALL PROXY CARDS THAT YOU RECEIVED.
#8
<PAGE> 20
[TROY FINANCIAL CORPORATION]
, 1999
Mr. John Smith
00-00 00 Drive
City, State 00000
Dear Mr. Smith:
We are pleased to announce that the Board of Trustees of The Troy Savings
Bank has adopted a plan to convert from a state chartered mutual savings bank to
a state chartered stock savings bank. As part of this plan, we have formed a
holding company to become the parent company of Troy Savings upon completion of
the conversion. We are converting so that Troy Savings will be structured in the
form of ownership used by a growing number of savings institutions and to allow
Troy Savings to become stronger.
You are cordially invited to join members of our senior management team at
an informational meeting to be held on at 7:30 P.M. to learn more
about the conversion and the stock offering.
A member of our staff will be calling to confirm your interest in attending
the meeting.
If you would like additional information regarding the meeting or our
conversion, please call our Conversion Center number at (XXX) XXX-XXXX, Monday
through Friday between the hours of 10:00 a.m. to 4:00 p.m. Please note that the
Conversion Center will be closed for Bank holidays.
Sincerely,
Signature
Title
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
(Printed by Conversion Center)
#9
<PAGE> 21
[TROY FINANCIAL CORPORATION]
, 1999
Dear Subscriber:
We hereby acknowledge receipt of your order for shares of Common Stock in
Troy Financial Corporation.
At this time, we cannot confirm the number of shares of Troy Financial
Corporation Common Stock that will be issued to you. Such allocation will be
made in accordance with the Plan of Conversion following completion of the stock
offering.
If you have any questions, please call our Conversion Center at (XXX)
XXX-XXXX. Please note that the Conversion Center will be closed for Bank
holidays.
Sincerely,
TROY FINANCIAL CORPORATION
Conversion Center
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Conversion Center)
#10
<PAGE> 22
[TROY FINANCIAL CORPORATION]
, 1999
Dear Charter Stockholder:
We appreciate your interest in the stock offering of Troy Financial
Corporation. Due to the excellent response from our Eligible Account Holders, we
are unable to fill all orders in full. Consequently, in accordance with the
provisions of the Plan of Conversion, you were allocated shares at a
price of $10.00 per share. If your subscription was paid for by check, a refund
of any balance due you with interest will be mailed to you promptly.
The purchase date and closing of the transaction occurred on XX,
1999. Trading will commence on the Nasdaq National Market under the symbol
"TRYF" on XX, 1999. Your stock certificate will be mailed to you
shortly.
We thank you for your interest in Troy Financial Corporation., and welcome
you as a charter stockholder.
Sincerely,
TROY FINANCIAL CORPORATION
Conversion Center
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
#11
<PAGE> 23
[TROY FINANCIAL CORPORATION]
, 1999
Dear Interested Investor:
We recently completed our Subscription and Community Offerings.
Unfortunately, due to the excellent response from our Eligible Account Holders,
stock was not available for our Supplemental Eligible Account Holders or
community friends. If your subscription was paid for by check, a refund of any
balance due you with interest will be mailed to you promptly.
We appreciate your interest in Troy Financial Corporation and hope you
become an owner of our stock in the future. The stock trades on the Nasdaq
National Market under the symbol "TRYF".
Sincerely,
TROY FINANCIAL CORPORATION
Conversion Center
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Conversion Center)
#12
<PAGE> 24
[TROY FINANCIAL CORPORATION]
, 1999
Welcome Shareholder:
We are pleased to enclose the stock certificate that represents your share
of ownership in Troy Financial Corporation, the parent company of The Troy
Savings Bank.
Please examine your stock certificate to be certain that it is properly
registered. If you have any questions about your certificate, you should contact
our transfer agent immediately at the following address:
Register and Transfer Company
Address
Telephone Number
Also, please remember that your certificate is a negotiable security which
should be stored in a secure place, such as a safe deposit box or on deposit
with your stockbroker.
On behalf of the Board of Directors of Troy Financial Corporation and the
employees of Troy Savings, I would like to thank you for supporting our stock
offering.
Sincerely,
Daniel J. Hogarty, Jr.
Chairman of the Board,
President and Chief Executive Officer
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Conversion Center)
#13
<PAGE> 25
[TROY FINANCIAL CORPORATION]
, 1999
Dear Interested Subscriber:
We regret to inform you that The Troy Savings Bank and Troy Financial
Corporation, the parent company for Troy Savings, have decided not to accept
your order for shares of Troy Financial Corporation Common Stock in our
Community Offering. This action is in accordance with our Plan of Conversion
which gives Troy Savings, and Troy Financial the absolute right to reject the
subscription of any Community Member, in whole or in part, in the Community
Offering.
Enclosed, therefore, is a check representing your subscription and interest
earned thereon.
Sincerely,
TROY FINANCIAL CORPORATION.
Conversion Center
(Printed by Conversion Center)
#14
<PAGE> 26
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
, 1999
To Our Friends:
We are enclosing the stock offering material for The Troy Savings Bank,
which is now in the process of converting to stock form and forming a holding
company called Troy Financial Corporation.
Sandler O'Neill & Partners, L.P. is managing the Subscription Offering,
which will conclude at 12:00 noon, New York time on , 1999.
Sandler O'Neill is also providing conversion agent and proxy solicitation
services. If all the stock is not subscribed for in the Subscription Offering
and Community Offering, Sandler O'Neill will form and manage a syndicate of
broker/dealers to sell the remaining stock.
Members of the general public, other than residents of , are
eligible to participate. If you have any questions about this transaction,
please do not hesitate to call or write.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Sandler O'Neill)
#15
<PAGE> 27
PROXY REQUEST
TROY SAVINGS BANK
----------------------------
WE NEED YOUR VOTE!
----------------------------
DEAR CUSTOMER OF THE TROY SAVINGS BANK:
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT YET BEEN RECEIVED. YOUR VOTE IS
VERY IMPORTANT TO US. PLEASE VOTE AND MAIL THE ENCLOSED PROXY TODAY. IF YOU HAVE
MORE THAN ONE ACCOUNT YOU MAY RECEIVE MORE THAN ONE PROXY.
REMEMBER: VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO BUY
STOCK. THE BOARD OF TRUSTEES OF THE TROY SAVINGS BANK HAS UNANIMOUSLY
APPROVED THE PLAN OF CONVERSION, INCLUDING THE ESTABLISHMENT OF THE TROY
SAVINGS BANK COMMUNITY FOUNDATION, AND URGES YOU TO VOTE IN FAVOR OF THE
PLAN OF CONVERSION. YOUR TROY SAVINGS DEPOSIT ACCOUNTS OR LOANS WILL NOT
BE AFFECTED IN ANY WAY. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY
INSURED BY THE FDIC UP TO APPLICABLE LIMITS.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR CONVERSION CENTER AT (XXX) XXX-XXXX.
PLEASE VOTE TODAY BY RETURNING ALL PROXY FORMS RECEIVED.
SINCERELY,
THE TROY SAVINGS BANK
