UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No.: 0-10275
EVERGREEN BANCORP, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 36-3114785
(State of incorporation) (I.R.S. Employer Identification No.)
237 Glen Street, Glens Falls, New York 12801
(Address of principal executive offices) (Zip Code)
(518) 792-1151
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
NONE Nasdaq National Market System
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ 3 1/3 Par Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
The aggregate market value of the Registrant's common stock (based upon
the average of the bid and asked prices on February 28, 1997) held by non-
affiliates was approximately $132.0 million, excluding 829 thousand shares
held by affiliates of the registrant. The number of shares of Registrant's
Common Stock outstanding on February 28, 1997 was 9,044,690.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1996(Parts I, II and IV).
(2) Portions of the Registrant's Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed within 120 days of the
Registrant's fiscal year-end (Part III).
PART I
EVERGREEN BANCORP, INC.
ITEM 1. Description of Business
GENERAL
Evergreen Bancorp, Inc. ("Registrant" or "Evergreen") is a Delaware
Corporation registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") having its principal place
of business at 237 Glen Street, Glens Falls, New York. Evergreen commenced
business under its former name of First Glen Bancorp on November 3, 1980.
Evergreen adopted its current name on April 23, 1986.
The Registrant conducts substantially all of its business through its
sole banking subsidiary, Evergreen Bank, N.A. (the "Bank"). Its
predecessor bank, The First National Bank of Glens Falls, was originally
organized as a state-chartered bank in New York State in 1853, and was
converted to a national bank in 1865. Today, the Bank is regulated by the
Office of the Comptroller of the Currency ("OCC"). The deposits of
Evergreen Bank are insured by the Federal Deposit Insurance Corporation
("FDIC") to the extent permitted by law. See "Supervision and Regulation."
The Bank's principal offices are in Glens Falls, New York, and it has 25
banking offices in 7 counties of upstate New York. At December 31, 1996,
Evergreen Bank had total assets of approximately $920.1 million, total
deposits of approximately $800.9 million, and total stockholders' equity
of approximately $81.4 million.
Evergreen and its principal bank subsidiary derive substantially all
of their revenue and income from the furnishing of bank and bank-related
services. Evergreen functions primarily as the holder of stock of its
subsidiaries and assists the management of its subsidiaries as
appropriate.
The Bank conducts a general commercial banking and trust business at
25 locations in upstate New York, concentrated in three principal regions
generally known as Glens Falls, Plattsburgh and Albany. Through the Bank,
Evergreen provides a variety of banking services to individuals,
partnerships, corporations, municipalities and government entities in New
York State. Such banking services include accepting deposits, making
loans; checking and NOW accounts; business, agricultural, real estate,
home improvement, automobile and other personal loans; letters of credit;
home equity lines of credit; safe deposit boxes; wire transfer facilities;
and access to automated teller machines.
The Bank operates as a typical community banking institution, and
does not currently engage in any specialized finance or capital market
activities, or hold any credit card assets, although management may re-
enter the credit card business in the future. In 1996, the Bank formed a
new wholly owned subsidiary as a real estate investment trust to hold
certain residential and commercial loans, which are serviced and otherwise
managed by the Bank.
The Bank engages in various finance functions for municipalities and
governmental entities located within its geographic markets. Municipal
deposits comprise a larger proportion of total deposits than most banks in
its peer group, consequently the municipal business is relatively
significant to the Bank.
Evergreen is a legal entity separate and distinct from its
subsidiaries. The right of Evergreen to participate in any distribution of
the assets or earnings of any subsidiary is subject to the prior claims of
creditors of the subsidiary, except to the extent that claims, if any, of
Evergreen itself as a creditor may be recognized. See "Supervision and
Regulation -- Payment of Dividends".
GOVERNMENT MONETARY POLICY
The Bank is affected by the credit policies of monetary authorities,
including the Board of Governors of the Federal Reserve System. An
important element of the Federal Reserve System is to regulate the
national supply of bank credit. Among the instruments of monetary policy
used by the Federal Reserve are open market operations in U.S. Government
securities, changes in the discount rate, reserve requirements on member
bank deposits, and funds availability regulations. The monetary policies
of the Federal Reserve have in the past had a significant effect on the
operations of financial institutions, including the Bank, and will
continue to do so in the future. Changing conditions in the national
economy and money markets, as well as the impact of actions by monetary
and fiscal authorities, make it difficult to predict the effect of future
changes in interest rates, deposit levels or loan demand on the business
and income of the Bank.
COMPETITION
The Bank faces strong competition in its three principal market
areas, both in attracting deposits and making loans. The Bank's most
direct competition for deposits and trust services has historically come
from other banks, savings institutions and credit unions located in the
Bank's market areas. However, the Bank also faces significant non-banking
competition from mutual funds, insurance companies, investment management
firms, investment banking firms, broker dealers and a growing list of
other investment alternatives. This has increased the competition for
funds that historically would have been maintained as bank deposits.
The Bank competes in this environment by providing a broad range of
financial services, competitive interest rates and a personal level of
service that, combined, tend to retain the loyalty of customers in its
market areas against competitors with far larger resources than that of
the Bank. To a lesser extent, convenience of branch locations and hours of
operations are competitive advantages of the Bank in the Glens Falls and
Plattsburgh regions.
The Bank encounters significant competition for new loans, both
commercial and consumer, from other commercial banks, including super-
regional, money center and locally owned banks. In addition, savings
banks, savings and loan associations, credit unions, mortgage bankers,
mortgage brokers affiliated with nationally franchised real estate
brokers, and other financial institutions compete actively for new loans.
Competition for home mortgages in the past five years has been especially
intense in the Bank's market areas. The Bank competes for new loans
principally through the interest rates and fees it charges, the
responsiveness of the Bank to its local markets, and the efficiency in
which it provides loan services.
Mergers among financial institutions have added competitive pressure.
Competition is expected to intensify as a consequence of interstate
banking laws now in effect in the majority of states which permit banking
organizations to expand geographically. Further, the Reigle-Neal
Interstate Banking and Branching Efficiency Act of 1994 has generally
removed the remaining restrictions on interstate acquisitions of banks and
bank holding companies, effective June 1, 1997, or sooner.
SUPERVISION AND REGULATION
General. The Registrant is a bank holding company, registered with
the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under the BHC Act. As such, the Registrant and its subsidiaries
are subject to the supervision, examination, and reporting requirements of
the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after
such acquisition, the bank holding company will directly or indirectly own
or control more than 5.0% of the voting shares of the bank; (ii) it or any
of its subsidiaries, other than a bank, may acquire all or substantially
all of the assets of the bank; or (iii) it may merge or consolidate with
any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize
the business of banking in any section of the United States, or the effect
of which may be to substantially lessen competition in any section of the
country, or that in any other manner would be in restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of
the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of
the bank holding companies and banks concerned and the convenience and
needs of the community to be served. Consideration of financial resources
generally focuses on capital adequacy, and consideration of convenience
and needs issues including the parties' performance under the Community
Reinvestment Act of 1977 (the "CRA"), both of which are discussed below.
The BHC Act prohibits the Federal Reserve from approving a bank
holding company's application to acquire a bank or bank holding company
located outside the state in which the deposits of its banking
subsidiaries were greatest on the date the company became a bank holding
company (New York in the case of the Registrant), unless such acquisition
is specifically authorized by statute of the state in which the bank or
bank holding company to be acquired is located. New York has adopted
national reciprocal interstate banking legislation permitting New York-
based bank holding companies to acquire banks and bank holding companies
in other states and allowing bank holding companies located in states with
reciprocal legislation to acquire New York banks and bank holding
companies. Under the provisions of the Riegle-Neal Interstate Banking and
Branching and Efficiency Act of 1994 (the "Interstate Banking Act"), 1994,
the existing restrictions on interstate acquisitions of banks by bank
holding companies, including the reciprocal interstate banking legislation
adopted by the state of New York, have been repealed. This allows the
Registrant and any other bank holding company located in New York to
acquire a bank located in any other state, and a bank holding located
outside New York is able to acquire any New York-based bank, in either
case subject to certain deposit percentage and other restrictions. The
Interstate Banking Act also generally provides that, after June 1, 1997,
national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to
that date, a state has the ability to either "opt in" or to prohibit
interstate branching altogether.
The Registrant is also subject to the provisions of Article III-A of
the New York State Banking Law. Among other things, Article III-A requires
the approval of the New York Banking Department prior to the acquisition
by a bank holding company of direct or indirect ownership or control of
10% or more of the voting stock of a banking institution, or the
acquisition by a bank holding company directly or indirectly through a
subsidiary of all or substantially all of the assets of a banking
institution, or a merger or consolidation with another bank holding
company.
The BHC Act generally prohibits the Registrant from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or
indirect control of any company engaged in any activities other than those
activities determined by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices. For example, factoring accounts receivable,
acquiring or servicing loans, leasing personal property, conducting
discount securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life
insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities all
have been determined by the Federal Reserve to be permissible activities
of bank holding companies. The BHC Act does not place territorial
limitations on permissible non-banking bank-related activities of bank
holding companies. Despite prior approval, the Federal Reserve has the
power to order a holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when
it has reasonable cause to believe that continuation of such activity or
such ownership or control constitutes a serious risk to the financial
safety, soundness, or stability of any bank subsidiary of that bank
holding company.
The Bank, the single subsidiary bank of the Registrant, is a member
of the FDIC, and as such, its deposits are insured by the FDIC to the
extent provided by law. The Bank is also subject to numerous state and
federal statutes and regulations that affect its business, activities, and
operations, and it is supervised and examined by one or more federal bank
regulatory agencies.
Because the Bank is a national bank, it is subject to supervision and
regulation by the OCC. The OCC regularly examines the operations of the
subsidiary bank and has authority to approve or disapprove mergers,
consolidations, the establishment of branches, and similar corporate
actions. The OCC also has the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of
law.
The Bank is subject to the provisions of the CRA. Under the terms of
the CRA, the appropriate federal bank regulatory agency is required, in
connection with its examination of a subsidiary institution, to assess
such institution's record in meeting the credit needs of the community
served by that institution, including those of low and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's
record is made available to the public. Further, such assessment is
required of any institution which has applied to: (i) charter a national
bank; (ii) obtain deposit insurance coverage for a newly chartered
institution; (iii) establish a new branch office that will accept
deposits; (iv) relocate an office; or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated
financial institution. In the case of a bank holding company applying for
approval to acquire a bank or other bank holding company, the Federal
Reserve will assess the records of each subsidiary institution of the
applicant bank holding company, and such records may be the basis for
denying the application.
An institution's CRA rating will continue to be taken into account by
its regulator in considering various types of applications. In addition,
an institution receiving a rating of "substantial noncompliance" is
subject to civil money penalties or a cease and desist order under Section
8 of the Federal Deposit Insurance Act (the "FDIA"). CRA remains a
critical component of the regulatory examination process. CRA examination
results and related concerns have been cited as a reason to reject and or
modify branching and merger applications by various federal and state
banking agencies.
Payment of Dividends. The Registrant is a legal entity separate and
distinct from the Bank and its other subsidiaries. The principal source of
cash flow of the Registrant, including cash flow to pay dividends to its
stockholders, is dividends from the Bank. The subsidiary bank is required
by the OCC to obtain prior approval for the payment of dividends to the
Registrant if the total of all dividends declared by such subsidiary bank
in any year would exceed the total of such bank's net profits (as defined
and interpreted by regulation) for that year and the retained net profits
(as defined) for the preceding two years, less any required transfers to
surplus. There are also other statutory and regulatory limitations on the
payment of dividends by the Bank to the Registrant as well as the
Registrant to its stockholders. Without receiving dividends from the Bank
the Registrant would not be in a position to pay dividends to its
stockholders.
If, in the opinion of a federal regulatory agency, an institution
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), such agency may
require, after notice and a hearing, that such institution cease and
desist from such practice. The Federal Reserve, the OCC, and the FDIC,
have indicated that paying dividends that deplete an institution's capital
base to an inadequate level would be an unsafe and unsound banking
practice. Under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), an insured institution may not pay any dividend if it
is undercapitalized, or if such payment would cause it to become
undercapitalized. See "Prompt Corrective Action." Moreover, the Federal
Reserve, the OCC, and the FDIC have issued policy statements which provide
that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
At December 31, 1996, under dividend restrictions imposed under
federal and state laws, the Bank, without obtaining governmental
approvals, could declare aggregate dividends to the Registrant of
approximately $7.0 million, provided that the Bank would then be in
compliance with one or more minimum capital requirements. Moreover,
federal bank regulatory authorities also have the general authority to
limit the dividends paid by insured banks if such payments may be deemed
to constitute an unsafe and sound practice.
Transactions With Affiliates. There are various regulatory
restrictions on the extent to which the Registrant and its non-bank
subsidiaries can borrow or otherwise obtain credit from the subsidiary
bank. The Bank (and its subsidiaries) is limited in engaging in borrowing
and other "covered transactions" with non-bank or non-savings bank
affiliates to the following amounts: (i) in the case of any such
affiliate, the aggregate amount of covered transactions of the subsidiary
bank and its subsidiaries may not exceed 10% of the capital stock and
surplus of such subsidiary bank; and (ii) in the case of all affiliates,
the aggregate amount of covered transactions of the subsidiary bank and
its subsidiaries may not exceed 20% of the capital stock and surplus of
such subsidiary bank. "Covered transactions" are defined by statute to
include a loan or extension of credit, as well as a purchase of securities
issued by an affiliate, a purchase of assets (unless otherwise exempted by
the Federal Reserve), the acceptance of securities issued by the affiliate
as collateral for a loan and the issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Covered transactions are also
subject to certain collateralization requirements. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-
in arrangements in connection with any extension of credit, lease, or sale
of property or furnishing of services.
Capital Adequacy. The Registrant and the Bank are required to comply
with the capital adequacy standards established by the Federal Reserve in
the case of the Registrant, and the OCC in the case of the subsidiary
bank. There are two basic measures of capital adequacy for bank holding
companies that have been promulgated by the Federal Reserve: a risk-based
measure and a leverage measure. All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among
banks and bank holding companies, to account for off-balance sheet
exposure, and to minimize disincentives for holding liquid assets. Assets
and off-balance sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance sheet items.
As to the holding company, the Registrant, the minimum guideline for
the ratio of total capital ("Total Capital") to risk-weighted assets
(including certain off-balance-sheet items, such as standby letters of
credit) is 8.0%. At least half of the Total Capital must be composed of
common stock, minority interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less goodwill and certain
other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan
loss reserves. At December 31, 1996, the Registrant's consolidated Tier 1
Capital and Total Capital ratios were 13.7% and 14.9%, respectively.
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for
a minimum ratio of Tier 1 Capital to average assets, less goodwill and
certain other intangible assets (the "leverage ratio"), of 3.0% for bank
holding companies that meet certain specified criteria, including having
the highest regulatory rating. All other bank holding companies generally
are required to maintain a leverage ratio of at least 3.0% plus an
additional cushion of 100 to 200 basis points. The Registrant's leverage
ratio at December 31, 1996 was 9.2%. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will
consider a banking institutions "tangible Tier 1 Capital leverage ratio"
(deducting all intangibles) and other indications of capital strength in
evaluating proposals for expansion or new activities.
Evergreen Bank is subject to risk-based and leverage capital
requirements adopted by the OCC which substantially mirror the
requirements of the holding company. The Bank's capital ratios are
substantially similar to those of the Registrant and as such is also in
compliance with all applicable ratios.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including the termination of deposit insurance by
the FDIC, and to certain restrictions on its business. See "Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to
raise capital requirements applicable to banking organizations beyond
their current levels. In this regard, the Federal Reserve and the OCC
have, pursuant to FDICIA, adopted an amendment to the risk-based capital
standards which would calculate the change in an institution's net
economic value attributable to increases and decreases in market interest
rates and would require banks with excessive interest rate risk exposure
to hold additional amounts of capital against such exposures.
Support of Subsidiary Bank. Under Federal Reserve policy, the
Registrant is expected to act as a source of financial strength to, and to
commit resources to support, the subsidiary bank. This support may be
required at times when, absent such Federal Reserve policy, the Registrant
may not be inclined to provide it. In addition, any capital loans by a
bank holding company to the subsidiary bank are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Under the FDIA, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with: (i) the
default of a commonly controlled FDIC-insured depository institution; or
(ii) any assistance provided by the FDIC to any commonly controlled FDIC-
insured depository institution "in danger of default." The FDIC's claim
for damages is superior to claims of stockholders of the insured
depository institution or its holding company, but is subordinate to
claims of depositors, secured creditors, and holders of subordinated debt
(other than affiliates) of the commonly controlled insured depository
institution. The Bank is subject to these cross-guarantee provisions. As a
result, any loss suffered by the FDIC in respect of the Bank would likely
result in assertion of the cross-guarantee provisions superior to the
claims of the parent holding company.
Prompt Corrective Action. FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective on December 19,
1992, the federal banking regulators are required to establish five
capital categories ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized") and to take certain mandatory supervisory actions, and
are authorized to take other discretionary actions, with respect to
institutions in the three undercapitalized categories, the severity of
which will depend upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, the FDICIA requires the
banking regulator to appoint a receiver or conservator for an institution
that is critically undercapitalized. The federal banking agencies have
specified by regulation the relevant capital level for each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized, is required to submit an
acceptable capital restoration plan to its appropriate federal banking
agency. Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meet its capital restoration plan,
subject to certain limitations. The obligation of a controlling bank
holding company under FDICIA to fund a capital restoration plan is limited
to the lesser of 5.0% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements.
The severity of the actions required to be taken by the appropriate
federal banking authorities increases as an institution's capital position
deteriorates. Among other actions, the mandates could include, under
certain circumstances, requiring recapitalization of or a capital
restoration plan by a depository institution, such as requiring the sale
of new shares, a merger with (or sale to) another institution (or holding
company), restricting certain transactions with banking affiliates,
otherwise restricting transactions with bank or non-bank affiliates,
restricting interest rates that the institution pays on deposits,
restricting asset growth or reducing total assets, altering, reducing, or
terminating activities, holding a new election of directors, dismissing
any director or senior executive officer who held office for more than 180
days immediately before the institution became undercapitalized, employing
qualified senior executive officers, or ceasing to accept deposits from
correspondent depository institutions.
Not later than 90 days after an institution becomes critically
undercapitalized, the appropriate federal banking agency for the
institution must appoint a receiver or, with the concurrence of the FDIC,
a conservator, unless the agency, with the concurrence of the FDIC,
determines that the purpose of the prompt corrective action provisions
would be better served by another course of action. Thereafter, an
institution's regulator must periodically reassess its determination to
permit a particular critically undercapitalized institution to continue to
operate and must appoint a conservator or receiver for the institution at
the end of an approximately one year period following the institution's
initial classification as critically undercapitalized unless a number of
stringent conditions are met, including a determination by the regulator
and the FDIC that the institution has positive net worth and a
certification by such agencies that the institution is viable and not
expected to fail.
At December 31, 1996, Evergreen Bank had the requisite capital levels
to qualify as well capitalized.
Brokered Deposits. The FDIC has adopted regulations governing the
receipt of brokered deposits. Under the regulations, a depository
institution cannot accept, rollover, or renew brokered deposits unless (i)
it is well capitalized or (ii) it is adequately capitalized and receives a
waiver from the FDIC. A depository institution that cannot receive
brokered deposits also cannot offer "pass-through" insurance on certain
employee benefit accounts. Whether or not it has obtained such a waiver,
an adequately capitalized depository institution may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing
market rates specified by regulation. There are no such restrictions on a
depository institution that is well capitalized. Since Evergreen Bank had
the requisite capital levels to qualify as well capitalized as of December
31, 1996, the Registrant believes the brokered deposits regulation has had
no material effect on the funding or liquidity of Evergreen Bank.
FDIC Insurance. Under the FDIC's risk related insurance assessment
system, insured depository institutions maybe required to pay annual
assessments to the FDIC. An institution's risk classification is based on
assignment of the institution by the FDIC to one of three capital groups
and to one of three supervisory subgroups. The three supervisory subgroups
are group "A", financially solid institutions with only a few minor
weaknesses, Group "B", institutions with weaknesses which, if uncorrected,
could cause substantial deterioration of the institution and increased
risk to the insurance fund and Group "C", institutions with a substantial
probability of loss to the fund absent effective corrective action. The
three capital categories are well capitalized; adequately capitalized; and
undercapitalized. These three categories are substantially the as the
prompt corrective action categories previously described, with the
undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes.
As of May 31, 1995 the FDIC was able to determine that the Bank
Insurance Fund ("BIF") obtained the desired reserve ratio (i.e., ratio of
reserves to insured deposits) of 1.25%. As a result, FDIC insurance
premiums were reduced in early 1996 to the point where Evergreen was
required to pay only the minimum of $500 per quarter. On September 30
1996, legislation was passed recapitalizing the Savings Association
Insurance Fund. Included in that legislation were provisions requiring
members of the BIF to assist in the repayment of FICO bonds. The cost to
Evergreen mandated by this legislation is anticipated to be at least
$100,000 in 1997.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or
has violated any applicable law, regulation, rule, order, or condition
imposed by the FDIC.
Safety and Soundness Standards. Federal banking agencies promulgate
safety and soundness standards relating to internal controls, information
systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees,
and benefits. With respect to internal controls, information systems, and
internal audit systems, the standards describe the functions that adequate
internal controls and information systems must be able to perform,
including: (i) monitoring adherence to prescribed policies; (ii) effective
risk management; (iii) timely and accurate financial, operational, and
regulatory reporting; (iv) safeguarding and managing assets; and (v)
compliance with applicable laws and regulations. The standards also
include requirements that: (i) those performing internal audits be
qualified and independent; (ii) internal controls and information systems
be tested and reviewed; (iii) corrective actions be adequately documented;
and (iv) that results of an audit be made available for review of
management actions.
Depositor Preference. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an
institution by any receiver.
Legislative Proposals. Because of concerns relating to the
competitiveness and the safety and soundness of the industry, Congress
continues to consider a number of wide-ranging proposals for altering the
structure, regulation, and competitive relationships of the nation's
financial institutions. Among such bills are proposals to prohibit
depository institutions and bank holding companies from conducting certain
types of activities, to subject depository institutions to increased
disclosure and reporting requirements, to alter the statutory separation
of commercial and investment banking, and to further expand the powers of
depository institutions, bank holding companies, and competitors of
depository institutions. It cannot be predicted whether or in what form
any of these proposals will be adopted or the extent to which the business
of the Registrant may be affected thereby.
NON-BANKING ACTIVITIES
The Bank does not currently generate any significant revenues from
non-banking activities, but it may subsequently engage in other
permissible activities for registered bank holding companies when suitable
opportunities develop. Any proposal for such further activities subject to
approval by appropriate regulatory authorities. See "Supervision and
Regulation".
EMPLOYEES
As of year-end 1996, Evergreen and its affiliates had a total of 398
employees on a full time equivalent basis. Evergreen considers its
employee relations to be good.
FOREIGN OPERATIONS
Neither Evergreen nor Evergreen Bank engages in material operations
in foreign countries or have any outstanding loans to foreign investors.
The subsidiary bank maintains immaterial Canadian and other foreign bank
accounts and currency levels for use in the ordinary course of business.
STATISTICAL INFORMATION AND ANALYSIS
The material under the heading "Financial Review" in the 1996 Annual
Report is incorporated herein by reference as a presentation and
discussion of statistical data relating to Evergreen. The information with
respect to such tables should not be construed to imply any conclusions on
the part of the management of Evergreen that the results, causes, or
trends indicated therein will continue in the future. The nature and
effects of governmental monetary policy, supervision and regulation,
future legislation, inflation and other economic conditions and many other
factors which affect interest rates, investments, loans, deposits and
other aspects of Evergreen's operations are extremely complex and thus
historical operations, earnings, assets, and liabilities are not
necessarily indicative of future performance. See "Government Monetary
Policy".
STATISTICAL DISCLOSURE REQUIRED BY BANK HOLDING COMPANIES
I. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest rates and Interest Differential
The information set forth on pages 15 through 17 of Registrant's 1996
Annual Report is incorporated herein by reference.
II. Investment Portfolio
The information set forth on page 20 of Registrant's 1996 Annual
Report is incorporated herein by reference.
III. Loan Portfolio
The information set forth on pages 21 Registrant's 1996 Annual Report
is incorporated herein by reference.
Non-Performing Loans
The information set forth on page 21 through 22 of Registrant's 1996
Annual Report is incorporated herein by reference.
IV. Summary of Loan Loss Experiences
The information set forth on page 18 of Registrant's 1996 Annual
Report is incorporated herein by reference.
V. Deposits
The information set forth on page 24 of Registrant's 1996 Annual
Report is incorporated herein by reference.
VI. Return on Equity and Assets
The information set forth on page 13 of Registrant's 1996 Annual
Report is incorporated herein by reference.
ITEM 2. Properties
Registrant
Registrant has six physical properties, which do not represent
significant holdings. The office facilities of the Registrant are located
at 237 Glen Street, Glens Falls, New York in a building owned by Evergreen
Bank, N.A.
Evergreen Bank, N.A.
Evergreen Bank, N.A.'s main offices are also at 237 Glen Street,
Glens Falls, New York. Evergreen Bank owns in fee the buildings where 20
of the Bank's offices are located. In addition, two offices are leased at
the rate of $2,045 per month through October 31, 1997, and two properties
are owned by the Registrant and leased to the Bank.
Item 3. Legal Proceedings
Evergreen is not presently involved in any material legal
proceedings. The Bank is involved in a number of ordinary and routine
legal proceedings which typically present, as one or more defenses by the
borrower in a collection action, assertions of lender liability on the
part of the Bank. In the aggregate, the Bank's legal proceedings involve
claims which are not believed to be material to the financial condition of
the Bank.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to security holders during the fourth
quarter of 1996.
Identification of Executive Officers
(pursuant to General Instruction G of Form 10-K)
Executive Officers of the Registrant
The following table sets forth certain information with respect
to the executive officers of Registrant:
<TABLE>
<CAPTION>
Officers with Executive
Name Age Registrant or Bank Subsidiary Officer Since
<S> <C> <C> <C>
George W. Dougan 57 President and Chief 1994
Executive Officer of Evergreen
Paul A. Cardinal 40 Executive Vice President 1995
and General Counsel of Evergreen
Thomas C. Crowley 50 Executive Vice President 1994
Chief Credit Officer of Evergreen
Anthony J. Koenig 58 Executive Vice President 1986
and Chief Administrative
Officer of Evergreen
George L. Fredette 37 Senior Vice President 1995
Chief Financial Officer
of Evergreen
Michael P. Brassel 55 Regional President 1981
Plattsburgh Region
Jeffrey B. Rivenburg 49 Regional President 1994
Capital Region
John M. Fullerton 47 Executive Vice President 1988
of Trust and Investment of
Evergreen Bank
</TABLE>
None of the individuals named in the above table as an officer of
Registrant was selected to his/her position pursuant to any arrangement or
understanding with any other person, nor are there any family
relationships between them. Each of the above officers, except as noted
below, has held the same or another executive position with Registrant,
Evergreen Bank for the past five years.
George W. Dougan was elected President and Chief Executive Officer of
Evergreen and the Bank on March 10, 1994. Prior thereto he was Chairman of
the Board for the Bank of Boston (Florida Division) from June 1992 and
Senior Vice President and Director of Retail Banking, for the Bank of
Boston, from June 1988 to June 1992.
Paul A. Cardinal was elected Executive Vice President of Evergreen
and the Bank in May 1995. For more than five years prior thereto he was
General Counsel of Trans World Entertainment Corporation.
Thomas C. Crowley was elected Executive Vice President and Chief
Credit Officer of Evergreen and the Bank in May 1994. Prior thereto, he
served as Senior Vice President for Trustco Bank New York from 1993 to
1994. Prior to 1993 he served as Executive Vice President and Chief Credit
Officer for Fleet Bank of New York.
Anthony J. Koenig was elected Executive Vice President and Chief
Administrative Officer of Evergreen and the Bank in August 1993. He also
served as Regional President of the Capital Region from January 1986 to
January 1994.
George L. Fredette was elected Senior Vice President Finance of
Evergreen and the Bank, in November 1995. Prior thereto he was Vice
President Finance for the Bank. Prior to joining Evergreen in 1993 he was
Vice President and Chief Financial Officer of Schenectady Federal Savings
and Loan Association.
Michael P. Brassel was elected Regional President of the Bank's
Plattsburgh Region in January 1990. Prior thereto he served as Executive
Vice President and Cashier for Evergreen and the Bank since December,
1987.
Jeffrey B. Rivenburg was elected as Regional President of the Bank's
Capital Region October 1995. Prior thereto he was Executive Vice President
Corporate Banking Services of Evergreen Bank since August 1993 and was
Manager of Special Assets for Evergreen Bank from April 1993. Prior to
joining Evergreen he was Corporate Banking Department Manager for First
American Bank of New York.
John M. Fullerton was elected Executive Vice President of Trust and
Investments at Evergreen Bank in October 1993. Prior thereto he was
Executive Vice President of Retail Banking Services at Evergreen Bank from
June 1992 and Senior Vice President of Trust and Investment at Evergreen
Bank prior thereto.
Mr. Dougan is a director of Trans World Entertainment Corporation, a
publicly traded specialty retailer traded on the NASDAQ National Market
System. None of the other individuals named above holds a directorship
with a company (except for the Registrant) registered pursuant to Section
12 of the Securities Exchange Act, or subject to the requirements of
Section 15(d) of that Act, or with a company which is registered as an
Investment Company under the Investment Company Act of 1940.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information set forth on page 2 under caption "Common Stock
Data" of the Registrant's 1996 Annual Report to stockholders is
incorporated herein by reference.
ITEM 6. Selected Financial Data
The information set forth on page 13 under the caption "Summary
of Selected Financial Data" of the Registrant's 1996 Annual
Report is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operation
The information set forth on pages 14 through 25 of Registrant's
1996 Annual Report is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information set forth on pages 26 through 46 of Registrant's
1996 Annual Report is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information included under "Proposal One -- Election of
Directors" in the Registrant's Proxy Statement for its 1997
Annual Meeting of Stockholders, and under "Executive Officers of
the Registrant" in Part I of this report, is hereby incorporated
by reference.
ITEM 11. Executive Compensation
The information included under "Proposal One -- Election of
Directors" in the Registrant's Proxy Statement for its 1997
Annual Meeting of Stockholders, is hereby incorporated by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information included under "Proposal One -- Election of
Directors" in the Registrant's Proxy Statement for its 1997
Annual Meeting of Stockholders, is hereby incorporated by
reference.
ITEM 13. Certain Relationships and Related Transactions
The information included under "Proposal One -- Election of
Directors -- Certain Transactions" in the Registrant's Proxy
Statement for its 1997 Annual Meeting of Stockholders, is hereby
incorporated by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following consolidated financial statements of Registrant and
its subsidiaries, and the accountants' report thereon, included
on pages 26 through 46, inclusive, of Registrant's Annual Report
to Stockholders for the fiscal year ended December 31, 1996, are
incorporated herein by reference:
Financial Statements:
Consolidated Statements of Income -- Years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Condition -- December 31, 1996 and
1995
Consolidated Statements of Changes in Stockholders' Equity --
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules
(All financial statement schedules for Registrant and its
subsidiaries have been omitted as the required information is
included in the consolidated financial statements or the related
notes thereto, is not required or is inapplicable.)
The following exhibits are incorporated herein by reference:
Exhibit 3(a) - Certificate of Incorporation (incorporated
by reference to Registrant's Registration
Statement on Form S-14, Registration
No. 2-71111).
Exhibit 3(b) - Bylaws (incorporated by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
Exhibit 10(a)* - 1985 Incentive Stock Option Plan of the
Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993).
Exhibit 10(b)* - 1989 Stock Incentive Plan of the Registrant
(incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
Exhibit 10(c)* - Deferred Compensation Plan (incorporated
by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1993).
Exhibit 10(d)* - Evergreen Bancorp, Inc. Plan for the Payment
and Deferral of Directors Fees (incorporated
by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1993).
Exhibit 10(e)* - 1995 Incentive Stock Option Plan of the
Registrant(incorporated by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
Exhibit 10(f)* - 1995 Directors Stock Option Plan of the
Registrant(incorporated by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
Exhibit 10(g)* - Form of Change in Control Agreement
(incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
Exhibit 10(h)* - Severance Agreement, dated April 18, 1995,
with Paul A. Cardinal (incorporated by
reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December
31, 1995).
The following exhibits are submitted herewith:
Exhibit 10(I)* - Employment Agreement dated as of December
19, 1996, between Registrant and George W.
Dougan
Exhibit 10(j)* - Supplemental Executive Retirement Plan
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 13 - Registrant's Annual Report to Stockholders
for the year ended December 31, 1996
Exhibit 21 - Subsidiaries of Registrant
Exhibit 23 - Consent of KPMG Peat Marwick to the use of
its Report on the Consolidated Financial
Statements of Registrant included in
connection with previously filed
registration statements of the Registrant.
Exhibit 27 - Financial Data Schedule
* Represents a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report
pursuant to Item 14(c) of this report.
The Registrant hereby agrees to furnish the Securities and Exchange
Commission upon request, copies of instruments outstanding, including
indentures, which define the rights of long-term debt security holders.
No reports on Form 8-K were filed for the three months ended December 31,
1996.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EVERGREEN BANCORP, INC.
(Registrant)
By: /s/ George W. Dougan
GEORGE W. DOUGAN
President and Chief Executive Officer
(Principal Executive Officer)
March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Titles Dates
<S> <C> <C>
/s/ George W. Dougan Chairman of the Board 3/21/97
George W. Dougan of Directors
/s/ George L. Fredette Senior Vice President 3/21/97
George L. Fredette (Chief Financial and
Accounting Officer)
/s/ John W. Bishop Director 3/21/97
John W. Bishop
/s/ Carl R. DeSantis Director 3/21/97
Carl R. DeSantis
/s/ Robert F. Flacke Director 3/21/97
Robert F. Flacke
/s/Michael D. Ginsburg Director 3/21/97
Michael D. Ginsburg
/s/Joan M. Mannix Director 3/21/97
Joan M. Mannix
/s/Anthony J. Mashuta Director 3/21/97
Anthony J. Mashuta
/s/Philip H. Morse Director 3/21/97
Phillip H. Morse
/s/William E. Phillion Director 3/21/97
William E Philion
/s/Alan R. Rhodes Director 3/21/97
Alan R. Rhodes
/s/Floyd H. Rourke Director 3/21/97
Floyd H. Rourke
/s/Paul W. Tomlinson Director 3/21/97
Paul W. Tomlinson
/s/ Walter Urda Director 3/21/97
Walter Urda
</TABLE>
Exhibit 10 (i)
EMPLOYMENT AGREEMENT
By and Between
EVERGREEN BANCORP, INC.
and
GEORGE W. DOUGAN
TABLE OF CONTENTS
Page
BACKGROUND 2
1. Employment and Duties 2
2. Term 3
3. Extent of Service 3
4. Compensation 5
a. Base Compensation 5
b. Stock Options 6
5. Executive Benefits 7
6. Automobile Allowance 8
7. Termination by the Company 8
a. Death or Disability 8
b. Termination for Cause 9
c. Termination by Notice 10
8. Termination by the Executive 11
a. Termination with Good Reason 11
b. Termination without Good Reason 12
9. Effect of Termination 12
10. Covenant Not to Compete 13
a. Covenant 13
b. Change of Control 13
c. Injunctive Relief 13
d. Enforceability of Covenant 14
11. Covenant Not to Solicit 14
a. Special Value of Executive's Services 14
b. Non-Solicitation of Customers 15
c. Change of Control 15
d. Injunctive Relief 15
e. Enforceability of Covenant 16
12. Nondisclosure of Confidential Information 16
a. Confidential Information Defined 16
b. Nondisclosure of Confidential Information 16
c. Injunctive Relief 17
d. Enforceability of Covenants 17
13. Change in Control 17
a. Applicability 17
b. Definitions 18
c. Benefits upon Termination of Employment
Following a Change in Control 23
i. Termination 23
ii. Benefits to be Provided 24
A. Salary 24
B. Bonuses 25
C. Health and Life Insurance Coverage 25
D. Executive Retirement Plans 26
E. Effect of Lump Sum Payment 26
F. Effect of Death or Retirement 27
G. Limitation on Amount 27
H. Modification of Amount 28
I. Avoidance of Penalty Taxes 28
J. Additional Limitation 28
K. Rabbi Trust 28
14. Regulatory Intervention 29
15. Indemnification 31
16. Litigation Expenses 32
17. Miscellaneous 32
a. Waiver 32
b. Severability 33
c. Assignability 33
d. Other Agents 33
e. Entire Agreement 33
f. Governing Law 34
g. Notices 34
h. Amendments and Modifications 34
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated December 19, 1996,
becoming effective on the 7th day of March, 1997, is made by and between
EVERGREEN BANCORP, INC. (hereinafter the "Company" and GEORGE W. DOUGAN
(hereinafter "Executive"):
W I T N E S S E T H:
WHEREAS, Company and Executive entered into an Employment Agreement
the 7th day of February, 1994 which Agreement remains in full force and
effect and which Agreement has a term of 3 years and has a normal
expiration date of March 6, 1997, and
WHEREAS, Company has been eminently satisfied with the services of
Executive and,
WHEREAS, are willing to enter into a new Employment Agreement to
become effective the 7th day of March, 1997 under the terms and conditions
set forth below,
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereby mutually
agree as follows:
BACKGROUND
Executive has indicated to the Company that he desires to enter into
a new Employment Agreement with the Company that spells out the terms and
conditions of his employment with the Company. The Company considers the
establishment and maintenance of sound and vital management with a Chief
Executive Officer to be essential to protecting and enhancing the best
interests of the Company and its shareholders and accordingly, believes
that appropriate steps should be taken to avoid distraction in
circumstances arising from the possibility of a change in control of the
Company. Therefore, the Company is willing to engage Executive and
Executive is willing to serve the Company in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. Employment and Duties. Executive will be employed as President
and Chief Executive Officer of the Company. Executive's primary duties
shall be those of President and Chief Executive Officer and such duties as
may be assigned to him from time to time by the Board of Directors of the
Company.
2. Term. The term of this Agreement shall commence on March 7,
1997, and shall continue until March 6, 2000, (the Original Term) unless
earlier terminated as provided in Sections 7 or 8 of this Agreement.
Provided that this Agreement shall be in full force and effect on
March 7, 1999, without breach by Executive, this Agreement shall (without
the need of any other signed writing) be extended for a period of one
additional year, i.e., until March 6, 2001; and each March 7th after March
7, 1999, with the same proviso, this Agreement shall be similarly extended
for a period of one additional year, unless either party gives written
notice to the other no later than December 1 of the preceding year that
the giver of notice does not elect to extend the term. No further
extensions shall occur to extend this contact beyond the year in which
Executive attains the age of 65, to wit: 2004.
3. Extent of Service. (a) During the term of this Agreement,
Executive agrees to be a full-time executive officer of the Company and to
devote his time, energy, and skill to the business of the Company and to
the fulfillment of his obligations under this Agreement. During the term
of this Agreement, Executive shall not engage in, or otherwise be
interested in, directly or indirectly, any other business or activity that
is in competition with the Company or that would result in a conflict of
interest with the Company (unless such activity is approved by the Board
of Directors), or that would materially affect Executive's ability to
perform his duties as set forth in or contemplated by this Agreement.
Executive's responsibilities for managing the Company shall be in
accordance with the policies and objectives established by the Board of
Directors, or in such other capacity involving duties and responsibilities
at least equal in importance to those of a chief executive officer as the
Board of Directors may from time to time determine. In any such capacity,
Executive will report directly to the Company's Board of Directors.
Executive will have the authorities, powers, functions, duties and
responsibilities normally accorded to chief executive officers of
comparable size bank holding companies.
(b) Notwithstanding anything to the contrary contained in the
provisions of Subsection 3(a) hereof, nothing in this Agreement shall
preclude Executive from; (i) devoting reasonable periods of time to
charitable and community activities, and from managing his personal or
family investments, and (ii) serving on the Board of Directors of For-
Profit or Not-For-Profit corporations or other forms of such entities,
provided that the same does not result in a conflict of interest with the
Company (unless such activity is approved by the Board of Directors),
would conflict with any law, regulation or advice from examiners having
jurisdiction over the Company's business, or would materially affect
Executive's ability to perform his duties as set forth in or contemplated
by this Agreement.
(c) The members of the Board of Directors of the Company shall
nominate and use their best efforts to secure the election of Executive as
a director of the Company.
(d) Executive shall not be required to perform his duties hereunder
for more than sixty (60) working days in any calendar year, or for more
than fourteen (14) consecutive days at any one time, at any office located
in any other place than Glens Falls, New York.
4. Compensation.
(a) Base Compensation. During the term of this Agreement, the
Company agrees to pay Executive an annual base compensation of Three
Hundred Seventeen Thousand Five Hundred Dollars ($317,500) (the "Base
Compensation"), that sum being Executive's Base Compensation for the year
1996, less normal withholdings, payable in equal monthly or more frequent
installments as are customary under the Company's payroll practices from
time to time. The Company's Board of Directors shall review Executive's
Base Compensation annually and in its sole discretion may adjust
Executive's Base Compensation from year to year, but during the term of
this Agreement the Board may not decrease Executive's Base Compensation
below $317,500, Executive's Base Compensation for the year 1996, and
periodic increases, once granted, shall not be subject to revocation
during the term of this Agreement. The annual review of Executive's salary
by the Board will consider, among other things, changes in the cost of
living, Executive's own performance and the Company's performance. Any
action or review by the Board may be delegated to the Compensation
Committee thereof.
(b) Stock Options. (i) Under the terms of the Employment Agreement
of February 7, 1994 and as further compensation for the services of
Executive hereunder, and provided Executive shall still be employed by the
Company, the Company granted to Executive nonqualified stock options on
the dates and upon the terms indicated below.
<TABLE>
<CAPTION>
<S> <C> <C>
Dates of Number of Dates
Grant Options Exercisable
March 8, 1997 20,000 100% on March 7, 1998
March 8, 1998 20,000 100% on March 7, 1999
</TABLE>
(ii) The Company has caused 40,000 shares to be available for the 1997 and
1998 option grants indicated above. (Note: The 1994 Agreement provided for
two 10,000 share options to be granted on March 8, 1997 and March 8, 1998
respectively. The Board of Directors authorized a 100% stock dividend in
late 1996 and that action necessitated adjusting the number of share
options as reflected above.)
(iii) Each option to purchase shares of the Company's common stock granted
to Executive as described in Subsection 4(b) hereof shall contain the
following provision, to the extent permitted under the 1995 Plan:
In the event that the Executive's employment with the Company is
terminated pursuant to paragraph 7(c) of this Employment Agreement
dated as of March 7, 1997, between the Executive and the Company (the
"Employment Agreement"), then this Option shall immediately become
exercisable in full.
5. Executive Benefits. During the term of this Agreement, Executive
shall be entitled to participate in all executive benefit plans including,
but not limited to, the Company's Annual Short Term and Long Term
Executive Incentive Plans, and to receive all of the fringe benefits which
are generally available or provided to executive officers of the Company,
which benefits shall include, for Executive, but not limited to, six weeks
vacation in each calendar year, an office and a secretary.
6. Automobile Allowance. During the term of this Agreement, the
Company will assume the lease payments currently being paid by Executive
on the Acura Legend which he now drives. Upon expiration of such lease,
the Company will for the remainder of the term of this Agreement, if any,
provide Executive with an automobile allowance sufficient to cover the
lease or purchase payments in an amount of not more than $850 per month.
Company will procure and maintain liability, collision and comprehensive
insurance on such vehicle providing coverage equal to or better than as
exists currently.
7. Termination by the Company.
(a) Death or Disability. In the event of Executive's death or
disability (as defined below), this Agreement shall terminate immediately
and the Company shall be obligated only to pay compensation or other
benefits actually earned or accrued through such date, without prejudice
to any other rights or benefits that Executive is entitled to as a
consequence thereof. "Disability" means Executive's probable and expected
inability as a result of physical or mental incapacity to substantially
perform his duties for the Company on a full-time basis for a period of
six (6) months. The determination of whether Executive suffers a
Disability shall be made by a physician acceptable to both Executive (or
his personal representative) and the Company.
(b) Termination for Cause. The Company may terminate this Agreement
and Executive's employment hereunder immediately for (i) any intentional
acts or conduct by Executive involving moral turpitude; (ii) any gross
negligence by Executive in complying with the terms of this Agreement or
in performing his duties for the Company; (iii) any intentional act of
dishonesty in the performance of his duties for the Company; (iv)
deliberate and intentional refusal by Executive during the term of this
Agreement, other than by reason of incapacity due to illness or accident,
to obey lawful directives from the Board of Directors, or if Executive
shall have breached any obligation under this Agreement and such breach of
this Agreement shall result in a demonstrable, material injury to the
Company, and Executive shall have failed to remedy such alleged breach
within thirty (30) days from his receipt of written notice from the
Secretary of the Company demanding that he remedy such alleged breach. For
any claimed violation of this Subsection 7(b) there shall be delivered to
Executive a certified copy of a resolution of the Board of Directors of
the Company adopted by the affirmative vote of not less than that number
of directors equal to two-thirds of the entire membership, whether or not
present, at a meeting called and held for that purpose and at which
Executive was given an opportunity to be heard, finding that Executive was
responsible for the conduct set forth above. In the event of a termination
pursuant to this Subsection 7(b), Executive will not be entitled to any
further benefits or compensation under this Agreement except for
compensation or benefits actually earned or accrued through the date of
termination.
(c) Termination by Notice. The Company shall have the additional
right to terminate this Agreement and Executive's employment without cause
by giving Executive written notice of termination. Such termination will
be effective immediately upon receipt of notice by Executive or on such
other date as is stated in the notice. In the event of a termination
pursuant to this Subsection 7(c), Executive will be entitled only to (i)
continuation of his Base Compensation under this Agreement for the
remainder of the original (or any extended) term of this Agreement with a
minimum period of eighteen (18) months severance benefit equal to (x)
Executive's level of Base Compensation at the time of dismissal and (y)
the continuation of related health, pension and other fringe benefits for
a period of eighteen (18) months following termination. The Company's
obligation under the provision in the preceding sentence shall not
duplicate any payments otherwise required by Subsection 7(c).
8. Termination by the Executive.
(a) Termination With Good Reason. Executive may terminate his
employment if he determines, in good faith, that there has been a
significant reduction in the authorities, powers, functions, duties or
responsibilities assigned to him pursuant to Section 3, or because of any
other material breach by the Company of the terms hereof. In the event of
any such alleged breach, Executive shall specify by written notice, within
a reasonable time not to exceed, except in the case of a continuing
breach, thirty (30) days after the event giving rise to the notice, to the
Company of the breach relied on for such termination. The Company shall
have thirty (30) days from the receipt of such notice to cure such alleged
breach. If Executive remains unsatisfied that the action taken by the
Company cures the alleged breach the matter shall be determined by binding
arbitration through an arbitrator approved by the American Arbitration
Association or other arbitrator mutually acceptable to the parties. If the
arbitrator determines that there was a breach and that it was not
adequately cured within the time permitted, then Executive's employment
hereunder shall be deemed terminated upon written notice to that effect
given to the Company by Executive, and Executive shall thereupon be
entitled to the benefits and remedies specified in Subsection 7(c) of this
Agreement.
(b) Termination Without Good Reason. In addition, Executive may
terminate his employment without good reason at any time by giving thirty
(30) days notice in writing. At the end of such notice period the Company
will not owe Executive any compensation or benefits except as required by
law or pursuant to the terms of Company's benefit plans applicable to all
of Company's regular employees.
9. Effect of Termination. Notwithstanding any other provision of
this Agreement, Executive agrees that upon termination of this Agreement
pursuant to Section 7 hereof, he shall continue to be bound by the terms
of Sections 10, 11 and 12 hereof.
10. Covenant Not to Compete. (a) Covenant. For a period of two (2)
years following the expiration or termination of this Agreement for any
reason, Executive shall not serve as an executive officer or director of a
depository financial institution (including any holding company thereof)
that is not an affiliate of the Company and that is located or has an
office within a 50-mile radius of Glens Falls, New York.
(b) Change of Control. The Covenant Not to Compete shall not be
enforceable against the Executive in the event that either the Executive
is terminated by the Company, other than for Cause, following a Change in
Control or the Executive terminates his employment pursuant to Involuntary
Termination following a Change in Control, all as provided or defined in
Section 13 hereof.
(c) Injunctive Relief. Executive acknowledges that through his
employment with the Company he has and will have access to valuable
confidential information of the Company as well as the opportunity to
build good will among the Company's customer base and those of its
subsidiary banks. Executive acknowledges that the covenant not to compete
is a reasonable means of protecting and preserving the Company's
investment in Executive, its confidential information and customer good
will. Executive agrees that any breach of this covenant may result in
irreparable damage and injury to the Company, and that the Company will be
entitled to injunctive relief in any court of competent jurisdiction
without the necessity of posting any bond.
(d) Enforceability of Covenant. Executive and the Company agree that
Executive's obligations under the covenant not to compete is separate and
distinct from other provisions of this Agreement, and the failure or
alleged failure of the Company to perform its obligations under any other
provisions of this Agreement shall not constitute a defense to the
enforceability of this covenant not to compete.
11. Covenant Not to Solicit.
(a) Special Value of Executive's Services. The parties acknowledge:
(i) that the Company is engaged in the business of banking throughout the
northern part of the State of New York; (ii) that Executive's services
under this Agreement require special expertise and talent in the area of
management in the aforementioned business, (iii) that such expertise has
been built up over the years; (iv) that Executive has been well
compensated and will continue to be well compensated under this Agreement
for the expertise and knowledge which he possesses; and (v) that due to
Executive's special experience and talent, the loss of Executive's
services to the Company under this Agreement cannot be reasonably or
adequately compensated by damages in an action at law.
(b) Non-Solicitation of Customers. For a period of two (2) years
following the expiration or termination of this Agreement for any reason,
Executive shall not attempt to solicit or accept, directly or by assisting
others, any business from the customers or prospective customers of the
Company [or its subsidiary banks] whom Executive has served or solicited
on behalf of the Company during the course of his employment hereunder.
(c) Change of Control. The Covenant Not to Solicit shall not be
enforceable against the Executive in the event that either the Executive
is terminated by the Company, other than for Cause, following a Change in
Control or the Executive terminates his employment pursuant to Involuntary
Termination following a Change in Control, all as provided or defined in
Section 13 hereof.
(d) Injunctive Relief. Executive acknowledges that the covenant not
to solicit is a reasonable means of protecting and preserving the
Company's investment in Executive. Executive agrees that any breach of
this covenant may result in irreparable damage and injury to the Company,
and that the Company will be entitled to injunctive relief in any court of
competent jurisdiction without the necessity of posting any bond.
(e) Enforceability of Covenant. Executive and the Company agree that
Executive's obligations under the covenant not to solicit is separate and
distinct from other provisions of this Agreement, and the failure or
alleged failure of the Company to perform its obligations under any other
provisions of this Agreement shall not constitute a defense to the
enforceability of this covenant not to solicit.
12. Nondisclosure of Confidential Information.
(a) Confidential Information Defined. As used in this Agreement, the
term "Confidential Information" shall mean all information that is not
generally disclosed or known to persons not employed by the Company, and
shall include, without limitation, any customer lists or customer account
information of the Company and any non-public matters concerning the
financial affairs and management of the Company.
(b) Nondisclosure of Confidential Information. Throughout the term
of this Agreement and any renewal periods hereunder, and for a period of
two (2) years following the expiration or termination of this Agreement,
Executive shall not, either directly or indirectly, transmit or disclose
any Confidential Information to any person, concern or entity.
(c) Injunctive Relief. Executive acknowledges that the nondisclosure
covenant is a reasonable means of protecting and preserving the Company's
interests in the confidentiality of the Confidential Information.
Executive agrees that any breach of such covenant may result in
irreparable damage and injury to the Company and that the Company will be
entitled to injunctive relief in any court of competent jurisdiction
without the necessity of posting any bond.
(d) Enforceability of Covenants. Executive and the Company agree
that Executive's obligations under the nondisclosure covenant is separate
and distinct from other provisions of this Agreement, and the failure or
alleged failure of the Company to perform its obligations under any
provisions of this Agreement shall not constitute a defense to the
enforceability of the nondisclosure covenant.
13. Change in Control.
(a) Applicability. The provisions of this Section 13 shall be
effective immediately upon execution of this Agreement, but anything in
this Agreement to the contrary notwithstanding, the provisions of this
Section 13 shall not be operative unless, during the term of this
Agreement, there has been a Change in Control of the Company, as defined
in Subsection 13(b) below. Upon such a Change in Control of the Company
during the term of this Agreement, all of the provisions of this Section
13 shall become operative immediately.
(b) Definitions. "Board" or "Board of Directors" means the Board of
Directors of the Company.
"Cause" means, for purposes of this Section 13 only, either
(i) any act that constitutes, on the part of Executive, (A) fraud,
dishonesty, a felony or gross malfeasance of duty, and (B) that directly
results in a demonstrable, material injury to the Company; or
(ii) conduct by Executive in his office with the Company that is
grossly inappropriate and demonstrably likely the lead to a demonstrable,
material injury to the Company, as determined by the affirmative vote of
not less than that number of directors equal to two thirds of the entire
membership of the Board, whether or not present, acting reasonably in good
faith; provided, however, that in the case of (ii) above, such conduct
shall not constitute Cause unless the Board shall have delivered to
Executive notice setting forth with specificity (A) the conduct deemed to
qualify as Cause, (B) reasonable action that would remedy such objection,
and (C) a reasonable time (not less than thirty (30) days) within which
Executive may take such remedial action, and Executive shall not have
taken such specified remedial action within such specified reasonable
time. It is expressly understood that Executive's attention to matters not
directly related to the business of the Company, but consistent with the
terms of this Agreement, shall not provide a basis for termination for
Cause.
"Change of Control" means: An event of the nature that:
(i) Would be required to be reported in response to Item 1(a) of the
current report on Form F-3, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (henceforth the
"Exchange Act"); or
(ii) Results in a Change in Control of the Bank within the meaning of
the Change in Bank Control Act, as amended, and the Rules and Regulations
promulgated by the Federal Deposit Insurance Company (henceforth the
"FDIC") at 12 C.F.R. Section 303.4(a) as in effect on the date hereof; or
(iii) Without limitation such a Change in Control shall be deemed to
have occurred at such time as:
(A) Any "person" (as the term is used in Section 13(d) and 14(d) of
the Exchange Act), or group of persons acting in concert, is or becomes
the beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly, of any class of equity securities of the Bank
representing 25% or more of a class of equity securities except for any
securities purchased by the Bank's employee stock ownership plan and
trust; or
(B) Individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Bank's shareholders was approved by the
same Committee serving under an Incumbent Board, shall be, for purposes of
this clause (B) considered as though he were a member of the Incumbent
Board; or
(C) A plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or similar transaction occurs in
which the Bank is not the resulting entity; or
(D) A proxy statement shall be distributed soliciting proxies from
stockholders of the Bank, by someone other than the current management of
the Bank, seeking stockholder approval of a plan or similar transaction
with one or more corporations as a result of which the outstanding shares
of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued
by the Bank; or
(E) A tender offer is made for 25% or more of the voting securities
of the Bank then outstanding.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation Committee" means the Human Resources and Nominating
Committee of the Board of Directors, or any successor committee.
"Disability" shall have the meaning assigned such term in Subsection
7(a) of this Agreement.
"Excess Severance Payment" shall have the same meaning as the term
"excess parachute payment" defined in Section 280G(b)(l) of the Code.
"Involuntary Termination" means termination of Executive's employment
by Executive following a Change in Control which, in the reasonable
judgment of Executive, is due to (i) a change of Executive's
responsibilities, position (including title, reporting relationships or
working conditions), authority or duties(including changes resulting from
the assignment to Executive of any duties inconsistent with his positions,
duties or responsibilities as in effect immediately prior to the Change in
Control); or (ii) a reduction in Executive's compensation or benefits as
in effect immediately prior to the Change in Control, or (iii) a forced
relocation of Executive outside the Glens Falls, New York metropolitan
area or significant increase in Executive's travel requirements.
Involuntary Termination does not include retirement (including early
retirement) within the meaning of the Company's retirement plan, or death
or Disability of Executive.
"Present Value" shall have the same meaning as provided in Section
280G(d)(4) of the Code.
"Severance Payment" shall have the same meaning as the term
"parachute payment" defined in Section 280GCb)(2) of the Code.
"Reasonable Compensation" shall have the same meaning as provided in
Section 280G(b)(4) of the Code.
(c) Benefits upon Termination of Employment Following a Change in
Control.
(i) Termination. Executive shall be entitled to, and the Company
shall pay or provide to Executive, the benefits described in Subsection
13(c)(ii) below if a Change in Control occurs during the term of this
Agreement and Executive's employment is terminated within two (2) years
following the Change in Control, either:
(A) by the Company (other than for Cause or by reason of Executive's
death or Disability) or
(B) by Executive pursuant to Involuntary Termination; provided,
however, that if:
(x) during the term of this Agreement there is a public announcement
of a proposal for a transaction that, if consummated, would constitute a
Change in Control or the Board receives and decides to explore an
expression of interest with respect to a transaction which, if
consuitunated, would lead to a Change in Control (either transaction being
referred to herein as the "Proposed Transaction"); and
(y) Executive's employment is thereafter terminated by the Company
other than for Cause or by reason of Executive's death or Disability; and
(z) the Proposed Transaction is consummated within one year after the
date of termination of Executive's employment, then, for the purposes of
this Agreement, a Change in Control shall be deemed to have occurred
during the term of this Agreement and the termination of Executive's
employment shall be deemed to have occurred within two (2) years following
a Change in Control.
(ii) Benefits to be Provided. If Executive becomes eligible for
benefits under Subsection 13(c)(i) above, the Company shall pay or provide
to Executive the benefits set forth in this Subsection 13(c)(ii).
(A) Salary. Executive will continue to receive his current Base
Compensation (subject to withholding of all applicable taxes and any
amounts referred to in (C) below) for a period of thirty-six (36) months
from his date of termination in the same manner as it was being paid as of
the date of termination; provided, however, that the salary payments
provided for hereunder shall be paid in a single lump sum payment, to be
paid not later than thirty (30) days after his termination of employment;
provided further, that the amount of such lump sum payment shall be
determined by taking the salary payments to be made and discounting them
to their Present Value. For purposes hereof, Executive's Base Compensation
shall be the highest rate in
effect during the six-month period prior to Executive's termination.
(B) Bonuses. Executive shall receive bonus payments from the Company
for the thirty-six (36) months following the month in which his employment
is terminated in an amount for each such month equal to one-twelfth of the
average of the bonuses paid to him for the two calendar years immediately
preceding the year in which such termination occurs. Any bonus amounts
that Executive had previously earned from the Company but which may not
yet have been paid as of the date of termination shall not be affected by
this provision. The bonus amounts determined herein shall be paid in a
single lump sum payment, to be paid not later than thirty (30) days after
termination of employment; provided, that the amount of such lump sum
payment shall be determined by taking the bonus payments (as of the
payment date) to be made and discounting them to their Present Value.
(C) Health and Life Insurance Coverage. The health and life
insurance benefits coverage provided to Executive at his date of
termination shall be continued at the same level and in the same manner as
if his employment had not terminated (subject to the customary changes in
such coverage's if Executive retires, reaches age 65 or similar events),
beginning on the date of such termination and ending on the date thirty-
six (36} months from the date of such termination. Any additional
coverage's Executive had at termination, including dependent coverage,
will also continued for such period at the same level and on the same
terms as provided to Executive immediately prior to his termination, to
the extent permitted by the applicable policies or contracts and with such
reasonable increases as applicable to other participants for the same or
similar coverage. Any costs Executive was paying for such coverage's at
the time of termination (plus reasonable increases as applicable to other
participants for the same or similar coverage) shall be paid by Executive
by separate check payable to the Company each month in advance. If the
terms of any benefit plan referred to in this Subsection do not permit
continued participation by Executive, then the Company will arrange for
other coverage, at its expense, providing substantially similar benefits
as it can find for other officers in similar position.
(D) Executive Retirement Plans. To the extent permitted by the
applicable plan, Executive will be fully vested in and will be entitled to
continue to participate, consistent with past practices, in all Executive
retirement plans, including the Supplemental Chief Executive Retirement
Plan, maintained by the Company in effect as of his date of termination.
(E) Effect of Lump Sum Payment. The lump sum payment under (A) or
(B) above shall not alter the amounts Executive is entitled to receive
under the benefit plans described in (C) and (D) above. Benefits under
such plans shall be determined as if Executive had remained employed and
received such payments over a period of thirty-six (36) months.
(F) Effect of Death or Retirement. The benefits payable or to be
provided under this Agreement shall cease in the event of Executive's
death or election to commence retirement benefits under the Company's
retirement plan.
(G) Limitation on Amount. Notwithstanding anything in this Agreement
to the contrary, any benefits payable or to be provided to Executive by
the Company or its affiliates, whether pursuant to this Agreement or
otherwise, which are treated as Severance Payments shall be modified or
reduced in the manner provided in (H) below to the extent necessary so
that the benefits payable or to be provided to Executive under this
Agreement that are treated as Severance Payments, as well as any payments
or benefits provided outside of this Agreement that are so treated, shall
not cause the Company to have paid an Excess Severance Payment. In
computing such amount, the parties shall take into account all provisions
of Internal Revenue Code Section 280G, including making appropriate
adjustments to such calculation for amounts established to be Reasonable
Compensation.
(H) Modification of Amount. In the event that the amount of any
Severance Payments that would be payable to or for the benefit of
Executive under this Agreement must be modified or reduced to comply with
this Subsection 13(c)(ii), Executive shall direct which Severance Payments
are to be modified or reduced; provided, however, that no increase in the
amount of any payment or change in the timing of the payment shall be made
without the consent of the Company.
(I) Avoidance of Penalty Taxes. This Subsection 13(c)(ii) shall be
interpreted so as to avoid the imposition of excise taxes on Executive
under Section 4999 of the Code or the disallowance of a deduction to the
Company pursuant to Section 280G(a) of the Code with respect to amounts
payable under this Agreement or otherwise.
(J) Additional Limitation. In addition to the limits otherwise
provided in this Subsection 13(c)(ii), to the extent permitted by law,
Executive may in his sole discretion elect to reduce any payments he may
be eligible to receive under this Agreement to prevent the imposition of
excise taxes on Executive under Section 4999 of the Code.
(K) Rabbi Trust. In order to fund the Company's obligations under
this Section 13, the Company agrees to create a rabbi trust (in a form
mutually acceptable to the Company and Executive) with an independent
trustee and to fund such trust prior to the effective date of a Change in
Control. Except to the extent of funds available under such rabbi trust,
the agreement of the Company (or its successor) to make payments to
Executive hereunder shall represent solely the unsecured Obligation of the
Company (and its successor).
14. Regulatory Intervention. Notwithstanding any term of this
Agreement to the contrary, this Agreement is subject to the following
terms and conditions:
(a) The Company's obligations to provide compensation or other
benefits to Executive under this Agreement may be suspended if the Company
has been served with a notice of charges by the appropriate federal
banking agency under provisions of Section 8 of the Federal Deposit
Insurance Act (12 U.S.C. 1818) directing the Company to cease making
payments required hereunder; provided, however, that
(i) The Company shall seek in good faith with its best efforts to
oppose such notice of charges as to which there are reasonable defenses;
(ii) In the event the notice of charges is dismissed or otherwise
resolved in a manner that will permit the Company to resume its
obligations to provide compensation or other benefits hereunder, the
Company shall immediately resume such payments and shall also pay
Executive the compensation withheld while the contract obligations were
suspended, except to the extent precluded by such notice; and
(iii) During the period of suspension, the vested rights of the
contracting parties shall not be affected, except to the extent precluded
by such notice.
(b) The Company's obligations to provide compensation or other
benefits to Executive under this Agreement shall be terminated to the
extent a final order has been entered by the appropriate federal banking
agency under provisions of Section 8 of the Federal Deposit Insurance Act
(12 U.S.C. 1818) directing the Company not to make the payments required
hereunder; provided, however, that the vested rights of the contracting
parties shall not be affected by such order, except to the extent
precluded by such order.
(c) The Company's obligations to provide compensation or other
benefits to Executive under this Agreement shall be terminated or limited
to the extent required by the provisions of any final regulation or order
of the Federal Deposit Insurance Corporation promulgated under Section
18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) limiting or
prohibiting any "golden parachute payment" as defined therein, but only to
the extent that the compensation or payments to be provided under this
Agreement are so prohibited or limited.
(d) Notwithstanding the foregoing, the Company shall not be required
to make any payments under this Agreement prohibited by law.
15. Indemnification. The Company will indemnify Executive (and his
legal representatives or other successors) to the fullest extent permitted
(including payment of expenses in advance of final disposition of a
proceeding) by the laws of the State of New York, as in effect at the time
of the subject act or omission, or the Restated Certificate of
Incorporation and Bylaws of the Company, as in effect at such time or on
the effective date of this Agreement, whichever affords or afforded
greater protection to Executive, and Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers, against all
costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives at the time such costs, charges and expenses are
incurred or sustained, in connection with any action, suit or proceeding
to which he (or his legal representatives or other successors) may be made
a party by reason of his being or having been a director, officer or
employee of the Company or any subsidiary, or his serving or having served
any other enterprise as a director, officer or employee at the request of
the Company.
16. Litigation Expenses. In the event of any litigation, arbitration
or other proceeding between the Company and Executive with respect to the
subject matter of this Agreement or the enforcement of his rights
hereunder, the Company shall reimburse Executive, but only if he is
substantially successful in such proceeding, for all of his reasonable
costs and expenses relating to such litigation, arbitration or other
proceeding, including, without limitation, his reasonable attorneys' fees
and expenses. In no event shall Executive be required to reimburse the
Company for any of the costs and expenses relating to such litigation,
arbitration or other proceeding.
17. Miscellaneous
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms
and conditions of this Agreement shall not be deemed a waiver or
relinquishment of any right granted in this Agreement or of the future
performance of any such term or condition or of any other term or
condition of this Agreement, unless such waiver is contained in a writing
signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part thereof,
of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability
of the remaining provisions or covenants, or any part thereof, of this
Agreement, all of which shall remain in full force and effect.
(c) Assignability. The parties acknowledge that this Agreement has
been entered into due to, among other things, the special skills of
Executive, and agree that this Agreement may not be assigned or
transferred by Executive, in whole or in part, without the prior written
consent of the Company. Any business entity succeeding to all or
substantially all of the business of the Company by purchase, merger,
consolidation, sale of assets or otherwise, shall be bound by this
Agreement.
(d) Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and
conditions as may be satisfactory to the Company.
(e) Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes any prior agreements or understandings between the parties
with respect to such subject matter.
(f) Governing Law. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with the laws of
the State of New York.
(g) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given if delivered or seven days after mailing if mailed,
first class, certified mail, postage prepaid:
To the Company: Evergreen Bancorp, Inc.
237 Glen Street
Glens Falls, New York 12801
Attention: Secretary
To Executive: Mr. George W. Dougan
237 Glen Street
Glens Falls, New York 12801
Any party may change the address to which notices, requests, demands
and other communications shall be delivered or mailed by giving notice
thereof to the other party in the same manner provided herein.
(h) Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which make
specific reference to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Employment Agreement as of the date first above written.
EVERGREEN BANCORP, INC.
By:/S/ Robert Flacke
Title:Chairman, Human Resource
and Nominating Committee
Attest:
By:/S/Anthony J. Koenig
Title:Executive Vice President
(CORPORATION SEAL)
/S/ George W. Dougan
George W. Dougan
B:1DOU-A,15
Exhibit 10 (j)
Evergreen Bancorp, Inc.
Supplemental Executive Retirement Plan
(as amended and restated)
Article 1
Purpose
The Board of Directors of Evergreen Bancorp, Inc. and its wholly
owned subsidiary, Evergreen Bank, N.A. (collectively, the "Bank"),
considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests
of the Bank and its shareholders. Accordingly, the Bank has established
this plan with the intention of attracting and retaining executives whose
skills and talents are important to the Bank's operations by providing
monthly supplemental retirement income.
Article 2
Definitions
For purposes of the Plan, the following words and phrases shall have
the following meanings unless a different meaning is plainly required by
the context. Whenever used, the masculine pronoun shall include the
feminine pronoun and the feminine pronoun shall include the masculine and
the singular shall include the plural and the plural shall include the
singular.
2.1 Accrued Benefit. The monthly retirement income benefit payable at
Normal Retirement under this Plan, in an amount determined under
Section 6.1 based on the Participant's Final Average Compensation and
the Benefit Factor of the Participant.
2.2 Actuarial Equivalent. A form of benefit differing in time, period, or
manner of payment, that replaces another and has the same value,
based on actuarial assumptions, as the benefit or amount it replaces,
shall be determined, as follows:
(a) For purposes of determining a lump sum value of any benefit
payable, the Unisex Pension 1984 Mortality Table, with the
interest rates promulgated by the Pension Benefit Guaranty
Corporation as in effect the first day of the Plan Year during
which such lump sum is to paid or such determination is to be
made, as applicable, will used.
(b) For purposes of determining the amount of any optional form of
retirement income payable other than a lump sum distribution,
1983 Group Annuity Mortality Table (1983 GAM) for males,
interest at seven and one-half percent (7.50%), will be used.
(c) If any benefit is payable before a Participant's Normal Date,
the Participant's benefit payable shall be reduced by 5/9 of 1%
for each of the first 60 months and by 5/18 of 1% for each of
the next 60 months by which commencement of benefits precedes
the Participant's Normal Retirement Date.
2.3 Affiliate.
(a) A member of a controlled group of corporations of which the Bank
is a member; or
(b) An unincorporated trade or business which is under common
control with the Bank as determined in accordance with Section
414(c) of the Code and the regulations promulgated thereunder.
For purposes hereof, a "controlled group of corporations" shall mean
a controlled group of corporations as defined in Section 1563(a) of
the Code determined without regard to Section 1563(a)4 and (e)(3)(C)
of the Code.
2.4 Administrator. The Human Resource and Nominating Committee of the
Board of Directors of the Bank, or such successor committee or
individual as they shall duly appoint to administer the Plan.
2.5 Bank. Evergreen Bancorp, Inc., together with its principal operating
subsidiary, Evergreen Bank, N.A., any successors thereto, and any
Affiliates.
2.6 Beneficiary. The person or persons designated by a Participant
pursuant to Article 8 to receive benefits under the Plan in the event
of the Participant's death.
2.7 Benefit Factor. The percentage that shall be multiplied by the Final
Average Compensation to determine a Participant's annual retirement
benefits which, for the Chief Executive Officer shall be fifty
percent (50%) and for other principal Executive Officers shall be
forty-five percent (45%).
2.8 Cause. The Bank's termination of any Participant's employment for
"Cause" shall mean only the following: (a) the commission of any
intentional acts or conduct by the Participant involving moral
turpitude; (b) the gross negligence by the Participant in complying
with the terms of his employment agreement, if any, or otherwise in
performing his required duties for the Bank; (c) the commission of
any intentional act of dishonesty in the performance of the
Participant's duties for the Bank; or (d) the deliberate and
intentional refusal by Participant during the term of his employment,
other than by reason of incapacity due to illness or accident, to
obey lawful directives from the Board of Directors of the Bank, and
such refusal shall result in a demonstrable, material injury to the
Bank, and the Participant shall have failed to remedy such alleged
breach within thirty (30) days from his receipt of written notice
from the Secretary of the Bank demanding that he remedy such alleged
breach. For any claimed termination for "Cause" there shall be
delivered to the Participant a certified copy of a resolution of the
Board of Directors of the Bank adopted by the affirmative vote of not
less than that number of directors equal to two-thirds of the entire
membership, whether or not present, at a meeting called and held for
that purpose and at which the Participant was given an opportunity to
be heard, finding that the Participant was responsible for the
conduct set forth above.
2.9 Change in Control. An event of the nature that:
(a) Would be required to be reported in response to Item 1(a) of the
current report on Form F-3, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); or
(b) Results in a Change in Control of the Bank within the meaning of
the Change in Bank Control Act of 1978, as amended, and the
Rules and Regulations promulgated by the Federal Deposit
Insurance Company (the "FDIC") at 12 C.F.R. Section 303.4(a), as
in effect on the date hereof; or
(c) Without limiting the above conditions, such a Change in Control
shall be deemed to have occurred at such time as:
(i) Any "person" (as the term is used in Section 13(d) and 14(d)
of the Exchange Act), or group of persons acting in concert, is
or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly, of any class of
equity securities of the Bank representing 25% or more of a
class of equity securities, except that a securities purchase or
purchases by the Bank's employee stock ownership plan and trust
that exceeds, in the aggregate, 25% or more of a class of equity
securities shall not be deemed to be a Change in Control under
this Plan; or
(ii) Individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election
by the Bank's shareholders was approved by the same Committee
serving under an Incumbent Board, shall be, for purposes of this
clause (ii) considered as though he were a member of the
Incumbent Board; or
(iii) A plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or any similar
transaction occurs in which the Bank is not or will not be the
resulting entity; or
(iv) A proxy statement shall be distributed soliciting proxies
from stockholders of the Bank, by someone other than the current
management of the Bank, seeking stockholder approval of a plan
or similar transaction with one or more corporations as a result
of which the outstanding shares of the class of securities then
subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the
Bank; or
(v) A tender offer is made for 25% or more of the voting
securities of the Bank then outstanding.
2.10 Code. The Internal Revenue Code of 1986, as it may from time to time
be amended.
2.11 Committee. "Committee" means the Human Resources and Nominating
Committee of the Board of Directors of the Bank. Such Committee shall
be comprised at all times of at least two "non-employee directors",
as that term is defined under Rule 16b-3 of the Exchange Act
promulgated by the Securities and Exchange Commission, or any
successor regulation.
2.12 Compensation. For purposes of this Plan, only the following items
shall be included in determination of remuneration for determination
of benefits:
(a) Salary; and
(b) Cash bonuses,
whether either of the foregoing is paid currently or deferred
under either a qualified or non-qualified arrangement; and
without regard to any limits imposed by Section 415 or
401(a)(17) or similar sections of the Code.
2.13 Disability. Any physical or mental condition which may reasonably be
expected to be permanent and which renders the Participant incapable
of continuing as an Employee in his customary job; provided, however,
that such disability originated while the Participant was in the
active service of the Company and which: (a) did not arise while
engaged in or as a result of having engaged in an illegal or criminal
act or an act contrary to the best interests of the Company; or (b)
did not result from habitual drunkenness or addiction to narcotics or
a self-inflicted injury while sane or insane. To aid the Committee in
determining whether such disability exist, the Committee may require,
as a condition precedent to receipt of any benefits hereunder, that
the Participant submit to examinations by one or more duly licensed
and practicing physicians selected by the Committee.
2.14 Early Retirement. The election of the Participant to commence
receiving vested benefits hereunder before the Normal Retirement
Date, if permitted by the Committee in the Committee's sole
discretion unless voided pursuant to Section 6.4, following
termination of the Participant's employment with the Bank. Subject to
Committee approval, a participant shall become eligible for Early
Retirement under this plan upon, the later to occur of the following:
(a) the date the Participant attains age 55; and (b) the date the
Participant becomes vested under this plan pursuant to Article 5.
Notwithstanding the foregoing, the current Chief Executive Officer,
George W. Dougan, may elect "Early Retirement" under this Plan
without the prior approval of the Committee.
2.15 Effective Date. January 16, 1997.
2.16 Employee. Any person in the employ of the Bank for whom the Bank is
required to contribute Federal Insurance Contribution Act taxes.
2.17 Final Average Compensation. The monthly Compensation of a
Participant averaged over thirty-six consecutive months which produce
the highest average of the 60 completed months (or the number of
completed months if less than 60) ending before the first day of the
month coincident with on next following the Participant's date of
Normal or Early Retirement, whichever is applicable, or, if
applicable and earlier, the first day of the month following the date
such Participant ceases to be an Active Participant.
2.18 Normal Form of Benefit. A pension benefit payable for the life of
the Participant, beginning on the first day of the month following
Normal Retirement, in equal monthly installments and ceasing on the
last day of the month preceding the death of the Participant.
2.19 Normal Retirement. Termination of service with the Bank on or after
the Participant's Normal Retirement Date.
2.20 Normal Retirement Date. The sixty-fifth birthday of the Participant.
2.21 Participant. An Employee of the Bank selected by the Committee to
participate in the Plan, including the following:
(a) An Active Participant is a Participant who is currently an
Employee of the Bank; and
(b) An Inactive Participant is a Participant who is no longer an
Active Participant.
2.22 Plan. This Supplemental Executive Retirement Plan, as it may be from
time to time amended or restated.
2.23 Plan Year. A 12-month period commending on the first day of the
Bank's fiscal year.
2.24 Qualified Plan. The Bank's Employees' Retirement Plan of Evergreen
Bancorp, Inc., restated as of January 1, 1989, and from time to time
amended, or under any successor plan thereto.
2.25 Year of Service. Being in the employ of the Bank for an entire year.
Article 3
Administration of the Plan
3.1 Administration. The Plan shall be administered by the Committee. The
Committee shall act by vote or written consent of a majority of its
members.
3.2 Adoption of Rules and Regulations. Subject to the express provisions
and limitations of the Plan as stated in this Plan document, the
Committee may adopt such rules, regulations, guidelines, and
procedures as it deems appropriate for the proper administration of
the Plan, and the Committee may make whatever determinations and
interpretations it deems to be necessary or advisable.
3.3 Determinations by the Committee. All determinations and
interpretations made by the Committee shall be binding and conclusive
on all Participants and on their legal representatives and
beneficiaries.
3.4 Indemnification of the Committee and Employees of the Bank. The Bank
hereby agrees to indemnify, defend and hold harmless, jointly and
severally, the members of the Committee and employees of the Bank who
are involved in the administration of the Plan, from and against all
claims, losses, damages, expenses, including counsel fees and their
costs and expenses, incurred by them, and any liability, including
any amounts paid in settlement with their approval, arising from
their action or failure to act with respect to any matter relating to
the Plan, except when the same shall be judicially determined to be
attributable to their willful misconduct. The indemnification
provided by this Section 3.4 shall survive any termination of the
Plan and shall be binding upon the Bank's successors and assigns.
Article 4
Eligibility
4.1 Selection. The Committee may select Employees who, in the
Committee's sole and absolute discretion, are key Employees of the
Bank, to participate in the Plan. Such Employees shall withdraw from
participation in the supplemental retirement plan in effect on the
effective date of their participation in this Plan, but shall not be
precluded by the terms of this Plan from consideration to participate
in subsequent supplemental retirement plans, if any, that may be
adopted by the Bank after the Effective Date.
4.2 Termination for Cause. No Participant shall have a right to any
benefit under the Plan if his employment with the Bank is terminated
for Cause, except following the vesting of benefits.
4.3 Detrimental or Prejudicial Conduct of a Participant. If a
Participant has engaged in activities which, in the determination of
the Board, are materially detrimental to the Bank, the Committee may
terminate the Participant's participation in the Plan. In such event,
no benefit shall be payable under this Plan, and if a Participant is
currently receiving benefits under this Plan, such benefits shall
cease.
4.4 Change in Control. If there is a Change of Control of the Bank,
Section 4.3 of the Plan shall thereafter become inoperative and null
and void.
Article 5
Vesting of Benefits
5.1 Vesting Conditions. The benefits under this Plan shall become fully
vested upon: (a) a Participant reaching Normal Retirement Age while
in the continuous employment with the Bank; or (b) the completion of
five Years of Service; or (c) the death of the Participant; or (d)
the termination of his employment by the Bank without Cause; or (e)
the occurrence of a Change in Control, as defined in this Plan,
whichever of the forgoing occurs earlier.
5.2 Vesting Upon Disability. If a Participant's employment by the Bank
is terminated by reason of his Disability, he shall become fully
vested in his benefits under this Plan.
Article 6
Payment of Benefits
6.1 Upon Normal Retirement.
(a) A Participant shall be entitled to receive the monthly Normal
Form of Benefit equal to the amount determined by:
(i) Multiplying the Participant's Final Average Compensation by the
Benefit Factor, and
(ii) Subtracting from the amount determined pursuant to Section
6.1(a)(i) an amount equal to the monthly Normal Form of Benefit
then payable to the Participant under the Qualified Plan.
(b) If a Participant is eligible to receive a benefit under this
Plan, and he has participated in a supplemental retirement plan
maintained by the Bank prior to the effective date of his
participation, his benefit under this Plan shall further be
reduced by the actuarial equivalent Normal Form of Benefit
payable to the Participant under such other supplemental
retirement plan.
6.2 Upon Early Retirement. Effective upon the date that a
Participant ceases to be an Active Participant because of Early
Retirement, a Participant shall be entitled to receive the
Actuarial Equivalent of his Accrued Benefit as of such date.
6.3 Upon Death. A preretirement spousal annuity shall be payable to the
spouse of a Participant who dies before commencement of payment of
his Accrued Benefits hereunder, if the Participant, on the date of
his death, was married and was an Active Participant under the Plan.
The preretirement spousal annuity shall be the survivor annuity that
the Participant's spouse would have received under the Plan had the
Participant retired on the day before his date of death with his
Accrued Benefit payable in the form of an immediate Joint and 50%
survivor annuity described under Section 7.2(b). In no event shall
the preretirement spousal annuity be payable to anyone other than the
Participant's spouse on the date of the Participant's death.
6.4 Upon a Change in Control.
(a) Upon a Change in Control, the Bank shall, as soon as possible,
but in no event longer than 15 days after such Change in
Control, establish, fund (as set forth below) and maintain an
irrevocable "rabbi trust", the assets of which shall be subject
to the claims of creditors of Evergreen Bank, N.A. in the event
of its insolvency or bankruptcy, in order to provide a source of
funds to assist the Bank in the meeting of its liabilities
hereunder. At such time, the Bank shall irrevocably contribute
cash or other property to the rabbi trust in an amount
sufficient to pay the benefits of each Participant and
Beneficiary payable at Normal Retirement under the Plan when
conservatively invested in U.S. Treasury securities or similar
instruments by an institutional trustee that is not affiliated
with the person that causes, directly or indirectly, the Change
in Control. Amounts payable to Participants or Beneficiaries
hereunder shall be payable from the assets of such rabbi trust.
In the event the assets of the rabbi trust are not sufficient to
satisfy all benefits payable hereunder, the remaining benefits
shall be payable from the general assets of the Bank or its
successor.
(b) Upon the occurrence of a Change in Control, the provisions of
Early Retirement set forth in Section 2.14 that require the
Committee's prior written approval shall thereafter become
inoperative and null and void.
6.5 Other Vested Participants. An Inactive Participant shall be entitled
to receive the Actuarial Equivalent of his vested Accrued Benefit
commencing at his Normal Retirement Date, and shall not be eligible
for Early Retirement except in the case of Disability.
6.6 Withholding of Taxes. The Bank shall withhold from payments made
hereunder any income taxes required to be withheld by any law or
regulation of the federal, state of local governments.
Article 7
Optional Forms of Payment
7.1 Election of Form of Payment. In lieu of the Normal Form of Benefit,
a Participant may elect to receive his retirement income under one of
the following optional forms. A Participant's Accrued Benefit payment
election shall be in the form of a written election made at the time
he first becomes a Participant in the Plan. An election made under
this Article 7 may be changed in writing, except that such new
election shall be effective only if made at least one year prior
to the Participant's termination of employment with the Bank.
7.2 Optional Forms of Payment. The retirement income payable under an
optional form shall be the Actuarial Equivalent of the Participant's
Accrued Benefit, as follows:
(a) The Joint and 100% Survivor benefit shall provide a reduced
retirement income during the Participant's lifetime. Upon his
death, if the Participant's Beneficiary survives him, the same
income will continue to the Participant's Beneficiary until the
Beneficiary's death. Only one individual may be named as a
Beneficiary.
(b) The Joint and 50% Survivor benefit shall provide a reduced
retirement income during the Participant's lifetime. Upon death,
if the Participant's Beneficiary survives him, then 50% of the
Participant's retirement income will continue to the
Participant's Beneficiary until the Beneficiary's death. Only
one individual may be named as a Beneficiary.
(c) The Lump Sum benefit shall provide a lump-sum distribution of
the Actuarial Equivalent value of the Accrued Benefit to the
Participant. Any lump sum distribution in excess of $10,000 may
be paid only with the express approval of the Committee.
(d) The Automatic Spouse Benefit shall provide that, if a
Participant does not elect a form of payout, a married
Participant will automatically be assumed to have elected a
Joint and 50% Survivor benefit with his spouse designated as his
Beneficiary.
Article 8
Beneficiary Designation
8.1 Each Participant shall have the right at any time to designate any
person or persons as his Beneficiary, to whom any benefits under
Section 7.2(a) or (b) which the Participant may have elected shall be
payable.
8.2 The designation of a Beneficiary shall become effective when it is
filed in writing with the Bank, with a copy provided to the
Committee.
8.3 The filing of a Beneficiary designation may be accompanied by a
statement of the Actuarial Equivalent the Participant elects in lieu
of the Normal Form of Benefit.
8.4 The Participant may revoke a beneficiary designation at any time
before benefits commence by filing a new election with the Committee.
Article 9
Amendment of the Plan
9.1 The Board may at any time amend the Plan in whole or in part;
provided, however, that no amendment shall be effective to reduce the
benefits under the Plan to any Participant without the consent of all
Participants in the Plan, which consent may be withheld in the sole
discretion of any Participant. Written notice of any proposed
amendment shall be given to each Participant.
Article 10
Miscellaneous
10.1 Nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a
fiduciary relationship between the Bank and the Participant or any
other person. Participants and their Beneficiaries, heirs,
successors, and assigns shall have no legal or equitable rights,
interests, or other claims in any property or assets of the Bank,
except as an unsecured general creditor of the Bank. The Bank's
obligation under this Plan shall be that of an unfunded and unsecured
promise of the Bank to pay money in the future.
10.2 By agreeing to become covered by this Plan, each Participant hereby
expressly agrees that the Bank may, in the Bank's sole and absolute
discretion, offset any amounts payable under this Plan against any
debts, loans, obligations, or other liabilities owed by the
Participant to the Bank at the time benefits become payable under the
Plan, whether or not such debts have matured. No prepayment penalties
or fees will be charged by the Bank in connection with any such
offset. The provisions of this Section 10.2 shall not apply following
a Change in Control.
10.3 Neither a Participant nor any other person shall have the right to
assign, sell, transfer, pledge, anticipate, mortgage, or otherwise
encumber, transfer, hypothecate, or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof,
which are expressly declared to be unassignable and nontransferable.
10.4 Nothing herein contained shall be construed as a contract of
employment, nor as giving any Participant any right to be retained in
the employ of the Bank. Participation in this Plan shall not
interfere with the Board's rights to terminate a Participant's
employment at any time, subject to any express, written employment
agreement, if any, as may be in effect for any such Participant.
10.5 All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, or neuter as the identity of the person or
persons may require. As the context may require, singular may be read
as plural and plural as singular.
10.6 Should any provision of this Plan or any regulation adopted herein
under be deemed or held to be unlawful or invalid for any reason,
such fact shall not adversely affect the other provisions or
regulations unless such invalidity shall render impossible or
impractical the functioning of the Plan, and in such case, the
appropriate parties shall immediately adopt a new provision or
regulation to take the place of the one held illegal or invalid.
10.7 The titles and headings of the Articles and sections of this Plan
are for the convenience of reference only, and in the event of any
conflict, the text rather than such titles or headings shall control.
10.8 This Plan shall be governed by and construed in accordance with the
laws of the State of New York.
* * * * *
Adopted: 10/1/95; amended and restated 1/16/97
- -------------------------------------------------------------
ADOPTED, APPROVED AND CERTIFIED:
Human Resources and Nominating Committee
By: /S/ Robert F. Flacke
Robert F. Flacke, Chairman
Human Resources and Nominating Committee
Exhibit 11
Evergreen Bancorp, Inc.
Computation of Net Income Per Common Share
(Dollars in Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net Income Per Common Share
Weighted Average Common Shares Outstanding 9,229,000 9,430,000 9,456,000
Net Income $ 10,313 $ 8,380 $ 7,265
Net Income per Common Share $ 1.12 $ .89 $ .77
Net Income Per Common Share -- Primary
Weighted Average Common Shares Outstanding 9,229,000 9,430,000 9,456,000
Dilutive Common Stock Options 124,000 76,000 32,000
Weighted Average Common shares and Common Share Equivalents Outstanding 9,353,000 9,416,000 9,488,000
Net Income $ 10,313 $ 8,380 $ 7,265
Net Income per Common Share -- Primary $ 1.10 $ .89 $ .77
Net Income Per Common Share -- Fully Diluted
Weighted Average Common Shares Outstanding 9,229,000 9,430,000 9,456,000
Dilutive Common Stock Options 215,000 132,000 32,000
Weighted Average Common shares and Common Share Equivalents Outstanding 9,444,000 9,562,000 9,488,000
Net Income $ 10,313 $ 8,380 $ 7,265
Net Income per Common Share -- Fully Diluted $ 1.09 $ .88 $ .77
</TABLE>
Exhibit 13
Evergreen
Annual Report 1996
INSIDE Profile: An eye for value.
What
shareholder
value really
means.
Evergreen Bancorp logo
Contents
Financial
Highlights
pg. 2
Solid figures from 1996.
An Eye
for Value
pg. 4
The quarterly statement
isn't the only measure
of a bank.
Reinventing
Market Share
pg. 7
Evergreen fills in the
franchise--in more
ways than one.
Solving the
Productivity Puzzle
pg. 10
How to create
excellence and
efficiency in
the company.
A Gallery
of Leaders
pg. 12
Evergreen's Board
of Directors and
Corporate Management.
Financial
Review
pg. 13
The complete story,
by the numbers.
YEAR TO DATE EARNINGS
Financial
HIGHLIGHTS
Solid figures for 1996.
Common Stock Data
Evergreen Bancorp's common stock is traded on the NASDAQ National
Market System under the symbol EVGN. There were 1,667 stockholders
of record as of December 31, 1996. The range of the high and low sales
prices, as reported by NASDAQ, and the quart-erly cash dividends paid
for the years 1996 and 1995 are shown below. The information provided
has been adjusted to reflect the company's two-for-one stock split.
For information on restrictions relating to the payment of cash dividends,
see Note 11 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
1996 High Low Div. Paid
<S> <C> <C> <C>
4th Quarter $16.50 $14.00 $0.13
3rd Quarter 15.00 12.13 0.10
2nd Quarter 13.13 10.63 0.10
1st Quarter 11.56 10.38 0.10
</TABLE>
<TABLE>
<CAPTION>
1995 High Low Div. Paid
<S> <C> <C> <C>
4th Quarter $11.63 $10.25 $0.08
3rd Quarter 11.00 8.88 0.05
2nd Quarter 9.17 8.13 0.05
1st Quarter 8.63 7.38 0.05
</TABLE>
<TABLE>
Net Income
<CAPTION>
Millions
<S> <C>
1994 $ 7,265
1995 8,380
1996 10,313
</TABLE>
<TABLE>
Stock Price
As of December 31
<CAPTION>
Dollars per share
<S> <C>
1994 $ 7.38
1995 11.63
1996 16.38
</TABLE>
<TABLE>
Deposits
<CAPTION>
Millions
<S> <C>
1994 $735,821
1995 750,224
1996 800,856
</TABLE>
<TABLE>
Non-Performing Assets
<CAPTION>
Millions
<S> <C>
1994 $29,922
1995 9,772
1996 7,033
</TABLE>
<TABLE>
Earnings Per Share
<CAPTION>
Dollars
<S> <C>
1994 $0.77
1995 0.89
1996 1.12
</TABLE>
<TABLE>
Loans
(End of year)
<CAPTION>
Millions
<S> <C>
1994 $577,329
1995 592,198
1996 654,888
</TABLE>
<TABLE>
Financial Highlights
(Dollars--except per share data--expressed in thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Income $ 10,313 $ 8,380 $ 7,265
Per Share:
Net Income 1.12 .89 .77
Cash Dividends .43 .23 .03
Book Value 9.37 8.86 7.76
Average Shares
Outstanding 9,229,000 9,430,000 9,456,000
Year End:
Assets $ 928,649 $ 871,423 $ 833,618
Loans,
Net of
Unearned
Income 654,888 592,198 577,329
Deposits 800,856 750,224 735,821
Stockholders'
Equity 85,439 83,045 73,601
</TABLE>
Corporate Profile
Evergreen Bancorp, Inc. (NASDAQ: EVGN) is a one-bank holding company
headquartered in Glens Falls, New York. Its subsidiary, Evergreen
Bank, N.A., operates 26 banking locations in a 250-mile area of eastern
New York, from 50 miles south of Albany to the Canadian border.
Within this region the bank provides its corporate, institutional
and individual customers with a wide range of deposit, lending, trust
and investment services. Throughout its 143-year history, Evergreen
has pursued the essential mission of a community bank: to provide
exemplary service and responsiveness to its customers and local communities.
Evergreen Bank, N.A., with assets exceeding $920 million as of year-end
1996, is among the leading community banks in its franchise area.
Annual Meeting
The Annual Meeting of Shareholders will be held in the Adirondack
Room of the Queensbury Hotel, 88 Ridge Street, Glens Falls, New York
at 10:00 a.m. on May 8, 1997.
Form 10-K
A copy of the Company's Form 10-K annual report is available without
charge to shareholders on written request to Kathleen G. Martinez,
Secretary, 237 Glen Street, Glens Falls, New York, 12801.
PROFILE
An eye
FOR VALUE
Too many companies manage quarter by quarter. In a revealing interview,
the Chairman of Evergreen explains why his bank's value extends far
beyond yesterday's results.
A Philosophy Apart
When he gauges his bank's performance, George Dougan naturally begins
with the quarterly statement. But he doesn't stop there--and that
sets Evergreen Bancorp apart from the mainstream.
During his assessment, Dougan might also examine a new branch, review
the latest product for small business or look in on a training session.
All in the name of uncovering one crucial element: shareholder value.
"Everything we do should increase our franchise value as an independent
bank--not just for the next quarter, but for the long term," said
Evergreen's Chairman and Chief Executive Officer in a recent interview.
"This past year, I'm pleased to say, we excelled in both."
Shareholder Value for Today
The baseline figures for 1996 justify his confidence in current results:
Evergreen enjoyed record earnings, with net income of $10.3 million--a
23% increase over 1995;
In September, the bank announced a 2-for-1 stock split. For the year,
stock value increased 40%;
Two increases boosted the quarterly dividend to an all-time high of
$.13 per share (post-split), up from $.075 at the end of 1995;
Led by a strong performance in retail lending-- especially in indirect
loans, mortgages, and home equities--overall lending increased by
11% to a record level of $655 million net of unearned income.
Supporting that increase was a corresponding 7% rise in deposits.
Dougan cited several initiatives that generated the 1996 numbers.
The stock split, for instance, arose from presentations that he and
George Fredette, Senior Vice President and Chief Financial Officer,
made to major investment bankers and fund managers. "They looked on
Evergreen very favorably but suggested that our stock was not liquid
enough for effective trading," Dougan related. The bank responded
by doubling shares outstanding through the split. The markets confirmed
the wisdom of that move by trading Evergreen more actively.
Also affecting the stock was the bank's ongoing repurchase program,
which enjoyed its best year ever in 1996, buying back 345,000 shares.
A new authorization from the Board of Directors will enable Evergreen
to continue repurchasing shares throughout 1997, depending on market
conditions. "The program helps keep the bank's capital at appropriate
levels and has in the past been a good investment, increasing earnings
per share," Dougan explained. "With this program, the split and the
dividend increases, I believe we've created significant shareholder
value here and now."
Closer to the balance sheet, substantive reductions in nonperforming
assets played a key role in Evergreen's successful 1996. "Our work
toward eliminating problem loans in 1995 set us up for higher earnings
potential in 1996," he noted. "Then, this past year, the sale of our
largest remaining nonperformer removed another obstacle to earnings.
We have basically put the last of our major credit concerns behind
us; now, as we maintain strict credit quality, we can focus on new
business."
Value for Tomorrow:
Expanding Market Share
That new-business focus achieved two notable Evergreen objectives.
It not only contributed significantly to the strong 1996 figures,
but also formed the foundation for Evergreen's long-term value.
Many of the past year's moves--in both traditional and alternative
areas of product delivery--represented an aggressive effort in the
bank's existing market. "Infilling and expanding our natural franchise
are important elements in our long-term strategic plan," the Chairman
explained. "That's why, in 1996, we opened or committed to opening
four new branch locations in the Capital Region, which holds very
high market potential. These branches provide the physical presence
that many customers still require, as industry trends demonstrate."
Elaborating on these trends, Dougan cited the fact that, in spite
of massive consolidation and new technologies in the past decade,
the number of new retail branches has risen to an all-time high in
the banking industry. "To a large extent, customers still prefer to
visit a branch and speak with a person," he said, "which is why our
new branches are integral to maximizing our market share."
Concerning alternate methods of product delivery, Dougan asserted
that "we have introduced other delivery systems strategically across
the market to extend our reach. Loan applications by touch-tone phone,
our soon-to-be-introduced call center, our CD-by-mail program--all
of these penetrate market areas that Evergreen could not effectively
reach before. They succeed because they satisfy the demands of today's
customers--especially the demand for convenience. And they represent
a very cost-efficient way for us to generate income."
Infilling and expansion, however, go beyond simply covering the map.
For that reason, Evergreen complemented its geographic expansion with
initiatives in high-potential market segments. Following through on
its goal of 1995, Evergreen introduced Private Banking last year to
capture a promising segment composed of high-net-worth individuals.
Coming in 1997, a new cash management product will add convenience
for small and midsize businesses, allow Evergreen to better compete
in the commercial market and provide a new source of fee income.
Value for Tomorrow:
Achieving Cost Savings
Pursuing expanded market share provides only half the story of
long-term shareholder value. As diligently as they penetrated the
market, Dougan and his management team also increased the bank's
value by boosting operating efficiencies, achieving a $2.5 million
reduction in noninterest expenses in 1996. Savings came from such
areas as other real estate expenses and professional fees (due to the
sale of nonperforming assets), renegotiated agreements with vendors,
higher staff efficiency and a reduction in FDIC insurance.
On this last point, technology has played a pivotal role. A new imaging
system, a teller automation system and a bankwide platform upgrade
have enabled Evergreen employees to carry out procedures faster and
boost productivity. Additionally, customer-driven technologies--such
as the Nice 'n Easy Touch Tone Phone Loan, Evergreen Tellerphone,
and a streamlined network for indirect lending-- increase staff efficiency
even as they provide customers with convenience.
Dougan asserts that the key to technology investments is to implement
them intelligently. "While we can't stand still on technological advancement,
it makes no sense for us to acquire indiscriminately either. The question
that always confronts us is, what is the appropriate level of investment?"
Each time he faces that question, the Chairman comes back to the same
basic objective. "We ask ourselves, how does this particular technology
increase the value of the bank? We proceed only if it will pay for
itself, reduce overall expenses and give us a competitive edge. Those
criteria guide us toward smart technology decisions."
An Enduring Place in the Marketplace
And what of the larger picture? According to Dougan, 1996 enhanced
shareholder value not only by directly providing for future growth,
but also by enhancing Evergreen's established position as "a profitable,
well-managed, customer-focused community bank."
That position holds special promise in today's banking climate. "Just
as it has in the last decade, the industry will continue to consolidate
heavily," Dougan said. "The larger banks can't provide the highly
personalized service that customers value, and they can't respond as
flexibly as a community bank.
"Therein lies the opportunity for Evergreen. Because our community
banking niche meets the needs of so many people, it becomes our competitive
advantage. And because customers are demanding responsive service
in increasing numbers, we have the opportunity to maintain that competitive
advantage--and enhance shareholder value--for years to come."
Flexibility plays a role in astute management as well. "Community
banks can survive as long as they recognize that change is a fact of
life," Dougan asserted. "Looking forward, I believe banks like
Evergreen will thrive by leveraging their branch franchise and by
using technology in the most resourceful manner. And that's exactly
what we did in 1996."
In 1997, Evergreen will continue that thrust while pursuing proven
strategies for sound growth:
Introduction of new products to expand the bank's share of the
middle market;
Additional mortgage counselors in the Capital Region to maximize an
underserved market with high potential;
Pursuit of complementary lines of business to increase fee income;
Judicious expansion of the distribution network, including
technology-driven delivery systems that contain costs and meet
high demand;
Expansion of touch-tone loan capabilities;
Continued vigilance on credit and expense control.
From Dougan's point of view, the leadership is in place to implement
these goals and sustain Evergreen's success. "In 1997, as in 1996,
we will benefit from having a superb management team--and a superb
Board of Directors." He singled out three retiring board members--Dean
V. Chandler, Samuel P. Hoopes and Henry J. W. Vanderminden III--for
their long-standing leadership and service. "They, and the rest of
our Directors, committed themselves to our shareholders from the beginning,
and I thank them for that. Because of their enthusiastic commitment,
I'm confident we'll see continuing success, whatever the banking environment."
That success may indeed come if Evergreen continues to do what it
did in 1996: make the right choices to deliver value to shareholders.
The kind of value found where George Dougan looks: not only on the
bottom line, but throughout the bank--and throughout the community.
MAXIMIZING THE MARKET
Reinventing
MARKET SHARE
Even recently, "maximizing the market" meant new branches, period.
Not anymore. So Evergreen has moved boldly to expand within, and beyond,
its current franchise.
As they planned the opening of one Capital Region branch last fall,
Evergreen's senior managers came up with what, by any standard, were
reasonable milestones for deposits. Six weeks after the ribbon cutting,
deposits had far surpassed expectations. And loans had picked up momentum
as well--and continue to roll in.
Proof that the branch system still thrives? Absolutely. Even with
such success, however, branches are no longer the only game in town.
Those facts have not escaped Evergreen's management. With a flair
for making the right moves, bank officials have used a blend of traditional
and innovative strategies to expand the franchise to untapped markets.
Redrawing the Map
The traditional, of course, involves a physical presence. In 1996,
the bank initiated plans for four new branch locations in the Capital
Region--one of several Evergreen markets with demonstrated growth
potential. Three of the locations are new in every sense of the term:
the Latham office, which serves as the bank's Capital Region headquarters,
opened in December 1996; the Clifton Park branch a month later; a
branch in Niskayuna will open early in the second quarter of 1997.
"The solid demographics for these locations--steady population growth,
families with significant earning potential--present us with an excellent
growth opportunity," noted Daniel J. Burke, Evergreen's Senior Vice
President, Retail Banking.
In each case, Evergreen's planners have consistently built cost efficiency
into construction, staffing and operations, while providing for the
full service so critical to the bank's positioning.
The fourth branch opening is actually a strategic relocation; to expand
its customer base, Evergreen will move an existing branch to one of
the Capital Region's busiest business and shopping areas. "This new
location presents the best of both worlds," explained Burke. "The
branch will continue to serve its current customers, while enhancing
access for new customers. With this and the other new branches, we've
positioned ourselves to capture significant market share in an important
market."
Evergreen's Trust & Investment Group has already seen results from
its Capital Region team, which it introduced in 1995. Those results
are reflected in the bank's overall trust numbers for 1996: assets
under management rose to $463.6 million--fueled not only by asset
appreciation, but also by an ever-increasing number of new accounts.
While important to bank growth, physical locations are no longer enough.
Two converging trends--banking's drive for operating efficiency and
the customer's demand for convenience--necessitate the use of innovative
ways to deliver products and services.
No wonder, then, that bank officials have made the best use of innovation
to extend Evergreen's reach well beyond the branch system. A new call
center, which will be operational in early 1997, will enable even
remote customers to conduct bank transactions and to get quick answers.
The Nice 'n Easy Touch Tone Phone Loan has generated $8.7 million
in new loans by allowing applicants to access the bank according to
their schedule, 24 hours a day, seven days a week. Both new and current
customers have heavily utilized the bank's CD-by-mail program. Fax
and ACH technologies have spread Evergreen's indirect lending to dealers
located far from any branch. "We have fine-tuned our indirect program
so that we can respond very quickly to dealers' needs," said Thomas
C. Crowley, Executive Vice President and Chief Credit Officer.
Of course not every out-of-office strategy requires high technology.
Take mortgage counselors. Without occupying any branch space, Evergreen's
counselors have added to market share with stronger-than- expected
performance: originations increased 32% over 1995. The bank supported
its mortgage staff, including an additional counselor in the Capital
Region, with several flexible products. A new adjust-able rate mortgage,
which locks in a fixed interest rate for the loan's first five years,
has generated considerable demand across Evergreen's markets. Also
in demand is the Bi-Weekly Mortgage, through which homeowners save
on interest payments while paying off their mortgages faster.
Deeper into Market Segments
"Yes, our key thrust in 1996 was to fill in and expand our market,"
said Evergreen Chairman and CEO George Dougan. "But if you focus exclusively
on geography, you end up with a market a mile wide and an inch deep."
Recognizing that, Dougan and his management team have pursued several
important market segments.
For individuals with high net worth, Evergreen launched Private Banking
early in 1996. Providing a complete range of financial services--all
coordinated by a Private Banker dedicated to each account--the program
taps an important source of both deposits and loans, as well as new
trust business.
For the middle market, the bank will introduce a new checking package
in early 1997. Like Evergreen's Privilege 50 for the mature market,
this package will offer such benefits as a low minimum balance,
interest-bearing checking, and travel and buyer's discounts, only
this time to the single largest segment of Evergreen's market.
"Research has shown these packages to be successful in generating
new deposit and loan business," Burke said. "They create strong demand
in the market by adding value to the standard checking account. Our
success with Privilege 50 bears this out."
For small and midsize businesses, Evergreen has prepared a major new
cash management software product for the coming year. Because it allows
businesses to manage their accounts daily, directly from their own
offices, cash management extends Evergreen's market boundaries while
attracting a greater share of the business market. Like many of the
bank's offerings and improvements, this product arose in response to an
independently conducted survey of businesses in Evergreen's market.
"Cash management positions us as a full-service provider, developing
products to give customers what they need," Crowley said.
The new product should add to Evergreen's continued success with business
clients, success made clear from the numbers. During 1996, the bank
originated nearly $70 million in new commercial loans. Especially
effective has been the Small Business Term Loan product, part of the
Small Business Solution product line. "With this product," cited Crowley,
"Evergreen served the small business community by initiating loans
that aggregated over $1.75 million in outstandings."
According to Crowley, popular products account for only part of Evergreen's
success with business. "Because we've placed critical decision makers
in each market area, we're much closer to the local and regional businesses
we serve. That enhances our standing as a responsive bank." Early
in 1997, the bank bolstered its image of responsiveness by achieving
Preferred Lending Status with the Small Business Administration. "Our
surveys show that small busi-nesses are concerned about the paperwork
and time involved in the loan process. The new SBA status resolves
those issues."
Perhaps the most obvious market segment is the one overlooked by many
companies: existing customers. Here, Evergreen's initiatives in database
management come into play. "By using our customer database, we can
match individuals with specific products they might need," Burke explained.
"Through the cross-selling that results, we maximize profitability
per existing customer relationship with an efficient use of resources."
Happy Customers, Shareholder Value
With the right treatment, existing customers quickly become satisfied
customers--and therein lies Evergreen's main advantage. "The levels
of satisfaction generated by our customer contact personnel exceed
those in most industries, including banking," Burke commented. "The
value of satisfied customers, of course, is that you retain them for
the long term--profitably."
Because such customers deliver obvious advantages to Evergreen--repeat
business and referrals--they form the basis of shareholder value.
"All of our initiatives really come down to one positive result: a
growing base of satisfied customers," Dougan asserted. "As long as
we provide the services they need, I'm confident they'll continue
to help us grow in the years ahead."
HUMAN RESOURCES
Solving the
PRODUCTIVITY
PUZZLE
To thrive, a bank needs the best people in the most efficient organization.
A challenge indeed - but Evergreen has found new ways to solve it.
A generation ago, productivity may not have seemed like an enigma;
to make a business more productive, simply add resources and serve.
How times have changed. In the wake of the market's single-minded drive
toward efficiency, bankers face a tough question: how does a bank--how
does any company--get the most from its streamlined resources?
Evergreen's version of the answer includes several themes: equipping
staff for peak performance, allocating resources efficiently and controlling
costs vigilantly. Following those themes, the bank's management team
realized significant efficiencies in 1996 while shaping the very best
staff available.
The People Factor
Even as it held the number of full-time equivalent employees to forecasted
levels, while at the same time growing the bank, top management has
devised a range of programs to maximize human resources. Perhaps most
notable is Evergreen's innovative Opportunity Shares Program, stock options
that employees can exercise upon a stated increase in the stock price.
By tying employee compensation directly to the stock's value, Opportunity
Shares encourage employees to help boost that value by finding more
cost-effective ways of doing things. The new program complements the
judicious use of traditional incentives in targeted areas.
To boost their bank's value, employees must possess ever sharper skills,
both technical and relational. Not surprisingly, Evergreen is quick
to develop those skills. As in past years, employees receive continual
training: coaching, counseling, management training, software courses
and regulatory seminars.
The bank's Legendary Service Program not only sets standards but also
equips employees to deliver "quality service" to all customers, internal
and external. The Integrity Selling Program trains customer contact
staff to first identify the needs of customers, then sell them only
the offerings that fulfill those needs. "Our experience has shown
that if we treat customers this way, they will come back," said Daniel
Burke, Senior Vice President, Retail Banking.
Unlocking the Tool Box
Evergreen has proved equally adept in equipping employees with critical
technology. To streamline internal work flows, the bank initiated
a complete upgrade of its software system. "Not only does the improvement
provide a more user-friendly vehicle," said Tony Koenig, Executive Vice
President and Chief Operating Officer, "but it extends the life of the
software at a significantly lower cost than a new system."
Other improvements were aimed at specific high-volume areas. A new
imaging system in loan documentation greatly reduces paper use and
speeds responses to customers. At the branch level, a teller automation
system will improve customer service throughout Evergreen's marketplace
while enhancing safeguards for both the customer account and the bank.
Initiated in 1996, the system is scheduled for full implementation
by early 1998.
The coming year will find Evergreen's managers planning targeted investments
in technologies to come--with an eye toward maximizing productivity.
"We're not interested in technology for technology's sake," said Koenig.
"We will stay tuned in to new technology, and from that, we will use
only what improves efficiency, keeps us competitive, and provides a quick
return on capital expenditure."
Progress in the Cost War
Peak performance, of course, only goes so far toward peak productivity.
How has Evergreen fared in the other half of the puzzle--the cost
war?
"Cost control is a constant process, and it requires constant vigilance,"
said George Fredette, Senior Vice President and Chief Financial Officer.
"In that context, I'm pleased to say that we achieved significant
savings on several fronts in 1996."
A look at Evergreen's initiatives confirms Fredette's claim. Bank
officials successfully renegotiated two large vendor contracts, with
substantially lower costs the result. Outsourcing for cost reduction
has continued in other areas, from document imaging to dealer floor
planning audits. "As always, we look to outsource where it makes the
most sense--that is, where we truly can cut costs while improving
performance," Fredette said. By combining such an approach with the
performance-enhancing initiatives mentioned earlier, Evergreen's top
managers have begun to create the kind of streamlined organization that
delivers value for shareholders. According to Dougan, completing that
creation ranks as priority one for Evergreen. "In 1996, we were able to
remain efficient and productive, even as we've grown the bank. We fully
intend to do the same in the years to come." And by doing so,
Evergreen's management may well implement the best answer to the
productivity puzzle.
The "Community"
in "Community Banking"
The connection has long been clear. Community involvement boosts shareholder
value--especially if you're positioned as a community bank in a region
where community is a high priority.
Fitting that description, Evergreen has stepped up its involvement
even from previous levels. Throughout the marketplace, employees have
contributed to efforts that cement the image of the bank as "a good
neighbor."
For sheer participation, Evergreen's United Way campaign stands among
the most notable successes of 1996. Challenged by management to boost
their already considerable efforts, employees bankwide responded with
a 95% participation rate. "The United Way effort was a perfect example
of our employees' ongoing commitment to their communities," remarked
John Fullerton, Executive Vice President, Trust & Investment Group.
"It's a commitment I see every day at Evergreen."
Every day, in many different guises. For instance, bank sponsorship
of "The Evergreen Holiday Parade" in South Glens Falls has helped
transform the event into one of the region's most popular. Volunteer
efforts at public television station WMHT included fundraising and
membership recruitment, while the bank served as sponsor for the station's
popular auction. The SPCA, girls' softball leagues, arts organizations,
local schools, fire departments--Evergreen contributions of time and
talents have helped them all.
In turn, those contributions have helped Evergreen. "Our involvement
creates tremendous customer loyalty," Fullerton said, "because people
want to do business with good corporate citizens. As a result, we
maintain an unshakable foothold in all our markets. And our reputation
works for us when we expand into new markets. Bottom line: our position
as a community bank gives us a tremendous advantage."
A GALLERY OF LEADERS
George W. Dougan
Chairman and CEO
Evergreen Bancorp, Inc.
John W. Bishop
Construction Executive
Retired
Dean V. Chandler*
President
Agency Insurance Brokers, Inc.
Carl R. DeSantis, Sr.
Vice Chairman of the Board
Evergreen Bancorp, Inc.
Vice Chairman and Director
Franchise Associates, Inc.
Robert F. Flacke
President
Fort William Henry Corp.
Director
Finch Pruyn & Co., Inc.
Michael D. Ginsburg
President
Broad Street Carwash, Inc.
Partner
M & R Ginsburg Partners
Samuel P. Hoopes*
Director
Finch Pruyn & Co., Inc.
Vice President, Retired
Joan M. Mannix
Real Estate Developer
Anthony J. Mashuta
President
Cool Insuring Agency, Inc.
Phillip H. Morse
Chairman of the Board
NAMIC USA Corporation
NAMIC International, Inc.
Retired
William E. Philion
President and CEO
Glens Falls Hospital Retired
Finch Pruyn & Co., Inc. Director
NAMIC USA Corporation Director
Alan R. Rhodes
Attorney
Bartlett, Pontiff,
Steward & Rhodes P.C.
Floyd H. Rourke
Chairman of the Board and President
Sandy Hill Corp. Retired
Director
Finch Pruyn & Co., Inc.
Paul W. Tomlinson
President
Salem Farm Supply, Inc.
Retired
Walter Urda
President
Irontech Industries, Inc.
Henry J.W. Vanderminden III*
President and Treasurer
Telescope Casual Furniture, Inc.
Directors Emeriti
F. Earl Bach
Gerald J. Buckley
Donald S. Creal
John V. Hallett
Donald D. Hanks
Paul E. Lavine
Warren E. Rouillard
Bjarne G. Soderstrom
* Retired from Evergreen Bancorp Board April 1996
Executive Officers
George W. Dougan
President, Chief Executive Officer
and Chairman
Paul A. Cardinal
Executive Vice President and
General Counsel
Thomas C. Crowley
Executive Vice President and
Chief Credit Officer
George L. Fredette
Senior Vice President and
Chief Financial Officer
Anthony J. Koenig
Executive Vice President and
Chief Operating Officer
Corporate Management
Larry E. Blanchard,
Senior Vice President
and Director of Auditing
Michael P. Brassel
Regional President, Plattsburgh Region
Daniel J. Burke
Senior Vice President, Retail Banking
Kenneth J. Cartledge
Senior Vice President, Asset Quality
Patrick T. Day
Vice President and Loan Review Manager
John M. Fullerton
Executive Vice President,
Trust & Investment
Barbara B. Glenn
Senior Vice President, Human Resources
Jeffrey B. Rivenburg
Regional President, Capital Region
EVERGREEN BANCORP, INC.
FINANCIAL REVIEW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
($000 Omitted)
Interest Income $ 70,533 $ 67,171 $ 60,987 $ 62,612 $ 70,708
Interest Expense 29,349 27,572 21,683 24,532 32,951
Net Interest Income 41,184 39,599 39,304 38,080 37,757
Provision for Loan Losses 1,440 1,800 2,211 15,377 13,675
Net Interest Income After Provision for Loan Losses 39,744 37,799 37,093 22,703 24,082
Other Income 6,387 6,224 7,516 8,106 11,476
Other Expenses 30,143 32,600 33,528 35,360 30,545
Income/(Loss) Before Income Taxes 15,988 11,423 11,081 (4,551) 5,013
Applicable Income Taxes/(Benefit) 5,675 3,043 3,816 (1,225) 1,403
NET INCOME/(LOSS) $ 10,313 $ 8,380 $ 7,265 $ (3,326) $ 3,610
PER COMMON SHARE:<F1>
Net Income/(Loss) $ 1.12 $ .89 $ .77 $ (.36) $ .39
Cash Dividends .43 .23 .03 .10 .38
AVERAGE BALANCE SHEET DATA (UNAUDITED):
($000 Omitted)
Total Assets $889,333 $849,824 $838,236 $871,418 $894,192
Loans Net of Unearned Income and Allowance 616,602 562,368 560,998 584,577 618,369
Deposits 766,474 739,254 740,176 775,359 795,803
Stockholders' Equity 83,985 78,987 72,235 70,739 73,810
RETURN ON EQUITY AND ASSETS:
Return on Average Assets 1.16% .99% .87% (.38)% .40%
Return on Average Equity 12.28 10.61 10.06 (4.70) 4.89
Dividend Payout Ratio 38.58 25.30 3.25 N/A 98.75
Average Equity to Average Asset Ratio 9.44 9.29 8.62 8.12 8.25
<FN>
<F1>All per share data has been adjusted for a two-for-one stock split effected September 16, 1996.
</TABLE>
<TABLE>
DIVIDEND PER SHARE
<CAPTION>
<S> <C>
1994 0.03
1995 0.23
1996 0.43
</TABLE>
<TABLE>
RETURN ON ASSETS
<CAPTION>
<S> <C>
1994 0.87%
1995 0.99%
1996 1.16%
</TABLE>
<TABLE>
RETURN ON EQUITY
<CAPTION>
<S> <C>
1994 10.06%
1995 10.61%
1996 12.28%
</TABLE>
OVERVIEW OF PERFORMANCE
The principal source of earnings for the Evergreen Bancorp, Inc. is
its single banking subsidiary, Evergreen Bank, N.A. All discussions
herein refer to the banking activities of the Company's banking subsidiary
unless otherwise noted.
In 1996, the Company earned $10,313,000 or $1.12 per share compared
to 1995 net income of $8,380,000 or $.89 per share. This represents
a $1,933,000 increase from the prior year. Pre-tax income in 1996
increased $4,565,000 to $15,988,000, principally because of increased
net interest income of $1,585,000, a reduction in the provision for
loan losses of $360,000, and decreases in FDIC insurance expense and
professional fees of $1,063,000 and $545,000, respectively. Income
tax expense increased to $5,675,000, an increase of $2,632,000 over
the 1995 level of $3,043,000. The increase in income tax expense is
largely attributable to increased income and the fact that during
the third quarter of 1995, the Company derived significant tax benefits
from the completion of a bulk sale (the "Bulk Sale") of certain performing
and non-performing assets for $13,250,000. Net income for 1995 increased
$1,115,000 when compared to 1994 earnings, largely because of lower
non-interest expenses and taxes.
Average assets for 1996 totaled $889.3 million, an increase of $39.5
million, or 4.7% from 1995 average of $849.8 million. This compares
to the 1995 increase from 1994 of $11.6 million, or 1.4%. The return
on average assets in 1996 was 1.16%, as compared to .99% and .87%
in 1995 and 1994, respectively. The year-to-year increase in the return
on average assets is primarily due to increased levels of net income.
The return on average stockholders' equity was 12.3% in 1996, as compared
to 10.6% and 10.1% for 1995 and 1994, respectively.
On September 29, 1995, Evergreen consummated the Bulk Sale of certain
performing and non-performing loans and Other Real Estate Owned (OREO)
for approximately $13,250,000. The assets sold carried a net book
value of approximately $20,000,000 and the loan loss reserve was reduced
by approximately $6,345,000 as a result of the sale. In addition the
Company recognized additional write downs on OREO and fees from the
sale of approximately $900,000.
NET INTEREST INCOME
Net interest income represents the most significant component of the
Company's earnings. Changes in net interest income from period to
period result from increases or decreases in the average balances
(volume) of earning assets and interest bearing liabilities, increases
or decreases in the average rates earned and paid on such assets and
liabilities, the Company's ability to manage its earning asset portfolio
and the availability of particular sources of funds and investment
opportunities. The Analysis of Variance in Net Interest Income Due
to Volume and Rates exhibit on page 15 presents an analysis of the
increases and decreases in interest income and interest expense which
resulted from changes in volume and changes in rates during the periods
presented herein.
Net interest income on a taxable equivalent basis for 1996 increased
$1,209,000 or 3.0%, from that for 1995. This increase resulted primarily
from an increase in average earning assets. Average earning assets
increased $38.7 million or 4.8% from 1995 levels. This increase resulted
primarily from higher levels of taxable loans which increased $53.3
million on average. The increase in loans was primarily funded by
decreases in average Fed Funds and increases in average balances in
interest bearing deposits.
The increase in net interest income due to volume was somewhat offset
by a lower net interest margin. The net interest margin on a tax equivalent
basis decreased by 9 basis points to 4.98% in 1996 compared to 5.07%
in 1995. The yield on average earning assets decreased 4 basis points
from 8.51% in 1995 to 8.47% in 1996. Average rates paid on interest
bearing liabilities increased 7 basis points to 4.20% in 1996 from
4.13% in 1995. In 1995 the net interest margin decreased 7 basis points
from 5.14% in 1994.
The decrease in yield on taxable loans is due to a shift in loans
from commercial loans to lower yielding consumer and mortgage products.
Funding provided by interest bearing liabilities was concentrated
in time deposits and long term debt. Average balances in these categories
increased $32.7 million and $10.3 million respectively. This higher
cost source of funding is the principal cause of the increase in average
rates paid on interest bearing liabilities.
ANALYSIS OF VARIANCE IN NET INTEREST INCOME DUE TO VOLUME AND RATES
The following table sets forth the dollar amounts of interest income
(on a taxable equivalent basis) and interest expense and changes therein
resulting from changes in volume and changes in rate. The change in
interest due to both rate and volume has been allocated to change
due to volume and change due to rate based on the percentage relationship
of such variances to each other.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
TOTAL INCREASE/(DECREASE) TOTAL INCREASE/(DECREASE)
INCREASE/ DUE TO CHANGE IN INCREASE/ DUE TO CHANGE IN
(DECREASE) VOLUME RATE (DECREASE) VOLUME RATE
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED: ($000 Omitted)
Loans
Taxable $4,120 $4,863 $(743) $ 4,791 $ (73) $4,864
Tax-Exempt (534) (280) (254) 4 (45) 49
Investment Securities
Taxable 707 384 323 481 (20) 501
Tax-Exempt (745) (874) 129 (315) (100) (215)
Federal Funds Sold (549) (423) (126) 1,041 895 146
Interest Bearing Deposits (13) (13) -- 10 (3) 13
Change in Total
Interest Income 2,986 3,657 (671) 6,012 654 5,358
INTEREST EXPENSE INCURRED:
Regular Savings,
NOW and MMDAs (306) (185) (121) (1,251) (1,832) 581
Time Deposits 1,704 1,783 (79) 6,533 3,368 3,165
Short-Term Borrowings (351) (257) (94) 296 118 178
Long-Term Debt 730 709 21 311 110 201
Change in Total
Interest Expense 1,777 2,050 (273) 5,889 1,764 4,125
CHANGE IN NET
INTEREST INCOME $1,209 $1,607 $(398) $ 123 $(1,110) $1,233
</TABLE>
<TABLE>
NET INTEREST INCOME--AVERAGE RATES AND YIELDS
<CAPTION>
($000 Omitted)
1996 1995 1994
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans
Taxable $614,558 $55,991 9.11% $561,276 $51,871 9.24% $562,149 $47,080 8.38%
Tax Exempt 14,552 1,130 7.77 17,840 1,664 9.33 18,329 1,660 9.06
Securities Held
to Maturity and
Securities
Available
for Sale
Taxable 185,319 12,243 6.61 179,435 11,536 6.43 179,761 11,055 6.15
Tax Exempt 10,763 1,034 9.61 19,952 1,779 8.92 20,985 2,094 9.98
Federal Funds Sold 15,160 812 5.36 22,864 1,361 5.95 7,261 320 4.41
Interest Bearing 88 4 4.55 373 17 4.56 579 7 1.21
Deposits with Banks
Total Earning Assets 840,440 71,214 8.47 801,740 68,228 8.51 789,064 62,216 7.89
Allowance for
Loan Losses (12,508) (16,748) (19,480)
Cash and Due
from Banks 30,010 28,436 30,808
Other Non-Earning
Assets 31,391 36,396 37,844
TOTAL ASSETS $889,333 $849,824 $838,236
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Regular Savings,
NOW and MMDAs $340,951 $ 9,495 2.78% $347,575 $ 9,801 2.82% $413,426 $11,052 2.67%
Time Deposits 331,403 18,069 5.45 298,703 16,365 5.48 229,915 9,832 4.28
Short-Term
Borrowings 3,536 181 5.12 8,220 532 6.47 5,855 236 4.03
Long-Term Debt 23,255 1,604 6.90 12,970 874 6.74 11,029 563 5.10
Total Interest
Bearing
Liabilities 699,145 29,349 4.20 667,468 27,572 4.13 660,225 21,683 3.28
Demand Deposits 94,120 92,976 96,835
Other Liabilities 12,122 9,098 8,941
Stockholders'
Equity 83,946 80,282 72,235
TOTAL
LIABILITIES AND
STOCKHOLDERS'
EQUITY $889,333 $849,824 $838,236
Net Interest
Income (Tax
Equivalent Basis) 41,865 40,656 40,533
Tax Equivalent
Adjustment (681) (1,057) (1,229)
Net Interest
Income $41,184 $39,599 $39,304
NET INTEREST
RATE SPREAD 4.27% 4.38% 4.61%
NET INTEREST
MARGIN 4.98% 5.07% 5.14%
Non-accrual loans are included in the above analysis and the related income
on these loans is deemed immaterial.
Portions of income earned on certain Commercial Loans, U.S. Government
Obligations and Obligations of State and Political Subdivisions are
exempt from Federal and/or State taxation. Appropriate adjustments
have been made to reflect the equivalent amount of taxable income
that would have been necessary to generate an equal amount of after
tax income. The taxable equivalent adjustment is based on a marginal
Federal income tax rate of 35% in 1996 and 1995, and 34% in 1994 along
with a marginal State income tax rate of 9.225%, 9.675%, and 10.125%
in 1996, 1995 and 1994 respectively.
For the purposes of this analysis, Securities Available for Sale are
stated at average amortized cost and Stockholders' Equity is unadjusted
for the effects of SFAS No. 115.
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses increased $.3 million from
$12.1 million at December 31, 1995 to $12.4 million at December 31,
1996 reflecting a stable loan loss experience even with an 8.6% increase
in average outstanding loans. During 1995 the allowance decreased
$6.6 million from $18.8 million at December 31, 1994, because of the
net charge off of $6.3 million taken as a result of the Bulk Sale.
The Bulk Sale and other resolutions of non-performing loans has caused
the Com-pany's ratios of allowance for loan losses to non-performing
loans to steadily improve.
The provision for loan losses amounted to $1.4 million for 1996 compared
to $1.8 million for 1995, a decrease of $.4 million, or 20%. The reduced
provision, from year earlier levels, reflects the reduction of non-performing
loans from the levels of the previous years.
The allowance for loan losses represents amounts available for future
credit losses and reflects management's ongoing detailed review of
certain individual credits, as well as analysis of the historic net
charge off experience of the portfolio, an evaluation of current and
anticipated economic conditions, peer group statistics and other pertinent
factors.
Loans (or portions thereof) deemed uncollectible are charged against
the allowance, while recoveries of amounts previously charged off
are added to the allowance. Provisions for loan losses charged to
earnings are added to the allowance. Amounts are charged off once
the probability of loss has been determined, with consideration given
to factors such as the customer's financial condition, underlying
collateral and guarantees, and general and industry economic conditions.
The following table summarizes year-end loan balances, average loans
outstanding and changes in the allowance for loan losses due to loan
losses, recoveries and additions charged to expense:
<TABLE>
<CAPTION>
($000 Omitted)
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Amount of Loans Outstanding End of Year
(Less Unearned Income) $654,888 $592,198 $577,329 $577,351 $620,979
Average Loans Outstanding During Year
(Less Average Unearned Income) $629,110 $579,116 $580,478 $603,356 $629,014
Balance of Allowance at Beginning of Year $ 12,115 $ 18,752 $ 18,754 $ 13,357 $ 8,842
Loans Charged Off:
Commercial, Financial and Agricultural (298) (8,569) (4,021) (10,597) (8,625)
Real Estate (189) (227) (283) (321) (257)
Consumer (1,227) (742) (477) (919) (741)
Total Loans Charged Off (1,714) (9,538) (4,781) (11,837) (9,623)
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural 389 881 2,275 1,586 219
Real Estate 12 16 84 43 42
Consumer 151 204 209 228 202
Total Recoveries 552 1,101 2,568 1,857 463
Net Loans Charged Off (1,162) (8,437) (2,213) (9,980) (9,160)
Additions to Allowance Charged
to Operating Expense 1,440 1,800 2,211 15,377 13,675
BALANCE OF ALLOWANCE AT END OF YEAR $ 12,393 $ 12,115 $ 18,752 $ 18,754 $ 13,357
Net Charge-Offs as Percent of Average Loans Outstanding
During Year (Less Average Unearned Income) .18% 1.46% .38% 1.65% 1.46%
Net Charge-Offs as Percent of Allowance
at Beginning of Year 9.59 44.99 11.80 74.72 103.60
Allowance as Percent of Loans Outstanding
at End of Year (Less Unearned Income) 1.89 2.05 3.25 3.25 2.15
Allowance as Percent of Non-Performing Loans Outstanding
at End of Year (Less Unearned Income) 232.12 204.92 96.54 50.48 24.63
</TABLE>
Evergreen Bancorp, Inc.
OTHER (NON-INTEREST) INCOME
Non-interest income increased $163,000 or 2.6% in 1996 as compared
to 1995 which was a decrease of $1,292,000 from 1994. Service charges
on deposit accounts increased $21,000 and $24,000 in 1996 over 1995,
and 1995 over 1994, respectively. Trust Department fees increased
$169,000 or 7.6% in 1996, following a decrease of $177,000 in 1995.
Net losses on security transactions of $6,000, $137,000 and $93,000
during 1996, 1995 and 1994, respectively were the result of management's
decision to replace certain under performing securities.
Miscellaneous other income decreased $158,000 or 11.6% in 1996 after
a decrease of $1,095,000 in 1995 or 44.7%. The decrease in other income
in 1995 verses 1994 was caused primarily by a $152,000 liquidating
dividend received by the Company from its past data processor, a $202,000
gain on the sale of the credit card merchant portfolio in 1994 and
$662,000 of merchant discount income earned prior to the sale. Management
does not see a material change in the trend of other income in the
foreseeable future.
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Trust Department Fees $2,382 $2,213 $2,390
Services Charges on Deposit Accounts 2,812 2,791 2,767
Net Loss on Security Transactions (6) (137) (93)
Miscellaneous Other Income 1,199 1,357 2,452
TOTAL $6,387 $6,224 $7,516
</TABLE>
<TABLE>
EFFICIENCY RATIO
<CAPTION>
<S> <C>
1994 71.6%
1995 71.1%
1996 63.4%
</TABLE>
OTHER (NON-INTEREST) EXPENSES
Non-interest expense decreased $2,457,000 or 7.5% in 1996 and $928,000
or 2.8% in 1995 from prior year levels. The decreases were primarily
due to reductions in FDIC insurance during 1996 and 1995 and a reduction
in net loss of other real estate and professional fees during 1996.
Salaries and benefits, which represent the largest portion of non-interest
expense, recorded an increase of $232,000 or 1.5% in 1996 and $677,000,
or 4.5%, in 1995. 1995's increase over 1994 was primarily the result
of merit increases and expenses associated with the Corporate reduction
in force. The full time equivalent staff was 398, 392 and 428 at year-end
1996, 1995 and 1994, respectively. The full time equivalent staff
increased by approximately 10 in late 1996 with the opening of the
Latham branch and the employment of staff for the pending opening
of the Clifton Park branch.
FDIC insurance expense was essentially eliminated and decreased $1,063,000
in 1996. In 1995, FDIC Insurance decreased $938,000 or 46.8%. No FDIC
insurance is currently required to be paid in 1997. However, legislation
to recapitalize the Savings and Loan Insurance Fund requires Bank
Insurance Fund members to contribute to the repayment of FICO bonds.
Evergreen's contribution is anticipated to be at least $100,000 in 1997.
Data processing increased $329,000, or 15.7%, in 1996 after remaining
stable from 1994 to 1995. The increase relates to the outsourcing
of the items processing function in December 1995.
Professional fees decreased $545,000 or 33% in 1996 and $251,000,
or 13.1%, in 1995, principally because of a decreased utilization
of lawyers and consultants engaged to assist in the reduction of
non-performing assets.
Total non-interest expense as a percentage of average assets was 3.4%,
3.8% and 4.0% in 1996, 1995 and 1994, respectively. This ratio decreased
primarily due to decreases in FDIC insurance, professional fees and
net losses on other real estate.
Management, except as noted above, does not anticipate a material change
in the trend of other non-interest expenses in the foreseeable future.
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Salaries & Benefits $16,041 $15,809 $15,132
FDIC Insurance 2 1,065 2,003
Data Processing 2,421 2,092 2,092
Professional Services 1,114 1,659 1,910
Occupancy 2,009 2,017 1,819
Furniture & Equipment 1,856 1,852 1,881
Advertising 907 729 878
Net (Gain)/Loss on Other Real Estate (86) 781 869
Supplies and Printing 819 1,038 760
Miscellaneous Other Expenses 5,060 5,558 6,184
TOTAL $30,143 $32,600 $33,528
</TABLE>
INCOME TAXES
Income tax expense for 1996 was $5.7 million compared to income tax
expense of $3.0 million in 1995.
The effective income tax rates were 35%, 27% and 34% for 1996, 1995
and 1994, respectively. The marginal rate for Federal Income Taxes
was 35% in 1996 and 34% in 1995 and 1994. Income taxes for financial
reporting purposes differ from the amount computed by applying the
statutory rate to income before taxes. The difference is due primarily
to tax-exempt income from certain loans and investment securities
and nondeductible expenses. The decrease in the effective tax rate
for 1995 is primarily a result of New York State tax benefits resulting
from the Bulk Sale and the re-evaluation of reserves related to deferred
Federal tax assets in light of the sale. Refer to Note 9 of the Notes
to Consolidated Financial Statements for a more comprehensive analysis
of the provision for income taxes.
The Company accounts for income taxes in conformity with Statement
of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting
for Income Taxes. SFAS No. 109 adopts what is known as the liability
method of accounting for deferred taxes. The liability method requires
recognition of a tax liability, or asset, for the deferred tax consequences
of events that have occurred at the date of the financial statements.
Subsequent changes in tax rates and other tax law provisions are to
be reflected in the measurement of those tax liabilities and assets
and are to be recognized in net income when the changes are enacted.
SECURITIES
The Company's securities portfolio in the aggregate totaled to $197.2
million at December 31, 1996, a $16.7 million decrease from 1995's
balance of $213.9 million. In 1995, the aggregate securities portfolio
increased by $17.1 million from 1994. The decrease during 1996 was
primarily associated with strong retail loan demand throughout the
year. The increase in the securities portfolio in 1995 was largely
attributed to the Company's improved liquidity, due primarily to proceeds
from the Bulk Sale and moderate loan demand. Securities held to maturity
comprise approximately 10% of the aggregate securities portfolio at
December 31, 1996. This is consistent with management's objective
to maintain flexibility and adequate liquidity by classifying most
securities as available for sale.
The following table displays the distribution of the securities portfolio
by major category and maturity:
<TABLE>
Securities Available for Sale & Securities Held to Maturity
As of December 31, 1996:
<CAPTION>
($000 Omitted)
TOTAL SECURITIES
U.S. TREASURY STATE AND AVAILABLE FOR SALE AND
& AGENCY<F1> POLITICAL SUBDIVISIONS OTHER SECURITIES HELD TO MATURITY
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST YIELD VALUE COST YIELD VALUE COST YIELD VALUE COST YIELD VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-1 year $ 34,686 6.27% $ 34,742 $ 2,102 6.56% $ 2,131 $ 6 4.11% $ 7 $ 36,794 6.28% $ 36,880
1-5 years 98,936 6.73 99,327 3,728 6.81 3,908 3,023 6.19 2,980 105,687 6.72 106,215
5-10 years 20,791 7.10 20,746 4,948 8.46 5,548 -- -- -- 25,739 7.36 26,294
Over 10 years 28,703 7.40 28,554 204 5.30 213 -- -- -- 28,907 7.39 28,767
TOTAL $183,116 6.79% $183,369 $10,982 7.48% $11,800 $3,029 6.19% $2,987 $197,127 6.82% $ 98,156
Avg. Maturity: 3.0 years 4.1 years 3.0 years 3.1 years
<FN>
<F1>Includes $141,021 of mortgage-backed securities which are secured by agencies of the U.S. government.
</TABLE>
LOANS
The total loan portfolio, net of unearned income, increased $62.7
million to $654.9 million at the end of 1996 compared to $592.2 million
at year end 1995. Increases in residential real estate and consumer
loans were offset by continued decreases in commercial loan balances.
Commercial loans decreased by $5.4 million in 1996 to a balance of
$225.0 million, following a decrease of $26.8 million in 1995 to $230.4
million. The decrease in the commercial loan portfolio in 1995 and
1994 was accompanied by significant improvements in the credit quality
of the loan portfolio, as management resolved significant portions
of its non-performing loans through workouts and also, in 1995, the
Bulk Sale. During 1996, the commercial loan portfolio remained relatively
stable as the economy in which the Company operates remained flat.
Meaningful growth in the commercial loan portfolio is dependent on
improved economic conditions in the upstate New York regions in which
the Company operates.
Residential mortgage loans increased to $280.8 million at December
31, 1996, a $36.3 million increase over 1995's balance of $244.6 million.
In 1995, residential mortgage loans increased by $14.8 over 1994.
The increases in 1996 and 1995 were attributable to improved efforts
in residential loan origination.
Consumer loans increased to $146.5 million at December 31, 1996, a
$31.7 million increase over 1995's balance of $114.9 million. The
significant increase in consumer loans in 1996 and 1995 was due primarily
to the products such as the Touch-Tone Loan Program, and continued
penetration into the automobile dealer indirect markets. The most
significant portion of the new consumer loans in 1996 and 1995 were
secured by first liens on automobiles. However, in 1996, the continued
success of the Touch-Tone Loan Program decreased the proportion of
the Company's consumer loans that are secured. Consumer loans increased
by $27.5 million in 1995 over 1994.
The following table sets forth the classification of the Evergreen's
consolidated loans, net of unearned income, by major category:
<TABLE>
<CAPTION>
($000 Omitted)
DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial $224,955 $230,373 $257,152 $301,756 $359,137
Real Estate Construction 2,265 1,992 2,574 2,538 2,127
Real Estate Mortgage 280,833 244,575 229,799 204,276 194,535
Installment 146,528 114,874 87,352 67,794 63,899
Other 307 384 452 987 1,281
TOTAL LOANS $654,888 $592,198 $577,329 $577,351 $620,979
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets consist of non-performing loans, other real
estate and other forms of repossessed assets. Non-performing loans
are composed of (1) loans on a non-accrual basis, (2) loans which
are contractually past due 90 days or more as to interest or principal
payments but have not been classified as non-accrual and (3) loans
whose terms have been restructured to provide a reduction or deferral
of interest or principal because of a deterioration in the financial
position of the borrower.
The Company's policy with regard to non-accrual loans varies by the
type of loan involved. Generally, commercial, financial and agricultural
loans are placed on a non-accrual status when they are 90 days past
due unless they are well secured and in the process of collection,
or regardless of the past due status of the loan when management determines
that the complete recovery of principal and interest is in doubt.
As a matter of general policy, consumer loans are charged off after
they become 120 days past due unless they are well secured and in
the process of collection; however, in some instances, consumer loans
are classified non-accrual when payments are past due 120 days. Mortgage
loans are not generally placed on a non-accrual basis unless it is
determined that the value or marketability of real estate securing
the loans has deteriorated to the point that a potential loss of principal
or interest exists. Once a loan is on a non-accrual basis, interest
is recorded only as received and only if the loan principal is deemed
fully collectible. Interest payments received on loans not deemed
fully collectible are applied against the principal balance until
management determines that the principal balance is fully collectible.
Interest previously accrued on non-accrual loans which has not been
paid is reversed and charged against income during the period in which
the loan is placed on non-accrual status. Interest on restructured
loans is only recognized in current income at the renegotiated rate
and then only to the extent that such interest is deemed collectible.
Non-performing assets were $7,033,000 at December 31, 1996. This represents
a decrease of $2,739,000 from $9,772,000 at December 31, 1995. Non-performing
loans decreased $573,000 since December 31, 1995 to $5,339,000 at
December 31, 1996. The 1996 decrease in non-performing assets was
primarily the result of the sale from OREO of the remaining Hiland
Park property.
Other real estate net of transfers, losses and write-downs, decreased
$2,308,000 since December 31, 1995 to $1,476,000 at December 31, 1996.
Non-accrual loans decreased $779,000 from $4,571,000 at December 31,
1995 to $3,792,000 at December 31, 1996. Management continually evaluates
the adequacy of the collateral on non-performing loans and charges
off that portion of the loan not considered recoverable.
Management considers restructuring a loan when the facts and circumstances
indicate that working with the borrower will maximize potential for
principal repayment while minimizing the risk of loss. At December
31, 1996 the Company is carrying only one restructured loan totaling
$133,000. That loan is in compliance with the renegotiated terms.
<TABLE>
The Following Table Presents Information Concerning Non-Performing
Assets:
<CAPTION>
($000 Omitted)
DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
COMMERCIAL LOANS
Non-Accrual $3,425 $4,191 $13,951 $32,299 $43,236
Past Due 90 Days and Still Accruing 45 387 1,053 1,430 5,878
Restructured 133 138 2,656 1,476 3,196
Total Non-Performing Commercial 3,603 4,716 17,660 35,205 52,310
RESIDENTIAL REAL ESTATE LOANS
Non-Accrual 180 334 188 406 14
Past Due 90 Days and Still Accruing 946 491 1,172 1,255 1,125
Total Non-Performing Residential Mortgage 1,126 825 1,360 1,661 1,139
INSTALLMENT LOANS
Non-Accrual 187 46 -- -- 44
Past Due 90 Days and Still Accruing 423 325 405 282 731
Total Non-Performing Installment 610 371 405 282 775
Total Non-Performing Loans 5,339 5,912 19,425 37,148 54,224
Other Real Estate 1,476 3,784 10,319 2,750 1,798
Repossessed Assets--Other 218 76 178 606 930
TOTAL NON-PERFORMING ASSETS $7,033 $9,772 $29,922 $40,504 $56,952
NON-PERFORMING ASSETS AS A PERCENT OF TOTAL LOANS--
NET OF UNEARNED INCOME 1.07% 1.65% 5.18% 7.02% 9.17%
NON-PERFORMING LOANS AS A PERCENT OF TOTAL LOANS--
NET OF UNEARNED INCOME .82% 1.00% 3.36% 6.43% 8.73%
</TABLE>
Of the $3.8 million of loans in non-accrual status as of December
31, 1996, approximately $3.4 million represents loans which are secured,
primarily by real estate.
At December 31, 1996, the allowance for loan losses as a percent of
total non-performing loans was 232.1 percent. This compares to 204.9
percent at December 31, 1995. The coverage percent at December 31,
1996, compares favorably to that ratio for peer group institutions.
In addition to the total non-performing loans set forth above, other
"classified" loans were $15.6 million at December 31, 1996, compared
to $13.5 million at December 31, 1995. These are loans for which management
has information which indicates that the borrower may not be able
to comply with present payment terms. Since there is some doubt about
the ability of these borrowers to comply with payment terms, management
has taken these loans under greater consideration in determining the
adequacy of the allowance for loan losses.
CAPITAL
At December 31, 1996, and 1995, stockholders' equity was $85.4 million
and $83.0 million, respectively. This represents an increase of $2.4
million, or 2.9%. This compares to an increase of $9.4 million, or
12.8%, for 1995 versus to 1994. The 1996 increase primarily represents
the retention of $6.3 million of earnings in 1996. During 1996, the
Company paid $4.0 million in dividends or $.43 per share and purchased
approximately 345,000 shares of treasury stock at a cost of $4.4 million.
The adequacy of the Company's capital is reviewed by management on
an ongoing basis in relation to the size, composition and quality
of the Company's resources and in conjunction with regulatory guidelines
and industry standards.
In early 1990, United States bank regulators issued guidelines with
respect to the capital adequacy of banks and bank holding companies.
These guidelines supplement the existing definitions of capital for
regulatory purposes and establish minimum capital standards related
to the level of assets and off-balance sheet exposures, adjusted for
credit risk. Specifi-cally, the guidelines categorize assets on and
off balance sheet into four risk-weightings and require banking institutions
to maintain minimum ratios of capital to risk-weighted assets. Tier
1 capital is essentially comprised of tangible stockholders' equity
for common stock and certain perpetual preferred stock, and Total
capital includes a portion of the reserve for loan losses, certain
qualifying long-term debt and preferred stock that does not qualify
as Tier 1. The regulatory minimum for Tier 1 capital is 4.0% of risk-adjusted
assets while the minimum for Total capital is 8.0%.
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
and the Federal Deposit Insurance Corporation Improvement Act (FDICIA)
are laws enacted that have or will change various aspects of the banking
industry. In part these laws deal with regulatory oversight and reporting.
The following table sets forth the Company's risk based capital ratios
as of December 31, 1996 and 1995, and the minimum regulatory guidelines
effective for year-end 1996:
<TABLE>
<CAPTION>
EVERGREEN EVERGREEN MINIMUM
REGULATORY BANCORP, INC. BANCORP, INC. REGULATORY
RATIOS DEC. 31, 1996 DEC. 31, 1995 GUIDELINES
<S> <C> <C> <C>
Leverage Ratio 9.2% 9.5% 3.0%
Tier 1 13.7 14.0 4.0
Total Capital 14.9 15.2 8.0
</TABLE>
<TABLE>
RATE OF INTERNAL CAPITAL GENERATION
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Return on Average Assets 1.16% .99% .87%
Average Equity to Average Assets 9.44 9.29 8.62
Return on Average Equity 12.28 10.61 10.06
Earnings Retention Ratio 61.42 74.70 96.75
Internal Capital Generation Ratio<F1> 7.54 7.93 9.73
<FN>
<F1>Return on average equity times earnings retention ratio equal internal capital generation ratio.
</TABLE>
LIQUIDITY
Liquidity represents a banking enterprise's continuing ability to
meet its funding needs, such as loan demand and the maturity or withdrawal
of deposits and other financial obligations. In addition to maintaining
liquid assets, factors such as capital position, profitability, asset
quality and availability of funding, affect a bank's ability to meet
its liquidity needs. The Company's primary sources of liquidity continue
to be federal funds sold, securities available for sale and investment
securities maturing within one year.
The securities available for sale portfolio was created in 1992 largely
from securities previously held as investment securities. The available
for sale portfolio is carried at estimated fair value and is available
to support funding requirements.
Other sources of liquidity include repayment of loans and the federal
funds market (a system that banks use to trade surplus funds). There
is also balance sheet liquidity in the form of assets that can collateralize
securities to be offered for sale or borrowings. The Company, through
the bank subsidiary, has the availability to borrow up to $85.1 million
from the Federal Home Loan Bank of New York (FHLB) (upon purchase
of required FHLB stock) through its line of credit program. In addition,
the subsidiary bank is eligible to borrow up to 30% of assets under
the FHLB advance program subject to FHLB stock level requirements,
collateral requirements and individual advance approvals based on
FHLB credit standards. The Company also has the availability to borrow
up to $8.5 million at the Federal Reserve Discount Window along with
informal federal funds purchase agreements with correspondent banks
of up to $13.0 million. When the Company experiences a net outflow
of funds, maturing certificates of deposit with other banks and maturing
long-term investments are not reinvested until sufficient excess funds
are available. The Company during 1996 sold on average $15.2 million
daily in federal funds, in contrast, purchases and other short-term
borrowings averaged $3.5 million. Net cash provided by operating activities
was $15.3 million for 1996 as compared to $15.1 million for 1995.
Net cash used by investing activities was $49.3 million in 1996 compared
to net cash used of $29.0 million in 1995. This increase is primarily
a result of net increases in loans, net of loan sales, compared to
the prior year of $38.4 million. Net cash provided by financing activities
increased $23.5 million to $46.5 million in 1996. This increase is
primarily a result of a $50.6 million increase in deposits and $2.9
million in additions to long-term debt. The level of cash and cash
equivalents was $56.1 million at December 31, 1996.
The Parent Company (see Note 17 to the financial statements) held
cash and readily liquefiable assets of $2.1 million.
ASSET/LIABILITY MANAGEMENT
The Company, in order to insure that the risk to earnings from changes
in interest rates is maintained within acceptable limits, manages
these risks through its asset/liability management function.
Asset/liability management at Evergreen consists primarily of, the
interest rate sensitivity "gap" analysis, and simulations of net interest
income under alternative balance sheet structures incorporating a
"rate shock" to measure earnings volatility due to an immediate increase
or decrease in market interest rates of up to 200 basis points. The
Company has established guidelines for acceptable levels of interest
rate risk and monitors the effects of changing interest rates and
potential changes in interest rates on a continuous basis under the
supervision of the corporate Asset/Liability Committee.
The following table shows the interest rate sensitivity gaps as of
December 31, 1996:
<TABLE>
<CAPTION>
BALANCE MATURING OR SUBJECT TO REPRICING
AFTER 3 MO. AFTER 1 YEAR
WITHIN BUT WITHIN BUT WITHIN AFTER
AT DECEMBER 31, 1996 3 MONTHS 1 YEAR 5 YEARS 5 YEARS TOTAL
<S> <C> <C> <C> <C> <C>
($000 Omitted)
INTEREST-EARNING ASSETS:
Securities Available for Sale at Amortized Cost $ 27,871 $ 38,424 $ 93,848 $ 16,956 $177,099
Securities Held to Maturity 599 2,341 14,779 2,309 20,028
Total Loans 225,086 110,192 242,422 77,188 654,888
Other Earning Assets 22,935 -- -- -- 22,935
Total Earning Assets 276,491 150,957 351,049 96,453 874,950
Excess Fair Value Over Cost of Securities
Available for Sale 41
Other Assets 53,658
TOTAL ASSETS $928,649
INTEREST-BEARING LIABILITIES:
Savings, NOW and MMDA $143,150 $ -- $207,612 $ -- $350,762
Time Deposits 133,711 100,968 119,075 3,603 357,357
Short-Term Debt 3,846 -- -- -- 3,846
Long-Term Debt 262 200 17,965 7,811 26,238
Total Interest-Bearing Liabilities 280,969 101,168 344,652 11,414 738,203
Demand Deposits 92,737
Other Liabilities & Equity 97,709
Total Liabilities & Equity $928,649
INTEREST RATE SENSITIVITY GAP $ (4,478) $ 49,789 $ 6,397 $ 85,039
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (4,478) $ 45,311 $ 51,708 $136,747 $136,747
</TABLE>
Interest rate gap analysis provides a static viewpoint of the repricing
characteristics of the entire balance sheet. It is prepared by scheduling
assets and liabilities into time bands based on their next opportunity
to reprice.
In computing the interest rate sensitivity gap, securities available
for sale and securities held to maturity are determined to reprice
at the earlier of maturity (including scheduled monthly principal
repayments and anticipated principal prepayments of securities collateralized
by mortgages) or the contractual repricing date. Monthly amortization
and prepayments of fixed rate mortgage loans have been adjusted to
reflect anticipated principal repayments above contractual terms,
all other loans are presented based on contractual terms. Savings,
NOW and Money Market Deposit Accounts are allocated based on management
assumptions as to their interest rate sensitivity over an entire interest
rate cycle even though they are subject to immediate withdrawal.
At December 31, 1996 the Company exhibited a positive, or asset sensitive,
gap position. Consequently, if interest rates fall, and all other
variables remained fixed, it may be assumed that net interest income
would decrease. Were rates to increase, net interest income might
be expected to increase if all other variables remained constant.
Simple gap analysis measures the Company's exposure at a particular
point in time. Moreover, gap analysis does not adequately reveal timing
differences within broad time frames, delays in the repricing of certain
assets or liabilities when market rates change, or changes in spreads
between different markets. Accordingly, management supplements its
gap analysis with simulation analysis of net interest income under
a variety of alternative market interest rate scenarios. The Company's
simulation modeling indicates the potential changes to net interest
income under the various rate shock scenarios employed are well within
the guidelines of acceptable levels.
The Company does not currently utilize derivative instruments such
as interest rate options, futures, or swaps to manage the Company's
interest rate risk, although it may do so from time to time in the future.
The following table sets forth the maturities of the Company's consolidated
loan portfolio, excluding Real Estate Mortgage, Installment, and Other
Loans (loans are categorized based on the contract time period rather
than based on when the loan reprices):
<TABLE>
<CAPTION>
($000 Omitted)
Within Within After
Loans at December 31, 1996, Maturing: 1 Year<F1> 1 to 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Commercial $ 49,242 $ 97,893 $ 77,820 $ 224,955
Real Estate Construction 2,265 -- -- 2,265
Total $ 51,507 $ 97,893 $ 77,820 $ 227,220
Loans Maturing After 1 Year:
With Pre-Determined Interest Rate $ 34,339
With Floating Interest Rate 141,374
Total $ 175,713
<FN>
<F1> Includes demand loans having no stated schedule of prepayments
and no stated maturity and certain time loans that, in the ordinary
course of business, will be renewed, in whole or in part as to principal
amount, at interest rates prevailing at the date of renewal.
</TABLE>
CAPITAL EXPENDITURES AND COMMITMENTS
The Company has significant capital expenditure commitments outstanding
at December 31, 1996. Plans to open two new branches and relocate
an existing branch during 1997 are expected to require capital expenditures
of approximately $1 million. In addition, the Company plans to undertake
technology improvements including an upgrade to teller platforms,
an imaging system and upgrades to other computer systems throughout
the organization during 1997. The cost of these technology upgrades
is estimated to approximate $1 million. Finally, general branch and
facilities upgrades and refurbishment are anticipated to require expenditures
approximating $700 thousand during 1997.
During 1996, the Company incurred $3.3 million in capital expenditures.
$1.8 million was spent on purchasing and refurbishing a new branch
and regional headquarters in Latham, New York. The balance was utilized
to acquire office furniture, data processing equipment and software.
Capital expenditures of $1.3 million in 1995 consisted of substantially
the same type items as 1996.
DESCRIPTION OF BUSINESS
Evergreen Bancorp, Inc. is registered as a bank holding company with
the Board of Governors of the Federal Reserve System under the Bank
Holding Company Act of 1956. It is regulated and supervised by the
Board of Governors of the Federal Reserve System. The Company has
as its principal assets, the outstanding shares of Evergreen Bank,
N.A. Outside of its ownership of Evergreen Bank, N.A., Evergreen Bancorp
owns only a nominal amount of assets, including an inactive venture
capital subsidiary.
Evergreen Bank, N.A.'s principal banking office is located at 237
Glen Street, Glens Falls, New York. In addition it operates 25 branches
located in seven counties in northeastern New York State as well as
drive-in facilities in Glens Falls and Granville and a separate operations
center in downtown Glens Falls. At December 31, 1996 Evergreen Bank,
N.A. had assets of $920.1 million, deposits of $800.9 million and
equity of $81.4 million.
Evergreen Bank, N.A. is a member of the Federal Reserve System and
is subject to regulations and supervision by the Federal Reserve and
the Comptroller of the Currency. Through Evergreen Bank, N.A., the
holding company engages in commercial and retail banking as well as
trust services. A complete range of banking services is provided including
all forms of demand deposits, time deposits and repurchase agreements
as well as consumer, mortgage, business and agricultural loans.
Evergreen Bank, N.A. offers safe deposit facilities, night depository,
credit cards and collection services. In addition, Evergreen Bank,
N.A. facilitates municipal bond transactions for customers and provides
computer services with respect to payroll processing and
account reconciliation.
Evergreen Venture Capital, Inc. was formed for the purpose of financing
small businesses with high growth potential. This subsidiary is currently
inactive and has no assets, liabilities or equity as of December 31,
1996.
Evergreen Real Estate Appraisers, formed for the purpose of performing
appraisals of residential and commercial properties, was liquidated
during 1995.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
($000 Omitted)
(Except Per Share Data)
For the years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Interest Income $ 56,794 $ 52,971 $ 48,231
Interest and Fees on Loans
Interest and Dividends on Securities Available
for Sale and Held to Maturity:
U.S. Government and Agency Obligations 11,369 10,550 9,594
State and Municipal Obligations 1,095 1,718 2,179
Other 459 554 656
Interest on Balances with Banks 4 17 7
Interest on Federal Funds Sold 812 1,361 320
Total Interest Income 70,533 67,171 60,987
Interest Expense
Interest on Deposits:
Regular Savings, NOW and Money Market
Deposit Accounts 9,495 9,801 11,052
Certificates of Deposit (in Denominations
of $100,000 or More) 3,713 3,492 1,419
Other Time 14,356 12,873 8,413
Interest on Short-Term Borrowings 181 532 236
Interest on Long-Term Debt 1,604 874 563
Total Interest Expense 29,349 27,572 21,683
Net Interest Income 41,184 39,599 39,304
Provision for Loan Losses 1,440 1,800 2,211
Net Interest Income after Provision 39,744 37,799 37,093
for Loan Losses
Other Income
Trust Department Income 2,382 2,213 2,390
Service Charges on Deposit Accounts 2,812 2,791 2,767
Net Losses on Security Transactions (6) (137) (93)
Other 1,199 1,357 2,452
Total Other Income 6,387 6,224 7,516
Other Expense
Salaries and Employee Benefits 16,041 15,809 15,132
FDIC Insurance 2 1,065 2,003
Professional Services 1,114 1,659 1,910
Net Occupancy Expense of Bank Premises 2,009 2,017 1,819
Furniture and Equipment Expense 1,856 1,852 1,881
Net (Gain)/Loss on Other Real Estate (86) 781 869
Other 9,207 9,417 9,914
Total Other Expense 30,143 32,600 33,528
Income Before Income Taxes 15,988 11,423 11,081
Applicable Income Taxes 5,675 3,043 3,816
Net Income $ 10,313 $ 8,380 $ 7,265
Average Net Shares Outstanding 9,229,000 9,430,000<F1> 9,456,000<F1>
Net Income Per Common Share $ 1.12 $ .89<F1> $ .77<F1>
<FN>
<F1> Per share data have been adjusted for the two-for-one stock split.
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CONDITION
($000 Omitted)
As of December 31, 1996 1995
<S> <C> <C>
Assets
Cash and Cash Equivalents:
Cash and Due from Banks $ 33,430 $ 31,021
Federal Funds Sold 22,700 12,600
Total Cash and Cash Equivalents 56,130 43,621
Securities Available for Sale 177,140 190,785
Securities Held to Maturity 20,028 23,128
Loans 659,153 599,037
Less: Allowance for Loan Losses (12,393) (12,115)
Unearned Income (4,265) (6,839)
Net Loans 642,495 580,083
Bank Premises and Equipment 15,278 13,694
Other Real Estate Owned 1,476 3,784
Other Assets 16,102 16,328
Total Assets $ 928,649 $ 871,423
Liabilities and Stockholders' Equity
Deposits:
Demand $ 92,737 $ 97,380
Regular Savings, NOW Accounts and Money Market Deposit Accounts 350,762 340,218
Certificates of Deposit (In Denominations of $100,000 or More) 79,808 70,614
Other Time 277,549 242,012
otal Deposits 800,856 750,224
Short-Term Borrowings 3,846 3,260
Accrued Taxes and Other Liabilities 12,270 11,419
Long-Term Debt 26,238 23,475
Total Liabilities 843,210 788,378
Stockholders' Equity
Common Stock $3.33 Par Value: Shares Authorized 20,000,000,
Shares Issued 9,633,966 in 1996 and 9,621,966 in 1995 32,113 16,036
Surplus 6,787 6,680
Undivided Profits 53,149 63,065
Market Over Cost of Securities Available For Sale Net of Deferred Tax 24 474
Common Stock Subscribed by ESOP (808) (967)
Treasury Stock (514,158 shares in 1996 and 244,538 shares in 1995) (5,826) (2,243)
Total Stockholders' Equity 85,439 83,045
Total Liabilities and Stockholders' Equity $ 928,649 $ 871,423
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
($000 Omitted)
Market Common
Over/(Under) Stock
Common Undivided Cost of Subscribed Treasury
Stock Surplus Profits Securities By ESOP Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 15,785 $ 5,840 $ 49,782 $ -- $ (1,264) $ (258) $ 69,885
Net Income--1994 -- -- 7,265 -- -- -- 7,265
Cash Dividends
($.03 per share) -- -- (236) -- -- -- (236)
Stock Issued (59,578 shares) 99 301 -- -- -- -- 400
Stock Vested in ESOP -- -- -- -- 144 -- 144
Change in Valuation
Allowance on Securities -- -- -- (3,857) -- -- (3,857)
Balance at December 31, 1994 15,884 6,141 56,811 (3,857) (1,120) (258) 73,601
Net Income--1995 -- -- 8,380 -- -- -- 8,380
Cash Dividends
($.23 per share) -- -- (2,126) -- -- -- (2,126)
Stock Issued (91,460 shares) 152 539 -- -- -- -- 691
Purchase of Treasury Stock
(205,818 shares) -- -- -- -- -- (1,985) (1,985)
Stock Vested in ESOP -- -- -- -- 153 -- 153
Change in Valuation
Allowance on Securities -- -- -- 4,331 -- -- 4,331
Balance at December 31, 1995 16,036 6,680 63,065 474 (967) (2,243) 83,045
Net Income--1996 -- -- 10,313 -- -- -- 10,313
Cash Dividends
($.43 per share) -- -- (3,979) -- -- -- (3,979)
Stock Issued (12,000 shares) 21 107 -- -- -- -- 128
Two-for-One Stock Split 16,056 -- (16,056) -- -- -- --
Stock Grants, Awards and
Options Exercised
(75,392 shares) -- -- (194) -- -- 803 609
Purchase of Treasury Stock
(345,012 shares) -- -- -- -- -- (4,386) (4,386)
Stock Vested in ESOP -- -- -- -- 159 -- 159
Change in Valuation
Allowance on Securities -- -- -- (450) -- -- (450)
Balance at December 31, 1996 $ 32,113 $ 6,787 $ 53,149 $ 24 $ (808) $ (5,826) $ 85,439
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
($000 Omitted)
For the Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 10,313 $ 8,380 $ 7,265
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Net Change in Unearned Loan Fees 50 52 123
Net Change in Other Assets and Other Liabilities 2,308 707 89
(Gain)/Loss on Sale of Loans, Securities and Other Real Estate (287) 136 43
(Increase)/Decrease in Deferred Tax Benefit (932) 1,489 (210)
Write-Down of Other Real Estate 279 781 869
Loss on Disposition of Assets 164 -- 31
Depreciation 1,533 1,515 1,572
Provision for Loan Losses 1,440 1,800 2,211
Amortization of Premiums & Accretion of Discounts on Securities, Net 433 214 767
Net Cash Provided By Operating Activities 15,301 15,074 12,760
Cash Flows From Investing Activities
Proceeds from Sales of Securities Available for Sale 6,753 8,404 24,872
Proceeds from Maturities of Securities Available for Sale 51,517 42,278 34,172
Purchases of Securities Available for Sale (45,794) (73,505) (46,606)
Proceeds of Maturities of Securities Held to Maturity 8,077 23,021 3,043
Purchases of Securities Held to Maturity (4,996) (10,361) (10,670)
Proceeds from Sales of Loans 3,124 18,480 6,676
Change in Check Overdraft Receivables 223 331 100
Proceeds from Sales of Other Real Estate 2,911 8,340 2,300
Net Increase in Loans (67,838) (44,754) (19,778)
Capital Expenditures (3,281) (1,263) (732)
Net Cash Used by Investing Activities (49,304) (29,029) (6,623)
Cash Flows From Financing Activities
Net Increase/(Decrease) in Deposits 50,632 14,403 (207)
Net Increase/(Decrease) in Short-Term Borrowings 586 (1,158) (5,382)
Payments on Long Term Debt (7,078) (341) (5,283)
Proceeds from Issuance of Long-Term Debt 10,000 13,500 7,200
Proceeds from Issuance of Common Stock 737 691 400
Payments for Purchase of Treasury Shares (4,386) (1,985) --
Dividends Paid (3,979) (2,126) (236)
Net Cash Provided/(Used) by financing Activities 46,512 22,984 (3,508)
Net Increase in Cash and Cash Equivalents 12,509 9,029 2,629
Cash and Cash Equivalents at Beginning of Year 43,621 34,592 31,963
Cash and Cash Equivalents at End of Year $ 56,130 $ 43,621 $ 34,592
Supplemental Disclosure of Cash Flows
Interest Paid $ 28,973 $ 28,271 $ 21,366
Taxes Paid $ 6,678 $ 3,388 $ 4,068
</TABLE>
Certain properties which were foreclosed upon or title was otherwise
transferred to the Company were transferred from loans to other real
estate in the amount of $589,000, $2,586,000 and $10,738,000 in 1996,
1995, and 1994, respectively.
The Company borrowed $1,600,000 which was used to subscribe for common
stock of the Company in 1990. Payments were made on the ESOP loan
in the amount of $159,000, $153,000 and $144,000 in 1996, 1995 and
1994, respectively.
As a result of the adoption of SFAS No. 115, securities available
for sale are recorded at fair value. The unrealized gain on these
securities was $41,000 at December 31, 1996. The adjustment to stockholders'
equity for the unrealized gain was $24,000 net of deferred income
tax expense of $17,000 which is included as a decrease in the deferred
tax asset. At December 31, 1995 securities available for sale had
an unrealized gain of $790,000. The adjustment to stockholders' equity,
net of deferred income tax expense of $316,000, was $474,000.
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Evergreen Bancorp, Inc. (Company)
and its subsidiaries, are in accordance with generally accepted accounting
principles and general practices within the banking industry. The
following is a summary of the significant accounting policies used
in the preparation of the consolidated financial statements.
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of significant
inter-company accounts and transactions.
Securities
Management determines the appropriate classification of securities
at the time of purchase. If management has the positive intent and
the Company has the ability at the time of purchase to hold securities
until maturity, they are classified as securities held to maturity
and carried at amortized historical cost. If securities are purchased
for the purpose of selling them in the near term, they are classified
as a trading securities and are reported at fair value with unrealized
holding 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
and losses reported, net of income taxes, as a separate component
of stockholders' equity. Premiums are amortized and discounts accreted
using a method which approximates the level-yield method. Gains or
losses on security transactions are based on the adjusted cost of
specific securities sold. Securities gains and losses are included
in other income.
Loans
Loans are stated at the principal amount outstanding, net of unearned
discount and deferred fees. Interest on loans is computed by methods
which result in level rates of return on principal amounts outstanding.
Net deferred fees are amortized as yield adjustments using methods
that provide for a constant level-yield on the loan.
Commercial loans which are 90 days past due are placed on a non-accrual
status unless they are well secured and in the process of collection,
or regardless of the past due status of the loan when management determines
that the complete recovery of principal and interest is in doubt.
Consumer loans are generally charged off after they become 120 days
past due. Mortgage loans are not generally placed on a non-accrual
basis unless the value of the real estate has deteriorated to the
point that a potential loss of principal or interest exists. Amortization
of related deferred fees is suspended when a loan is placed on a non-accrual
status.
As of January 1, 1995, the Company has adopted the provisions of SFAS
No. 114 and SFAS No. 118 and has provided the required disclosures.
These Statements prescribe recognition criteria for loan impairment
and measurement methods for certain impaired loans, and loans whose
terms are modified in a troubled debt restructuring subsequent to
the adoption of SFAS No. 114. The adoption of SFAS No. 114 and SFAS
No. 118 did not have a material effect on the Company's consolidated
financial position or results of operations.
In May 1995, the Financial Accounting Standards Board issued SFAS
No. 122, Accounting for Mortgage Servicing Rights, which amends SFAS
No. 65, Accounting for Certain Mortgage Banking Activities. SFAS No.
122 requires that entities recognize as separate assets, the right
to service mortgage loans for others, regardless of how those servicing
rights are acquired. Additionally, SFAS No. 122 requires 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 Company adopted SFAS
No. 122 in the first quarter of 1996. The adoption of SFAS No. 122
did not have a material effect on the Company's consolidated financial
position or results of operations.
Allowance for Loan Losses
The allowance for loan losses is utilized to absorb losses in the
loan portfolio. Provisions for loan losses are charged to operating
expense and added to the allowance for loan losses. Losses are charged
to the allowance and recoveries are credited to it. As a result of
the adoption of SFAS No. 114, the allowance for loan losses related
to loans that are identified for evaluation in accordance with SFAS
No. 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. The allowance is maintained at a level
deemed appropriate by management to adequately provide for known and
inherent risks in the present portfolio. This evaluation is inherently
subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change. While management
uses available information to recognize losses on loans, future additions
to the allowance 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 Company's allowance for
losses on loans. Such agencies may require the Company to recognize
additions to the allowance based on their judgements of information
available to them at the time of examination.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization of bank premises and equipment and leasehold
improvements are calculated primarily by the straight-line method
over an estimated useful life ranging from 3 to 40 years for financial
reporting purposes and by accelerated methods for income tax purposes.
Other Real Estate
Includes real estate held for sale which has been acquired through
foreclosure or a similar conveyance of title. These assets are reported
at fair value at acquisition date, and subsequently reported at the
lower of its new cost basis or fair value less estimated costs to
sell. Fair value is determined by appraisal of the asset. Any asset
writedown at the date of acquisition is charged to the allowance for
loan losses. Subsequent write down, gain or expense incurred is included
in other non-interest expense.
In May 1995, the Financial Accounting Standards Board issued SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. Various assets are excluded from
the scope of SFAS No. 121, including financial instruments which constitute
the majority of the Company's assets. For long-lived assets included
in the scope of SFAS No. 121, such as premises and equipment, an impairment
loss must be recognized when the estimate of total undiscounted future
cash flows attributable to the asset is less than the asset's carrying
amount. Measurement of the impairment loss is determined by reducing
the carrying amount of the asset to its fair value. Long-lived assets
to be disposed of such as other real estate or premises to be sold,
are reported at the lower of carrying amount or fair value less cost
to sell. The Company adopted SFAS No. 121 in the first quarter of
1996. The adoption of SFAS No. 121 did not have a material effect
on the Company's consolidated financial statements.
Income Taxes
Certain income and expense items are reported in different time periods
for financial statement purposes, than for income tax purposes. Deferred
income taxes are provided in recognition of such differences. The
Financial Accounting Standards Board issued statement No. 109, Accounting
for Income Taxes, which changed the Company's method of accounting
for income taxes from the deferred method required under APB 11 to
the asset and liability method.
Retirement Plans
The employees of the Company and its subsidiaries are covered by
non-contributory pension plans which cover substantially all employees.
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125 (SFAS No. 125), which provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a financial components approach that focuses on control.
In addition, SFAS No. 125 amends SFAS No. 115 to prevent a security
from being classified as held to maturity if the security can be prepaid
or settled in such a manner that the holder of the security would
not recover substantially all of its recorded investment. The extension
of the SFAS No. 115 approach to certain non-security financial assets
and the amendment to SFAS No. 115 are effective for financial assets
held on or acquired after January 1, 1997. Effective January 1, 1997,
SFAS No. 125 will supersede SFAS No. 122. SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Management believes
the adoption of SFAS No. 125 will not have a material impact on the
Company's consolidated financial statements.
Earnings Per Share
Earnings per common share is based on the daily average of common
shares outstanding during each year.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, which establishes
a fair value based method of accounting for employee stock options,
such as the Company's stock option plans, or similar equity instruments.
Under SFAS No. 123, entities can recognize stock-based compensation
expense in the basic financial statements using either (i) the intrinsic
value based approach set forth in the APB Opinion No. 25 or (ii) the
fair value based method introduced in SFAS No. 123. Entities electing
to remain with the accounting in APB Opinion 25, must make pro forma
disclosures of net income and earnings per share, as if the fair value
based method of accounting defined in SFAS No. 123 had been applied.
Under APB Opinion No. 25, compensation expense is determined based
upon the option's intrinsic value, or the excess (if any) of the market
price of the underlying stock at the measurement date over the amount
the employee is required to pay. Under the fair value based method
introduced by SFAS No. 123, compensation expense is based on the option's
estimated fair value at the grant date and is generally recognized
over the vesting period. Manage-ment has elected to continue to measure
stock-based compensation costs in accordance with APB Opinion No.
25 and adopted the pro forma disclosure requirements of SFAS No. 123
in 1996. These disclosures are provided in Note 12.
Statement of Cash Flows
Cash and cash equivalents as shown in the Consolidated Statements
of Condition and Statements of Cash Flow consist of cash, balances
due from banks and federal funds sold.
Financial Instruments
The Company is a party to certain financial instruments with off balance
sheet risk such as commitments to extend credit and standby letters
of credit. The Company's policy is to record such instruments when
funded.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
NOTE 2 CASH BALANCES
Cash balances on deposit at the Federal Reserve to meet regulatory
requirements amounted to $7,207,000 on December 31, 1996 and $6,584,000
on December 31, 1995.
NOTE 3 SECURITIES
The amortized cost and estimated fair value of securities available
for sale at December 31, 1996 by maturity, are shown in the accompanying
table. Securities available for sale are listed by contractual maturity
except for collateralized mortgage obligations which are listed by
average life. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Securities available for sale carried at $159,197,000 on December
31, 1996 and $143,261,000 on December 31, 1995 were pledged to secure
public deposits, short-term repurchase agreements, and for other purposes.
Proceeds from sales of securities available for sale during 1996,
1995 and 1994 were $6,753,000, $8,404,000, and $24,872,000 respectively.
Gross gains of $31,000, $31,000 and $133,000 and gross losses of $57,000,
$168,000 and $226,000 were realized on those sales during 1996, 1995
and 1994, respectively.
At January 1, 1996, the net unrealized gain on securities available
for sale, net of the income tax effect, was $474,000. At December
31, 1996, the net unrealized gain on securities available for sale,
net of the income tax effect, was $24,000 representing a $450,000
decrease from January 1, 1996. At December 31, 1995 securities available
for sale had an unrealized gain of $790,000. The adjustment to stockholders'
equity net of deferred income tax benefit of $316,000, was $474,000.
<TABLE>
<CAPTION>
($000 Omitted)
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 34,692 $ 34,749
Due after one year
through five years 101,959 102,307
Due after five years
through ten years 11,745 11,530
Due after ten years -- --
Mortgage-backed securities due
after ten years 28,703 28,554
Total $177,099 $177,140
</TABLE>
Securities Available For Sale at December 31, 1996, and 1995 were
as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
& Agency Obligations $ 33,049 $ 156 $ 18 $ 33,187 $ 28,783 $ 418 $ 7 $ 29,194
Mortgage-backed Securities 141,021 803 858 140,966 157,386 1,303 831 157,858
Other Securities 3,029 2 44 2,987 3,826 1 94 3,733
Total $177,099 $ 961 $ 920 $177,140 $189,995 $ 1,722 $ 932 $190,785
</TABLE>
Securities Held to Maturity at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
& Agency Obligations $ 9,046 $ 170 $ -- $ 9,216 $ 4,085 $ 113 $ -- $ 4,198
State & Political Subdivisions 10,982 818 -- 11,800 19,043 1,275 1 20,317
Total $ 20,028 $ 988 $ -- $ 21,016 $ 23,128 $ 1,388 $ 1 $ 24,515
</TABLE>
The amortized cost and estimated fair value of Securities Held to
Maturity at December 31, 1996 by maturity, are shown in the accompanying
table. Securities Held to Maturity are listed by contractual maturity.
Expected maturities will differ from contractual maturity because
issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Securities Held to Maturity carried at $17,744,000 on December 31,
1996 and $16,437,000 on December 31, 1995 were pledged to secure public
deposits, short-term repurchase agreements, and for other purposes.
Gross gains of $20,000 were realized on securities called during 1996.
There were no proceeds from sales recorded during 1996, 1995 or 1994.
<TABLE>
<CAPTION>
($000 Omitted)
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 2,102 $ 2,131
Due after one year
through five years 3,728 3,908
Due after five years
through ten years 13,994 14,764
Due after ten years 204 213
Total $ 20,028 $ 21,016
</TABLE>
NOTE 4 LOANS
Loans at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
<S> <C> <C>
Commercial $225,420 $230,771
Real Estate Mortgage 283,664 247,183
Installment 149,745 120,654
Other 324 429
659,153 599,037
Less:
Allowance for Loan Losses 12,393 12,115
Unearned Income 4,265 6,839
16,658 18,954
Net Loans $642,495 $580,083
</TABLE>
The following table presents information concerning non-performing
loans:
<TABLE>
<CAPTION>
($000 Omitted)
December 31, 1996 1995 1994
<S> <C> <C> <C>
Non-Accrual $ 3,792 $ 4,571 $ 14,139
Past due 90+ days 1,414 1,203 2,630
Restructured 133 138 2,656
Total $ 5,339 $ 5,912 $ 19,425
</TABLE>
At December 31, 1996 and 1995 the recorded investment in loans considered
to be impaired under SFAS No. 114 was $3,792,000 and $4,571,000, respectively.
Included in these amounts is $586,000 and $341,000, respectively,
of impaired loans for which the related allowance for credit losses
is $134,000 and $201,000, respectively. Also included are $3,206,000
and $4,230,000, respectively of impaired loans, that as a result of
write downs, do not have an allowance for credit losses. The average
recorded investment in impaired loans during the years ended December
31, 1996 and 1995 was approximately $4,151,000 and $10,708,000, respectively.
For the years ended December 31, 1996 and 1995 the Company recognized
interest income on those impaired loans of $342,000, and $41,000,
respectively, which is recognized using the cash basis method of income
recognition.
Interest that would have been recorded on the non-accrual and restructured
loans had they remained current, would have been $454,000, $634,000,
and $1,656,000, in 1996, 1995 and 1994, respectively. Of those amounts,
$140,000, $195,000, and $333,000 were recognized as interest income.
There were no unused loan commitments on non-accrual and restructured
loans at December 31, 1996.
Certain directors and executive officers of the Company and its subsidiaries,
including their immediate families and companies of which they were
principal owners, had loan transactions with the subsidiary bank.
Such loans were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as comparable
loans made to others. Total loans to these persons and companies at
December 31, 1996 and 1995, respectively, amount to $11,800,000 and
$12,941,000. During 1996, $2,948,000 of new loans were made, repayments
of $4,089,000 were received.
NOTE 5 ALLOWANCES FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 12,115 $ 18,752 $ 18,754
Provision for loan losses 1,440 1,800 2,211
Recoveries during period 552 1,101 2,568
Losses charged to allowance (1,714) (9,538) (4,781)
Balance at end of year $ 12,393 $ 12,115 $ 18,752
</TABLE>
NOTE 6 BANK PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
<S> <C> <C>
Land $ 2,230 $ 1,975
Buildings 16,342 15,531
Furniture, fixtures and equipment 11,762 12,032
30,334 29,538
Less accumulated depreciation (15,056) (15,844)
Premises and equipment, net $ 15,278 $ 13,694
</TABLE>
Depreciation expense amounted to $1,533,000 in 1996, $1,515,000 in
1995, and $1,572,000 in 1994.
NOTE 7 SHORT-TERM BORROWINGS
Short-term interest bearing liabilities, including Securities Sold
Under Agreements to Repurchase, with maturities of less than one year
and their related average interest rates for the years ended December
31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
Average Average Average
Amount outstanding at Dec. 31, Amount Int. Rate Amount Int. Rate Amount Int. Rate
<S> <C> <C> <C> <C> <C> <C>
Securities Sold Under Agreement to Repurchase $ 1,016 4.85% $ 400 5.23% $ 1,418 3.53%
Other 2,830 5.15% 2,860 5.15% 3,000 5.21%
Total $ 3,846 5.07% $ 3,260 5.16% $ 4,418 4.75%
Maximum amount outstanding at any month end $ 14,997 5.55% $ 13,225 5.63% $ 26,129 4.44%
Average amount outstanding during the year $ 3,536 5.12% $ 8,220 6.47% $ 5,855 4.03%
</TABLE>
NOTE 8 LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
<S> <C> <C>
IDA Revenue Bonds $ -- $ 1,805
Fixed Rate Note 96 123
Federal Home Loan Bank 25,334 20,580
ESOP Loan 808 967
Total long-term debt $ 26,238 $ 23,475
</TABLE>
Contractual principal payments due under long-term debt:
<TABLE>
<CAPTION>
($000 Omitted)
<S> <C>
1997 $ 462
1998 492
1999 522
2000 6,604
2001 10,347
2002 and years thereafter 7,811
</TABLE>
The fixed rate note was issued in connection with the purchase of
an operational facility. The note carries an 8% interest rate and
matures in 1999. The ESOP loan is a floating rate loan which carried
a rate of 8.25% at December 31, 1996, and matures in 2000. The Federal
Home Loan Bank of New York debt consists of four separate advances
with terms as follows; a $6,000,000 note with a fixed rate of 5.94%
maturing in December of the year 2000; an amortizing advance with
a current balance of $7,283,000 with a rate of 6.67% and a final maturity
in October of the year 2005; an amortizing advance with a current
balance of $2,051,000, a rate of 6.97% and a final maturity in April
of the year 2009, and a $10,000,000 note with a fixed rate of 6.44%
which matures in the year 2001. During 1996 the outstanding IDA bonds
were called in accordance with the terms of the Bond agreement.
NOTE 9 INCOME TAXES
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial reporting basis and tax basis of
assets and liabilities that result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to periods
in which the differences are expected to affect taxable income. The
components of the income tax provision are presented as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Current tax expense:
Federal $ 5,190 $ 1,162 $ 3,077
State 1,417 392 949
Total current tax expense 6,607 1,554 4,026
Deferred tax (benefit)/expense:
Federal (932) 1,489 (210)
State -- -- --
Total deferred tax (benefit)/expense (932) 1,489 (210)
Total income taxes expense $ 5,675 $ 3,043 $ 3,816
</TABLE>
A reconciliation from income taxes at the statutory rate to the effective
tax included in the Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
% Pretax % Pretax % Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 5,596 35% $ 3,851 34% $ 3,768 34%
Effect of tax exempt interest income (408) (3) (699) (6) (635) (6)
State income taxes, net of
federal income tax benefit 921 6 259 2 626 6
Deferred tax valuation reserve decrease (143) (1) (425) (3) (29) --
Other, net (291) (2) 57 -- 86 --
Total income tax expense $ 5,675 35% $ 3,043 27% $ 3,816 34%
</TABLE>
Under Statement 109, the tax effects of temporary differences that
gave rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
Deductible Taxable Deductible Taxable Deductible Taxable
Temporary Temporary Temporary Temporary Temporary Temporary
Differences Differences Differences Differences Differences Differences
<S> <C> <C> <C> <C> <C> <C>
Pension and deferred remuneration $ 2,598 $ -- $ 2,235 $ -- $ 2,089 $ --
Deferred loan fees, net 211 -- 394 -- 409 --
Provision for loan losses 3,906 -- 3,700 -- 5,900 --
Valuation of other real estate 415 -- 395 -- 293 --
Unused AMT credit carry forward -- -- -- -- 425 --
Lease financing -- -- -- 14 -- 33
Depreciation -- 372 -- 351 -- 387
Prepaid expenses -- 183 -- 291 -- 715
Other, net 287 -- 5 -- 6 --
Total 7,417 555 6,729 656 9,122 1,135
Valuation reserve (1,311) -- (1,454) -- (1,879) --
Deferred tax asset 6,106 -- 5,275 -- 7,243 --
Deferred tax liability -- $ 555 -- $ 656 -- $ 1,135
Net deferred tax asset at December 31, 5,551 4,619 6,108
Net deferred tax asset at January 1, 4,619 6,108 5,898
Deferred tax benefit/(expense)
year ended December 31, $ 932 $(1,489) $ 210
</TABLE>
The net deferred tax asset, as shown above, does not include the deferred
tax liability of $17,000 and $316,000 at December 31, 1996 and 1995,
respectively, or the deferred tax asset of $2,572,000 at December
31, 1994 related to the tax effects of the unrealized appreciation
in 1996 and 1995 and depreciation in 1994 of the available for sale
investment portfolio.
The valuation reserve, established by management at December 31, 1996,
1995 and 1994 considered the historical level of taxable income in
the prior years as well as the time period that the items giving rise
to the net deferred tax asset will turn around. The net deferred tax
asset at December 31, 1996, 1995 and 1994 does not reflect the potential
state deferred tax benefit of the net deductible temporary differences
noted above.
NOTE 10 OTHER OPERATING EXPENSES
The components of Other Operating Expenses are as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Data processing $ 2,421 $ 2,092 $ 2,092
Advertising 907 729 878
Supplies and printing 819 1,038 760
Other 5,060 5,558 6,184
Total $ 9,207 $ 9,417 $ 9,914
</TABLE>
NOTE 11 DIVIDEND RESTRICTIONS
Under the National Bank Act, the approval of the Office of the Comptroller
of the Currency ("OCC") is required if dividends declared by subsidiary
bank in any year exceed the net profits of that year, as defined,
combined with the retained net profit for the two preceding years.
At December 31, 1996, Evergreen's subsidiary bank could, without approval
of the OCC, declare dividends aggregating $7,028,000, plus 1997 income.
NOTE 12 STOCKHOLDERS' EQUITY
During 1985 the Company adopted its Incentive Stock Option Plan, under
which up to 405,000 shares of common stock may be granted. During
1989, the Company adopted its stock incentive plan under which up
to 270,000 shares of common stock may be issued. During 1995 the Company
adopted its Stock Incentive Plan under which up to 600,000 shares
of common stock may be issued. Also during 1995 the Company adopted
its Director's Stock Option Plan under which up to 60,000 shares of
common stock may be issued. Payment for shares purchased under these
plans may be made in cash or common stock of the Company at fair market
value. All stock options have ten year terms and, except for opportunity
shares, vest and become fully exercisable one year from the date of
grant. Opportunity shares become vested when the market price of the
Company stock reaches $20.75 or after five years, whichever occurs
first. The unexercised options have not been included in the calculation
of earnings per share because the effect is immaterial. Of the 546,432
options outstanding at December 31, 1996, 297,500 are exercisable.
At December 31, 1996 there were 389,100 additional shares available
for grant under the Plans.
The following table shows the activity for the option plans for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION
Options Options Options
Outstanding Options Options Expired/ Outstanding
January 1 Granted Exercised Forfeited December 31
Option
Price 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5.57 2,000 2,000 -- -- -- -- -- -- 2,000 2,000
$ 6.25 57,000 67,000 -- -- 23,000 10,000 -- -- 34,000 57,000
$ 6.36 8,850 8,850 -- -- 450 -- -- -- 8,400 8,850
$ 6.38 600 600 -- -- -- -- -- -- 600 600
$ 7.13 128,500 177,000 -- -- 24,000 48,500 -- -- 104,500 128,500
$ 7.25 3,000 7,000 -- -- -- 4,000 -- -- 3,000 3,000
$ 7.65 33,000 -- -- 38,000 11,000 3,000 -- 2,000 22,000 33,000
$ 8.06 90,000 102,000 -- -- -- 12,000 -- -- 90,000 90,000
$ 8.38 6,000 -- -- 6,000 2,400 -- -- -- 3,600 6,000
$ 8.59 17,850 17,850 -- -- 9,450 -- -- -- 8,400 17,850
$ 8.72 21,000 -- -- 21,000 -- -- -- -- 21,000 21,000
$ 10.98 -- -- 4,800 -- -- -- -- -- 4,800 --
$ 11.25 -- -- 98,500 -- -- -- -- -- 98,500 --
$ 15.75 -- -- 145,632 -- -- -- -- -- 145,632 --
</TABLE>
The per share weighted average fair value of stock options granted
during 1996 and 1995 was $3.71 and $2.01 on the date of grant using
the Black Scholes option pricing model. The weighted average assumptions
used for 1996 and 1995 included an expected dividend yield of 3.63%
and 3.37%, respectively, risk free interest rates of 5.64% and 6.42%,
respectively, expected lives of 4.9 and 4.7 years, respectively and
an expected stock volatility of 32.8% and 35.3%, respectively.
The Company applies APB Opinion No. 25 in accounting for its plans
and, accordingly no compensation cost has been recognized for stock
options granted in the financial statements. Had the Company determined
compensation costs based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income and earnings
per share, net of tax effect, would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
<S> <C> <C>
Net Income - As Reported $ 10,313 $ 8,380
- Pro Forma 9,758 8,320
Earnings Per Share - As Reported 1.12 .89
- Pro Forma 1.06 .88
</TABLE>
Pro forma net income and earnings per share reflect all options granted
in 1996 and 1995 as if they vested within one year. Therefore, the
full impact of calculating compensation cost for stock options under
SFAS No. 123 is reflected in the pro forma amounts presented.
During 1996 the Company granted certain executive officers the right
to receive 16,000 shares of common stock. In accordance with the terms
of the grant the officers will receive 1/3 of the shares granted in
each 1997, 1998 and 1999 depending on their continued employment through
those years.
In March 1995, the Company announced a program to repurchase common
shares in an amount not to exceed 5% of the then outstanding shares,
at an aggregate purchase price not to exceed $4.75 million. Under
the program shares were repurchased from time to time, at managements
discretion, in the open market or through negotiated transactions.
The Company completed this program in the second quarter of 1996 having
purchased approximately 437,000 shares at a cost of approximately
$4.7 million.
On July 18, 1996 The Company announced a new repurchase program authorizing
purchases of an additional 4% of issued shares or approximately 386,000
shares, at market prices. Since the implementation of the program
the Company has purchased 114,000 shares at a cost of $1,643,000.
On August 15, 1996 The Company's Board of Directors approved a two-for-one
stock split in the form of a 100% stock dividend. The effect of the
transaction on the Consolidated Statements of Financial Condition
was to increase common stock and reduce retained earnings by $16,056,000.
The closing price per share for the Company's stock was $16.38 at
December 31, 1996.
Regulatory Capital Requirements
OCC capital regulations require banks to maintain minimum levels of
regulatory capital. Under the regulations in effect at December 31,
1996, the Bank was required to maintain a minimum leverage ratio of
Tier I (core) capital to total adjusted assets of 3.00%; and minimum
ratios of Tier I capital and total capital to risk weighted assets
of 4.00% and 8.00%, respectively. The Federal Reserve Board ("FRB")
has adopted similar requirements for the consolidated capital of bank
holding companies.
Under its prompt corrective action regulations, the OCC is required
to take certain supervisory actions (and may take additional discretionary
actions) with respect to an under capitalized institution. Such actions
could have a direct material effect on an institution's financial
statements. The regulations establish a framework for the classification
of banks 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 assets), a Tier I risk based capital ratio of at least
6.0%, and a total risked 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
OCC about capital components, risk weighting and other factors.
As of December 31, 1996, the Bank and Company meet all capital adequacy
requirements to which they are subject. Further, the most recent OCC
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 actual capital amounts and ratios as
of December 31, 1996 for the Bank and the Company (on a consolidated
basis), compared to the requirements for minimum capital adequacy
and for classification as well capitalized.
<TABLE>
<CAPTION>
Requirements For
Minimum Classification
Capital As Well
Actual Adequacy Capitalized
Amount Ratio Ratio Ratio
<S> <C> <C> <C> <C>
Tier I (core) capital:
Evergreen Bank, N.A. $ 81,067 8.8% 3.0% 5.0%
Evergreen Bancorp, Inc. 85,152 9.2 3.0 5.0
Tier I Risk Based Capital:
Evergreen Bank, N.A. $ 81,067 13.2% 4.0% 6.0%
Evergreen Bancorp, Inc. 85,152 13.7 4.0 6.0
Total Risk Based Capital:
Evergreen Bank, N.A. $ 88,816 14.4% 8.0% 10.0%
Evergreen Bancorp, Inc. 93,005 14.9 8.0 10.0
</TABLE>
NOTE 13 EMPLOYEE BENEFIT PLANS
The Company maintains a trusteed non-contributory pension plan covering
substantially all full-time employees. Assuming retirement at age
65 after 30 years or more of service, the benefits are computed as
the sum of forty three and one-half percent of average compensation,
as defined in the plans, for the highest three consecutive years in
the final ten years of service ("compensation base") plus fifteen
percent of such compensation base in excess of covered compensation.
The annual benefit is proportionately reduced for each year of credited
service less than thirty years. 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 a consulting 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 for those expected to be earned
in the future. Assets of the plan are primarily invested in common
stock and government securities.
The following table sets forth the plan's funded status and amounts
recognized in the Company's statements of condition at December 31,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Accumulated benefit obligation, including vested benefits of
$9,451,000 in 1996, $9,834,000 in 1995, and $8,080,000 in 1994 $ (9,547) $ (9,886) $ (8,116)
Projected benefit obligation for service rendered to date $ (11,496) $ (12,298) $ (10,382)
Plan assets at fair value 13,777 12,239 10,045
Plan assets in excess/(deficit) of projected benefit obligation 2,281 (59) (337)
Unrecognized prior service cost 144 153 162
Unrecognized net (gain) from past experiences different from that assumed (3,846) (1,519) (992)
Unrecognized net asset at January 1, 1987 being recognized over 22.5 years (191) (206) (222)
Accrued Pension Cost $ (1,612) $ (1,631) $ (1,389)
Net Pension Cost for 1996, 1995 and 1994 Included the Following Components:
Service cost-benefits earned during the period $ 591 $ 414 $ 510
Interest cost on projected benefit obligation 794 794 750
Actual return on plan assets (2,005) (881) (706)
Net amortization and deferral 1,001 (13) (6)
Net Periodic Pension Cost $ 381 $ 314 $ 548
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value
of the projected benefit obligation were 7.5 percent and 4.0 percent
for 1996, 7.0 percent and 4.0 percent for 1995, and 8.0 percent and
4.5 percent for 1994. The expected long-term rate of return on assets
was 8.0 percent in 1996 and 1995 and 9.0 percent in 1994. During 1995,
in addition to the net periodic pension cost, the Company recognized
pension expense of $137,000 from curtailments and special termination
benefits associated with the Company's reduction in force.
The Company also maintains a profit sharing plan covering all employees.
For the years 1996, 1995 and 1994 there was no provision charged to
operations for the profit sharing plan.
There are also executive supplemental retirement plans. The plans'
funded status and amounts recognized in the Company's consolidated
financial statements are as follows:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Accumulated benefit obligation $ (1,820) $ (1,509) $ (1,358)
Projected benefit obligation for service rendered to date $ (1,957) $ (1,509) $ (1,358)
Plan assets at fair value -- -- --
Projected benefit obligation in excess of plan assets (1,957) (1,509) (1,358)
Unrecognized prior service cost 359 -- --
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions 176 250 128
Unrecognized net obligations at the beginning of the year being recognized
over 15 years 82 99 115
Additional liability recognized (480) (349) (243)
Accrued Pension Cost $ (1,820) $ (1,509) $ (1,358)
Net Pension Cost for 1996, 1995 and 1994 Included the Following Components:
Service cost-benefits earned during the period $ 212 $ 76 $ --
Interest cost on projected benefit obligation 119 97 91
Net amortization 70 16 21
Net Periodic Pension Cost $ 401 $ 189 $ 112
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5 percent,
7.0 percent and 8.0 percent for 1996, 1995 and 1994 respectively.
The rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligation was
4.0 percent for 1996 and 1995. In 1994 there was no assumed increase
in compensation levels.
In addition to the Company's non-contributory defined benefit retirement
plan, the Company provides a defined benefit postretirement plan which
provides medical benefits to employees, who have at least attained
55 years of age and 15 years of service (provided the sum of age and
service is at least 75), as well as life insurance benefits to employees
who, at a minimum, have attained 55 years of age and have 10 years
of service. The postretirement health care portion of the plan is
contributory, with participant contributions adjusted annually, and
contains other cost-sharing features such as deductibles and coinsurance.
While the amount of a participants contribution varies depending upon
age and service, the Company has set a maximum dollar amount it will
pay for medical benefits regardless of age or service. The accounting
for the plan is based on the level of cost sharing as of January 1,
1996. The funding policy of the plan is to pay claims and/or insurance
premiums as they come due.
The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS No. 106) as of January 1, 1993. As permitted under
the transition provisions of SFAS No. 106, the Company has opted to
amortize the accumulated postretirement benefit obligation as of the
January 1, 1993 adoption date (the transition obligation) over
a period of twenty years, as a component of net periodic postretirement
benefit cost.
The following table presents the amounts recognized in the Company's
consolidated Statement of Financial Condition as of
<TABLE>
<CAPTION>
($000) Omitted
December 31, 1996 1995 1994
<S> <C> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ (1,804) $ (1,716) $ (1,680)
Fully eligible active plan participants (98) (170) (166)
Other active plan participants (299) (294) (288)
(2,201) (2,180) (2,134)
Plan assets at fair value -- -- --
Accumulated postretirement benefit obligation (2,201) (2,180) (2,134)
Unrecognized transition obligation 1,736 1,844 1,952
Unrecognized past service costs (152) (166) (180)
Unrecognized gain from changes in assumptions (27) 3 3
Accrued postretirement benefit cost included in other liabilities $ (644) $ (499) $ (359)
Net Period Postretirement Benefit Cost for the Years Ended
December 31, 1996, 1995 and 1994 Include the Following Components:
Service cost $ 36 $ 34 $ 34
Interest cost 150 143 136
Net amortization and deferral of actual results differing from assumptions (14) (14) (3)
Net amortization of transition amount 108 108 108
Net periodic postretirement benefit cost $ 280 $ 271 $ 275
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5%, 7.0%, and 7.0% at December 31, 1996,
1995 and 1994, respectively. For measurement purposes, a 6.0%, annual
rate of increase in the per capita cost of covered health care benefits
were assumed for pre-age 65 medical coverage for each of the years
1996, 1995 and 1994, respectively. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1996, by approximately 7.3% and the
net periodic postretirement benefit cost by approximately 9.7%.
The Company has an Employees Stock Purchase Plan which all employees
are eligible to join after six months of service. Employees may authorize
the bank to withhold up to $200 biweekly from salary to be deposited
with the plan's agent. The plan provides that the Company contribute
an amount equal to 33% of each participant's contribution up to a
maximum employee investment of $100 biweekly. Company contributions
under the plan amounted to $101,000 for 1996, $79,000 for 1995, and
$93,000 for 1994.
In 1984, the Company established a 401(k) plan. All employees are
eligible to join after specific service requirements. The Company
contributed 25% of the total contribution made by employees for the
year. Total 401(k) expense for 1996 was $132,000, the expense for
1995 and 1994 totaled $69,000 and $68,000, respectively.
NOTE 14 EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
On December 15, 1989, the Company established an Employee Stock Ownership
Plan (ESOP) which purchased 200,000 newly issued and 119,400 outstanding
shares of the Company's common stock. Funds for the purchase of these
shares were obtained through a borrowing from an unrelated financial
institution. The shares issued to the ESOP and the related borrowing
are reflected in the Company's statements of financial condition as
common stock subscribed and long term debt. During 1996, a portion
of the borrowing was paid off by the Company releasing approximately
33,000 shares which were allocated to participating employees.
<TABLE>
<CAPTION>
($ 000 Omitted)
1996 1995
<S> <C> <C>
Administration $ 19 $ 18
Interest expense 110 131
Employer contribution 310 396
</TABLE>
NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES
The Company (through its subsidiary 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 and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized on the statement of financial
condition. The contract amounts of those instruments reflect the extent
of involvement the Company has in particular classes of financial
instruments.
The Company'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 Company uses the same credit policies in
making commitments as it does for on-balance sheet instruments.
Unless otherwise noted, the Company does not require collateral or
other security to support off-balance sheet financial instruments
with credit risk.
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 many of
the commitments are expected to expire without being fully drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral, if any, required
by the Company 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 extensions of credit for commercial loans varies but may include
accounts receivable, inventory, property, plant and equipment, and
income producing commercial property.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. Those guarantees are
primarily issued to support borrowing arrangements. The credit risk
involved in issuing standby letters of credit is essentially the same
as that involved in extending loan facilities to customers.
The Company grants commercial, consumer and residential loans to customers
throughout its marketing area. Although the Company has a diversified
loan portfolio, a substantial portion of its debtor's ability to honor
their contracts is dependent upon the real estate and construction
related sectors of economy and the tourism industry. Variable rate
mortgage loans are granted with terms which set various interest rate
caps for annual and life of the loan interest rate changes.
There are no legal proceedings against the Company or its subsidiaries
in 1996 or 1995 which in the opinion of management would result in
a liability which would have a significant effect on the consolidated
financial position of the Company.
Contract amounts of financial instruments that represent credit risk
as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
($000 Omitted)
December 31, 1996 1995
<S> <C> <C>
Commercial Commitments $ 51,918 $ 50,500
Unused Home Equity Lines 37,814 29,074
Unused Overdraft Lines 6,879 6,653
Mortgage Commitments 3,502 3,316
Standby Letters of Credit 6,680 7,647
Total $ 106,793 $ 97,190
</TABLE>
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement No. 107,
Disclosures about Fair Value of Financial Instruments, (SFAS 107),
which requires that the Company disclose estimated fair values for
its financial instruments. SFAS No. 107 defines fair value of financial
instruments as the amount at which the instrument could be exchanged
in a current transaction between willing parties other than in a forced
or liquidation sale. SFAS No. 107 defines a financial instrument as
cash, evidence of ownership interest in an entity, or a contract that
imposes on one entity a contractual obligation to deliver cash or
another financial instrument to a second entity or to exchange other
financial instruments on potentially unfavorable terms with a second
entity and conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity or to exchange
other financial instruments on potentially favorable terms with the
first entity.
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 Company's entire holdings
of a particular financial instrument. Because no market exists for
a significant portion of the Company's financial instruments, fair
value estimates are based on judgements 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 judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
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 property, plant 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.
The following table presents the carrying amounts and fair values
of the Company's financial instruments at December 31,
<TABLE>
<CAPTION>
($000) Omitted
1996 1995
Footnote Carrying Estimated Carrying Estimated
Number Value Fair Value Value Fair Value
<S> <C> <C> <C> <C> <C>
Derivatives None -- -- -- --
Trading instruments None -- -- -- --
Nontrading instruments:
Cash and cash equivalents 16 $ 56,130 $ 56,130 $ 43,621 $ 43,621
Loans (net) 4 642,495 648,266 580,083 593,646
Securities 3 197,168 198,156 213,913 215,300
Deposit Liabilities 16 (800,856) (800,631) (750,224) (752,784)
Short-Term Borrowings and Long-Term Debt 16 (30,084) (29,688) (26,735) (27,197)
</TABLE>
Securities
The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated
credit concerns. The fair value of longer-term investments and mortgage
backed securities, except certain state and municipal securities,
is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The estimated
fair value of certain state and municipal securities is not readily
available through market sources, therefore, the fair value estimates
are based on quoted market prices of similar instruments, adjusted
for differences between the quoted instruments and the instruments
being valued. See Note 3 Securities for detail disclosure of investment
and mortgage-backed securities.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial,
consumer, real estate, and other loans. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing
and non-performing categories.
The following table presents information for loans at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Commercial $ 224,955 $ 220,206 $ 230,373 $ 227,262
Real Estate Mortgage 283,098 285,854 246,567 250,444
Installment 146,528 141,894 114,874 115,548
Other 307 312 384 392
Loans (net of unearned income) 654,888 648,266 592,198 593,646
Less: allowance for loan losses (12,393) -- (12,115) --
Total $ 642,495 $ 648,266 $ 580,083 $ 593,646
</TABLE>
The estimated fair value of performing commercial loans, lease finance
receivables and installment 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
loan. The estimate of maturity is based on the contractual term of
the loans to maturity. Performing real estate loans fair value is
estimated based on dealer quotations for conforming loans adjusted
for a factor based on the Company's loans primarily being non-conforming.
The fair value of the loans not readily available through market sources
is estimated by discounting anticipated cash flows using an appropriate
current discount rate to determine their fair value.
Estimated fair value for significant non-performing loans is based
on recent external appraisals and discounting of cash flows. Estimated
cash flows are 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.
Deposit Liabilities and Long-Term Debt
Under SFAS 107, the fair value of deposits with no stated maturity,
such as non-interest bearing demand deposits, savings, NOW accounts,
money market and checking accounts, is estimated to be the amount
payable on demand as of December 31, 1996 and 1995. The estimated
fair value of certificates of deposit is 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 do not include the benefit that results from
the low-cost funding provided by the deposit liabilities compared
to the cost of borrowing funds in the market.
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 current rates offered to the Company for debt with the same remaining
maturities.
Other Financial Instruments
The fair value of cash and cash equivalents, accrued interest receivable,
accrued interest payable and short-term borrowings are estimated to
be book value at December 31, 1996 and 1995, respectively.
Commitments to Extend Credit, Standby Letters of Credit, and Financial
Guarantees Written
The fair value of commitments to extend 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
creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. The estimated fair value of
financial guarantees written and letters of credit is based on fees
currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties.
Fees, such as these, are not a major part of the Company's business
and in the Company's business territory are not a "normal business
practice", therefore, book value approximates fair value.
The following table presents information for deposits and long- term
debt December 31,
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 92,737 $ 92,737 $ 97,380 $ 97,380
Savings and NOW 261,064 261,064 258,296 258,296
Money Market Deposit Accounts 89,698 89,698 81,922 81,922
Certificates of Deposit:
Maturing in six months or less 181,947 181,962 177,546 178,085
Maturing between six months and one year 56,146 56,121 64,977 65,203
Maturing between one and three years 94,660 94,528 42,560 42,870
Maturing beyond three years 24,604 24,521 27,543 29,028
Short-Term Borrowings and Long-Term Debt 30,084 29,688 26,735 27,197
</TABLE>
NOTE 17 PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
<TABLE>
Condensed Statements of Income
<CAPTION>
($000 Omitted)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Income
Dividends from Banking Subsidiary $ 8,900 $ 4,200 $ 272
Interest on Securities and Time Deposits 29 43 43
Interest on Securities Purchased Under Agreement to Resell 89 43 10
Net Securities Transactions -- -- 25
Other Income 20 3 10,045
Total Income 9,038 4,289 10,395
Expenses
Salaries and Employee Benefits 644 605 6,466
Other Expenses 533 668 4,579
Total Expenses 1,177 1,273 11,045
Income/(Loss) Before Income Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries 7,861 3,016 (650)
Income Tax Benefit 382 406 295
Income /(Loss) Before Equity in Undistributed Net Income of Subsidiaries 8,243 3,422 (355)
Equity in Undistributed Net Income of Subsidiaries 2,070 4,958 7,620
Net Income $ 10,313 $ 8,380 $ 7,265
</TABLE>
<TABLE>
Condensed Statements of Condition
<CAPTION>
($000 Omitted)
December 31, 1996 1995
<S> <C> <C>
Assets
Cash $ 50 $ 50
Investments in Subsidiaries 81,353 79,734
Securities 258 508
Securities Purchased Under Agreement to Resell
and Time Deposits in Banks 1,788 905
Premises and Equipment 6,544 5,696
Other Assets 1,767 3,894
Total Assets $ 91,760 $ 90,787
Liabilities
Long-Term Debt $ 904 $ 2,895
Other Liabilities 5,417 4,847
Total Liabilities 6,321 7,742
Stockholders' Equity 85,439 83,045
Total Liabilities and Stockholders' Equity $ 91,760 $ 90,787
</TABLE>
<TABLE>
Parent Company Only Statements of Cash Flows
<CAPTION>
($000 Omitted)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 10,313 $ 8,380 $ 7,265
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Loss/(Gain) on Sale of Assets 2 (3) (25)
Decrease in Interest Receivable 5 -- 2
Net Amortization 5 5 3
Depreciation 211 228 212
Increase/(Decrease) in Accrued Expenses 353 (57) 1,221
Increase/(Decrease) in Accrued Taxes Payable 217 787 (1,043)
(Increase)/Decrease in Prepaid Expenses (43) 76 (131)
Decrease/(Increase) in Taxes Receivable 2,290 (1,172) (599)
Increase in Cash Surrender Value (130) (95) (62)
Undistributed Earnings of Affiliates (2,070) (4,958) (7,620)
Liquidation of Subsidiary -- 120 --
Net Cash Provided/(Used) By Operating Activities 11,153 3,311 (777)
Cash Flows From Investing Activities:
Proceeds From Sales of Investment Securities 250 -- 440
Net Change in Short-Term Investments (883) (905) 1,900
Proceeds from Sales of Fixed Assets -- 71 --
Capital Expenditures (1,060) (70) (238)
Net Cash (Used)/Provided by Investing Activities (1,693) (904) 2,102
Cash Flows From Financing Activities:
Principal Payments on Long-Term Debt (1,832) (260) (295)
Payments for Purchase of Treasury Shares (4,386) (1,985) --
Proceeds from Issuance of Common Stock 737 691 400
Dividends Paid (3,979) (2,126) (236)
Net Cash Used by Financing Activities (9,460) (3,680) (131)
Net (Decrease)/Increase in Cash
and Cash Equivalents -- (1,273) 1,194
Cash and Cash Equivalents Beginning of Year 50 1,323 129
Cash and Cash Equivalents End of Year $ 50 $ 50 $ 1,323
Cash and Cash Equivalents are cash in demand
deposit accounts at the subsidiary bank.
Supplemental disclosure of Cash Flows:
Interest Paid $ 186 $ 242 $ 242
</TABLE>
Supplemental Schedule of Non-Cash Financing Activities: Payments were
made on the Company's ESOP loan in the amount of $159,000, $153,000,
and $144,000 in 1996, 1995 and 1994, respectively.
Basis of Presentation
Investments in subsidiaries are recorded using the equity method of
accounting and represent 100% ownership of Evergreen Bank, N.A. and
Evergreen Venture Capital Corp. The Parent Company recognizes income
and expenses using the accrual method of accounting.
The Statement of Changes in Stockholders' Equity and the specifics
of the Stockholders' Equity section of the Statement of Condition
are not included since such amounts would be repetitive of those presented
in the Consolidated Financial Statements.
NOTE 18 UNAUDITED INTERIM FINANCIAL INFORMATION
Following is a summary of unaudited quarterly financial information
for each quarter of 1996 and 1995.
<TABLE>
<CAPTION>
($000 Omitted)
(Except Per Share Data)
1996 Quarters Ended 1995 Quarters Ended
12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 18,151 $ 17,887 $ 17,296 $ 17,199 $ 17,169 $ 17,025 $ 16,903 $ 16,074
Net Interest Income 10,406 10,665 10,180 9,933 9,837 9,995 9,900 9,867
Provision for Loan Losses 360 360 360 360 360 360 540 540
Income Before Income Taxes 4,161 4,200 3,854 3,773 3,380 2,251 2,746 3,046
Net Income 2,721 2,694 2,519 2,379 2,467 2,050 1,831 2,032
Per Share: Net Income .30 .29 .27 .26 .26 .22 .20 .21
</TABLE>
Independent Auditors' report
KPMG Peat Marwick LLP
Certified Public Accountants
74 North Pearl Street
Albany, New York 12207
The Board of Directors and Stockholders
Evergreen Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition
of Evergreen Bancorp, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company'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 Evergreen Bancorp, Inc. and subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 24, 1997
Evergreen Bancorp
237 Glen Street, Glens Falls, New York 12801 518-792-1151
4510-AR-97
Exhibit 21
<TABLE>
EVERGREEN BANCORP, INC.
1996 ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
Name of Significant Subsidiary <F1> % Owned Jurisdiction of Incorporation
<S> <C> <C>
Evergreen Bank, National Association 100 United States
Evergreen Realty Funding Corp. <F2> 100 United States
<FN>
<F1> Subsidiaries of the Registrant that are inactive have been omitted.
<F2> Entity is a Subsidiary of Evergreen Bank, National association.
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Evergreen Bancorp, Inc.:
We consent to incorporation by reference in the Registration Statements on
Form S-8 (No. 33-27062), Form S-8 (No. 2-71111) and Form S-8 (No. 33-4488)
of Evergreen Bancorp, Inc. of our report dated January 24, 1997, relating
to the consolidated statements of condition of Evergreen Bancorp, Inc. and
subsidiaries as December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996 which
report appears in the December 31, 1996 Annual Report on Form 10-K of
Evergreen Bancorp, Inc.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Albany, NY 12207
March 21, 1997
<TABLE> <S> <C>
<CAPTION>
Exhibit 27
EVERGREEN BANCORP, INC.
FINANCIAL DATA SCHEDULE
<S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,195
<INT-BEARING-DEPOSITS> 235
<FED-FUNDS-SOLD> 22,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 177,140
<INVESTMENTS-CARRYING> 20,028
<INVESTMENTS-MARKET> 21,016
<LOANS> 654,888
<ALLOWANCE> 12,393
<TOTAL-ASSETS> 928,649
<DEPOSITS> 800,856
<SHORT-TERM> 3,846
<LIABILITIES-OTHER> 12,270
<LONG-TERM> 26,238
<COMMON> 38,900
0
0
<OTHER-SE> 46,539
<TOTAL-LIABILITIES-AND-EQUITY> 928,649
<INTEREST-LOAN> 56,794
<INTEREST-INVEST> 12,923
<INTEREST-OTHER> 816
<INTEREST-TOTAL> 70,533
<INTEREST-DEPOSIT> 27,564
<INTEREST-EXPENSE> 29,349
<INTEREST-INCOME-NET> 41,184
<LOAN-LOSSES> 1,440
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 30,143
<INCOME-PRETAX> 15,988
<INCOME-PRE-EXTRAORDINARY> 15,988
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,313
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 4.98
<LOANS-NON> 3,792
<LOANS-PAST> 1,414
<LOANS-TROUBLED> 133
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,115
<CHARGE-OFFS> 1,714
<RECOVERIES> 552
<ALLOWANCE-CLOSE> 12,393
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,393
</TABLE>
