UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1996 Commission File No. 0-19843
ALBANK Financial Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
14-1746910
(I.R.S. Employer Identification Number)
10 North Pearl Street, Albany, NY 12207
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 445-2100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section l3 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 past 90 days. Yes X No ____
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 the 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.
As of March 21, 1997, the aggregate market value of the shares of common stock
of the Registrant outstanding was $431,682,436 excluding 440,548 shares held
by affiliates of the Registrant.* This figure is based on the closing price
for a share of the Registrant's common stock on March 21, 1997, which was
$34.875 as reported in the Wall Street Journal on March 24, 1997. The number
of shares of the Registrant's common stock outstanding as of March 21, 1997,
was 12,818,539.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 21, 1997, and the Annual Report to Stockholders
for the year ended December 31, 1996, are incorporated herein by reference--
Parts I, II, III and IV.
*Solely for purposes of this calculation, all executive officers and directors
of the Registrant are considered to be affiliates. Also included are certain
shares held by various employee benefit plans where the trustees are required
to vote a portion of unallocated shares at the direction of executive officers
and directors.
PART I
ITEM 1 Business
General
ALBANK Financial Corporation ("Registrant", "Company" or "ALBANK") was formed
as a savings and loan holding company under Delaware Law. The information and
consolidated financial statements in this report of ALBANK include the
accounts of ALBANK Financial Corporation, its wholly owned subsidiary, ALBANK,
FSB, and the wholly owned subsidiaries of ALBANK, FSB. To date, the principal
operations of the Company have been those of ALBANK, FSB and subsidiaries (the
"Bank"). The executive offices of ALBANK are located at the main office of the
Bank at 10 North Pearl Street, Albany, New York 12207.
On April 1, 1992, ALBANK Financial Corporation completed its public offering
for 15,697,500 shares of common stock (the "Common Stock") at $10.00 per
share, realizing net proceeds of $150.8 million after expenses and
concurrently acquired the Bank as part of its conversion from a mutual to a
stock form savings bank. ALBANK used $75.4 million of the net proceeds to
acquire all of the issued and outstanding stock of the Bank. The remaining net
proceeds were used by the Company for general corporate purposes which, to
date, have included the repurchase of shares of ALBANK's Common Stock.
ALBANK's business currently consists primarily of the business of the Bank.
The Bank was organized as the second mutual savings bank in New York State on
March 24, 1820, and is currently the oldest operating savings bank in the
state. On June 30, 1982, the Bank converted to a federally chartered mutual
savings bank, retaining the leeway investment authority and broader investment
powers available to a New York State chartered mutual savings bank. The Bank's
principal business has been and continues to be attracting retail deposits
from the general public and investing those deposits, together with funds
generated from operations and borrowings, in various loan products and
securities. With regard to loans, the Bank originates and purchases primarily
one- to four-family adjustable rate mortgage loans ("ARMs"). The Bank also
engages in the provision of Savings Bank Life Insurance ("SBLI"),
additionally, the Bank's brokerage and insurance subsidiary, ALVEST Financial
Services, Inc., offers a wide range of financial products and services. The
Bank's results of operations are dependent primarily on net interest income,
provisions for loan losses, the levels of noninterest income earned and
noninterest expense incurred and the effect of income taxes. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of the regulatory authorities.
ALBANK is a legal entity separate and distinct from the Bank. The principal
sources of the Company's revenues are interest derived from its investments
and dividends the Company receives from the Bank. The right of the Company to
participate as a shareholder in any distribution of assets of any subsidiary
upon its liquidation or reorganization or otherwise is subject to the prior
claims of creditors of any such subsidiary.
As of December 31, 1996, a total of 1,027 full time employees and 242 part
time employees were employed by ALBANK and the Bank. Employee relations are
considered to be good.
Acquisition activity during the past three years follows:
On October 21, 1994, the Bank completed a transaction with the Federal Deposit
Insurance Corporation ("FDIC"), as receiver for Ludlow Savings Bank, Ludlow,
Massachusetts, in which it assumed approximately $216 million in deposits in
the nine Massachusetts banking offices of the closed bank (the "Ludlow
acquisition"). The Bank is operating the nine banking offices as its Ludlow
division.
On June 3, 1995, the Bank completed the purchase of $18 million in deposits
from The Dime Savings Bank of New York's Galleria Mall office in Poughkeepsie,
New York. The Bank is servicing these accounts at its existing office in the
Galleria Mall.
On January 3, 1996, the Bank acquired all of the outstanding common stock of
Marble Financial Corporation of Rutland, Vermont (the "Marble acquisition")
for $18.00 per share in cash or approximately $61 million in total
consideration. On the date of closing, Marble Financial and its banking
subsidiary Marble Bank had consolidated assets and deposits of approximately
$396 million and $327 million, respectively. The transaction, which was
accounted for under the purchase method of accounting, generated accounting
goodwill of $20.1 million which is being amortized over 15 years.
On September 27, 1996, the Bank assumed the deposit liabilities and purchased
loans owned and serviced by six banking offices formerly operated by the Green
Mountain Bank of Rutland, Vermont, a wholly owned subsidiary of Arrow
Financial Corporation (the "Green Mountain acquisition"). The acquisition
included approximately $108 million in deposits and loans. This acquisition,
which was accounted for under the purchase method of accounting, generated
goodwill of approximately $8.2 million which is being amortized over 15 years.
The Rutland banking office of Green Mountain was consolidated with the
existing Rutland banking office acquired from Marble Bank. The remaining Green
Mountain banking offices together with the seven former Marble Bank banking
offices are currently operating as the Bank's Marble division.
On January 24, 1997, the Bank entered into a purchase agreement with KeyBank
National Association (New York) relating to deposit liabilities of
approximately $530 million and 35 New York State banking offices currently
operated by KeyBank (the "KeyBank Transaction"). The offices are located in
northern New York, the greater Hudson Valley, and the Binghamton area. The
Company intends to establish as a new subsidiary a New York chartered
commercial bank, ALBANK Commercial, which will act under the agreement to pay
a deposit premium of approximately 7% based on average KeyBank deposit
balances just prior to closing and will have the option to purchase
approximately $53 million in small business, consumer and mortgage loans. The
KeyBank Transaction, the establishment of ALBANK Commercial and the related
registration of the Company as a bank holding company are subject to approval
by bank regulatory authorities. Following receipt of those approvals, the two
companies anticipate closing the transaction in mid-1997.
At year-end 1996, the Bank operated through 71 banking offices, 50 of which
are located in 17 upstate New York counties, nine of which are located in the
metropolitan area of Springfield, Massachusetts and 12 of which are located
primarily in central Vermont.
The Company regularly engages in discussions with other depository
institutions with respect to possible acquisition transactions.
Bank Subsidiaries
The Bank's principal operating subsidiary is ALVEST Financial Services, Inc.
This wholly owned company offers brokerage, investment and insurance products
and services. The Bank owns 100% of the voting common stock of ASBANY Funding
Corporation, a real estate investment trust which invests primarily in
residential real estate mortgage loans originated by the Bank. A third wholly-
owned subsidiary of the Bank is ASBANY Corp.. ASBANY Corp.'s assets consist
primarily of its investments in two subsidiaries--Page-ASBANY Corp. and CDC-
ASBANY Corp. Page-ASBANY Corp. owns certain office premises and equipment
located in the State of Massachusetts. CDC-ASBANY Corp. owns limited
partnership interests in real estate development projects which generate low-
income housing and historic preservation income tax benefits which accrue to
the Company. A third subsidiary of ASBANY Corp., Gables CVF, Inc., was
incorporated in the State of Nebraska, has no assets, and is inactive.
Market Area
ALBANK has been, and intends to continue to be, a community-oriented financial
institution offering a variety of financial services to meet the needs of the
communities it serves. Originally operating in the Capital District, ALBANK
now serves communities that extend south through most of the lower Hudson
Valley, north along the Hudson River and Lake Champlain to the Canadian
Border, and west through the Mohawk Valley to Syracuse. ALBANK's market also
extends eastward to include communities in and surrounding the greater
metropolitan area of Springfield, Massachusetts and since the 1996 Marble and
Green Mountain acquisitions, ALBANK's market has been expanded to include
communities throughout the central region of the state of Vermont.
The population level overall has remained relatively stable in ALBANK's market
area. Major business and government institutions include the New York State
Government, major educational institutions, Albany International and General
Electric in the Capital District; IBM in the lower Hudson Valley; major paper
and paper products manufacturers in our northern region; the New York State
Government, the insurance industry and manufacturing in our western region;
major educational institutions and the insurance industry in western
Massachusetts; and a variety of small to medium sized businesses in central
Vermont.
The economy of the Northeast, in general, has felt the impact of corporate
restructurings and downsizing in recent years. In New York State, for
instance, both IBM and General Electric have reduced the number of local
positions, and the New York State Government has restructured and downsized.
Following a nationwide pattern, however, many "replacement jobs" are being
created among smaller companies. Furthermore, ALBANK's strategy of controlled
growth into contiguous markets through acquisition has diversified its
customer deposit base and loan portfolio, and helped to protect ALBANK from
overconcentration in any one market area.
Competition
ALBANK faces strong competition in its market areas, both in attracting
deposits and making real estate and other loans. ALBANK's most direct
competition for deposits historically has come from other savings
associations, commercial banks and credit unions which are located, or have
branches, in those areas. ALBANK also faces additional competition for
deposits from national brokerage houses, money market funds and other
corporate and government securities funds. Factors affecting the acquisition
of deposits include pricing, office location and hours of operation, the
variety of deposit accounts offered, and the quality of customer service
provided. Competition for loans has been especially keen during the past five
years. Commercial banks, thrift institutions, traditional mortgage bankers,
mortgage bankers owned by national nonfinancial conglomerates, and mortgage
brokers affiliated with local, but nationally franchised, real estate brokers
are all active and aggressive competitors.
The Bank competes in this environment by providing a full range of financial
services based on a tradition of financial strength and integrity dating from
its inception. It competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of services it
provides to its borrowers. At December 31, 1996, as a result of acquisitions
of deposits from institutions insured by the Bank Insurance Fund ("BIF"),
approximately 34% of the Bank's deposits were insured through the BIF, while
the remaining 66% were insured through the Savings Association Insurance Fund
("SAIF"). In 1995 and 1996, the FDIC periodically reduced the rates of deposit
insurance premium assessments on BIF-insured deposits but did not make
commensurate reductions in the rates applicable to SAIF-insured deposits
(except with respect to a small group of institutions--not including the Bank-
- -during the last quarter of 1996). This assessment disparity provided
commercial banks--most of the deposits of which are BIF-insured rather than
SAIF-insured--with certain competitive advantages over savings associations.
As a result of legislation enacted in 1996, this premium disparity will be
substantially reduced in 1997 (See "Regulation and Supervision--Deposit
Insurance and Other Assessments").
Regulation and Supervision
General. The Bank, as a federally chartered savings bank, is a member of the
Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the FDIC, principally under the SAIF. The Bank is subject
to comprehensive regulation, examination and supervision by the Office of
Thrift Supervision ("OTS") as its primary federal regulator and by the FDIC as
the administrator of the deposit insurance funds. The Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition
and must obtain regulatory approvals prior to entering into certain
transactions, including mergers with, or acquisitions of, other financial
institutions. The Bank also is a member of the Federal Home Loan Bank of New
York (the "FHLB-NY") and is subject to certain limited regulation by the
Federal Reserve Board.
Virtually every aspect of the Bank's business is subject to numerous
requirements and restrictions with respect to such matters as, for example,
the nature and amount of loans and investments that may be made, the issuance
of securities, investment portfolio policy and other accounting regulations
and policies, transactions with affiliates and insiders, reserves against
deposits, the maintenance of a certain proportion of liquid assets, the
establishment of branches, mergers, non-banking activities and other
operations. This supervision and regulation establish a comprehensive
framework of activities in which the Bank can engage and is intended primarily
for the protection of the insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.
Federal legislation and regulation have significantly affected the operations
of federally insured savings associations and other federally regulated
financial institutions in the past several years and have increased
competition among savings associations, commercial banks and other financial
institutions.
In particular, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") included numerous provisions that affected the operation of
all federally insured depository institutions. Among other things, FDICIA
required annual on-site regulatory examinations of insured depository
institutions, required that federal banking regulators intervene promptly when
a depository institution experiences financial difficulties, mandated the
establishment of a risk-based deposit insurance assessment system and required
imposition of numerous additional operational standards and restrictions.
FDICIA also included consumer-oriented incentives and consumer protections.
The federal banking agencies and, under certain circumstances, the FDIC as
insurer have substantial enforcement authority with respect to institutions
they regulate. This enforcement authority includes, among other things, the
ability to assess substantial civil money penalties, to terminate or suspend
insurance of the institution's accounts, to initiate injunctive actions and to
issue prohibition, removal or cease-and-desist orders. In general, these
enforcement actions may be initiated for violations of laws and regulations
and engaging in unsafe or unsound practices. In addition, banking regulators
are provided with great flexibility to take enforcement action against an
institution that fails to comply with applicable capital requirements.
Capital Requirements. Under current OTS capital regulations, savings
associations are required to comply with each of three separate capital
adequacy standards: a "leverage" ratio (also called a "core capital"
requirement) of 3.0% of adjusted total assets, a "tangible capital"
requirement of 1.5% of adjusted total assets, and a total "risk-based" capital
requirement of 8.0% of risk-weighted assets of which 4.00% must be "core". In
addition, in order to qualify as a "well-capitalized" institution under the
OTS's "prompt corrective action" requirement referred to below, a savings
association must have, among other requirements, a leverage ratio of at least
5.0% of adjusted total assets, a ratio of "Tier 1" (or "core") capital to
risk-weighted assets of at least 6.0% and a ratio of total capital to risk-
weighted assets of at least 10.0%. As of December 31, 1996, the Bank's
leverage ratio, tangible capital ratio, Tier 1 risk-based ratio and total
risk-based capital ratio were 7.00%, 7.00%, 10.80% and 11.88%, respectively.
FDICIA required the federal banking agencies to revise risk-based capital
standards to ensure that they take account of interest-rate risk ("IRR"). The
OTS adopted a rule in 1994 that established a methodology for measuring IRR
pursuant to which savings associations have been calculating and reporting to
the OTS since that time. The OTS has not required savings associations to make
an automatic deduction from their capital for IRR, pending the decision of the
other federal banking agencies to require such a deduction. In 1995, the other
federal banking agencies issued an IRR rule that requires them to review IRR
when assessing an institution's capital adequacy. In 1996, the OTS issued an
IRR policy statement that sets forth the key elements of sound interest rate
risk management and prudent practices for each of these elements, but does not
establish a standardized measure of, or require an explicit capital charge
for, IRR.
In addition, in 1995 the OTS and the other federal banking agencies revised
their risk-based capital standards to take account of concentration of credit
risk and the risk of nontraditional activities. The OTS rule authorizes the
OTS to take account of such risks, as well as such other factors as a record
of operational losses, management deficiencies and poor record of supervisory
compliance, in setting individual minimum capital requirements for a thrift
institution. The Bank does not believe that this regulation will materially
affect its capital requirements.
Under law and regulation specifically applicable to savings associations, the
OTS may impose a number of sanctions on savings associations that are not in
compliance with the OTS capital requirements. Among other things, the OTS
might impose restrictions on asset growth and issue a capital directive that
may require, among other things, an increase in regulatory capital; reduction
of rates paid on savings accounts; cessation of or limitations on deposit-
taking, lending, purchasing loans, making specified investments, or issuing
new accounts; limits on operational expenditures; an increase in liquidity;
and/or such other restrictions or corrective actions as the OTS may deem
necessary or appropriate. In addition, an insured financial institution must
provide its federal regulators with prior notice before it adds any new
director or senior executive officer if the institution is not meeting its
capital requirements or is otherwise determined to be in a troubled condition.
An institution not meeting its capital requirements is prohibited from making
capital distributions without regulatory approval, could be required to file
an appropriate capital plan, and may not accept, renew or roll over brokered
deposits. Furthermore, deposits of employee benefit plans in such an
institution are not eligible for "pass-through" deposit insurance. FDIC
regulations permit only well-capitalized depository institutions to accept,
renew or roll over brokered deposits without restriction.
Restrictions on Dividends and Other Capital Distributions. OTS regulations
limit the ability of a savings association to pay dividends and make other
capital distributions according to the association's level of capital and
income, with the greatest flexibility afforded to an institution that meets or
exceeds its capital requirements.
A savings association that exceeds its capital requirements both before and
after a proposed distribution (a "Tier 1 Association") and has not been
advised by the OTS that it is in need of more than normal supervision could,
after prior notice to the OTS, make capital distributions during a calendar
year up to the higher of (i) 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the association's excess capital over its capital requirement)
at the beginning of the calendar year, or (ii) 75% of its net income to date
over the most recent four-quarter period. In addition, a Tier 1 Association
may make capital distributions in excess of the foregoing limits if it gives
the OTS 30 days' notice of the proposed distribution and the OTS does not
object. Bank management believes that the Bank at December 31, 1996, met the
requirements to qualify as a Tier 1 Association. In March 1997, the Bank
submitted a notice to the OTS with respect to a capital distribution in
connection with the capitalization of ALBANK Commercial and the consummation
of the KeyBank Transaction.
An institution not qualifying as a Tier 1 Association is subject to more
stringent restrictions on its capital distributions. The OTS may also prohibit
a capital distribution that would otherwise be permitted if the OTS determines
that the distribution would constitute an unsafe or unsound practice. An
institution is also prohibited from making a capital distribution if,
following such distribution, the institution would be "undercapitalized" under
the prompt corrective action provisions discussed below. In addition, a
savings association, such as the Bank, that has converted from mutual to stock
form may not declare or pay a dividend on or repurchase any of its capital
stock if the effect of such action would be to reduce the regulatory capital
of the association below the amount required for the liquidation account
established for the benefit of certain of its depositors in connection with
such conversion.
Prompt Corrective Regulatory Action. FDICIA established five capital zones
("well- capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized") in which
insured depository institutions would be placed and authorized (and, in
certain circumstances, required) the appropriate federal banking agency to
take "prompt corrective action" to resolve an institution's problems, with the
nature and extent of such action dependent primarily on the zone in which the
institution is placed.
In general, an insured depository institution may not make a capital
contribution (including a payment of a dividend) or pay any management fee to
its holding company if the institution would thereafter be undercapitalized.
The severity of the other actions required to be taken by the appropriate
federal banking agency increases as an institution's capital position
deteriorates. Among other things, these actions could include, under certain
circumstances, requiring recapitalization of or a capital restoration plan by
a depository institution; restricting transactions between such an institution
and its affiliates; restricting interest rates, asset growth, activities or
investments in subsidiaries; ordering a new election for directors; dismissing
directors or senior executive officers; and/or requiring the employment of
additional qualified senior executive officers. If the agency determines that
an institution is in an unsafe and unsound condition or if the institution is
deemed by the agency to be engaging in an unsafe and unsound practice by
virtue of having received a less-than-satisfactory rating for asset quality,
management, earnings or liquidity in its most recent examination, the agency
may, if the institution is "well-capitalized", reclassify it to "adequately
capitalized", if the institution is "adequately capitalized" require it to
comply with restrictions applicable to "undercapitalized" institutions and if
the institution is "undercapitalized", require it to comply with restrictions
applicable to "significantly undercapitalized" institutions.
Each company having control of a capital deficient depository institution must
(i) guarantee that the institution will comply with a required capital
restoration plan until the institution has been adequately capitalized on
average during each of four consecutive calendar quarters, and (ii) provide
appropriate assurances of performance. The aggregate guarantee liability of
all companies having control of a depository institution will be the lesser of
5% of the institution's total assets when it becomes undercapitalized or the
amount that is necessary to bring the institution into compliance with the
capital standards as of the time the institution fails to comply with the
capital restoration plan.
FDICIA also significantly expanded the grounds for the appointment of a
conservator or receiver for an insured depository institution, including
grounds based upon the institution's compliance with the prompt corrective
action provisions.
Liquidity Requirements. OTS regulations currently require savings associations
to maintain an average daily balance of liquid assets (including, among other
things, cash, certain time deposits, bankers' acceptances, and specified U.S.
government, state or federal agency obligations) equal to at least 5% of the
average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month (the "long-term liquidity
ratio"). This liquidity requirement may be changed from time to time by the
OTS to an amount within a range of 4% to 10% of such accounts and borrowings.
OTS regulations also require each savings association to maintain an average
daily balance of short-term liquid assets (generally those having maturities
of 12 months or less) equal to at least 1% of the average daily balance of its
net withdrawable accounts plus short-term borrowings during the preceding
calendar month (the "short-term liquidity ratio"). Monetary penalties may be
imposed for failure to meet these liquidity ratio requirements. At December
31, 1996, the long-term and short-term liquidity ratios of the Bank were 23.7%
and 8.0%, respectively.
Deposit Insurance and Other Assessments. As of December 31, 1996,
approximately $1.987 billion of the Bank's deposit accounts were insured up to
applicable limits by the FDIC through the SAIF and approximately $1.026
billion in deposits were insured by the FDIC through the BIF. Under FDICIA,
the FDIC has established a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. Depository
institutions are placed into one of nine confidential risk assessment
categories using a two-step process based first on capital ratios and then on
other factors derived from reviews by the institution's primary federal and,
if applicable, state regulator and other information deemed by the FDIC to be
relevant. The disclosure of the confidential supervisory subgroup to which an
institution is assigned is prohibited by FDIC regulation. Until mid-1995, the
range of deposit insurance premiums paid with respect to BIF-insured deposits
was the same as that for SAIF-insured deposits. However, as a result of a
series of actions taken by the FDIC, from mid-1995 through 1996, BIF premiums
were substantially lower than SAIF premiums. Indeed, beginning in 1996,
institutions with the most favorable capital and risk categories paid only the
statutory minimum of $2,000 annually with respect to BIF-insured deposits (the
assessment range was $0 to $0.27 per $100 of deposits), while SAIF-insured
deposits were subject to an assessment that ranged from $0.23 to $0.31 per
$100 of deposits. As a result of the recapitalization of the SAIF (discussed
below) that occurred effective October 1, 1996, the FDIC reduced the premiums
on SAIF deposits to a range of $0 to $0.27 per $100 of deposits (the same as
for BIF-insured deposits), except that SAIF-member savings associations (such
as the Bank) were subject from October 1, 1996, through December 31, 1996, to
a premium range of $0.18 to $0.27 per $100 of SAIF deposits. Effective in the
first quarter of 1997, all deposits, SAIF or BIF, are subject to the same
range of $0 to $0.27 per $100, with no statutory minimum.
In September 1996, Congress passed and the President signed the Deposit
Insurance Funds Act of 1996 (the "Funds Act"), which, among other things,
required the FDIC to impose a one-time special assessment on SAIF-insured
deposits in an amount that would recapitalize the SAIF at its required reserve
ratio of 1.25%. Certain institutions, including the Bank, were permitted to
reduce the amount of deposits to which the assessment was applied by 20%. The
Bank paid a special assessment in the amount of $10.4 million.
The Funds Act also provided that beginning in 1997, both BIF deposits and SAIF
deposits will be assessed by the Financing Corporation ("FICO") for interest
payments due on bonds issued by FICO for purposes of recapitalizing the
Federal Savings and Loan Insurance Corporation in the late 1980s. The Funds
Act provides that through the earlier of December 31, 1999, or the date as of
which the last savings association ceases to exist, BIF deposits will be
assessed for FICO at a rate that is one-fifth the rate applicable to SAIF
deposits. For 1997, the annual FICO assessment (payable quarterly) on SAIF
deposits is $0.065 per $100 of deposits and for BIF deposits is $0.013 per
$100 of deposits.
Prior to the Funds Act, institutions were generally prohibited from changing
from BIF membership to SAIF membership or vice versa. Since October 1, 1996,
institutions have been permitted to change insurance funds but must pay exit
and entrance fees to the respective funds. However, a SAIF member may acquire
deposits from a BIF member or vice versa in a merger or assumption of deposits
without changing funds, so long as the acquired deposits continue to be
treated as deposits insured by the fund of the selling institution and
assessments go to that fund.
Savings associations are required by OTS regulation to pay assessments to the
OTS to fund its operations. The general assessment is computed on the basis of
a savings association's total assets, including consolidated subsidiaries. A
premium assessment is charged for associations designated as troubled
institutions. The Bank's general assessment for the year ended December 31,
1996, totaled $477,000.
Certain Loss Valuation Policies. Adequate valuation allowances, consistent
with generally accepted accounting principles, are required to be established
for classified assets, and the federal banking agencies have issued an
interagency policy statement relating specifically to allowances for loan and
lease losses. This statement reaffirms that an institution's board of
directors and management are responsible for establishing and maintaining an
adequate level of allowances, and contains general guidance on calculating the
allowances. At a minimum, the allowance should be no less than the sum of (i)
estimated credit losses for the remaining effective lives of loans and leases
classified as "substandard" and "doubtful"; (ii) estimated credit losses for
the upcoming 12 months for components of the loan and lease portfolio that are
not classified; and (iii) estimated credit losses resulting from the transfer
risk of international loans. The Bank believes that its methodologies for
establishing a general valuation allowance are in accordance with the policy
statement (See "Statistical Data--IV. Summary of Loan Loss Experience").
Qualified Thrift Lender Test; Certain Operational Matters. Savings
associations are required to maintain 65% of their "portfolio assets" (total
assets minus goodwill, intangibles, property used to conduct business and
liquid assets up to 20% of assets) in "qualified thrift investments". Until
September 1996, qualified thrift investments consisted primarily of loans and
other investments related to residential real estate, together with lesser
amounts of certain other assets. Effective in the last quarter of 1996,
qualified thrift investments include credit card loans, education loans and
small business loans, and a lesser amount of other consumer loans. Savings
associations that fail the "qualified thrift lender" (QTL) test are subject to
substantial restrictions on their activities and to certain other penalties.
As a savings bank chartered under state law prior to October 15, 1982, the
Bank is exempt from many of such restrictions and penalties. Failure by the
Bank to maintain QTL status could, however, affect the ability of ALBANK to
enter into certain activities (See "Supervision and Regulation--Savings and
Loan Holding Company and Related Regulation; Control-Related Provisions"). As
of December 31, 1996, the Bank complied with the QTL requirements (with 83.69%
of its assets in qualified thrift investments).
Federal savings associations are also subject to comprehensive regulation
governing their investments and activities. Among other things, a federal
association may invest in (i) mortgage loans in an unlimited amount, (ii) non-
residential real estate loans up to 400% of capital, (iii) commercial loans up
to 10% of assets (effective in the last quarter of 1996, up to 20% of assets
so long as the last 10% are small business loans), and (iv) consumer loans,
commercial paper and corporate debt securities in the aggregate up to 35% of
assets. In addition, a federal savings association may invest up to 3% of its
assets in service corporations and an unlimited percentage of its assets in
operating subsidiaries (which may engage only in activities permissible for
the association). Other than investment in service corporations and operating
subsidiaries, and stock of government sponsored enterprises such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), federal savings associations generally are not
permitted to make equity investments.
Until its conversion to a federally chartered savings bank in 1982, the Bank
was a New York state chartered savings bank with investment powers conferred
by New York law. Federal law and OTS regulations authorize the Bank to make
investments or engage in activities to the degree the Bank was authorized to
do so as a state chartered savings bank under New York law at the time of its
conversion from a state to a federal charter and to the degree permissible for
the Bank in its capacity as a federal savings bank prior to October 15, 1982,
in each case to the extent authorized by the OTS and subject to the authority
of the FDIC to limit activities incompatible with deposit insurance. These
powers are in addition to powers that the Bank currently possesses as a
federally chartered savings bank.
The Bank's grandfathered powers include the authority to invest in various
types of investment securities, including corporate bonds and stock, and in
real estate for development, in each case subject to certain limitations. In
addition, the Bank has grandfathered authority to make so-called "leeway
investments", which include any investment not otherwise authorized under New
York law at the time of the Bank's charter conversion (other than investments
in the common stock of commercial banks or life insurance companies), so long
as any single investment does not exceed 1% of the Bank's assets and all such
investments do not exceed 5% of its assets.
Numerous laws and regulations also set forth special restrictions and
procedural requirements with respect to the Bank's extensions of credit,
credit practices, the disclosure of credit and savings account terms and
discrimination in credit transactions. For example, under the Community
Reinvestment Act ("CRA") and implementing OTS regulations, a savings
association such as the Bank has an obligation to help meet the credit needs
of its local communities, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of the Bank. Following the most
recent OTS compliance examination of the Bank completed on June 19, 1995, the
Bank was rated "outstanding" on the four-category CRA rating system of
"outstanding," "satisfactory," "needs to improve" and "substantial non-
compliance".
In May 1995, the OTS, in conjunction with other federal banking agencies,
issued revisions to the rules governing CRA compliance. The new rules, which
become effective in stages through July 1, 1997, are intended to give
financial institutions guidance regarding their CRA obligations and to
simplify CRA evaluations by establishing performance-based criteria. The rules
establish a methodology for evaluating an institution's CRA compliance in
three broad areas, lending, investment and service, with the actual criteria
applied being dependent on the type of institution (retail or wholesale) and
the nature of its service area.
Safety and Soundness Standards. FDICIA and subsequent legislation require each
federal banking agency to prescribe by regulation or guideline, for all
insured depository institutions, standards relating to, among other things,
internal controls and audit systems, credit underwriting and loan
documentation, interest rate exposure, asset growth, compensation of directors
and officers, and such other operational and managerial standards as the
agency deems appropriate. In July 1995, the federal banking agencies adopted
guidelines addressing these areas of operation. In addition, each such agency
is required to adopt such standards relating to asset quality and earnings as
the agency deems appropriate. In August 1996, the federal banking agencies
adopted standards addressing the foregoing matters. The Bank does not believe
that the adoption of these standards should materially affect its operations.
FDICIA also required each appropriate federal banking agency to adopt uniform
regulations prescribing standards for extensions of credit (i) secured by real
estate, or (ii) made for the purpose of financing the construction of
improvements on real estate. The federal banking agencies require each
institution to establish and maintain written internal real estate lending
standards consistent with safe and sound banking practices, taking into
account the size of the institution and the nature and scope of its real
estate lending activities. Subject to certain exceptions, the policy of a
savings association must also be consistent with OTS guidelines, which include
loan-to-value ratios for the following types of real estate loans: raw land
(65%); land development (75%); non-residential construction (80%); improved
property (85%); and one- to four-family residential construction (85%). One-
to four-family mortgage and home equity loans do not have maximum loan-to-
value ratio limits, but those with a loan-to-value ratio at origination of 90%
or greater are expected to be backed by private mortgage insurance or readily
marketable collateral. Institutions are also permitted to make a limited
amount of loans that do not conform to the loan-to-value limitations.
Savings and Loan Holding Company and Related Regulation; Control-Related
Provisions. The Company is a unitary, non-diversified savings and loan holding
company. As such, the Company is registered with the OTS and is subject to OTS
regulation, examination, supervision and reporting requirements. (See also
"Supervision and Regulation--Regulation of Banks and Bank Holding Companies").
Federal law prohibits a savings and loan holding company (such as the
Company), directly or indirectly, or through one or more subsidiaries, from
(i) acquiring control of, or acquiring by merger, consolidation or purchase of
assets, another savings association or savings and loan holding company,
without the prior approval of the OTS; (ii) acquiring or retaining, with
certain exceptions, more than 5% of the voting stock of a non-subsidiary
savings association or a non-subsidiary savings and loan holding company; or
(iii) acquiring or retaining control of a depository institution, the deposits
of which are not insured by the SAIF or the BIF. In evaluating applications by
holding companies to acquire savings associations, the OTS must consider the
financial and managerial resources and future prospects of the holding company
and association involved, the effect of the acquisition on the risk of the
SAIF and the BIF and the convenience and needs of the community to be served.
OTS approval (or, in certain cases, non-disapproval) must be obtained prior to
any person acquiring control of the Bank or the Company. Control is
conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the Bank or the Company or controls
in any manner the election of a majority of the Directors of the Bank or the
Company. Control is rebuttably presumed to exist if, among other things, a
person acquires more than 10% of any class of voting stock (or 25% of any
class of stock) of the Bank or the Company and is subject to any of certain
specified "control factors" as defined in OTS regulations. A person also may
be determined to have rebuttable control of the Bank or the Company in certain
circumstances if such person holds any combination of voting stock and
revocable or irrevocable proxies representing more than 25% of any class of
voting stock of the Bank or the Company (See "Regulation and Supervision--
Regulation of Banks and Bank Holding Companies").
A unitary savings and loan holding company that controls only one savings
association generally would not be restricted under existing laws in the types
of business activities in which it may engage, so long as its subsidiary
savings association continues to be a QTL. Upon any acquisition by the Company
of another savings association, however, the Company would become a multiple
savings and loan holding company (if the acquired institution is held as a
separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage.
Other Regulatory Bodies. The Federal Home Loan Bank System, which consists of
12 Federal Home Loan Banks (the "FHLBanks"), provides a central credit
facility primarily for the use of member institutions. The Federal Housing
Finance Board oversees the FHLBanks. The Bank is a member of the FHLB-NY and,
as such, is required to acquire and hold shares of capital stock in the FHLB-
NY in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year (assuming for such purposes that at least 30% of its assets were
home mortgage loans), or 5% of its advances (borrowings) from the FHLB-NY,
whichever is greater. The Bank is in compliance with this requirement, with an
investment in FHLB-NY stock at December 31, 1996, of $16.9 million. FHLB-NY
advances must be secured by specified types of collateral, and long-term
advances may be obtained only for the purpose of enabling a member to purchase
or fund new or existing residential housing finance assets.
The Bank recorded dividend income of $1.1 million on its FHLB-NY stock in the
year ended December 31, 1996. Since 1989, each of the FHLBanks has been
required to transfer a certain amount of its reserves and undivided profits to
the Resolution Funding Corporation ("REFCORP"), the government entity
established to raise funds to resolve failed savings association cases, to
fund the principal and a portion of the interest on REFCORP bonds and certain
other obligations. In addition, each of the FHLBanks has been required to
transfer a percentage of its annual net earnings to an Affordable Housing
Program.
Federal Reserve Board regulations require depository institutions, including
the Bank, to maintain noninterest-earning reserves against certain of their
transaction accounts and deposits. For the calculation period including
December 31, 1996, the Bank was in compliance with its requirement to maintain
$28.2 million in noninterest-earning reserves. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve Board may also be used
to satisfy long-term liquidity requirements imposed by the OTS.
Legislative and Regulatory Proposals. Any changes in the extensive regulatory
structure, whether by the OTS, the FDIC, or Congress, could have a material
effect on the Company. The Company cannot predict what, if any, future actions
may be taken by legislative or regulatory authorities or what impact such
actions may have on the Company.
The Funds Act provided for the merger of the BIF and the SAIF on January 1,
1999, but only if no depository institution was a savings association by that
date. Thus the merger of the two deposit insurance funds is conditioned upon
the conversion of savings associations to bank charters, but the Funds Act
does not provide for the manner of such conversion. Pending legislation would
require each federal savings association, such as the Bank, to convert to a
national bank or state depository institution charter by June 30, 1998. The
converted institutions would be subject to regulation by the appropriate
federal and state banking agency for the type of charter that the institution
adopted, and the OTS would be abolished. After conversion, a former savings
association would have two years (subject to two one-year extensions) to
discontinue any activities and investments impermissible under its new
charters. A parent holding company of former savings association would be
regulated as a bank holding company by the Federal Reserve Board, and would be
subject to the activities restrictions applicable to bank holding companies
unless such parent holding company were able to take advantage of a very
narrow "grandfather" for current powers. The Company is unable to predict
when, if, and in what form this legislation may ultimately be adopted.
Tax legislation enacted in 1996 repealed the reserve method of accounting for
bad debts by most thrift institutions such as the Bank and requires such
thrift institutions to recapture their post-1987 additions to their bad debt
reserves ratably over a six-year period. Because the Bank met certain lending
requirements, this recapture did not begin in 1996; if the Bank continues to
meet such lending requirements for 1997, the recapture will not begin until
1998. The enactment of such tax recapture legislation should not have a
material effect on either the financial condition or the results of operations
of the Company.
Regulation of Banks and Bank Holding Companies. In March 1997, ALBANK
submitted an application to the Banking Board of the State of New York and the
New York Superintendent of Banks (the "Superintendent") for permission to
organize ALBANK Commercial and to acquire the branches in the KeyBank
Transaction. ALBANK also submitted an application to the FDIC in respect of
the deposit insurance of ALBANK Commercial and will submit an application to
the Federal Reserve Board to become a bank holding company by acquiring 100%
of the stock of ALBANK Commercial. These applications are pending.
As a bank holding company, ALBANK will be subject to the regulation and
supervision of the Federal Reserve Board under the Bank Holding Company Act of
1956 (the "BHC Act"). As a New York chartered commercial bank, ALBANK
Commercial will be regulated by the New York State Banking Department and the
Superintendent under New York Banking Law. As a state-chartered bank that is
not a member of the Federal Reserve System (a "state non-member bank"), ALBANK
Commercial will have the FDIC as its primary federal regulator. ALBANK
Commercial will be a member of the BIF. Upon its registration as a bank
holding company, the Company will no longer be subject to the supervision of
the OTS as a savings and loan holding company.
The BHC Act generally limits activities of a bank holding company to the
ownership and management of banks and companies engaged in activities that the
Federal Reserve Board has determined to be so closely related to banking as to
be a proper incident thereto. The activities of the Company conducted directly
or through non-bank subsidiaries will generally be limited to furnishing
services to its subsidiaries and activities that qualify under the "closely
related" and "proper incident" tests. Notice to or application to the Federal
Reserve Board will be required for new activities and acquisitions of most
non-banking subsidiaries. Operating a savings association has been determined
by the Federal Reserve Board to be a permissible non-banking activity,
provided the savings association engages only in activities that are
permissible for bank holding companies under the "closely related" and "proper
incident" tests. As a result, the Bank will not be able to take advantage of
certain grandfathered powers and will be required to discontinue its SBLI. It
is contemplated that, following the Company's registration as a bank holding
company, the Bank will transfer ALVEST Financial Services, Inc., its
subsidiary that engages in insurance and securities brokerage, to ALBANK
Commercial. Upon such transfer, certain of ALVEST's activities may be limited.
Under Federal Reserve Board Policy, a bank holding company is expected to act
as a source of financial strength to its subsidiary banks and to commit
resources to support such banks in circumstances where it might not do so
absent such policy. In addition, any loans by a bank holding company to its
subsidiary banks would be subordinate in right of payment to deposits and to
certain other indebtedness of its banks. Under the Federal Deposit Insurance
Act, 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 in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default.
"Default" is defined generally as the appointment of a conservator or
receiver, and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies (on a consolidated basis with their bank subsidiaries), and
the FDIC has adopted similar guidelines for state non-member banks. These
guidelines are similar but not identical to the OTS standards applicable to
savings associations such as the Bank. For holding companies and state non-
member banks, the minimum ratio of qualifying total capital to risk-weighted
assets (including certain off-balance sheet items) is 8%, with "Tier 1
capital" (principally common equity, retained earnings and certain types of
preferred stock) comprising at least half that amount. In addition, the
Federal Reserve Board has established a minimum leverage ratio (Tier 1 capital
to average total assets) to supplement its risk-based ratio, and the FDIC has
adopted substantially similar requirements. The applicable capital guidelines
provide for a minimum leverage ratio of 3% for bank holding companies and
banks that meet certain specified criteria, including those having the highest
regulatory rating. All other banking organizations will be required to
maintain a leverage ratio of at least 4% to 5%. The Federal Reserve Board
guidelines also provide that banking organizations 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.
The New York Banking Law and regulations delimit the powers of the New York
banks, which include the powers, among others, subject to certain
restrictions, to lend money, including on real and personal security, to
discount commercial paper, to receive deposits and to invest in certain
securities. Legislation pending in the New York legislature would, if enacted,
authorize the Superintendent to permit New York banks to exercise any power
permissible for national banks. In addition, as a state non-member bank,
ALBANK Commercial will be subject to numerous requirements and restrictions
under New York and federal law with respect to its business and operations,
generally of the type applicable to the Bank and discussed under "Supervision
and Regulation--General."
ALBANK Commercial will be subject to dividend limitations under the New York
Banking Law, including a requirement that prior regulatory approval be
obtained for dividends in any year that would exceed ALBANK Commercial's net
profits for such year combined with retained net profits for the prior two
years.
The Federal Deposit Insurance Act provides that a state bank, including a
state non-member bank such as ALBANK Commercial, generally may not engage as
principal in any activity that is not permissible for a national bank. State
non-member banks are subject to the prompt corrective action and safety and
soundness provisions discussed above under "Supervision and Regulation--Prompt
Corrective Regulatory Action" and "-- Safety and Soundness Standards," as well
as other regulations applicable to all insured depository institutions
discussed above, in each case as implemented by the FDIC.
A bank holding company (which the Company will be following the consummation
of the KeyBank Transaction) is not permitted to acquire the ownership or
control of more than 5% of any class of voting shares or substantially all of
the assets of any company--including a bank, a bank holding company, a savings
and loan association or a savings and loan holding company--or merge or
consolidate with another company, without the prior approval (or in some
cases, non-objection) of the Federal Reserve Board. After the Company becomes
a bank holding company, the OTS will no longer regulate acquisitions by the
Company (although it will continue to regulate acquisitions by the Bank). The
FDIC (under the Bank Merger Act) and the Superintendent (under the New York
Banking Law) will regulate acquisitions by ALBANK Commercial.
Under applicable federal law, bank holding companies are permitted to acquire
banks located in states other than their home states without regard to whether
the transaction is permissible under state law. In addition, commencing June
1, 1997, state and national banks with different home states will be permitted
to merge across state lines, with approval of the appropriate federal banking
agency, unless the relevant state passes legislation by May 31, 1997,
expressly prohibiting interstate mergers. States may enact laws permitting
interstate bank merger transactions prior to June 1, 1997 (opt-in statutes). A
bank may also establish and operate a de novo branch in a state in which the
bank does not maintain a branch if that state expressly permits de novo
branching. By contrast, federal savings associations such as the Bank are
permitted to branch nationwide by acquisition or de novo without regard to
state law so long as the institution and the branches meet the QTL test.
Statistical Information and Analysis
Reference is made to the "Five Year Selected Financial Data" section on page
13 and the "Management's Discussion and Analysis" section on pages 14 through
24 of the Company's December 31, 1996, Annual Report to Stockholders (the
"Annual Report") for a presentation and discussion of certain statistical data
relating to ALBANK. The information with respect to such data should not be
construed to imply any conclusions on the part of the management of ALBANK
that the results, causes or trends indicated therein will continue in the
future. The nature and effects of governmental monetary policy, supervision,
regulation, future legislation, inflation and other economic conditions and
many other factors which affect interest rates, investments, loans, deposits
and other aspects of ALBANK's operations are extremely complex and could make
historical operations, earnings, assets, and liabilities not indicative of
what may occur in the future.
Statistical Data
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
The information set forth on pages 15 and 16 of the Annual Report is
incorporated herein by reference.
II. Investment Portfolio
Securities
The investment policy of the Company, which is established by senior
management and approved by the Board of Directors, is based upon its
asset/liability management goals and is designed primarily to provide a
portfolio of high quality, diversified investments while seeking to optimize
net interest income within acceptable limits of safety and liquidity.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115 on January 1, 1994, and reclassified as securities available for sale
investment securities with a book value of $87.8 million and a market value of
$89.4 million. In 1995, the Financial Accounting Standards Board ("FASB")
allowed entities to assess the appropriateness of the classifications of all
securities held at that time. As a result, on December 29, 1995, the Company
transferred investment securities with a book value of $492.3 million and a
market value of $491.9 million to securities available for sale.
The Bank invests in various types of liquid assets that are permissible
investments for federally chartered savings associations, including U.S.
Treasury and state and municipal government obligations, securities of various
federal agencies, federal funds and repurchase agreements. Subject to various
restrictions applicable to all federally chartered savings associations, the
Bank also invests in investment grade corporate debt securities, asset-backed
securities (which are securities collateralized by automobile loans, credit
card receivables and marine vehicle loans which have been originated by other
financial institutions), mortgage-backed securities, collateralized mortgage
obligations and real estate mortgage investment conduit securities. The Bank,
which until 1982 was a New York State chartered savings bank, also has
grandfathered leeway authority to invest in certain equity and other
securities.
The Bank's investment goal has been to invest available funds in securities
that generally do not exceed an average life of five years or that meet
specific requirements of the Bank's asset/liability goals.
The following table sets forth certain information regarding the amortized
cost and market value of the Company's investment securities and securities
available for sale portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities
U.S. Government obligations $ 1,744 1,747 1,592 1,627 105,060 100,993
U.S. Government agency obligations 25,140 25,269 20,393 20,567 445 449
Other tax-exempt bonds 1,263 1,298 1,699 1,747 3,099 3,086
Mortgage-backed securities 25,082 26,533 31,030 32,987 157,785 150,564
Corporate bonds 219 219 -- -- 373,245 357,803
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities 34,587 34,360 55,446 55,346 88,673 85,044
Asset-backed securities 21,532 21,625 43,540 43,548 72,098 69,663
Other bonds 40 40 40 40 842 920
Total investment securities $109,607 111,091 153,740 155,862 801,247 768,522
Securities available for sale
U.S. Government obligations $ 75,910 76,262 120,980 122,486 62,345 62,334
U.S. Government agency obligations 6,032 6,014 -- -- 19,942 19,938
Mortgage-backed securities 200,870 200,042 122,952 122,442 -- --
Corporate bonds 282,867 283,860 352,727 356,479 32,523 32,443
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities 19,443 19,051 25,322 25,094 8,661 8,189
Asset-backed securities 23,093 23,156 24,043 24,201 43,248 42,208
Equity securities 6,832 9,558 4,766 6,082 1,561 1,912
Total securities available for sale $615,047 617,943 650,790 656,784 168,280 167,024
</TABLE>
At December 31, 1996, the aggregate securities of any single issuer (other
than the U.S. Government or its agencies) did not exceed 10% of the Company's
stockholders' equity.
The following table sets forth certain information regarding the amortized
cost, annual weighted average yields (which have not been calculated on a
tax-equivalent basis), average life in years, estimated market values and
maturities of the Company's investment securities and securities available for
sale at December 31, 1996.
<TABLE>
<CAPTION
Within After One Year After Five Years
One Year Through Five Years Through Ten Years
Annualized Annualized Annualized
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations $ 350 6.49% $ 1,394 6.05% $ -- --%
U.S. Government agency obligations 4 7.38 25,136 7.02 -- --
Other tax-exempt bonds 200 5.44 514 5.65 299 5.66
Mortgage-backed Securities -- -- 1,181 7.28 6,077 7.59
Corporate bonds -- -- 219 5.50 -- --
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> 1,780 6.34 4,152 7.37 3,969 5.41
Asset-backed securities<F1> 5,098 4.76 16,434 5.08 -- --
Other bonds -- -- 5 6.63 35 5.39
Total investment securities $ 7,432 5.24% $ 49,035 6.36% $ 10,380 6.69%
Securities available for sale:<F2>
U.S. Government obligations $ 50,550 6.02% $ 24,962 6.13% $ -- --%
U.S. Government agency obligations -- -- -- -- 6,032 7.27
Mortgage-backed securities 7,771 7.09 64,819 5.60 49,723 7.17
Corporate bonds 132,694 5.65 149,673 6.46 300 6.44
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> -- -- 7,329 6.34 -- --
Asset-backed securities<F1> 45 6.67 23,048 6.04 -- --
Total securities available for sale $ 191,060 5.81% $ 269,831 6.18% $ 56,055 7.18%
</TABLE>
<TABLE>
<CAPTION>
After
Ten Years Total Securities
Annualized Annualized
Weighted Average Estimated Weighted
Amortized Average Life Amortized Market Average
Cost Yield in Years Cost Value Yield
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations $ -- --% 1.57 $ 1,744 1,747 6.14%
U.S. Government agency obligations -- -- 4.26 25,140 25,269 7.02
Other tax-exempt bonds 250 6.00 6.50 1,263 1,298 5.69
Mortgage-backed securities 17,824 9.13 10.71 25,082 26,533 8.67
Corporate bonds -- -- 3.36 219 219 5.50
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> 24,686 5.65 10.37 34,587 34,360 5.86
Asset-backed securities<F1> -- -- 2.05 21,532 21,625 5.00
Other bonds -- -- 7.67 40 40 5.55
Total investment securities $ 42,760 7.10% 7.21 $ 109,607 111,091 6.60%
Securities available for sale:<F2>
U.S. Government obligations $ 398 10.82% 0.87 $ 75,910 76,262 6.08%
U.S. Government agency obligations -- -- 6.77 6,032 6,014 7.27
Mortgage-backed securities 78,557 7.06 9.21 200,870 200,042 6.62
Corporate bonds 200 7.37 1.35 282,867 283,860 6.08
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> 12,114 6.23 9.26 19,443 19,051 6.27
Asset-backed securities<F1> -- -- 3.61 23,093 23,156 6.04
Total securities available for sale $ 91,269 6.97% 4.28 $ 608,215 608,385 6.27%
<FN>
<F1>Maturities of securities in these categories reflect their stated
maturities, that is, the last possible date for repayment of principal,
rather than their expected average lives, which are generally projected
to be shorter.
<F2>Does not include equity securities.
</TABLE>
III. Lending Activities
Lending Activities
One- to Four-Family and Home Equity Loans. The Bank offers both fixed and
adjustable rate first mortgage loans secured by one- to four-family dwellings,
including townhouses and condominium units, throughout its lending area. Loan
originations are generated through the Bank's network of 70 full service
branches generally from existing or past customers, a team of bank loan
consultants, members of the local community, mortgage brokers and mortgage
bankers located in the Bank's primary market area. During 1996, the
origination of loans through mortgage brokers/bankers under contract with the
Bank was limited to ARMs. As of December 31, 1996, approximately 91% of the
Bank's residential mortgage loan portfolio related to properties located in
New York State (primarily upstate), and the states of Massachusetts and
Vermont. Substantially all of the residential mortgage originations during the
twelve months ended December 31, 1996, were for owner-occupied residences. At
December 31, 1996, $1.7 billion, or 68% of the Bank's total loan portfolio,
consisted of one- to four-family residential mortgage loans, of which 78% were
ARMs. Adjustable rate products are typically generated for the Bank's own
portfolio, while fixed rate loans acquired are either sold with servicing
retained by the Bank or booked for its own portfolio. Total fixed rate loans
generated in 1996 amounted to $100.7 million; $78.1 million were acquired for
the Bank's own portfolio and $22.6 million were sold with servicing retained.
Generally, ARM loans pose credit risks different from the risks inherent in
fixed rate loans, primarily because if interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default,
while the marketability of the underlying property may be adversely affected
by higher interest rates. Moreover, ARM borrowers from the Bank prior to 1992
have been generally qualified based on the initial interest rates to be paid,
even when such rates were lower than the fully-indexed rate or rates that are
anticipated to follow the initial "teaser" rate. While initial "teaser" rates
are still being offered, during 1992, the Bank began qualifying borrowers at
the maximum second year fully-indexed rate. During 1993, the Bank began
qualifying borrowers for all ARM loans at a 7% rate, which was in excess of
the maximum second year fully-indexed rate, in order to better assess
underwriting risks. During 1994, this underwriting criterion was modified to
qualify borrowers at the maximum second year fully-indexed rate or 7%,
whichever was higher.
Fixed rate mortgages are available throughout the Bank's lending area on one-
to four-family residential properties, and generally are underwritten
according to the secondary market guidelines of FHLMC and FNMA. State of New
York Mortgage Agency and Vermont Housing Finance Authority fixed rate mortgage
loans are also available in New York and Vermont, respectively. A qualifying
borrower must be a first-time home buyer unless the property is located in a
federally designated target area.
The Bank originates two types of home equity loans--revolving credit line and
single disbursement--which may be secured by a first or second mortgage on a
one- to four-family primary residence, and which are available throughout the
Bank's lending area. The Bank limits the loan-to-value ratio for these loans
(including the first mortgage) to a maximum of 75%.
Commercial Real Estate Loans (including Multi-Family Loans). The Bank
originates commercial real estate loans secured by mortgages on income-
producing property in its lending area, but does not originate, or plan to
originate, such loans out-of-market, the Bank's market is defined as the
states of New York, western Massachusetts and Vermont. The Bank's underwriting
guidelines require these properties to produce sufficient income to satisfy
operating expenses and principal and interest payments on the loan, and to
provide a reasonable return to the owners on their investment. Generally, the
Bank's commercial real estate loans are collateralized by office buildings,
shopping centers and office/warehouse buildings. For such loans, the Bank
limits the loan-to-value ratio to a maximum of 75% and requires borrowers to
have demonstrated background experience which would indicate a high
probability of success in managing the property. On income-producing
properties, the Bank requires a minimum occupancy rate of 80% and a minimum
debt service coverage ratio of 1:1 for construction loans and 1.3:1 for
permanent loans.
The following table sets forth the composition of the Company's mortgage and
other loan portfolios in dollar amounts and in percentages at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 1,730,059 67.56% $ 1,362,277 70.04% $ 1,234,250 69.00%
Home equity 169,214 6.61 147,136 7.56 152,869 8.55
Commercial real estate 135,284 5.28 81,448 4.19 77,593 4.34
Multi-family 31,792 1.24 28,313 1.45 31,574 1.76
Construction 13,338 0.52 11,577 0.60 10,975 0.61
Total mortgage loans 2,079,687 81.21 1,630,751 83.84 1,507,261 84.26
Other loans:
Commercial 247,783 9.68 115,698 5.95 88,150 4.93
Consumer:
Student 94,478 3.69 93,816 4.82 89,246 4.99
Personal, secured and unsecured 84,308 3.29 52,627 2.71 52,667 2.94
Home improvement 23,593 0.92 22,800 1.17 22,230 1.24
Credit cards 14,754 0.58 17,233 0.89 16,920 0.95
Overdraft and other 16,222 0.63 12,065 0.62 12,362 0.69
Total consumer loans 233,355 9.11 198,541 10.21 193,425 10.81
Total other loans 481,138 18.79 314,239 16.16 281,575 15.74
Total mortgage and other loans 2,560,825 100.00% 1,944,990 100.00% 1,788,836 100.00%
Net discounts, premiums and
deferred loan fees and costs 5,539 1,611 (436)
Loans receivable 2,566,364 1,946,601 1,788,400
Allowance for loan losses (24,114) (15,949) (15,510)
Loans receivable, net $ 2,542,250 $ 1,930,652 $ 1,772,890
</TABLE>
<TABLE>
<CAPTION>
At December 31,
1993 1992
Percent Percent
of of
Amount Total Amount Total
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 1,057,274 68.56% $ 1,038,021 69.46%
Home equity 143,378 9.30 146,227 9.79
Commercial real estate 60,994 3.96 84,313 5.64
Multi-family 35,075 2.27 24,986 1.67
Construction 13,436 0.87 5,524 0.37
Total mortgage loans 1,310,157 84.96 1,299,071 86.93
Other loans:
Commercial 62,052 4.02 34,153 2.29
Consumer:
Student 80,314 5.21 72,485 4.85
Personal, secured and unsecured 41,242 2.68 36,031 2.41
Home improvement 18,184 1.18 19,836 1.33
Credit cards 18,864 1.22 22,186 1.48
Overdraft and other 11,272 0.73 10,603 0.71
Total consumer loans 169,876 11.02 161,141 10.78
Total other loans 231,928 15.04 195,294 13.07
Total mortgage and other loans 1,542,085 100.00% 1,494,365 100.00%
Net discounts, premiums and
deferred loan fees and costs (1,621) (1,747)
Loans receivable 1,540,464 1,492,618
Allowance for loan losses (12,984) (11,885)
Loans receivable, net $ 1,527,480 $ 1,480,733
</TABLE>
The Bank originates multi-family mortgage loans secured by properties located
in its market area, but does not originate, or plan to originate, such loans
out-of-market. These mortgage loans are generally written for five-year terms
with interest rates tied to either the three-year or the five-year U.S.
Treasury Constant Maturity Index or they may float based on the prime rate of
interest. Amortization periods generally average from fifteen to twenty years
(maximum conforming amortization term is twenty-five years) and vary depending
on property type and other considerations. The Bank currently limits the loan-
to-value ratio for these loans to a maximum of 75% and generally requires the
execution of personal guarantees extending for the full term of the loan.
Commercial real estate lending, though not a significant part of the Bank's
lending activities in recent years, has shown marginal growth with outstanding
balances equaling $135.3 million at year-end 1996 compared with $81.4 million
at December 31, 1995. The Bank's multi-family mortgage portfolio increased
$3.5 million (12%) over the previous year. The increased balances in these
loan categories are primarily a result of the Vermont acquisitions. As of
December 31, 1996, multi-family mortgage loans comprised just over 1% of the
Bank's total loan portfolio and the average loan balance approximated
$171,000.
At December 31, 1996, the Bank had approximately $9.8 million, or 7%, of its
commercial real estate portfolio and $5.7 million, or 18%, of its multi-family
mortgage loan portfolio, in out-of-market loans. Most of the multi-family out-
of-market loans were purchased from mortgage bankers in the 1970's with the
last such purchase occurring in 1979. A majority of the out-of-market
commercial real estate loan balances outstanding have been the direct result
of the Company's recent merger and acquisition activity.
Construction Loans. The Bank originates loans to finance the construction of
one- to four-family homes in its lending area, but does not originate, or plan
to originate, such loans out-of-market. On occasion, the Bank has also
financed construction of multi-family residences and commercial real estate in
its lending area. The Bank does not currently provide land acquisition and
development financing or construction loans for speculation. With rare
exception, construction loans are made to a builder or to a buyer under a
purchase contract. Construction loans must ordinarily be combined with a
permanent mortgage from the Bank, and the maximum loan-to-value ratio the Bank
generally allows is 80%. At December 31, 1996, $13.3 million, or less than 1%
of the Bank's total loan portfolio, consisted of construction loans.
Other Loans. The Bank's other lending activities include commercial and
consumer lending. The Bank expects to devote additional resources to the
expansion of these operations in order to further diversify its lending base
and further supplement its mortgage activities.
The Bank's Commercial Loan Department concentrates its efforts on companies
that have the capacity to borrow $100,000 or more, although smaller loans are
considered. Loan pricing and terms are set according to the individual needs
and characteristics of each borrower. At December 31, 1996, the Commercial
Loan Department had loans outstanding, unused lines of credit and commitments
aggregating $347.5 million. Actual commercial loans outstanding totaled $247.8
million, or 10% of total loans at December 31, 1996, compared with $115.7
million, or 6% of total loans at December 31, 1995. The increase year-to-year
was primarily the result of the Marble and Green Mountain acquisitions.
The Bank offers a variety of consumer loan products to the communities it
serves. These loans include student loans, personal loans (both secured, as
with automobiles, and unsecured, as with overdraft lines of credit on personal
checking accounts), home improvement loans and credit card loans. At December
31, 1996, consumer loans totaled $233.4 million, or just over 9% of the Bank's
total loan portfolio.
Purchased Loans and Loan Participations. During the year ended December 31,
1996, total loan purchases amounted to $229.3 million. Additionally, the Bank
acquired $386.7 million in loans in conjunction with its two Vermont
acquisitions. The Bank's involvement was generally limited to the purchase of
one- to four-family whole loan residential mortgages. Loans were acquired on a
flow-through basis with underwriting of each loan retained by the Bank. There
were no bulk purchases of residential mortgage loans.
Mortgage loans acquired from mortgage bankers operating in the Bank's local
markets are underwritten and approved using the same guidelines as those
applicable to the Bank's own originations. When available funds have exceeded
the supply of local mortgage product, the Bank has, from time to time,
supplemented its home mortgage originations through purchases of ARMs. Most of
the purchases have been from licensed mortgage companies that originate loans
for sale to the Bank throughout upstate New York and selected areas in the
states of Ohio, Kentucky and Connecticut. Purchased loans are secured by one-
to four-family owner-occupied properties, and have been acquired on a
servicing released basis (that is, the loans are serviced by the Bank, not the
originator/seller).
From time to time, on a selective basis, the Bank also purchases a
participation interest in commercial real estate, multi-family and commercial
loans; at December 31, 1996, these loan participations represented less than
1% of the Bank's loan portfolio.
The following table sets forth the Bank's loan originations and loan
purchases, sales, principal repayments, transfers of loans to real estate
owned ("REO") and reclassification activity for the years indicated.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Mortgage loans:
At beginning of year $ 1,630,751 1,507,261 1,310,157
Mortgage loans originated:
One- to four-family<F1> 251,369 191,204 241,616
Commercial real estate<F2> 25,354 12,052 31,015
Construction 28,978 27,560 33,025
Total mortgage loans originated 305,701 230,816 305,656
Mortgage loans purchased:
One- to four-family 416,914<F3> 125,894 145,082
Commercial real estate 55,677<F4> -- --
Total mortgage loans originated and purchased 778,292 356,710 450,738
Transfer of mortgage loans to REO, net of writedowns (5,346) (5,710) (8,017)
Reclassification of mortgage loans to other loans -- -- (1,029)
Reclassification of other loans to mortgage loans 1,352 -- --
Principal repayments (291,337) (209,933) (229,476)
Sale of loans (34,025) (17,577) (15,112)
Mortgage loans, at end of year $ 2,079,687 1,630,751 1,507,261
Other loans:
At beginning of year $ 314,239 281,575 231,928
Commercial loans originated 24,114 28,137 34,816
Consumer loans originated 79,267 74,351 70,151
Total other loans originated 103,381 102,488 104,967
Other loans purchased 143,418<F5> -- 1,080
Total other loans originated and purchased 246,799 102,488 106,047
Transfer of other loans to REO (595) -- (9)
Reclassification of mortgage loans to other loans -- -- 1,029
Reclassification of other loans to mortgage loans (1,352) -- --
Reclassification of investment securities to
commercial loans -- -- 175
Principal repayments (77,953) (56,022) (57,595)
Sale of loans -- (13,802) --
Other loans, at end of year $ 481,138 314,239 281,575
<FN>
<F1>Includes home equity loans.
<F2>Includes multi-family loans.
<F3>Includes $187,573 in loans acquired from Marble and Green Mountain Banks.
<F4>Includes $55,677 in loans acquired from Marble Bank.
<F5>Includes $143,418 in loans acquired from Marble and Green Mountain Banks.
</TABLE>
Loan Maturity Repricing. The following table shows the maturity or period to
repricing of the Bank's loan portfolio at December 31, 1996. Loans that have
adjustable rates are shown as being due in the period during which the
interest rates are next subject to change. The table does not include
anticipated prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
At December 31, 1996
One- to
Four- Home Commercial
Family Equity Real Estate<F1> Construction
(in thousands)
<S> <C> <C> <C> <C>
Amount due:
Within one year $ 1,085,203 127,564 80,759 13,338
After one year:
One to three years 154,613 12,496 59,582 --
Three to five years 222,931 8,830 12,582 --
Five to ten years 97,442 13,671 9,973 --
Ten to twenty years 101,375 6,524 4,180 --
Over twenty years 68,495 129 -- --
Total due after one year 644,856 41,650 86,317 --
Total amount due $ 1,730,059 169,214 167,076 13,338
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996
Total
Loans
Commercial Consumer Receivable
(in thousands)
<S> <C> <C> <C>
Amount due:
Within one year 170,691 148,935 1,626,490
After one year:
One to three years 31,439 67,788 325,918
Three to five years 27,188 11,724 283,255
Five to ten years 18,465 4,908 144,459
Ten to twenty years -- -- 112,079
Over twenty years -- -- 68,624
Total due after one year 77,092 84,420 934,335
Total amount due 247,783 233,355 2,560,825
Net discounts, premiums and
deferred loan fees and costs 5,539
Allowance for loan losses (24,114)
Loans receivable, net $ 2,542,250
<F1>Includes multi-family loans.
</TABLE>
The following table sets forth at December 31, 1996, the dollar amount of all
loans due after December 31, 1997, and whether such loans have fixed interest
rates or adjustable interest rates (excludes $1.626 billion of loans that
mature or reprice within one year).
<TABLE>
<CAPTION>
Due after December 31, 1997
Fixed Adjustable Total
(in thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family $ 353,325 291,531 644,856
Home equity 41,650 -- 41,650
Commercial real estate<F1> 57,130 29,187 86,317
Other loans:
Commercial loans 77,092 -- 77,092
Consumer loans 84,420 -- 84,420
Total mortgage loans and other loans $ 613,617 320,718 934,335
<FN>
<F1> Includes multi-family loans.
</TABLE>
Delinquencies and Criticized Assets
Delinquencies of 60 days or more on all loan types are reviewed monthly by the
Bank's Board of Directors. Additionally, the Asset Review Committee, regular
members of which include the Bank's Chief Executive Officer, Chief Financial
Officer, Senior Credit Officer, Internal Auditor and the officers in charge of
the Commercial Lending and Retail Lending Divisions, reviews on a quarterly
basis all criticized and classified loans. Each report of the Asset Review
Committee is reviewed by the Board of Directors.
At December 31, 1996, 1995 and 1994, delinquencies in the Bank's loan
portfolio were as follows:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
60-89 90 Days or More 60-89 90 Days or More
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
(dollars in thousands) (dollars in thousands)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family 221 $ 11,550 228 $ 13,639 200 $ 8,220 255 $ 14,528
Home equity 45 1,238 53 1,948 35 1,007 31 1,119
Commercial real estate<F1> 4 248 14 4,157 2 448 11 1,666
Construction 2 108 2 94 -- -- -- --
Total mortgage loans 272 13,144 297 19,838 237 9,675 297 17,313
Commercial loans 10 470 35 2,478 5 1,393 1 4
Consumer loans 519 1,763 894 2,899 569 2,122 1,266 4,646
Total loans 801 $ 15,377 1,226 $ 25,215 811 $ 13,190 1,564 $ 21,963
Delinquent loans to total loans 0.60% 0.98% 0.68% 1.13%
<FN>
<F1>Includes multi-family loans.
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994
60-89 90 Days or More
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
(dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family 127 $ 6,153 201 $ 11,112
Home equity 25 708 25 1,125
Commercial real estate<F1> 2 998 8 1,718
Total mortgage loans 154 7,859 234 13,955
Commercial loans 1 55 -- --
Consumer loans 548 2,005 1,180 4,544
Total loans 703 $ 9,919 1,414 $ 18,499
Delinquent loans to total loans 0.55% 1.03%
<FN>
<F1>Includes multi-family loans.
</TABLE>
Loans are placed on a nonaccrual status for the recording of interest when
considered doubtful of collection by management. With respect to residential
mortgage loans, this ordinarily occurs when a mortgage loan becomes 120 days
delinquent. Credit card and other retail consumer loans are evaluated for
collectibility on a monthly basis, at which time (and prior to their being 150
days delinquent) all accounts (including related accrued interest) deemed
uncollectible are charged off. Delinquent interest on FHA and VA mortgage
loans, and student loans continues to accrue since these loans are backed by a
government agency guarantee and substantially all interest and principal is
ultimately expected to be received. Once management reaches a decision to
place a loan on nonaccrual status, all previously accrued interest on such a
loan is generally reversed against interest income.
During the years ended December 31, 1996, 1995 and 1994, the amount of
interest income on nonaccrual loans that would have been recorded at the
original rates on such loans, had they been current, totaled $1.7 million,
$1.0 million and $0.9 million, respectively. Interest income actually recorded
in these periods with respect to such loans was $320,000, $295,000 and
$290,000, respectively.
The Bank periodically reviews its loan portfolio and classifies loans it
considers to be of lesser quality as "substandard", "doubtful", or "loss". A
loan is considered "substandard" if the borrower's current paying capacity
and/or net worth is impaired or weakened, or the underlying collateral, if
any, has been devalued, such that the continuation of sufficient future cash
flow for full repayment of principal and interest on the asset is
questionable. The notion of substandard also includes the distinct possibility
that the Bank will sustain some loss if the deficiencies are not corrected.
Loans classified as "doubtful" have all the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make collection in full highly questionable in light of existing
facts, conditions and values. Loans classified as "loss" are charged off.
Management designates a loan which does not currently have the deficiencies
necessary to warrant classification, but does exhibit some potential
weaknesses, as a "special mention" loan.
On December 31, 1996, criticized loans (including special mention loans) of
the Bank totaled $84.2 million, or approximately 3% of total loans. These
loans were comprised of $4.6 million in the doubtful category, $56.4 million
in the substandard category and $23.2 million in the special mention category.
Of the Bank's criticized loans at December 31, 1996, 34% were residential
mortgage loans, 34% were commercial loans, 30% were commercial mortgage loans
and 2% were consumer loans. This compared with an aggregate of $40.2 million
of criticized loans, or approximately 2% of total loans, as of December 31,
1995, of which $1.3 million were in the doubtful category, $34.6 million were
in the substandard category and $4.3 million were in the special mention
category. As of that date, 59% of the Bank's criticized loans were residential
mortgages, 16% were commercial loans, 22% were commercial mortgage loans and
3% were consumer loans. The increase in criticized loans in 1996, and the
change in the proportion of criticized loans represented by different loan
categories were primarily the result of the Marble and Green Mountain
acquisitions.
In December 1996, the Bank completed a sale of a group of one- to four-family
nonperforming mortgage loans with a book value of $10.3 million. Based upon
the book value of the loans sold and the consideration received by the Bank, a
chargeoff reducing the allowance for loan losses by $4.1 million was taken.
Accordingly, at December 31, 1996, nonperforming loans, criticized loans and
the allowance for loan losses reflect the impact of the sale.
Nonperforming Loans and Assets
The following table sets forth information regarding nonaccrual loans and
accruing loans delinquent more than 90 days (collectively, "nonperforming
loans") and REO owned by the Bank (together with nonperforming loans,
"nonperforming assets") at the dates indicated.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994 1993 1992
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual mortgage loans $ 15,298 12,571 10,231 14,337 13,250
Accruing mortgage loans delinquent
more than 90 days 7,367 5,567 5,104 4,933 7,284
Total nonperforming mortgage loans 22,665 18,138 15,335 19,270 20,534
Nonaccrual other loans 3,933 372 424 152 319
Accruing other loans delinquent
more than 90 days 3,218 4,646 4,544 3,492 3,025
Total nonperforming other loans 7,151 5,018 4,968 3,644 3,344
Total nonperforming loans 29,816 23,156 20,303 22,914 23,878
Total REO 4,012 3,899 3,822 4,418 4,606
Total nonperforming assets $ 33,828 27,055 24,125 27,332 28,484
Total nonperforming loans to
loans receivable 1.16% 1.19% 1.14% 1.49% 1.60%
Total nonperforming assets to
total assets 0.96 0.91 0.81 0.99 1.15
</TABLE>
Over the last five years, the Bank's nonperforming loans and assets have been
maintained at average levels that were below industry group averages. At
December 31, 1996, 69% of the Bank's REO consisted of residential (one- to
four-family) properties and 31% resulted from foreclosures on commercial
properties, compared with 96% and 4%, respectively, at December 31, 1995.
Commercial properties located in the market area of the Bank's Marble division
are the primary reason for the increased commercial REO at year-end 1996
compared with 1995 with the change occurring principally as a result of the
Marble and Green Mountain acquisitions.
IV. Summary of Loan Loss Experience
The Bank maintains a total valuation allowance for losses on loans
representing allowances with respect to categories of loans which the Bank
believes represent risk of loss and an unallocated allowance for future losses
generally. The allowance for loan losses is established and maintained through
a provision for loan losses at a level deemed appropriate by management to
provide adequately for known and inherent risks in the portfolio. The
determination of the amount of the allowance for loan losses includes
estimates that are susceptible to significant modifications due to changes in
appraised values of collateral and general economic conditions. In connection
with the determination of an adequate allowance for loan losses, management
periodically obtains independent appraisals for significant properties. 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 Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance for loan losses.
Management's evaluation of the risk inherent in its loan portfolio includes a
review of all loans on which full collectibility may not be reasonably assured
considering, among other matters, the estimated net realizable value of the
underlying collateral (if any), economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance. Other factors considered by management include
the size and risk exposure of each segment of the loan portfolio, present
indicators such as delinquency rates and the borrower's current financial
condition and the potential for losses in future periods. In evaluating the
adequacy of the allowance for loan losses, management recognizes the risk
associated with each type of loan and the current outstanding balance. The
primary risk element considered by management with respect to each consumer,
home-equity and one- to four-family real estate mortgage loan is any current
delinquency on the loan. The primary risk elements considered by management
with respect to commercial, commercial real estate and real estate
construction loans are the financial condition of the borrowers, the
sufficiency of collateral (including changes in the appraised value of
collateral) and the record of payment. In general, all properties securing
loans delinquent more than 90 days are physically inspected. A subjective
review of all substantial nonperforming loans, other problem loans and over-
all delinquent loans is also made prior to the end of each calendar quarter to
determine the adequacy of the allowance for loan losses. Additionally, current
year charge-offs, charge-off trends, new loan production and current balances
by particular loan categories are factored into the determination of reserve
levels. The Bank allocates the allowance for loan losses to various categories
of loans based on the preceding factors. The increased allocation of the
allowance for commercial and commercial real estate loans reflects the
addition of nonperforming loans in those categories resulting from the Vermont
acquisitions. The increased allowance allocated to consumer loans is
reflective of a measure of softening in the Bank's market area.
The following table sets forth the Bank's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994 1993 1992
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 15,949 15,510 12,984 11,885 11,174
Allowance of acquired banks 11,310 -- 151 -- --
Provision for loan losses 5,775 4,500 4,500 4,200 4,100
Charge-offs:
Mortgage loans <F1> (7,013) (2,685) (1,980) (2,267) (2,019)
Other loans (2,635) (1,736) (1,031) (1,146) (1,580)
Recoveries:
Mortgage loans 223 83 647 -- 5
Other loans 505 277 239 312 205
Balance at end of period $ 24,114 15,949 15,510 12,984 11,885
Allocation of allowance for specfic loan
types at end of period:
Residential mortgage loans $ 7,360 7,233 5,724 5,745 3,111
Commercial real estate loans<F2> 2,623 1,502 1,455 1,599 2,172
Commercial loans 4,065 1,714 1,016 896 1,262
Consumer loans 5,000 3,523 2,263 2,225 2,535
Unallocated 5,066 1,977 5,052 2,519 2,805
Balance at end of period $ 24,114 15,949 15,510 12,984 11,885
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.38% 0.22% 0.13% 0.20% 0.23%
Ratio of allowance for loan losses
to loans receivable at end of period 0.94 0.82 0.87 0.84 0.80
Ratio of allowance for loan losses
to nonperforming loans at end of period 80.88 68.88 76.39 56.67 49.77
<FN>
<F1>Of the total loans charged-off in 1996, $4.1 million was
related to a sale of nonperforming loans consummated during
the fourth quarter of 1996.
<F2>Includes multi-family loans.
</TABLE>
V. Deposits and Sources of Funds
The Bank's primary sources of funds are deposits and proceeds from principal
and interest payments on loans and on its investments in securities.
The Bank offers a variety of deposit accounts having a range of interest rates
and terms. The Bank's deposits principally consist of passbook and statement
savings accounts ("Savings accounts") and NOW accounts, Super NOW accounts,
money market accounts, interest-bearing and noninterest-bearing demand deposit
accounts (collectively, "Transaction accounts") and fixed-term certificate
accounts. The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates and competition. The Bank's
deposits are obtained primarily from the areas in which its branches are
located, and the Bank relies principally on customer service and long-standing
relationships with customers to attract and retain these deposits. The Bank
does not solicit or accept brokered deposits.
The following table sets forth the distribution of the Bank's deposit accounts
and the respective weighted average nominal interest rates at the dates
indicated. Average balances of certificates by maturity category are not
readily available. Management believes that the use of the year-end balances
does not significantly affect the analysis.
<TABLE>
<CAPTION>
At December 31,
1996 1995
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Saving accounts $ 824,151 27.35% 2.94% $ 826,875 32.32% 2.96%
Transaction accounts 605,053 20.08 1.80 422,555 16.52 1.48
Total 1,429,204 47.43 1,249,430 48.84
Certificate accounts:
Within one year 1,114,101 36.98 955,218 37.34
One year to three years 417,300 13.85 232,161 9.07
Over three years 52,524 1.74 121,479 4.75
Total 1,583,925 52.57 5.37 1,308,858 51.16 5.64
Total deposits $ 3,013,129 100.00% 3.99% $ 2,558,288 100.00% 4.09%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994
Weighted
Percent Average
of Total Nominal
Amount Deposits Rate
(dollars in thousands)
<S> <C> <C> <C>
Saving accounts $ 999,768 39.33% 2.96%
Transaction accounts 389,503 15.32 1.75
Total 1,389,271 54.65
Certificate accounts:
Within one year 760,167 29.91
One year to three years 281,668 11.08
Over three years 110,856 4.36
Total 1,152,691 45.35 4.78
Total deposits $ 2,541,962 100.00% 3.60%
</TABLE>
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Deposits $ 30,701,725 21,560,120 18,811,368
Withdrawals 30,364,876 21,646,938 18,731,405
Deposits in excess (less than) withdrawals 336,849 (86,818) 79,963
Interest credited on deposits 117,992 103,144 80,285
Total increase in deposits $ 454,841<F1> 16,326<F2> 160,248<F3>
<FN>
<F1>The above increase includes approximately $327 million and $108 million
in deposits acquired in the Marble and Green Mountain acquisitions.
(See ITEM 1: "Business--General" of this Form 10-K.)
<F2>The above increase includes approximately $18 million in deposits
acquired from The Dime Savings Bank of New York, FSB.
(See ITEM 1: "Business--General" of this Form 10-K.)
<F3>The above increase includes approximately $216 million in deposits
acquired from Ludlow Savings Bank.
(See ITEM 1: "Business--General" of this Form 10-K.)
</TABLE>
At December 31, 1996, the following maturities applied to
certificate accounts in amounts of $100,000 or more.
<TABLE>
<CAPTION>
Amount
(in thousands)
<S> <C>
Three months or less $ 48,376
Over three through six months 47,495
Over six through twelve months 33,930
Over twelve months 44,722
Total $ 174,523
</TABLE>
VI. Return on Equity and Assets
Information regarding returns on equity and assets appears on page 13 of the
Annual Report under the caption "Five Year Selected Financial Data" and is
incorporated herein by reference.
VII. Short-Term Borrowings
Although deposits are the Bank's primary source of funds, the Bank's policy
has been to utilize borrowings where appropriate as an alternative or less
costly source of funds. The Bank obtains advances from the FHLB-NY which are
collateralized by certain of the Bank's mortgage loans. Such advances are made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities.
The Bank may enter into sales of securities under agreements to repurchase
("repurchase agreements") with nationally recognized primary securities
dealers. Repurchase agreements are accounted for as borrowings by the Bank and
are secured by designated securities. The proceeds of these transactions are
used to meet cash flow or asset/liability needs.
Other short-term borrowings are comprised of funds advanced to the Bank by its
SBLI department. These funds are advanced on an unsecured basis and are paid
interest equal to the federal funds rate.
The following table sets forth certain information regarding the Bank's short-
term borrowed funds at or for the periods ended on the dates indicated.
<TABLE>
<CAPTION>
At or For the Years ended December 31,
1996 1995 1994
(dollars in thousand)
<S> <C> <C> <C>
FHLB-NY advances:
Average balance outstanding $ 20,838 1,884 12,364
Maximum amount outstanding at any month-end during
the period 73,000 18,000 42,500
Balance outstanding at end of period 36,000 -- 13,300
Weighted average interest rate at end of period 7.17% --% 5.13%
Weighted average interest rate during the period<F1> 5.47 6.60 4.60
Repurchase agreements:
Average balance outstanding $ 3,563 -- 8,861
Maximum amount outstanding at any month-end during
the period 4,796 -- 47,791
Balance outstanding at end of period 4,796 -- --
Weighted average interest rate at end of period 4.00% --% --%
Weighted average interest rate during the period<F1> 4.16 -- 5.29
Other short-term borrowings:
Average balance outstanding $ 936 14 --
Maximum amount outstanding at any month-end during
the period 1,550 1,290 --
Balance outstanding at end of period 1,550 1,290 --
Weighted average interest rate at end of period 6.00% 4.75% --%
Weighted average interest rate during the period<F1> 5.30 5.48 --
Total short-term borrowings and repurchase agreements:
Average balance outstanding $ 25,337 1,898 21,225
Maximum amount outstanding at any month-end during
the period 77,971 18,000 62,500
Balance outstanding at end of period 42,346 1,290 13,300
Weighted average interest rate at end of period 6.77% 4.75% 5.13%
Weighted average interest rate during the period<F1> 5.28 6.59 4.89
<FN>
<F1>Computed on the basis of average daily balances.
</TABLE>
Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers of the Company, all of whom held substantially identical positions
with the Bank, as of December 31, 1996.
<TABLE>
<CAPTION>
Name Age Position Held with the Company
<S> <C> <C>
Herbert G. Chorbajian 58 Chairman of the Board,
President and Chief
Executive Officer
Richard J. Heller 50 Executive Vice President and
Chief Financial Officer
Barry G. Blenis 53 Executive Vice President,
Operations and Strategic Planning
Freling H. Smith 55 Senior Vice President,
Secretary and General Counsel
</TABLE>
None of the individuals named in the above table was selected to his position
as an officer of the Registrant pursuant to any arrangement or understanding
with any other person nor are there any family relationships between them.
Each of the above officer has held the same or another executive position with
the Registrant for the past five years.
None of the individuals named above holds a directorship with a company
(except for the Registrant) registered pursuant to Section 12 of the
Securities Exchange Act of 1934, 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.
Herbert G. Chorbajian has served as Chairman, President and Chief Executive
Officer since 1990.
Richard J. Heller joined the Bank in 1991 and since that time has served as
Executive Vice President and Chief Financial Officer.
Barry G. Blenis assumed his current position of Executive Vice President,
Operations and Strategic Planning in 1990.
Freling H. Smith became Senior Vice President, Secretary and General Counsel
to the Bank in 1991.
ITEM 2 Properties
The Bank conducts business through its home office in Albany, New York, 69
other full service branches and a merchant banking branch at an Albany area
shopping mall; 33 of the Bank's branch offices are owned and 38 are leased.
Reference is made to the inside front cover of the Annual Report for a
description and location of the Bank's branch offices. Three other office
locations (all of which are owned by the Bank) are also used to conduct
business; two are located in Albany, New York (a data processing center and an
operations center), and one is located in Plattsburgh, New York (a family
financial center).
ITEM 3 Legal Proceedings
The Bank is involved in a number of pending legal proceedings, most of which
represent routine matters occurring in the ordinary course of business. In the
aggregate, all of the Bank's pending legal proceedings involve amounts which
are believed by management not to be material to the financial condition of
the Bank.
ITEM 4 Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder
Matters
The information set forth inside the back cover under the captions "Stock
Listing" and "Stock Price" of the Annual Report is incorporated herein by
reference.
As of March 21, 1997, the Company had approximately 5,096 stockholders of
record, not including the number of persons or entities whose stock is held in
nominee or "street" name through various brokerage firms or other financial
institutions.
On February 27, 1996, the Board of Directors of the Company declared a 6-for-5
stock split effected as a 20% stock dividend. This stock dividend was paid
April 1, 1996, to shareholders of record on March 15, 1996. By maintaining the
quarterly per share cash dividend at $0.12 following the stock dividend, the
Board effectively increased the dividend by 20%, the second such increase in
as many years. On November 25, 1996, the Company announced that its Board
would increase the Company's quarterly cash dividend an additional 25% by
initiating payment a quarterly rate of $0.15 per share commencing with the
dividend to be paid on January 2, 1997. Declarations of subsequent dividends
by the Board will depend upon a number of factors, including, among other
things, investment opportunities available to the Company or the Bank, capital
requirements, regulatory limitations, the Bank's and the Company's financial
condition and results of operations, tax considerations and general economic
conditions.
Reference is also made to the "Liquidity and Capital Resources" section set
forth on page 14 of the Annual Report, which is incorporated herein by
reference. Additional reference is made to Part 1, Item 1. "Description of
Business--Regulation and Supervision--Capital Requirements" and "--
Restrictions on Dividends and Other Capital Distributions" in this Form 10-K
for a description of regulatory restrictions with regard to the future payment
of dividends by the Company.
ITEM 6 Selected Financial Data
The information set forth on page 13 under the caption "Five Year Selected
Financial Data" of the Annual Report is incorporated herein by reference.
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Total assets increased $536.0 million (18%) to $3.5 billion at December 31,
1996. The increase in total assets was primarily attributable to the Marble
and Green Mountain acquisitions, (the "Vermont acquisitions") which added
$531.0 million in assets and $462.0 in liabilities to the Company's balance
sheet. The increase in total liabilities was augmented by increases in short-
term borrowings and repurchase agreements of $41.1 million and advances of
long-term debt totaling $30.1 million.
As a result of funding the Vermont acquisitions as well as loan growth, the
Company's total cash and cash equivalents decreased $36.1 million (34%). An
increase in cash and due from banks of $14.9 million (28%) which was primarily
attributable to the Vermont acquisitions was more than offset by decreases in
federal funds sold of $1.0 million and securities purchased under agreement to
resell of $50.0 million.
Redirection of funds from maturing securities to loan products was the primary
reason for the overall net decrease of $38.8 million (6%) in securities
available for sale and $44.1 million (29%) in investment securities. These
reductions occurred in spite of the acquisition of securities available for
sale from the Marble acquisition totaling $97.8 million.
Loans receivable grew $619.8 million (32%) to $2.566 billion at December 31,
1996. Mortgage loans accounted for approximately three quarters of the
increase as the mortgage portfolio increased $448.9 million (28%) over 1995.
Mortgage loan balances added as a result of the Vermont acquisitions totaled
$243.3 million. The remaining increase is attributable to loans originated and
the purchase of individual mortgage loans for portfolio retention. Although
all categories of mortgage loans increased over 1995, over 80% of the increase
was in the one- to four- family category. Other loans increased $166.9 million
(53%) over 1995 as commercial loans of $108.5 million and consumer loans of
$34.9 million added as a result of the Vermont acquisitions combined with
additional net commercial loan advances of $24.1 million.
The allowance for loan losses increased $8.2 million (51%) over the prior
year. In addition to the provision for loan losses of $5.8 million, the
allowance for loan losses increased due to $11.3 million in balances acquired
as components of the Vermont acquisitions and recoveries of $0.7 million.
Offsetting these additions were charge-offs of $9.6 million including $4.1
million that resulted from the sale of a group of one- to four-family
nonperforming loans in December 1996 with a book value of $10.3 million.
Office premises and equipment increased $7.9 million (19%) over the previous
year. The increase primarily reflects the effect of the Vermont acquisitions
as well as upgrades in data processing equipment.
The net increase in other assets of $33.5 million (90%) was due primarily to
the goodwill generated by the Vermont acquisitions and the Company's
investment in real estate projects which generate low income housing and
historic preservation income tax credits. At December 31, 1996, the balance of
goodwill related to the Vermont acquisitions was $26.8 million; the balance of
the Company's investment in the real estate projects was $6.2 million.
Total deposits increased $454.8 million (18%) to $3.013 billion at December
31, 1996. The primary reason for the net increase was deposits acquired in the
Vermont acquisitions of $434.3 million combined with net deposit inflows.
Included in the net increase were certificate accounts which rose $275.1
million (21%), money market accounts which were up $103.5 million (66%), along
with commercial and retail demand deposits which increased $46.8 million
(63%).
Despite increased loan balances, escrow accounts declined $8.3 million (24%)
below year-end 1995. The relative decrease was caused mainly by regulations
which required the Bank to reduce escrow balances with depositors during 1996.
Short-term borrowed funds and repurchase agreements increased $41.1 million to
$42.3 million at December 31, 1996. The increase reflects the Bank's funding
of loan growth in excess of funds provided by other operating and financing
sources. Long-term debt rose $30.1 million during 1996. Substantially all of
this increase was used to finance the Marble acquisition in the first quarter
of 1996.
Other liabilities increased $23.1 million (53%) over the balance outstanding
at December 31, 1995. Approximately $10.4 million of the increase reflects the
Bank's expanded franchise, including increases in outstanding checks, wire
transfers in process, and accrued interest payable on deposits. The increased
number of branches operating at year-end 1996 compared to 1995 resulted
primarily from the Vermont acquisitions as well as two supermarket branch
openings in December 1996. Also contributing to the increase in other
liabilities were increases in accounts payable of $5.1 million related to the
Company's investment in real estate projects which generate low income housing
and historic preservation income tax credits, and $1.9 million related to the
Company's stock repurchase program.
Stockholders' equity decreased $4.1 million (1%) from the previous year-end.
Increases in total stockholders' equity included net income for the year ended
December 31, 1996, of $26.2 million, exercise of stock options of $1.0
million, tax benefits related to vested BRP stock and stock options of $0.9
million, and amortization of awards of ESOP and BRP stock of $1.3 million and
$0.9 million, respectively. Offsetting these increases were the cost of
treasury stock acquired for the year ended December 31, 1996, of $25.8
million, adjustment of securities available for sale to market value of $1.7
million, net of tax, and cash dividends declared of $6.8 million. The stock
dividend paid on April 1, 1996, resulted in shifts between treasury stock,
additional paid-in capital, and retained earnings. The reduction of retained
earnings of $64.0 million was offset by an increase in additional paid in
capital of $27.8 million, and a reduction in the contra-equity account for
treasury stock of $36.2 million. At December 31, 1996, the ratio of
stockholders' equity to total assets was 9.10%, down from 10.88% a year
earlier.
Book value per common share increased to $24.72 at December 31, 1996, from
$23.37 for the previous year. The increase is the net result of a $4.1 million
(1%) decrease in total stockholders' equity which was more than offset by the
reduced number of shares outstanding resulting from the Company's stock
repurchase program. During 1996, the Company repurchased a total of 926,517
shares of its common stock at a total cost of $25.8 million. At December 31,
1996, the Company held 2,786,737 shares of its common stock as treasury stock.
The additional goodwill generated by the Vermont acquisitions resulted in a
decrease in tangible book value per share to $21.35 per common share from
$22.05 per common share at December 31, 1995.
Nonperforming assets increased $6.8 million (25%) to $33.8 million at December
31, 1996, compared with $27.1 million at December 31, 1995. Of the increase,
$6.7 million was attributable to the increase in nonperforming loans.
Nonperforming mortgage loans increased $4.5 million (25%) while nonperforming
other loans increased $2.1 million (43%). The increase in both categories
reflects the addition of nonperforming loans acquired in the Vermont
acquisitions as well as a measure of economic softening in the Bank's market
area.
Results of Operations
The information set forth on pages 14 through 24 of the Annual Report is
incorporated herein by reference.
ITEM 8 Financial Statements and Supplementary Data
The information set forth on pages 25 through 49 of the Annual Report is
incorporated herein by reference.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required by the items in this part has been omitted since it
will be contained in the definitive proxy statement to be filed pursuant to
Regulation 14-A.
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1). Financial Statements
The following consolidated financial statements of the Company and its
subsidiary, together with the report thereon of KPMG Peat Marwick LLP, dated
January 31, 1997, set out at pages 26 through 49 of the Annual Report, are
incorporated herein by reference.
Independent Auditors' Report.
Consolidated Statements of Earnings for each of the years in the three-year
period ended December 31, 1996.
Consolidated Statements of Financial Condition as of December 31, 1996 and
1995.
Consolidated Statements of Changes in Stockholders' Equity for each of the
years in the three-year period ended December 31, 1996.
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1996.
Notes to Consolidated Financial Statements.
The remaining information appearing in the Annual Report is not deemed to be
filed as part of this Report, except as expressly provided herein.
(a)(2). Financial Statement Schedules
All schedules for the Registrant and its subsidiary are omitted because they
are not required or are not applicable or the required information is shown in
the Consolidated Financial Statements or Notes thereto.
(a)(3). Exhibits
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
<TABLE>
<CAPTION>
Regulation S-K Exhibit
Reference Number Description
<S> <C> <C>
3 3.01 Certificate of Incorporation of ALBANK (incorporated herein by reference to Exhibit 3.1 to ALBANK's
Registration Statement on Form S-1, as amended, filed on December 23, 1991, Registration
No. 33-44721).
3.02 Bylaws of ALBANK, as amended (incorporated herein by reference to Exhibit 3.02 to ALBANK's Annual
Report on Form 10-K for the year ended December 31, 1993, filed on March 31, 1994).
10 10.01 Employment Agreement dated April 1, 1992, between ALBANK and Herbert G. Chorbajian (incorporated
herein by reference to Exhibit 10.1 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.02 Employment Agreement dated April 1, 1992, between ALBANK and Richard J. Heller (incorporated herein
by reference to Exhibit 10.2 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.03 Employment Agreement dated April 1, 1992, between ALBANK and Freling H. Smith (incorporated herein
by reference to Exhibit 10.3 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.04 Employment Agreement dated April 1, 1992, between ALBANK and Barry G. Blenis (incorporated herein
by reference to Exhibit 10.4 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.05 Employment Agreement dated April 1, 1992, between the Bank and Herbert G. Chorbajian (incorporated
herein by reference to Exhibit 10.5 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.06 Employment Agreement dated April 1, 1992, between the Bank and Richard J. Heller (incorporated
herein by reference to Exhibit 10.6 to ALBANK's Annual Report on Form 10-K for the year ended
June 30, 1992, filed on September 28, 1992).
10.07 Employment Agreement dated April 1, 1992, between the Bank and Freling H. Smith (incorporated herein
by reference to Exhibit 10.7 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.08 Employment Agreement dated April 1, 1992, between the Bank and Barry G. Blenis (incorporated herein
by reference to Exhibit 10.8 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.09 Employment Agreement dated April 1, 1992, between the Bank and Clifford M. Apgar (incorporated herein
by reference to Exhibit 10.9 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.10 Employment Agreement dated April 1, 1992, between the Bank and Frank J. Vaselewski (incorporated
herein by reference to Exhibit 10.10 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.11 ALBANK Financial Corporation 1992 Stock Incentive Plan for Key Employees, as Amended and Restated as
of December 18, 1995 (incorporated herein by reference to Exhibit 10.11 to ALBANK's Annual Report
on Form 10-K for the year ended December 31, 1995 filed on March 29, 1996).
10.12 ALBANK Financial Corporation 1992 Stock Incentive Plan for Outside Directors (incorporated herein by
reference to the Proxy Statement for the 1992 Annual Meeting of the Stockholders of ALBANK held on
October 26, 1992).
10.12.1 ALBANK Financial Corporation 1995 Stock Incentive Plan for Outside Directors (incorporated herein by
reference to Exhibit 10.12.1 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1995 filed on March 29, 1996).
10.13 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Senior Executive
Officers (incorporated herein by reference to Exhibit 10.13 to ALBANK's Annual Report on Form 10-K
for the year ended June 30, 1992, filed on September 28, 1992).
10.14 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Officers (incorporated
herein by reference to Exhibit 10.14 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.15 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Outside Directors
(incorporated herein by reference to the Proxy Statement for the 1992 Annual Meeting of the
Stockholders of ALBANK held on October 26, 1992).
10.16 Albany Savings Bank, FSB Incentive Savings and Employee Stock Ownership Plan, as amended (incorporated
herein by reference to Exhibit 10.16 to ALBANK's Annual Report on Form 10-K for the year ended
December 31, 1994, filed on March 31, 1995).
10.17 Agreement dated June 17, 1985, between the Bank and Herbert G. Chorbajian (Life Insurance Contract)
(incorporated herein by reference to Exhibit 10.10 to ALBANK's Registration Statement on Form S-1, as
amended, filed on December 23, 1991, Registration No. 33-44721).
10.18 Agreement dated June 17, 1985, between the Bank and Herbert G. Chorbajian (Pension and Benefit
Restoration Contract) (incorporated herein by reference to Exhibit 10.11 to ALBANK's Registration
Statement on Form S-1, as amended, filed on December 23, 1991, Registration No. 33-44721) as amended
by the agreement dated May 8, 1996.
10.19 Agreement dated June 17, 1985, between the Bank and Herbert G. Chorbajian (Incentive Savings Contract)
(incorporated herein by reference to Exhibit 10.12 to ALBANK's Registration Statement on Form S-1,
as amended, filed on December 23, 1991, Registration No. 33-44721).
10.20 ALBANK, FSB Management Incentive Plan for 1996.
10.21 Retirement Restoration Plan of Albany Savings Bank, FSB (incorporated herein by reference to Exhibit
10.21 to ALBANK's Registration Statement on Form S-1, as amended, filed on December 23, 1991,
Registration No. 33-44721).
10.22 Albany Savings Bank, FSB Supplemental Deferred Compensation Plan, as amended (incorporated herein by
reference to Exhibit 10.22 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1993, filed on March 31, 1994).
10.23 Albany Savings Bank, FSB Deferred Compensation Plan for Directors, as amended (incorporated herein by
reference to Exhibit 10.23 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1993, filed on March 31, 1994).
10.24 Directors Retirement Plan of Albany Savings Bank, FSB, as amended (incorporated herein by reference
to Exhibit 10.25 to Amendment No. 1 to ALBANK's Registration Statement on Form S-1, as amended,
filed on February 5, 1992, Registration No. 33-44721).
10.24.1 Amendment to Directors Retirement Plan of Albany Savings Bank, FSB, as amended (incorporated herein
by reference to Exhibit 10.24.1 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1994, filed on March 31, 1995).
10.25 Loan Agreement between ALBANK and The First National Bank of Boston, successor trustee to Nationar,
as Trustee of Albany Savings Bank, FSB Employee Stock Ownership Plan (incorporated herein by
reference to Exhibit 10.25 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.26 Pledge Agreement between ALBANK and The First National Bank of Boston, successor trustee to Nationar,
as Trustee of the Albany Savings Bank, FSB Employee Stock Ownership Plan (incorporated herein by
reference to Exhibit 10.26 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.27 Trust Agreement "A" between the Bank and The First National Bank of Boston, successor trustee to
Nationar, for the Albany Savings Bank, FSB, Incentive Savings and Employee Stock Ownership Plan
(incorporated herein by reference to Exhibit 10.27 to ALBANK's Annual Report on Form 10-K for the year
ended June 30, 1992, filed on September 28, 1992).
10.27.1 First Instrument of Amendment to Trust Agreement "A" between the Bank and The First National Bank of
Boston, successor trustee to Nationar, for the Albany Savings Bank, FSB Incentive Savings and
Employee Stock Ownership Plan (incorporated herein by reference to Exhibit 10.27.1 to ALBANK's Annual
Report on Form 10-K for the year ended December 31, 1994, filed on March 31, 1995).
10.28 Trust Agreement "B" between the Bank and The First National Bank of Boston, successor trustee to
Nationar, for the Albany Savings Bank, FSB Incentive Savings and Employee Stock Ownership Plan
(incorporated herein by reference to Exhibit 10.28 to ALBANK's Annual Report on Form 10-K for the
year ended June 30, 1992, filed on September 28, 1992).
10.28.1 First Instrument of Amendment to Trust Agreement "B" between the Bank and The First National Bank of
Boston, successor trustee to Nationar, for the Albany Savings Bank, FSB Incentive Savings and Employee
Stock Ownership Plan (incorporated herein by reference to Exhibit 10.28.1 to ALBANK's Annual Report
on Form 10-K for the year ended December 31, 1994, filed on March 31, 1995).
11 11.01 Statement regarding Computation of Per Share Earnings.
13 13.01 Annual Report to Security Holders. Portions of ALBANK's December 31, 1996 Annual Report to
Stockholders have been incorporated by reference into this Form 10-K. The accountant's certificate
in such Annual Report attached as Exhibit 13.01 has been manually signed.
21 21.01 Subsidiary of the Registrant and Related Subsidiaries.
23 23.01 Consent of KPMG Peat Marwick LLP.
27 27.01 Financial Data Schedule.
99 99.01 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Other Employees
(incorporated herein by reference to Exhibit 28.1 to ALBANK's Annual Report on Form 10-K for the
year ended June 30, 1992, filed on September 28, 1992).
99.02 Albany Savings Bank, FSB Branch Management Incentive Plan (incorporated herein by reference to Exhibit
28.7 of ALBANK's Registration Statement on Form S-1, as amended, filed on December 23, 1991,
Registration No. 33-44721).
</TABLE>
ALBANK agrees to file with the Securities and Exchange Commission a copy of
every instrument with respect to long-term debt of ALBANK and its subsidiary
when the total amount of securities authorized does not exceed 10% of the
total assets of ALBANK and its subsidiary on a consolidated basis, upon the
request of the Securities and Exchange Commission.
(b). Reports on Form 8-K
The Company did not file any Report on Form 8-K during the fourth quarter of
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, hereunto duly authorized.
ALBANK Financial Corporation
(Registrant)
/s/ Herbert G. Chorbajian
By: Herbert G. Chorbajian
Chairman of the Board,
President and Chief
Executive Officer
Dated: March 27, 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>
Signature Title Date
<S> <C> <C>
/s/ Herbert G. Chorbajian Chairman of the Board, March 27, 1997
Herbert G. Chorbajian President and Chief
(principal executive officer) Executive Officer
/s/ Richard J. Heller Executive Vice President March 27, 1997
Richard J. Heller and Chief Financial Officer
(principal accounting officer)
(principal financial officer)
/s/ William J. Barr Director March 27, 1997
William J. Barr
/s/ Director March 27, 1997
Henry M. Elliot, Jr.
/s/ John E. Maloy, Sr. Director March 27, 1997
John E. Maloy, Sr.
/s/ Susan J. Stabile Director March 27, 1997
Susan J. Stabile, Esq.
/s/ Anthony P. Tartaglia, M.D. Director March 27, 1997
Anthony P. Tartaglia, M.D.
/s/ Karen R. Hitchcock, Ph.D. Director March 27, 1997
Karen R. Hitchcock, Ph.D.
/s/ Francis L. McKone Director March 27, 1997
Francis L. McKone
</TABLE>
EXHIBIT 10.11
ALBANK Financial Corporation
1992 STOCK INCENTIVE PLAN FOR KEY EMPLOYEES
(As Amended and Restated Effective as of March 25, 1996)
1. Purpose of the Plan
The purpose of the ALBANK Financial Corporation (the
"Company") 1992 Stock Incentive Plan (the "Plan") is to advance the
interests of the Company and its shareholders by providing key employees
of the Company and its affiliates, including Albany Savings Bank, F.S.B.
(the "Bank"), upon whose judgment, initiative and efforts the successful
conduct of the business of the Company and its affiliates largely
depends, with incentives and rewards to encourage them to continue in
the employ of the Company and its affiliates and to perform in a
superior manner.
2. Definitions
As used in the Plan, the following definitions apply to the
terms indicated below:
(a) "Affiliate" shall mean (i) a member of a controlled group
of corporations of which the Company is a member or (ii) an
unincorporated trade or business which is under common control with the
Company as determined in accordance with Section 4l4(c) of the Code and
the regulations issued thereunder. For purposes hereof, a "controlled
group of corporations" shall mean a controlled group of corporations as
defined in Section l563(a) of the Code determined without regard to
Section l563(a)(4) and (e)(3)(C).
(b) "Bank" shall mean Albany Savings Bank, F.S.B.
(c) "Board of Directors" shall mean the Board of Directors of
the Company.
(d) "Cause" shall mean personal dishonesty, willful
misconduct, any breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) which results in a material loss to the Bank or final cease
and desist order.
(e) "Change in Control" shall mean a Change in Control of the
Bank or the Company of a nature that: (i) would be required to be
reported or is reported in response to Item l of the current report on
Form 8-K, as in effect on the effective date of the Plan, pursuant to
Sections l3 or l5(d) of the Exchange Act; or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home
Owners' Loan Act and the Rules and Regulations promulgated by the Office
of Thrift Supervision or its predecessor agency, as in effect on the
effective date of the Plan; or (iii) any "Person" (as the term is used
in Sections l3(d) and l4(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule l3d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Company
representing 20% or more of the combined voting power of the Bank's or
the Company's outstanding securities, except for any securities of the
Bank purchased by the Company in connection with the Conversion of the
Bank to the stock form of ownership and any securities purchased by the
Bank's employee stock ownership plan and trust; or (iv) individuals who
constitute the Board of Directors 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 Company's shareholders was approved by the same
nominating committee serving under an Incumbent Board, shall be, for
purposes of this clause (iv), considered as though he were a member of
the Incumbent Board; or (v) a merger, consolidation or sale of all or
substantially all of the assets of the Bank or the Company in which the
Bank or the Company is not the surviving institution occurs and which
the Incumbent Board does not approve of or consent to; or (vi)
stockholder approval pursuant to a proxy statement soliciting proxies
from stockholders of the Company, by someone other than the current
management of the Company, of a plan of reorganization, merger or
consolidation of the Bank or the Company with one or more corporations
as a result of which the outstanding shares of the class of securities
then subject to the plan of reorganization are exchanged or converted
into cash or property or securities not issued by the Bank or the
Company; or (vii) voting securities have been tendered and not withdrawn
during the tender offer period pursuant to a tender offer for 20% or
more of the voting securities of the Bank or the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" shall mean the committee that the Board of
Directors shall appoint from time to time to administer the Plan.
(h) "Common Stock" shall mean shares of the common stock,
$.01 par value per share, of the Company.
(i) "Company" shall mean ALBANK Financial Corporation, a
Delaware corporation.
(j) "Conversion" shall mean the conversion of the Bank from a
mutual savings bank to a stock savings bank.
(k) "Disability" shall mean any physical or mental impairment
which qualifies a Participant for disability benefits under the
Retirement Plan maintained by the Bank.
(l) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(m) the "Fair Market Value" of a share of Common Stock with
respect to any day shall be (i) the closing sales price on the
immediately preceding business day of a share of Common Stock as
reported on the principal securities exchange on which shares of Common
Stock are then listed or admitted to trading or (ii) if not so reported,
the average of the closing bid and ask prices on the immediately
preceding business day as reported on the National Association of
Securities Dealers Automated Quotation System or (iii) if not so
reported, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Committee. In the event that
the price of a share of Common Stock shall not be so reported, the Fair
Market Value of a share of Common Stock shall be determined by the
Committee in its absolute discretion. For purposes of the grant of
Options in the Conversion of the Bank, Fair Market Value shall mean the
initial public offering price of the Common Stock.
(n) "Incentive Award" shall mean an Option, LSAR, Tandem SAR,
Stand-Alone SAR or share of Phantom Stock granted pursuant to the terms
of the Plan.
(o) "Incentive Stock Option" shall mean an Option which is an
"incentive stock option" within the meaning of Section 422 of the Code
and which is identified as an Incentive Stock Option in the agreement by
which it is evidenced.
(p) "LSAR" shall mean a limited stock appreciation right
which is granted pursuant to the provisions of Section 7 hereof and
which relates to an Option. Each LSAR shall be exercisable only upon the
occurrence of a Change in Control and only in the alternative to the
exercise of its related Option.
(q) "Non-Qualified Stock Option" shall mean an Option which
is not an Incentive Stock Option and which is identified as a Non-
Qualified Stock Option in the agreement by which it is evidenced.
(r) "Option" shall mean an option to purchase shares of
Common Stock of the Company granted pursuant to Section 6 hereof. Each
Option shall be identified as either an Incentive Stock Option or a Non-
Qualified Stock Option in the agreement by which it is evidenced.
(s) "Participant" shall mean an employee of the Company or
one of its Affiliates who is eligible to participate in the Plan and to
whom an Incentive Award is granted pursuant to the Plan, and, upon his
death, his successors, heirs, executors and administrators, as the case
may be.
(t) "Person" shall mean a "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act.
(u) "Phantom Stock" shall mean the right to receive in cash
the Fair Market Value of a share of Common Stock of the Company, which
right is granted pursuant to Section 10 hereof and subject to the terms
and conditions contained therein.
(v) "Plan" shall mean the ALBANK Financial Corporation l992
Stock Incentive Plan for Key Employees, as it may be amended from time
to time.
(w) "Retirement Plan" shall mean the Retirement Plan of
Albany Savings Bank, F.S.B. In RSI Retirement Trust.
(x) "Stand-Alone SAR" shall mean a stock appreciation right
granted pursuant to Section 9 hereof which is not related to any Option.
(y) "Tandem SAR" shall mean a stock appreciation right
granted pursuant to Section 8 hereof which is related to an Option. Each
Tandem SAR shall be exercisable only to the extent its related Option is
exercisable and only in the alternative to the exercise of its related
Option.
(z) "Vesting Date" shall mean the date established by the
Committee on which a share of Phantom Stock may vest.
3. Stock Subject to the Plan
Under the Plan, the Committee may grant to Participants (a)
Options, (b) LSARs, (c) Tandem SARs, (d) Stand-Alone SARs and (e) shares
of Phantom Stock.
Subject to adjustment as provided in Section 11 hereof, the
Committee may grant Options, Stand-Alone SARs, and shares of Phantom
Stock under the Plan with respect to a number of shares of Common Stock
that in the aggregate does not exceed 1,674,500 shares. The grant of an
LSAR or Tandem SAR shall not reduce the number of shares of Common Stock
with respect to which Options, Stand-Alone SARs or shares of Phantom
Stock may be granted pursuant to the Plan.
To the extent Incentive Awards granted under the Plan are
exercised, the shares covered will be unavailable for future grants
under the Plan. To the extent that Options together with any related
rights granted under the Plan terminate, expire or are cancelled without
having been exercised, or, in the case of LSARs, Stand-Alone SARs or
Tandem SARs exercised for cash, new Incentive Awards may be made with
respect to the shares covered thereby. In the event that any shares of
Phantom Stock, are forfeited or cancelled for any reason, such shares
shall again be available for grants under the Plan.
Shares of Common Stock issued under the Plan may be either
newly issued shares or treasury shares, at the discretion of the
Committee.
No Participant in the Plan may be granted Options, Stand-Alone
SARs and shares of Phantom Stock on and after December 18, 1995, with
respect to more than an aggregate of 320,000 shares of Common Stock. To
the extent that Options together with any related rights granted under
the Plan, Stand-Alone SARs and shares of Phantom Stock terminate, expire
or are cancelled or forfeited without having been exercised, the shares
underlying such Incentive Awards shall continue to count against the
maximum aggregate number of shares of Common Stock with respect to which
Options, Stand-Alone SARs and shares of Phantom Stock may be granted to
a Participant on and after December 18, 1995.
4. Administration of the Plan
The Plan shall be administered by the Committee of the Board
of Directors consisting of two or more persons, each of whom shall be a
"disinterested person" within the meaning of Rule l6b-3 promulgated
under Section l6 of the Exchange Act. The Committee shall from time to
time designate the key employees of the Company or its Affiliates who
shall be granted Incentive Awards and the amount and type of such
Incentive Awards.
The Committee shall have full authority to administer the
Plan, including authority to interpret and construe any provision of the
Plan and the terms of any Incentive Award issued under it and to adopt
such rules and regulations for administering the Plan as it may deem
necessary. Decisions of the Committee shall be final and binding on all
parties.
The Committee may, in its absolute discretion (a) accelerate
the date on which any Option or Stand-Alone SAR granted under the Plan
becomes exercisable and (b) accelerate the Vesting Date or waive any
condition imposed pursuant to Section 10 hereof with respect to any
share of Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion,
grant Incentive Awards to Participants on the condition that such
Participants surrender to the Committee for cancellation such other
Incentive Awards (including, without limitation, Incentive Awards with
higher exercise prices) as the Committee specifies. Notwithstanding
Section 3 herein, prior to the surrender of such other Incentive Awards,
Incentive Awards granted pursuant to the preceding sentence of this
Section 4 shall not count against the limits set forth in such Section
3.
Whether an authorized leave of absence, or absence in military
or government service, shall constitute termination of employment shall
be determined by the Committee.
No member of the Committee shall be liable for any action,
omission, or determination relating to the Plan, and the Company shall
indemnify and hold harmless each member of the Committee and each other
director or employee of the Company or its Affiliates to whom any duty
or power relating to the administration or interpretation of the Plan
has been delegated against any cost or expense (including counsel fees)
or liability (including any sum paid in settlement of a claim with the
approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the
best interests of the Company.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards
pursuant to the Plan shall be such key employees of the Company or its
Affiliates who are largely responsible for the management, growth and
protection of the business of the Company or its Affiliates. Directors
who are not employees or officers of the Company or its Affiliates shall
not be eligible to receive Incentive Awards under the Plan.
6. Options
The Committee may grant Options pursuant to the Plan, which
Options shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Options shall comply with and be
subject to the following terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified
in the agreement evidencing such Options as either Incentive Stock
Options or as Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Non-Qualified Stock Option granted
under the Plan shall be such price as the Committee shall determine on
the date on which such Non-Qualified Stock Option is granted, which may
be equal to, less than or greater than the Fair Market Value of a share
of Common Stock on the date on which such Non-Qualified Stock Option is
granted; provided, that such price may not be less than the minimum
price required by law; and provided, further, that the exercise price of
Options granted in the Conversion shall be the initial public offering
price of the Common Stock of the Company in connection with the
Conversion. The exercise price of any Incentive Stock Option granted
under the Plan shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date on which such Incentive Stock Option
is granted.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date or dates,
during such period and for such number of shares of Common Stock as
shall be determined by the Committee on the day on which such Option is
granted and set forth in the Option agreement with respect to such
Option; provided, however, that no Option shall be exercisable after the
expiration of ten years from the date such Option was granted; and,
provided, further, that each Option shall be subject to earlier
termination, expiration or cancellation as provided in the Plan.
(2) Each Option shall be exercisable in whole or in part;
provided, that no partial exercise of an Option shall be for an
aggregate exercise price of less than $1,000. The partial exercise of an
Option shall not cause the expiration, termination or cancellation of
the remaining portion thereof. Upon the partial exercise of an Option,
the agreements evidencing such Option and any related LSARs and Tandem
SARs, marked with any notations deemed appropriate by the Committee,
shall be returned to the Participant exercising such Option together
with the delivery of the certificates described in Section 6(c)(5)
hereof.
(3) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no less
than three business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the agreements
evidencing the Option and any related LSARs and Tandem SARs, shall
specify the number of shares of Common Stock with respect to which the
Option is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed
exercise, in which case such agreements shall be returned to him.
Payment for shares of Common Stock purchased upon the exercise of an
Option shall be made on the effective date of such exercise either (i)
in cash, by certified check, bank cashier's check or wire transfer or
(ii) subject to the approval of the Committee, in shares of Common Stock
owned by the Participant and valued at their Fair Market Value on the
effective date of such exercise, or partly in shares of Common Stock
with the balance in cash, by certified check, bank cashier's check or
wire transfer. Any payment in shares of Common Stock shall be effected
by the delivery of such shares to the Secretary of the Company, duly
endorsed in blank or accompanied by stock powers duly executed in blank,
together with any other documents and evidences as the Secretary of the
Company shall require from time to time.
(4) During the lifetime of a Participant, each Option granted
to him shall be exercisable only by him. No Option shall be assignable
or transferable otherwise than by will or by the laws of descent and
distribution.
(5) Certificates for shares of Common Stock purchased upon
the exercise of an Option shall be issued in the name of the Participant
and delivered to the Participant as soon as practicable following the
effective date on which the Option is exercised.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of shares of Common Stock
with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year under the Plan and
any other stock option plan of the Company or an Affiliate (or any
"subsidiary corporation" of the Company as such term is defined in
Section 424 of the Code) shall not exceed $100,000. Such Fair Market
Value shall be determined as of the date on which each such Incentive
Stock Option is granted. In the event that the aggregate Fair Market
Value of shares of Common Stock with respect to such Incentive Stock
Options exceeds $100,000, then Incentive Stock Options granted hereunder
to such Participant shall, to the extent and in the order in which they
were granted, automatically be deemed to be Non-Qualified Stock Options,
but all other terms and provisions of such Incentive Stock Options shall
remain unchanged.
(2) No Incentive Stock Option may be granted to an individual
if, at the time of the proposed grant, such individual owns stock
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any of its "subsidiary
corporations" (within the meaning of Section 426 of the Code), unless
(i) the exercise price of such Incentive Stock Option is at least one
hundred and ten percent of the Fair Market Value of a share of Common
Stock at the time such Incentive Stock Option is granted and (ii) such
Incentive Stock Option is not exercisable after the expiration of five
years from the date such Incentive Stock Option is granted.
(e) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause, Disability
or death (i) Options granted to such Participant, to the extent that
they were exercisable at the time of such termination, shall remain
exercisable until the expiration of one month (except as provided in the
following sentence) after such termination, on which date they shall
expire, and (ii) Options granted to such Participant, to the extent that
they were not exercisable at the time of such termination, shall expire
at the close of business on the date of such termination; provided,
however, that no Option shall be exercisable after the expiration of its
term. In the event termination of employment is as a result of normal
retirement (as defined in the Retirement Plan), Options exercisable at
the time of such termination shall remain exercisable until the
expiration of twelve months after such termination, on which date they
shall expire provided, however, that any Options exercised more than
three months following the date of normal retirement shall not be
eligible for treatment as Incentive Stock Option.
(2) In the event that the employment of a Participant with
the Company shall terminate on account of Disability or death of the
Participant, all Options granted to such Participant, whether or not
they were exercisable at the time of such termination, shall become
fully and immediately exercisable and shall remain exercisable until the
expiration of one year after such termination, on which date they shall
expire; provided, however, that no Option shall be exercisable after the
expiration of its term.
(3) In the event of the termination of a Participant's
employment for Cause, all outstanding Options granted to such
Participant shall expire at the commencement of business on the date of
such termination.
(f) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Option
granted under the Plan and outstanding at such time shall become fully
and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the
Plan.
7. Limited Stock Appreciation Rights
The Committee may grant in connection with any Option granted
hereunder one or more LSARs relating to a number of shares of Common
Stock less than or equal to the number of shares of Common Stock subject
to the related Option. An LSAR may be granted at the same time as, or,
in the case of a Non-Qualified Stock Option, subsequent to the time
that, its related Option is granted. Each LSAR shall be evidenced by an
agreement in such form as the Committee shall from time to time approve.
Each LSAR granted hereunder shall be subject to the following terms and
conditions:
(a) Benefit Upon Exercise
(1) The exercise of an LSAR relating to a Non-Qualified Stock
Option with respect to any number of shares of Common Stock shall
entitle the Participant to a cash payment, for each such share, equal to
the excess of (i) the greater of (A) the highest price per share of
Common Stock paid in the Change in Control in connection with which such
LSAR became exercisable and (B) the Fair Market Value of a share of
Common Stock on the date of such Change in Control over (ii) the
exercise price of the related Option. Such payment shall be paid as soon
as practical, but in no event later than the expiration of five business
days, after the effective date of such exercise.
(2) The exercise of an LSAR relating to an Incentive Stock
Option with respect to any number of shares of Common Stock shall
entitle the Participant to a cash payment, for each such share, equal to
the excess of (i) the Fair Market Value of a share of Common Stock on
the effective date of such exercise over (ii) the exercise price of the
related Option. Such payment shall be paid as soon as practical, but in
no event later than the expiration of five business days, after the
effective date of such exercise.
(b) Term and Exercise of LSARs
(1) An LSAR shall be exercisable only during the period
commencing on the first day following the occurrence of a Change in
Control and terminating on the expiration of sixty days after such date.
Notwithstanding the preceding sentence of this Section 7(b), in the
event that an LSAR held by any Participant who is or may be subject to
the provisions of Section 16(b) of the Exchange Act becomes exercisable
prior to the expiration of six months following the date on which it is
granted, then the LSAR shall also be exercisable during the period
commencing on the first day immediately following the expiration of such
six-month period and terminating on the expiration of sixty days
following such date. Notwithstanding anything else herein, an LSAR
relating to an Incentive Stock Option may be exercised with respect to a
share of Common Stock only if the Fair Market Value of such share on the
effective date of such exercise exceeds the exercise price relating to
such share. Notwithstanding anything else herein, an LSAR may be
exercised only if and to the extent that the Option to which it relates
is exercisable.
(2) The exercise of an LSAR with respect to a number of
shares of Common Stock shall cause the immediate and automatic
cancellation of the Option to which it relates with respect to an equal
number of shares. The exercise of an Option, or the cancellation,
termination or expiration of an Option (other than pursuant to this
Paragraph (2)), with respect to a number of shares of Common Stock,
shall cause the cancellation of the LSAR related to it with respect to
an equal number of shares.
(3) Each LSAR shall be exercisable in whole or in part;
provided, that no partial exercise of an LSAR shall be for an aggregate
exercise price of less than $1,000. The partial exercise of an LSAR
shall not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of an LSAR, the
agreements evidencing the LSAR, the related Option and any Tandem SARs
related to such Option, marked with any notations deemed appropriate by
the Committee, shall be returned to the Participant exercising such LSAR
together with the payment described in Section 7(a)(1) or (2) hereof, as
applicable.
(4) During the lifetime of a Participant, each LSAR granted
to him shall be exercisable only by him. No LSAR shall be assignable or
transferable otherwise than by will or by the laws of descent and
distribution and otherwise than together with its related Option.
(5) An LSAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no less
than three business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the applicable
agreements evidencing the LSAR, the related Option and any Tandem SARs
relating to such Option, shall specify the number of shares of Common
Stock with respect to which the LSAR is being exercised and the
effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time prior
to the close of business on the business day immediately preceding the
effective date of the proposed exercise, in which case such agreements
shall be returned to him.
8. Tandem Stock Appreciate Rights
The Committee may grant in connection with any Option granted
hereunder one or more Tandem SARs relating to a number of shares of
Common Stock less than or equal to the number of shares of Common Stock
subject to the related Option. A Tandem SAR may be granted at the same
time as, or, in the case of a Non-Qualified Stock Option, subsequent to
the time that, its related Option is granted. Each Tandem SAR shall be
evidenced by an agreement in such form as the Committee shall from time
to time approve. Tandem SARs shall comply with and be subject to the
following terms and conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of
shares of Common Stock shall entitle a Participant to a cash payment,
for each such share, equal to the excess of (i) the Fair Market Value of
a share of Common Stock on the effective date of such exercise over (ii)
the exercise price of the related Option. Such payment shall be paid as
soon as practical, but in no event later than the expiration of five
business days, after the effective date of such exercise.
(b) Term and Exercise of Tandem SAR
(1) A Tandem SAR shall be exercisable at the same time and to
the same extent (on a proportional basis, with any fractional amount
being rounded down to the immediately preceding whole number) as its
related Option. Notwithstanding the first sentence of this Section
8(b)(1), (i) a Tandem SAR shall not be exercisable at any time that an
LSAR related to the Option to which the Tandem SAR is related is
exercisable and (ii) a Tandem SAR relating to an Incentive Stock Option
may be exercised with respect to a share of Common Stock only if the
Fair Market Value of such share on the effective date of such exercise
exceeds the exercise price relating to such share.
(2) Notwithstanding the first sentence of Section 8(b)(1)
hereof, the Committee may, in its absolute discretion, grant one or more
Tandem SARs which shall not become exercisable unless and until the
Participant to whom such Tandem SAR is granted is, in the determination
of the Committee, subject to Section 16(b) of the Exchange Act and which
shall cease to be exercisable if and at the time that the Participant
ceases, in the determination of the Committee, to be subject to such
Section 16(b).
(3) The exercise of a Tandem SAR with respect to a number of
shares of Common Stock shall cause the immediate and automatic
cancellation of its related Option with respect to an equal number of
shares. The exercise of an Option, or the cancellation, termination or
expiration of an Option (other than pursuant to this Paragraph (3)),
with respect to a number of shares of Common Stock shall cause the
automatic and immediate cancellation of its related Tandem SARs to the
extent that the number of shares of Common Stock subject to such Option
after such exercise, cancellation, termination or expiration is less
than the number of shares subject to such Tandem SARs. Such Tandem SARs
shall be cancelled in the order in which they became exercisable.
(4) Each Tandem SAR shall be exercisable in whole or in part;
provided, that no partial exercise of a Tandem SAR shall be for an
aggregate exercise price of less than $1,000. The partial exercise of a
Tandem SAR shall not cause the expiration, termination or cancellation
of the remaining portion thereof. Upon the partial exercise of a Tandem
SAR, the agreements evidencing such Tandem SAR, its related Option and
LSARs relating to such Option, marked with any notations deemed
appropriate by the Committee, shall be returned to the Participant
exercising such Tandem SAR together with the payment described in
Section 8(a) hereof.
(5) During the lifetime of a Participant, each Tandem SAR
granted to him shall be exercisable only by him. No Tandem SAR shall be
assignable or transferable otherwise than by will or by the laws of
descent and distribution and otherwise than together with its related
Option.
(6) A Tandem SAR shall be exercised by delivering notice to
the Company's principal office, to the attention of its Secretary, no
less than three business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the applicable
agreements evidencing the Tandem SAR, its related Option and any LSARs
related to such Option, shall specify the number of shares of Common
Stock with respect to which the Tandem SAR is being exercised and the
effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time prior
to the close of business on the business day immediately preceding the
effective date of the proposed exercise, in which case such agreements
shall be returned to him.
9. Stand-Alone Stock Appreciation Rights
The Committee may grant Stand-Alone SARs pursuant to the Plan,
which Stand-Alone SARs shall be evidenced by agreements in such form as
the Committee shall from time to time approve. Stand-Alone SARs shall
comply with and be subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the
Plan shall be determined by the Committee at the time of the grant of
such Stand-Alone SAR.
(b) Benefit Upon Exercise
(l) The exercise of a Stand-Alone SAR with respect to any
number of shares of Common Stock prior to the occurrence of a Change in
Control shall entitle a Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a share of
Common Stock on the exercise date over (ii) the exercise price of the
Stand-Alone SAR.
(2) The exercise of a Stand-Alone SAR with respect to any
number of shares of Common Stock upon or after the occurrence of a
Change in Control shall entitle a Participant to a cash payment, for
each such share, equal to the excess of (i) the greater of (A) the
highest price per share of Common Stock paid in connection with such
Change in Control and (B) the Fair Market Value of a share of Common
Stock on the date of such Change in Control over (ii) the exercise price
of the Stand-Alone SAR. Such payments shall be paid as soon as
practical, but in no event later than five business days, after the
effective date of the exercise.
(c) Term and Exercise of Stand-Alone SARs
(1) Each Stand-Alone SAR shall be exercisable on such date or
dates, during such period and for such number of shares of Common Stock
as shall be determined by the Committee and set forth in the Stand-Alone
SAR agreement with respect to such Stand-Alone SAR; provided, however,
that no Stand-Alone SAR shall be exercisable after the expiration of ten
years from the date such Stand-Alone SAR was granted; and, provided,
further, that each Stand-Alone SAR shall be subject to earlier
termination, expiration or cancellation as provided in the Plan.
(2) Each Stand-Alone SAR may be exercised in whole or in
part; provided, that no partial exercise of a Stand-Alone SAR shall be
for an aggregate exercise price of less than $1,000. The partial
exercise of a Stand-Alone SAR shall not cause the expiration,
termination or cancellation of the remaining portion thereof. Upon the
partial exercise of a Stand-Alone SAR, the agreement evidencing such
Stand-Alone SAR, marked with any notation deemed appropriate by the
Committee, shall be returned to the Participant exercising such Stand-
Alone SAR together with the payment described in Section 9(b)(l) or (2)
hereof.
(3) A Stand-Alone SAR shall be exercised by delivering notice
to the Company's principal office, to the attention of its Secretary, no
less than three business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the applicable
agreement evidencing the Stand-Alone SAR, shall specify the number of
shares of Common Stock with respect to which the Stand-Alone SAR is
being exercised and the effective date of the proposed exercise and
shall be signed by the Participant. The Participant may withdraw such
notice at any time prior to the close of business on the business day
immediately preceding the effective date of the proposed exercise, in
which case the agreement evidencing the Stand-Alone SAR shall be
returned to him.
(4) During the lifetime of a Participant, each Stand-Alone
SAR granted to him shall be exercisable only by him. No Stand-Alone SAR
shall be assignable or transferable otherwise than by will or by the
laws of descent and distribution.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause, Disability
or death (i) Stand-Alone SARs granted to such Participant, to the extent
that they were exercisable at the time of such termination, shall remain
exercisable until the expiration of one month (twelve months in the case
of normal retirement as such term is defined in the Retirement Plan)
after such termination, on which date they shall expire, and (ii) Stand-
Alone SARs granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the close
of business on the date of such termination; provided, however, that no
Stand-Alone SAR shall be exercisable after the expiration of its term.
(2) In the event that the employment of a Participant with
the Company shall terminate on account of the Disability or death of the
Participant all Stand-Alone SARs granted to such Participant, whether or
not they were exercisable at the time of such termination, shall become
fully and immediately exercisable and shall remain exercisable until the
expiration of one year after such termination, on which date they shall
expire; provided, however, that no Stand-Alone SAR shall be exercisable
after the expiration of its term.
(3) In the event of the termination of a Participant's
employment for Cause, all outstanding Stand-Alone SARs granted to such
Participant shall expire at the commencement of business on the date of
such termination.
(e) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, any Stand-Alone
SAR granted under the Plan and outstanding at such time shall become
fully and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the
Plan.
10. Phantom Stock
The Committee may grant shares of Phantom Stock pursuant to
the Plan. Each grant of shares of Phantom Stock shall be evidenced by an
agreement in such form as the Committee shall from time to time approve.
Each grant of shares of Phantom Stock shall comply with and be subject
to the following terms and conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock, the
Committee shall establish a Vesting Date or Vesting Dates with respect
to such shares; provided, that the Vesting Date shall be at least six
months after the date of grant of shares. The Committee may divide such
shares into classes and assign a different Vesting Date for each class.
Provided that all conditions to the vesting of a share of Phantom Stock
imposed pursuant to Section 10(c) hereof are satisfied, and except as
provided in Section 10(d) hereof, upon the occurrence of the Vesting
Date with respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a Participant
shall receive in cash, within 30 days of the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (i) the Fair
Market Value of a share of Common Stock of the Company on the date on
which such share of Phantom Stock vests and (ii) the aggregate amount of
cash dividends paid with respect to a share of Common Stock of the
Company during the period commencing on the date on which the share of
Phantom Stock was granted and terminating on the date on which such
share vests.
(c) Conditions to Vesting
At the time of the grant of shares of Phantom Stock, the
Committee may impose such restrictions or conditions, not inconsistent
with the provisions hereof, to the vesting of such shares as it, in its
absolute discretion deems appropriate. By way of example and not by way
of limitation, the Committee may require, as a condition to the vesting
of any class or classes of shares of Phantom Stock, that the Participant
or the Company achieve certain performance criteria, such criteria to be
specified by the Committee at the time of the grant of such shares.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause prior to the
vesting of shares of Phantom Stock granted to such Participant, a
proportion of such shares, to the extent not forfeited or cancelled on
or prior to such termination pursuant to any provision hereof, shall
vest on the date of such termination. The proportion referred to in the
preceding sentence shall be determined by the Committee at the time of
the grant of such shares of Phantom Stock and may be based on the
achievement of any conditions imposed by the Committee with respect to
such shares pursuant to Section 10(c). Such proportion may be equal to
zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Phantom Stock granted to such
Participant which have not vested as of the date of such termination
shall immediately be forfeited.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of
Phantom Stock which have not theretofore vested, or been cancelled or
forfeited pursuant to any provision hereof, shall immediately vest.
11. Adjustment Upon Changes in Common Stock
(a) Shares Available for Grants
In the event of any change in the number of shares of Common
Stock outstanding by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination or exchange of
shares or similar corporate change, the maximum aggregate number of
shares of Common Stock with respect to which the Committee may grant
Options, Stand-Alone SARs and shares of Phantom Stock shall be
appropriately adjusted by the Committee. In the event of any change in
the number of shares of Common Stock outstanding by reason of any other
event or transaction, the Committee may, but need not, make such
adjustments in the number and class of shares of Common Stock with
respect to which Options, Stand-Alone SARs and shares of Phantom Stock
may be granted as the Committee may deem appropriate.
(b) Outstanding Phantom Stock
The Committee may, in its absolute discretion, adjust any
grant of shares of Phantom Stock to reflect any dividend, stock split,
recapitalization, merger, consolidation, combination, exchange of shares
or similar corporate change as the Committee may deem appropriate to
prevent the enlargement or dilution of rights of Participants under the
grant.
(c) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Increase or Decrease in
Issued Shares Without Consideration
Subject to any required action by the shareholders of the
Company, in the event of any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or
consolidation of shares of Common Stock or the payment of a stock
dividend (but only on the shares of Common Stock), or any other increase
or decrease in the number of such shares effected without receipt of
consideration by the Company, the Committee shall proportionally adjust
the number of shares of Common Stock subject to each outstanding Option,
LSAR, Tandem SAR and Stand-Alone SAR, and the exercise price per share
of Common Stock of each such Option, LSAR, Tandem SAR and Stand-Alone
SAR.
(d) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Certain Mergers
Subject to any required action by the shareholders of the
Company, in the event that the Company shall be the surviving
corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Common Stock
receive securities of another corporation), each Option, LSAR, Tandem
SAR and Stand-Alone SAR outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a
holder of the number of shares of Common Stock subject to such Option,
LSAR, Tandem SAR or Stand-Alone SAR would have received in such merger
or consolidation.
(e) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Certain Other Transactions
In the event of (i) a dissolution or liquidation of the
Company, (ii) a sale of all or substantially all of the Company's
assets, (iii) a merger or consolidation involving the Company in which
the Company is not the surviving corporation or (iv) a merger or
consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(A) cancel, effective immediately prior to the
occurrence of such event, each Option (including each LSAR
and Tandem-SAR related thereto) and Stand-Alone SAR
outstanding immediately prior to such event (whether or not
then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option or
Stand-Alone SAR was granted an amount in cash, for each
share of Common Stock subject to such Option or Stand-
Alone SAR, respectively, equal to the excess of (A) the
value, as determined by the Committee in its absolute
discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event
over (B) the exercise price of such Option or Stand-Alone SAR;
or
(B) provide for the exchange of each Option (including
any related LSAR or Tandem SAR) and Stand-Alone SAR
outstanding immediately prior to such event (whether or not
then exercisable) for an option on or stock appreciation right
with respect to, as appropriate, some or all of the property
for which such Option or Stand-Alone SAR is exchanged and,
incident thereto, make an equitable adjustment as determined
by the Committee in its absolute discretion in the exercise
price of the option or stock appreciation right, or the number
of shares or amount of property subject to the option or stock
appreciation right or, if appropriate, provide for a cash
payment to the Participant to whom such Option or Stand-Alone
SAR was granted in partial consideration for the exchange of
the Option or Stand-Alone SAR.
(f) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Other Changes
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections
11(c), (d) or (e) hereof, the Committee may, in its absolute discretion,
make such adjustments in the number and class of shares subject to
Options, LSARs, Tandem SARs or Stand-Alone SARs outstanding on the date
on which such change occurs and in the per share exercise price of each
such Option, LSAR, Tandem SAR and Stand-Alone SAR as the Committee may
consider appropriate to prevent dilution or enlargement of rights.
(g) No Other Rights
Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of shares
of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class or any
dissolution, liquidation, merger or consolidation of the Company or any
other corporation. Except as expressly provided in the Plan, no issuance
by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number
of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option, LSAR, Tandem SAR or Stand-Alone SAR.
12. Rights as a Stockholder
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to any Incentive
Award granted pursuant to this Plan until the date of the issuance of a
stock certificate with respect to such shares. Except as otherwise
expressly provided in Section 11 hereof, no adjustment to any Incentive
Award shall be made for dividends or other rights for which the record
date occurs prior to the date such stock certificate is issued.
13. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall
confer upon any Participant any right with respect to the continuation
of his employment by the Company or interfere in any way with the right
of the Company, subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or
to increase or decrease the compensation of the Participant from the
rate in existence at the time of the grant of an Incentive Award.
No person shall have any claim or right to receive an
Incentive Award hereunder. The Committee's granting of an Incentive
Award to a Participant at any time shall neither require the Committee
to grant an Incentive Award to such Participant or any other Participant
or other person at any time nor preclude the Committee from making
subsequent grants to such Participant or any other Participant or other
person.
14. Withholding Taxes
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the
exercise of an Option, the Company shall have the right to require the
Participant to remit to the Company in cash an amount sufficient to
satisfy federal, state and local withholding tax requirements, if any,
attributable to such exercise, occurrence or payment prior to the
delivery of any certificate or certificates for such shares. In
addition, upon the exercise of an LSAR, Tandem SAR or Stand-Alone SAR or
the making of a payment with respect to a share of Phantom Stock, the
Company shall have the right to withhold from any cash payment required
to be made pursuant thereto an amount sufficient to satisfy the federal,
state and local withholding tax requirements, if any, attributable to
such exercise or grant.
(b) Stock Remittance
Subject to subsection (d) hereof, at the election of the
Participant, subject to the approval of the Committee, when shares of
Common Stock are to be issued upon the exercise of an Option, in lieu of
the remittance required by Section 14(a) hereof, the Participant may
tender to the Company a number of shares of Common Stock determined by
such Participant, the Fair Market Value of which at the tender date the
Committee determines to be sufficient to satisfy the federal, state and
local withholding tax requirements, if any, attributable to such
exercise, occurrence or grant and not greater than the Participant's
estimated total federal, state and local tax obligations associated with
such exercise, occurrence or grant.
(c) Stock Withholding
Subject to subsection (d) hereof, at the election of the
Participant, subject to the approval of the Committee, when shares of
Common Stock are to be issued upon the exercise of an Option, the
occurrence of the Issue Date or the Vesting Date with respect to a share
of Restricted Stock or the grant of a Stock Bonus, in lieu of the
remittance required by Section 14(a) hereof, the Company shall withhold
a number of such shares determined by such Participant, the Fair Market
Value of which at the exercise date the Committee determines to be
sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise, occurrence or grant
and is not greater than the Participant's estimated total federal, state
and local tax obligations associated with such exercise, occurrence or
grant.
(d) Timing and Method of Elections
Notwithstanding any other provisions of the Plan, a
Participant who is subject to Section 16(b) of the Exchange Act may not
make either of the elections described in Sections 14(b) and (c) hereof
prior to the expiration of six months after the date on which the
applicable Option was granted, except in the event of the death or
Disability of the Participant. A Participant who is subject to Section
16(b) of the Exchange Act may not make such elections other than (i)
during the 10-day window period beginning on the third business day
following the date of release for publication of the Company's quarterly
and annual summary statements of sales and earnings and ending on the
twelfth business day following such date or (ii) at least six months
prior to the date as of which the income attributable to the exercise of
such Option is recognized under the Code, provided, however, that no
election may be made during the l0-day window period provided for in (i)
until the Company has been subject to the reporting requirements of the
Exchange Act for at least one year prior to the withholding. Such
elections shall be irrevocable and shall be made by the delivery to the
Company's principal office, to the attention of its Secretary, of a
written notice signed by the Participant.
15. Amendment of the Plan
The Board of Directors may at any time suspend or discontinue
the Plan or revise or amend it in any respect whatsoever; provided,
however, that without approval of the shareholders no revision or
amendment shall (i) except as provided in Section 11 hereof, increase
the number of shares of Common Stock that may be issued under the Plan,
(ii) materially increase the benefits accruing to individuals holding
Incentive Awards granted pursuant to the Plan or (iii) materially modify
the requirements as to eligibility for participation in the Plan.
16. No Obligation to Exercise
The grant to a Participant of an Option, LSAR, Tandem SAR or
Stand-Alone SAR shall impose no obligation upon such Participant to
exercise such Option, LSAR, Tandem SAR or Stand-Alone SAR.
17. Transfers Upon Death
Upon the death of a Participant, outstanding Incentive Awards
granted to such Participant may be exercised only by the executors or
administrators of the Participant's estate or by any person or persons
who shall have acquired such right to exercise by will or by the laws of
descent and distribution. No transfer by will or the laws of descent and
distribution of any Incentive Award, or the right to exercise any
Incentive Award, shall be effective to bind the Company unless the
Committee shall have been furnished with (a) written notice thereof and
with a copy of the will and/or such evidence as the Committee may deem
necessary to establish the validity of the transfer and (b) an agreement
by the transferee to comply with all the terms and conditions of the
Incentive Award that are or would have been applicable to the
Participant and to be bound by the acknowledgements made by the
Participant in connection with the grant of the Incentive Award.
Except as provided for in this Section 17, no Incentive Award
under the Plan shall be transferable and may only be exercised during a
Participant's lifetime by the Participant.
18. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any
proceeds received by the Company in connection with any Incentive Award
will be used for general corporate purposes.
l9. Failure to Comply
In addition to the remedies of the Company elsewhere provided
for herein, failure by a Participant to comply with any of the terms and
conditions of the Plan or the agreement executed by such Participant
evidencing an Incentive Award, unless such failure is remedied by such
Participant within ten days after having been notified of such failure
by the Committee, shall be grounds for the cancellation and forfeiture
of such Incentive Award, in whole or in part, as the Committee, in its
absolute discretion, may determine.
20. Effective Date of Plan
The Plan became effective upon the consummation of the
conversion of Albany Savings Bank from the mutual to capital stock form
of ownership (the "Effective Date") on April 1, 1992. The Plan shall be
presented to shareholders for ratification for purposes of: (i)
obtaining favorable treatment under Section l6(b) of the Exchange Act;
(ii) obtaining preferential tax treatment for Incentive Stock Options;
and (iii) maintaining a listing on the NASDAQ National Market System.
The failure to obtain shareholder ratification will not effect the
validity of the Plan and the Options thereunder, provided, however, that
if the Plan is not ratified, the Plan shall remain in full force and
effect, and any Incentive Stock Options granted under the Plan shall be
deemed to be Non-statutory Stock Options.
21. Termination of the Plan.
The right to grant Awards under the Plan will terminate ten
(l0) years after the Effective Date of the Plan. The Board of Directors
has the right to suspend or terminate the Plan at any time, provided
that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Awards.
22. Applicable Law.
The Plan will be administered in accordance with the laws of
the State of New York.
EXHIBIT 10.18
THIS AGREEMENT made this 8th day of May, 1996, by and between ALBANK,
FSB, a stock savings bank, having its principal office at the corner
of State and North Pearl Streets, in the City and County of Albany
and State of New York (hereinafter called the "Bank"), ALBANK FINANCIAL
CORPORATION, a Delaware corporation and the parent corporation of
the Bank ("ALBANK") and HERBERT G. CHORBAJIAN (hereinafter called
"Executive");
WITNESSETH:
WHEREAS, HERBERT G. CHORBAJIAN is the Chairman of the Board, President
and Chief Executive Officer of the Bank and ALBANK and has been an
executive officer of the Bank since June 1, 1984 and of ALBANK since
its incorporation; and
WHEREAS, the Executive participates in the Retirement Plan of Albany
Savings Bank, FSB in RSI Retirement Trust (the "Retirement Plan"); and
WHEREAS, pursuant to the terms of the Retirement Plan, the Executive
shall be entitled to receive benefit payments upon his retirement
from the Bank and ALBANK (the "Retirement Plan Benefits"); and
WHEREAS, the Board of Directors of ALBANK and the Bank have determined
that it is in the best interests of ALBANK and the Bank to provide
the Executive with supplemental retirement benefit payments (the "Supplemental
Payments") in addition to the Retirement Plan Benefits in order to
provide the Executive with an appropriate level of retirement income
and to enable the Executive to avoid the loss of retirement benefits
due to his termination of employment with Norstar Bancorp Inc. ("Norstar
Bancorp") and his employment by the Bank by granting the Executive
credit for his service with Norstar Bancorp prior to his employment
with the Bank; and
WHEREAS, the Executive and the Bank previously executed an agreement,
dated June 17, 1985 (the "Prior Supplemental Agreement"), regarding
certain supplemental payments to be made to the Executive upon his
retirement in order to make up for any reduction in Retirement Plan
Benefits by reason of the receipt by the Executive of Social Security
benefits or by reason of any changes in the formula for computation
of the Retirement Plan Benefits adopted subsequent to the date of
the Prior Supplemental Agreement; and
WHEREAS, the Executive, ALBANK and the Bank agree that such Prior
Supplemental Agreement should be superseded and replaced by this Agreement.
NOW, THEREFORE, it is agreed as follows:
1. The Bank agrees to make the Supplemental Payments to the Executive
as hereinafter described in Paragraph 2.
2. The Supplemental Payments shall be equal to (a) the amount of benefits
which would have been payable to the Executive under the Retirement
Plan if his 14.67 years of service with Norstar Bancorp were taken
into account as "Credited Service" (as defined in the Retirement Plan)
under the Retirement Plan in the calculation of such amount, minus
(b) the actual amount of Retirement Plan Benefits payable to the Executive
under the Retirement Plan, and minus (c) the amount of the deferred
vested pension payable to the Executive by Norstar Bancorp under the
Norstar Bancorp's Employees' Retirement Plan (and any successor plan
thereto), as set forth in the October 15, 1986 letter from Norstar
Bancorp to the Executive, attached hereto as Appendix A. All calculations
in the previous sentence shall be made as if each amount were payable
in the form of a "Straight Life Annuity" (as defined in the Retirement
Plan). The Supplemental Payments paid hereunder shall be made in the
same form of benefit as the form in which the Executive receives his
benefits under the Retirement Plan and the amount of such Supplemental
Payments actually payable to the Executive hereunder shall be adjusted
to be the applicable "Actuarial Equivalent" (as defined in the Retirement
Plan and determined using the actuarial assumptions specified in the
Retirement Plan) of the amount of the Straight Life Annuity determined
in accordance with the first sentence of this Paragraph 2. The Supplemental
Payments will be made to the Executive or, in the event of his death,
to his beneficiary, from time to time as benefits under the Retirement
Plan become payable.
In no event shall the Supplemental Payments be less than the payments that
the Executive would have received under the Prior Supplemental Agreement,
provided such payments were calculated only with respect to changes in the
formula for computation of retirement benefits (as set forth in the Prior
Supplemental Agreement) made prior to the date of this Agreement.
For purposes of this paragraph, the Executive's beneficiary shall be the
same person, if any, entitled to receive benefits under the Retirement Plan
in the event of the Executive's death.
3. The Executive's rights under this Agreement shall be limited to
those of an unsecured general creditor of the Bank and ALBANK, and
neither the Bank nor ALBANK shall have any obligation to fund the
payments provided for hereunder.
4. The right of the Executive or any person to the payment provided
for under this Agreement shall not be assigned, transferred, pledged
or encumbered except by will or by the laws of descent and distribution.
5. The terms, provisions and conditions of the Agreement shall be
binding upon any successor to the Bank or ALBANK, as the case may
be, by merger or otherwise. This Agreement may be amended only by
a writing signed by each party hereto.
6. Nothing contained herein shall be construed as conferring upon
the Executive the right to continue in the employ of the Bank or ALBANK
as an executive or in any other capacity.
7. This Agreement is made and shall be construed, interpreted and
enforced in accordance with the laws of the State of New York.
8. Any dispute between the Bank and ALBANK, on the one hand, and the
Executive, his designated beneficiary or his estate, on the other
hand, as to the proper interpretation or application of any provisions
of the Agreement shall be settled by arbitration as follows: One arbitrator
shall be selected by each of the disputants and the third by the two
so selected, and the decision of a majority of the persons so selected
shall be final and binding upon all parties to such dispute upon compliance
with the then applicable statute, if any, relating to an agreement
to arbitrate disputes.
9. The Bank or ALBANK shall withhold from the Supplemental Payments
or otherwise all federal, state, city and other taxes and withholdings
that the Bank or ALBANK determines may be required to be withheld
pursuant to any applicable law or regulation.
10. This Agreement supersedes any and all other oral or written agreements
heretofore made relating to the subject matter hereof, including without
limitation the Prior Supplemental Agreement, and constitutes the entire
agreement of the parties relating to the subject matter hereof.
11. All payments provided for in this Agreement shall be timely paid
from the general funds of the Bank. ALBANK, however, guarantees payment
and provision of all amounts due hereunder to the Executive and, if
such amounts due from the Bank are not timely paid or provided by
the Bank, such amounts shall be paid or provided by ALBANK.
12. This Agreement shall be effective as of January 22, 1996.
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal, in duplicate, each of which shall be deemed to be an original
for all purposes, all as of the day and year first above written.
ALBANK, FSB ALBANK FINANCIAL CORPORATION
By: /s/ Freling H. Smith By: /s/ Freling H. Smith
Title: Sr. Vice President, Title: Sr. Vice President,
Corporate Secretary and Corporate Secretary and
General Counsel General Counsel
JOHN E. MALOY, SR. HERBERT G. CHORBAJIAN
/s/ John E. Maloy, Sr. /s/ Herbert G. Chorbajian
Chairman, Human Resources
Committee, ALBANK, FSB
EXHIBIT 10.20
ALBANK, FSB
1996 MANAGEMENT INCENTIVE PLAN
TABLE OF CONTENTS
Section Item Page
1 Plan Objectives and Eligibility 1
2 Definitions 2
3 Description of the Plan 4
Fund Generation 4
4 Allocation and Payment of Awards 5
Allocation 5
Payment of Incentives 5
If Participant Retires or Becomes Disabled 5
If a Participant Dies 6
Beneficiary Designation 6
5 Administration 7
6 Rights and Interest Under the Plan 10
Exhibit I 1996 Plan Goals
Exhibit II 1996 Target Incentive Table
Exhibit III Modification Factor - Performance vs. Payout
SECTION 1
PLAN OBJECTIVES AND ELIGIBILITY
The executive compensation program at ALBANK, FSB provides rewards
that maintain a balance of focus on both annual executive performance and
increases in long-term shareholder value. The major components of
the program are a base salary, an annual incentive plan and a long-term
stock-based incentive plan. This document describes the annual incentive
plan which is designed to:
Create a direct incentive for key officers to continue to deliver
superior returns to the shareholders and to continually improve key
aspects of the business
Provide compensation opportunities which are competitive and support
efforts to recruit and retain outstanding top executives.
The annual management incentive plan will be based upon those measures
of annual bank performance which ultimately lead to the enhancement
of shareholder value, and be leveraged in such a manner to reward
executives competitively only for competitively superior results.
Eligibility
Selected key executives are eligible to participate in the plan. Participation
will be authorized by the Committee and approved by the Board.
SECTION 2
DEFINITIONS
The following are definitions of terms used throughout this document
to describe key components of the Management Incentive Plan.
(a) "Approved Incentive": The incentive which has been approved by
the chief executive officer and the Human Resources Committee of the
Board of Directors to be paid by ALBANK, FSB to the individual.
(b) "Award Date": The last day of each fiscal year.
(c) "Board": The full Board of Directors of ALBANK, FSB. In cases
which require approval of matters relating to this Incentive Plan,
the "Board" will mean and constitute those members of the Board of
Directors who are classified as disinterested persons pursuant to
SEC Rule 16b-3(c)(2)(i).
(d) "Committee": The Human Resource Committee of the Board, which
will be composed of two or more Directors, each of whom is a disinterested
person.
(e) "Company": ALBANK, FSB, its subsidiaries and divisions.
(f) "Formula Incentive": The individual standard award modified by
organizational performance.
(g) "Maximum Incentive": the award for any award year that is 200%
of the standard incentive. In no event may an award to any participant
for an award year exceed the maximum.
(h) "Normal Retirement Date": The first day of the month following
a participant having attained age 65 and, for participants hired after
10/1/88, the later of attaining age 65 or the fifth anniversary of
participant's initial participation in the retirement plan.
(i) "Participant": Any officer who is selected by the Committee to
receive an award under this Plan.
(j) "Plan": ALBANK, FSB Management Incentive Plan.
(k) "Recommended Incentive Award": The individual incentive awards
recommended by the chief executive officer.
(l) "Standard Incentive": The award that has been established for
each executive level category (see exhibit II). Standard incentives are
expressed as a percentage of salary. By design, these are the award
levels that plan participants can expect to earn when ALBANK, FSB
achieves its goals.
(m) "Threshold Incentive": The minimum award to be paid, if any award
is indicated. This amount is 75% less than the standard incentive.
(n) "Salary": Salary shall be defined as the weighted base salary
of the executive over the plan year in which the incentive award is
designated.
SECTION 3
DESCRIPTION OF THE PLAN
The annual management incentive plan will provide compensation based
on the achievement of performance goals that will be defined each
year by the Committee and approved by the Board.
The goals for the current year are shown in Exhibit I.
Standard Incentive Awards will be defined for each salary grade. If
the Bank achieves its target performance goals, participants will
receive the Standard Incentive for their salary grade. Standard Incentives
for the current year are shown in Exhibit II.
If the Bank does not achieve its performance target but some award
is still indicated, payouts may be prorated with a minimum (Threshold
Incentive) equal to 25% of the Standard Incentive. If the Bank exceeds
its target, awards may be increased up to 200% of the Standard Incentive
(Maximum Incentives). Threshold and Maximum Incentives are shown in Exhibit
III.
FUND GENERATION
An "Incentive Fund" will be created and accrued during the year for
payment of awards to officers participating in the Plan. This fund
will be the sum of the target award percentages multiplied by the
aggregate weighted base salary of all eligible executives for the year.
The accrual may be adjusted during the year with the approval of the
Committee as the actual bank's performance versus goals becomes known.
SECTION 4
ALLOCATION AND PAYMENT OF AWARDS
Allocation
Allocation of the award will be recommended by the chief executive
officer with the approval of the Human Resources Committee of the
Board of Directors. Individual executives' awards may vary based upon
their contribution to the overall performance of the Bank. However,
the total of the actual individual awards will not exceed the fund
generated by the performance of the Bank.
Payment of Incentives
When payable, incentives will be awarded as near to the close of the
Company's fiscal year as may be feasible. Participants in the Plan
must be employed at the end of the incentive (fiscal) year in order
to be eligible to receive bonus payments, except as provided in other
Sections of the Plan.
If Participant Retires or Becomes Disabled
An eligible participant who retires or becomes disabled during the
year will receive payment from the plan, as follows. If the participant
retires or becomes disabled:
After the close of the plan year, but prior to the actual distribution
of awards for such year, a full allotment for the plan year will be
paid;
After the beginning, but prior to the end of the plan year, the allotment
will be prorated based on the actual period of their employment with
the Company within the year.
If a Participant Dies
If a participant dies during the year, payment will be made to a beneficiary
as follows. If the participant dies:
After the close of the plan year, but prior to the actual distribution
of awards for such year, a full allotment for the plan year will be
paid to the beneficiary;
After the beginning, but prior to the end of the plan year, the allotment
will be prorated based on the actual period of their employment with
the Company within the year. Payment will be made to the beneficiary.
No awards will be paid for any period less than six months participation
in the plan year.
Beneficiary Designation
Each Participant will file with the Committee a written designation
of one or more people who will be entitled to receive the amount,
if any, payable under the Plan upon the Participant's death. the Participant
may revoke or change a beneficiary designation without the knowledge
or consent of any prior beneficiary by filing a new designation with
the Committee. The last such designation actually received by the
Committee will be controlling; provided, however, that it is received
prior to the Participant's death. Absent a valid designation, or if
the original beneficiary has predeceased the Participant, then the
Participant's estate will receive any benefit payable under the Plan.
SECTION 5
ADMINISTRATION
(a) The Committee will determine who will participate in the Plan.
The Committee will also determine whether a given participant will
earn awards based on ALBANK'S performance objectives, or specified
divisional performance objectives.
(b) The Committee will have full power and authority to construe,
interpret, and administer the Plan. All decisions, actions or interpretations
of the Committee will be final, conclusive, and binding upon all Participants.
(c) The Committee may employ attorneys, consultants, accountants,
or other persons to render services in connection with the Plan, and
the Company, the Board, the Committee and members of the Board and
the Committee will be entitled to rely upon the advice, opinions,
or valuations of such persons.
(d) Neither the Company, the Board, the Committee, nor any member
of the Board or the Committee will be personally liable for any actions,
determinations, or interpretations taken or made in good faith. The
Company will indemnify and hold harmless, to the fullest extent permitted
by the Company's bylaws or governing law, each member of the Committee
and each director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan may be delegated,
against any cost, expense or liability arising out of any act or failure
to act in connection with the Plan.
(e) Nothing contained in the Plan will give any Participant the right
to be retained in the employment of the Company or affect the right
of the Company to dismiss any Participant.
(f) This Plan will not constitute a contract between the Company and
any Participant and may be revoked at any time by the affirmative
vote of the majority of the Board of Directors, except that rights
accrued prior to such termination will be enforceable by the Participants.
(g) If the Committee will find that any person to whom any amount
is payable under the Plan is unable to care for his affairs because
of illness or accident, or is a minor, or has died, then any payment
due him or his estate (unless a prior claim for payment has been made
by a duly appointed legal representative of such person) may, if the
Committee so directs the Company, be paid to his spouse, a child,
a relative, an institution maintaining or having custody of such person,
or any other person deemed by the Committee to be a proper recipient
on behalf of such person otherwise entitled to payment. Any such payment
will be a complete discharge of the liability of the Plan, the Board,
the Committee, and the Company.
(h) Except insofar as may otherwise be required by law, no amount
payable at any time under the Plan will be subject in any manner to
alienation by anticipation, sale, transfer, assignment, bankruptcy,
pledge, attachment, charge, or encumbrance of any kind, nor in any
manner be subject to the debts or liabilities of any person and any
attempt to so alienate or subject any such amount, whether presently
or thereafter payable, will be void. If any person will attempt to,
or will, alienate,sell, transfer, assign, pledge, attach, charge,
or otherwise encumber any amount payable under the Plan, or any part
thereof, or if by reason of this bankruptcy or other event happening
at any such time such amount would be made subject to his debts or
liabilities or would otherwise not be enjoyed by him, then the Committee,
if it so elects, may direct that such amount be withheld and that
the same or any part thereof be paid or applied to or for the benefit
of such person, his spouse, children or other dependents, or any of
them in such manner and proportion as the Committee may deem proper,
subject, however, to such limitations as may be imposed by law, or
by a court of competent jurisdiction.
(i) Nothing contained in the Plan, and no action taken pursuant to
its provisions, will create or be construed to create a trust of any
kind, or a fiduciary relationship between the Company and any eligible
Participant or any other to receive payments from the Company under
this Plan. Such right will be no greater than the right of an unsecured
general creditor of the Company. All payments to be paid hereunder
will be paid from the general funds of the Company and no special
or separate fund will be established and no segregation of assets
will be made to assure payment of such amounts except as expressly
set forth in the Plan.
SECTION 6
RIGHTS AND INTERESTS UNDER THE PLAN
(a) The establishment of the Plan will not give any Participant or
beneficiary any right, title or interest in and to any specific assets
of the Company.
(b) The Board reserves the right at any time and for any reason to
amend, suspend, or terminate the Plan in whole or in part without
the consent of any Participant or beneficiary.
EXHIBIT I
<TABLE>
1996 PLAN GOALS
<CAPTION>
TARGET
1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ROAE<F1> 8.79 8.80 10.19 11.47 14.92
NPA/AA 1.14 1.13 .98 .89 .84
OpExp/AA 2.47 2.46 2.13 2.03 1.87
Growth EPS $ 1.97 $ 1.98 $ 2.31 $ 2.53 $ 2.91
<FN>
<F1> Includes unrealized gain(loss) on securities available for sale, net of tax.
</TABLE>
EXHIBIT II
<TABLE>
1996 TARGET INCENTIVE TABLE
<CAPTION>
Corporate Individual
Performance Performance
Incentive Incentive
(Percent (Percent
Position Grade Level of Salary) Salary)
<S> <C> <C> <C> <C>
CEO N/A I 50% 0%
EVP 20 II 32 8
SVP(Top Mgmt Group) 19 III 28 7
SVP/VP 18/19 IV 24 6
VP 16/17 V 16 4
Divisional President 18 VI 15 15
</TABLE>
EXHIBIT III
<TABLE>
MODIFICATION FACTOR
PERFORMANCE VS. PAYOUT
<CAPTION>
Goal Achievement Percent of Target Payout
<C> <C>
0-1.99 0
2 25<F1>
2.5 50
2.75 75
3 100
4 150
5 200
<FN>
<F1> Threshold
</TABLE>
Exhibit 11.01
<TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Form 10-K
Statement regarding Computation of Per Share Earnings
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
<S> <C> <C>
1. Net income $ 26,207,145 29,283,191
2. Weighted average common shares outstanding<F1> 13,335,015 14,329,642
3. Weighted average common stock equivalents due
to the dilutive effect of stock options when utilizing
the treasury stock method. Per share market price is based
on the average per share market price for the period.<F1> 924,070 782,642
4. Total weighted average common shares and
common stock equivalents outstanding for primary
earnings per share computation<F1> 14,259,085 15,112,284
5. Primary earnings per share<F1> $ 1.84 1.94
6. Weighted average common shares outstanding<F1> 13,335,015 14,329,642
7. Weighted average common stock equivalents due
to the dilutive effect of stock options when utilizing
the treasury stock method. Per share market price used
is the greater of the average market price for the period
or the end-of-period market price per share.<F1> 987,151 831,960
8. Total weighted average common shares and
dilutive shares outstanding for fully diluted
earnings per share computation<F1> 14,322,166 15,161,602
9. Fully diluted earnings per share<F1> $ 1.83 1.93
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
</TABLE>
Exhibit 13.01
Front Cover:
ALBANK
1996 Annual Report
Inside Front Cover:
Branch Locations
NEW YORK
ALBANY
10 North Pearl Street
(Main Office)
Colonie Center
Crossgates Mall
(Merchant Operation)
Delaware Plaza
Empire State Plaza
Guilderland
Latham
Loudonville
Northway Mall
Pine Hills
Schoolhouse Road
Washington Avenue
GLENS FALLS
Bay Street
Queensbury (2 locations)
KINGSTON
Wall Street
Hudson Valley Mall
NEWBURGH
Meadow Hill
Broadway
PLATTSBURGH
Champlain Center North
Margaret Street
West End, Route 3
POUGHKEEPSIE
Poughkeepsie Galleria
Red Oaks Mill
SARATOGA
Saratoga Springs
Wilton Township
UTICA
Genesee Street
New Hartford
Whitesboro
Beacon
Champlain
Clay, Penn-Can Mall
Clifton Park (2 locations)
East Greenbush
Fishkill, Dutchess Mall
Herkimer
Johnstown
Malone
Niskayuna
North Greenbush
Oneida
Pleasant Valley
Schenectady
Spring Valley
Ticonderoga
Troy
Vails Gate
Wappingers Falls
West Haverstraw
MASSACHUSETTS
LUDLOW
Center Street
Downtown
SPRINGFIELD
Island Pond
Main Street
Page Boulevard
Belchertown
Chicopee
Indian Orchard
Wilbraham
VERMONT
RUTLAND
Merchants Row
Bondville
Castleton
Middlebury
Norwich
Poultney
Proctor
Shelburne
Springfield
West Pawlet
White River Junction
Woodstock
Inside Spine:
Design & Production: Tribich Design Associates, Inc., NYC Photography: Mark
McCarty, Cropseyville, NY Printing: Benchemark, Schenectady, NY Financial
Typography: Word Management Corporation, Albany, NY
Inside Back Cover:
Corporate Information
STOCK TRANSFER AGENT
Inquiries regarding stock transfer, lost certificates or changes in name
and/or address should be directed to the stock transfer agent and registrar
by writing to:
ChaseMellon Shareholder Services, LLC
P.O. Box 590
Ridgefield Park, NJ 07660
(800) 953-2705
DIVIDEND REINVESTMENT PLAN
Inquiries regarding the dividend reinvestment plan should be directed in
writing to:
ChaseMellon Shareholder Services, LLC
P.O. Box 750
Pittsburgh, PA 15230
(800) 953-2705
INVESTOR INFORMATION
Shareholders, investors and analysts interested in additional information
may contact:
Richard J. Heller
Executive Vice President and Chief Financial Officer
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774
STOCK LISTING
The Company's common stock trades on The NASDAQ Stock Market
under the symbol ALBK.
STOCK PRICE
<TABLE>
<CAPTION>
The table below shows the reported closing prices of ALBANK common stock during the periods indicated in
calendar 1996 and 1995.
1996 Quarterly Stock Prices 1995 Quarterly Stock Prices <F1>
High Low Qtr. End High Low Qtr. End
<S> <C> <C> <C> <C> <C> <C>
First 28.88 22.92 <F1> 28.88 21.25 19.27 20.83
Second 30.63 26.38 26.38 21.98 21.05 21.77
Third 29.56 25.13 28.75 25.52 21.88 25.00
Fourth 32.81 27.38 31.38 25.20 24.06 25.00
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
</TABLE>
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the shareholders of ALBANK Financial Corporation will
be held on May 21, 1997, at 9:30 AM at:
ALBANK Operations Center
833 Broadway
Albany, NY 12207-2415
ANNUAL REPORT ON FORM 10-K
A copy of ALBANK Financial Corporation's annual report on Form 10-K filed
with the Securities and Exchange Commission is available without charge by
writing to:
Freling H. Smith, Esq.
Senior Vice President, Secretary and General Counsel
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774
Outside Back Cover:
/Albank Logo/
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207
(518) 445-2100
Outside Spine:
ALBANK Financial Corporation 1996 Annual Report
About ALBANK
ALBANK Financial Corporation is a publicly owned company (NASDAQ: ALBK)
which was formed to be the holding company for ALBANK, FSB. Founded in 1820
as Albany Savings Bank, ALBANK, FSB is the oldest operating savings bank in
New York State. With headquarters in Albany, New York's capital city, the
Bank and its brokerage and insurance subsidiary, Alvest Financial Services,
Inc., offer a wide range of financial products and services through a
branch network of 71 offices in upstate New York, western Massachusetts and
Vermont. On January 30, 1997, ALBANK Financial announced its intention to
acquire 35 KeyBank branch offices. Pending the necessary bank regulatory
approvals, the transaction should close in mid-1997. The KeyBank offices
are located in the northern, greater Hudson Valley and Binghamton regions
of New York State.
<TABLE>
Bar Graphs
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
CORE NET INCOME (dollars in millions) 21,696 25,435 28,572 30,013 32,584
FULLY DILUTED CORE EARNINGS PER SHARE
(in dollars) 0.92<F1> 1.45 1.77 1.98 2.28
RETURN ON EQUITY BASED ON
CORE NET INCOME
(in percentages) 8.02 8.23 9.11 9.32 10.20
RETURN ON ASSETS BASED ON
CORE NET INCOME
(in percentages) 0.88 0.92 1.02 1.01 0.96
NET INTEREST MARGIN
(in percentages) 3.61 3.69 3.87 3.84 3.91
STOCKHOLDERS' EQUITY
(dollars in millions at year end) 309,909 313,283 316,789 323,182 319,125
<FN>
<F1> '92 = 9 mos.
</TABLE>
<TABLE>
Financial Highlights
<CAPTION>
(Dollars in thousands, except per share data)
December 31, 1996 1995
<S> <C> <C>
FOR THE YEAR ENDED
Net income $ 26,207 29,283
Net interest income 125,641 108,487
Primary earnings per share <F1> 1.84 1.94
Fully diluted earnings per share <F1> 1.83 1.93
Core net income <F2> 32,584 30,013
Primary earnings per share
based on core net income <F1> <F2> 2.29 1.99
Fully diluted earnings per share
based on core net income <F1> <F2> 2.28 1.98
AT YEAR END
Total assets $ 3,506,136 2,970,170
Loans receivable 2,566,364 1,946,601
Deposits 3,013,129 2,558,288
Stockholders' equity 319,125 323,182
Book value per share <F1> 24.72 23.37
Tangible book value per share <F1> 21.35 22.05
SIGNIFICANT RATIOS FOR THE YEAR
Return on average stockholders' equity ("ROE") 8.20% 9.09%
Return on average assets ("ROA") 0.77 0.99
ROE based on core net income <F2> 10.20 9.32
ROA based on core net income <F2> 0.96 1.01
Net interest spread 3.52 3.40
Net interest margin 3.91 3.84
Stockholders' equity to total assets (at year end) 9.10 10.88
Efficiency ratio 54.32 52.91
ASSET QUALITY RATIOS AT YEAR END
Nonperforming loans to loans receivable 1.16% 1.19%
Nonperforming assets to total assets 0.96 0.91
Allowance for loan losses to:
Loans receivable 0.94 0.82
Nonperforming loans 80.88 68.88
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
<F2> Core net income excludes the net after-tax effect of the 9/30/96 $6.4
million one-time special assessment to recapitalize the Savings Association
Insurance Fund and the 3/31/95 $0.7 million write-off of the capital investment
in Nationar.
</TABLE>
To Our Shareholders
Nineteen ninety-six was without doubt the most successful year that ALBANK
Financial has enjoyed since its public debut. Our company achieved record
core net income for the fourth consecutive year, and total assets increased
18% to $3.5 billion. We saw robust growth in our loan portfolio as total
loans receivable grew 32% to $2.6 billion, and we successfully introduced
ALBANK to the residents of Vermont.
Performance Profile
ALBANK Financial Corporation's consolidated 1996 core earnings per share on
a fully diluted basis were $2.28 compared with $1.98 earned in 1995, an
increase of 15%. Core net income was $32.6 million, up 9% from the $30.0
million earned in 1995. Core earnings in 1996 exclude the one-time Savings
Association Insurance Fund ("SAIF") recapitalization assessment. The
Federal Deposit Insurance Corporation levied this charge against all SAIF-
insured institutions in the third quarter of 1996. ALBANK's after-tax share
amounted to $6.4 million. In return for paying the special assessment,
SAIF-insured institutions received a substantial reduction in their deposit
insurance premiums effective January 1 of this year. This premium
reduction, applied to our current deposit levels, would add approximately
$0.14 per share to ALBANK's earnings. Core earnings in 1995 exclude the
$0.7 million after-tax write-off of the Bank's investment in Nationar, a
special purpose commercial bank, which the New York State Banking
Superintendent took control of in February 1995.
Return on average shareholders' equity ("ROE") in 1996 based on core net
income was 10.20% compared with 9.32% in 1995; return on average assets for
the year was 0.96% compared with 1.01% in 1995.
Net income for 1996, including the one-time SAIF charge, was $26.2 million,
or $1.83 per share fully diluted; net income in 1995, including the
Nationar charge, totaled $29.3 million, or $1.93 per share.
Our 1996 net interest spread increased to 3.52% from 3.40% in 1995 while
the net interest margin was 3.91%, up from 1995's 3.84%. Shareholders'
equity was $319.1 million at year end versus $323.2 million at year-end
1995. During 1996, we invested an additional $25.8 million in our ongoing
stock repurchase program, acquiring 926,517 shares of our outstanding
common stock. Consolidated equity as a percentage of total assets at year
end was 9.10% compared with 10.88% at December 31, 1995. The lower 1996
percentage is one indication that our efforts to improve our capital
leverage are succeeding.
Along with what financial industry analysts refer to as "reported
earnings", analysts during the last year have started to pay particular
attention to what they call "cash earnings". Cash earnings consist of
reported earnings plus certain specific noncash expenses. In ALBANK's case,
cash earnings are core net income plus amortization of goodwill and costs
associated with our employee retention plans, both net of any income tax
benefit. Cash earnings are said to be another indicator of a bank's
fundamental performance and to provide a good basis for comparison among
competing institutions.
/picture of Herbert G. Chorbajian/
Herbert G. Chorbajian
Chairman of the Board,
President & Chief Executive Officer
/picture of four people/
Richard J. Heller
Executive Vice President
& Chief Financial Officer
Margaret F. Ludington
Senior Vice President,
Human Resources
Robert J. Gould
Vice President
& Controller
Freling H. Smith, Esq.
Senior Vice President,
Secretary & General Counsel
ALBANK Financial Corporation's consolidated 1996 cash earnings per share on
a fully diluted basis were $2.54 compared with $2.13 earned in 1995, an
increase of 19%. Cash earnings were $36.3 million, up 12% from the $32.3
million we earned in 1995. For 1996, return on average shareholders'
tangible equity (that is, equity less unamortized goodwill) based on cash
earnings was 12.95% compared with 10.65% in 1995 while return on average
tangible assets for the year was 1.09% compared with 1.10% in 1995.
At December 31, 1996, nonperforming assets totaled $33.8 million, or 0.96%
of total assets; comparable figures for 1995 were $27.1 million and 0.91%.
Nonperforming loans amounted to $29.8 million, or 1.16% of loans
receivable; the 1995 figure was $23.2 million, or 1.19% of loans
receivable. I should point out that the 1996 year-end percentage of
nonperforming assets is 0.19% lower than it was at September 30, 1996. The
drop in this percentage was for the most part the result of our sale of
$10.3 million in nonperforming assets in December. The increase in non-
performing assets during the first three quarters of 1996 was principally
attributable to the two Vermont acquisitions that we made during the
period. At year end, the Bank's loan loss reserve was equal to 81% of
nonperforming loans, up from 69% at December 31, 1995.
Strong Loan Growth
Last year we saw unprecedented growth in our loan portfolio, both in
absolute and relative terms. ALBANK's loan originations in 1996 totaled a
record $638.4 million, a 39% increase from 1995's production. Strong
originations and our two Vermont acquisitions led to significant gains in
nearly all segments of the loan portfolio. Mortgage loans, including home
equity loans and commercial real estate loans, rose to $2.1 billion at the
end of 1996, up 28% from year-end 1995. Commercial loans at year end totaled
$247.8 million, up 114% from the prior year. Consumer loans, led by a 60%
increase in personal and automobile loans, rose to $233.4 million at year
end, an overall increase of 18%. As a result of this across-the-board growth,
total loans receivable as a percentage of total deposits rose to 85.2% at
year-end 1996 compared with 76.1% at the end of 1995.
Market Expansion
On January 30, 1997, we announced that we had entered into an agreement
with KeyCorp to purchase 35 New York State banking offices currently
operated by KeyBank. The offices are located in northern New York, the
greater Hudson Valley, and the Binghamton area. They have approximately
$530 million in deposits for which we will pay a 7% premium. The purchase
is consistent with our strategic business plan which calls for controlled
growth through acquisitions and branch purchases in, or adjacent to, our
existing market area. The Key branches are a natural fit. They will fill in
some gaps which currently exist between Glens Falls and Plattsburgh in the
northern region of the state, increase our presence and market share in the
greater Hudson Valley, and give us a new presence in the Binghamton area
which is adjacent to and west of our current Hudson Valley market. The
transaction should increase earnings, improve our return on equity and
further enhance the value of our franchise. In order to retain the
municipal funds currently on deposit in the KeyBank offices, we will form a
new commercial bank which will acquire the 35 offices. Since ALBANK
Financial will then be the parent company of both ALBANK, FSB and the new
commercial bank, its legal classification will shift from that of a thrift
holding company to a bank holding company. Pending regulatory approval, we
should close the transaction this summer.
During 1996, we completed two acquisitions in the state of Vermont. In
January, ALBANK purchased Marble Financial Corporation of Rutland in a
transaction that involved $396 million in assets, $327 million in deposits
and seven branch offices. In September, we closed on the purchase of six
Vermont branch offices from Arrow Financial Corporation of Glens Falls, New
York. That transaction included $108 million in assets and deposits.
In December of last year, we opened two new full-service supermarket branch
offices in the Capital District. During this year, we will open at least
one more supermarket facility and one traditional retail branch office,
both in the Capital District. These will bring the number of ALBANK branch
offices to 73, not counting the planned KeyBank branch purchases.
Capital Management
Since going public, we have employed three tools to better utilize our
Company's capital. Those tools are acquisitions, stock repurchases and
dividend payouts. Our acquisitions have clearly leveraged capital since, in
every instance, we have increased our assets without having to issue any
additional equity. I have already mentioned the extent of our stock
repurchases in 1996. We have been repurchasing ALBANK's stock since June of
1992. Right now we are in our seventh buyback program in which we expect to
acquire up to 7.5% of our outstanding shares. From June 1992 to year-end
1996, we have invested $108.7 million in these repurchase programs,
acquiring a little more than 5.1 million shares of ALBANK common stock. Our
Company started paying cash dividends in 1994, with an annual split-
adjusted payout of $0.333 per share. We increased the dividend by 20% in
1995 and again in April of last year by the same amount through a six-for-
five stock split. Most recently, in November, we announced a 25% increase
in the quarterly dividend payable in January 1997. This increase brings the
current annual dividend rate up to $0.60 a share. These efforts to improve
the use of our capital and the steady increase in core net income have
combined to drive ALBANK's return on average shareholders' equity from
8.02% in 1992 to 10.20% in 1996. The trend is good and it's getting better;
during the fourth quarter of 1996 ALBANK's ROE rose to 11.24%.
The Board Room
We were saddened last December by the death of my predecessor, Gilbert O.
Robert. Gil became President and a Director of the Bank in 1975, Chairman
of the Board and Chief Executive Officer in 1983, and held those latter
positions until his retirement in 1990. He remained a Director at the time
of his death. As CEO, he led the Bank through a period of successful
restructuring brought on by federal deregulation. By the time of his
retirement, the Bank had achieved then unprecedented profit levels. His
family, friends and business associates are diminished by his passing.
/picture of four people/
Robert L. Meyer
Senior Vice President,
Retail Lending
Margaret J. Welch
Senior Vice President,
Branch Administration
Clifford M. Apgar
Executive Vice President,
Senior Credit Officer
Joseph P. Richardson
Senior Vice President,
Commercial Lending
/picture of four people/
Barry G. Blenis
Executive Vice President,
Operations & Strategic Planning
Frank J. Vaselewski
Senior Vice President,
Retail Banking
Mary Jean Laraway
Vice President,
Corporate Services
Edward C. Tremblay
Vice President & Auditor
John G. Underhill, a member of our Board of Directors for nearly twenty-
five years retired at the end of 1996. Mr. Underhill was the former
President of Sager Spuck Supply Company, a regional industrial supply
company headquartered in Albany. His experience and business acumen were
instrumental in guiding the Bank through its transition from a local to an
interstate financial institution.
We also added two new members to the Board of Directors in 1996. In
October, Dr. Karen R. Hitchcock joined the Board. Dr. Hitchcock is the
current President of the University at Albany, State University of New
York. In November, Francis L. McKone, President and Chief Executive Officer
of Albany International, was appointed a Director. Dr. Hitchcock and Mr.
McKone bring impeccable credentials and a wealth of ability with them to
our Board.
The Year Ahead
Although 1996 was ALBANK Financial's best year, we are looking forward to
1997 with heightened optimism. There are a number of events, some of which
have already transpired, others that we anticipate will occur in the coming
months, that color our outlook. Congress has finally eliminated much of the
disparity between deposit insurance premiums that banks and thrifts pay. We
have completed the integration of our Vermont acquisitions. Given the
growth in our loan portfolio that has resulted from shifting funds out of
lower yielding assets, our current interest rate forecast indicates our
interest spreads and margins should remain firm. Going forward, we hope to
continue to improve productivity as we realize additional gains from our
1995-96 investment in new information systems and technology ("IST"). The
planned productivity increases should reduce back-office costs without
weakening our commitment to top quality customer service. We also plan to use
the new IST platform as the launching pad for a number of new products and
services. We intend to introduce a debit card and cash management services,
to mention only two. After we complete the purchase of the KeyBank offices,
ALBANK will have a presence in 9 new counties and the third largest market
share of deposits in the 26 counties that will then comprise our New York
State market. When we look at all these factors and the earnings and growth
momentum we have already generated, we are quite confident that ALBANK's
performance in 1997 will once again set new standards.
/s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board, President
and Chief Executive Officer
February 14, 1997
Contents
13 Five Year Selected Financial Data
14 Management's Discussion and Analysis
25 Statement of Management's Responsibility
26 Independent Auditors' Report
27 Consolidated Statements of Earnings
28 Consolidated Statements of Financial Condition
29 Consolidated Statements of Changes in Stockholders' Equity
30 Consolidated Statements of Cash Flows
31 Notes to Consolidated Financial Statements
50 Directors and Officers
Five Year Selected Financial Data
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data at Year End
Total assets $ 3,506,136 2,970,170 2,963,843 2,773,223 2,482,851
Loans receivable 2,566,364 1,946,601 1,788,400 1,540,464 1,492,618
Securities available for sale 617,943 656,784 167,024 51,256 49,766
Investment securities 109,607 153,740 801,247 962,204 720,125
Deposits 3,013,129 2,558,288 2,541,962 2,381,714 2,098,891
Borrowed funds 72,407 1,290 15,300 4,200 7,600
Total stockholders' equity 319,125 323,182 316,789 313,283 309,909
Selected Operating Data for the Year
Interest income $ 248,526 212,502 186,804 183,986 190,699
Interest expense 122,885 104,015 82,092 86,416 104,541
Net interest income 125,641 108,487 104,712 97,570 86,158
Provision for loan losses 5,775 4,500 4,500 4,200 4,100
Net interest income after provision for loan losses 119,866 103,987 100,212 93,370 82,058
Net security transactions 8 (1,198) 14 130 278
Other noninterest income 12,146 10,646 10,077 9,905 9,336
Noninterest expense 90,303 65,804 61,833 59,718 55,236
Income before income taxes and cumulative net effect of
changes in accounting principles 41,717 47,631 48,470 43,687 36,436
Income tax expense 15,510 18,348 19,898 18,289 14,740
Income before cumulative net effect of changes
in accounting principles 26,207 29,283 28,572 25,398 21,696
Cumulative net effect of changes in accounting principles -- -- -- 37 --
Net income $ 26,207 29,283 28,572 25,435 21,696
Earnings per share:<F1>
Primary 1.84 1.94 1.77 1.46 0.93<F2>
Fully diluted 1.83 1.93 1.77 1.45 0.92<F2>
Other Selected Financial Data
Book value per share<F1> $ 24.72 23.37 21.27 19.48 17.48
Tangible book value per share<F1> 21.35 22.05 19.98 19.15 17.48
Loan originations (including individual loans purchased) 638,423 459,198 556,785 407,125 331,309
Return on average stockholders' equity ("ROE") 8.20% 9.09% 9.11% 8.23% 8.02%
Return on average assets ("ROA") 0.77 0.99 1.02 0.92 0.88
Stockholders' equity to total assets 9.10 10.88 10.69 11.30 12.48
Net interest spread 3.52 3.40 3.49 3.28 3.09
Net interest margin 3.91 3.84 3.87 3.69 3.61
Efficiency ratio 54.32 52.91 51.99 53.97 56.73
Nonperforming loans to loans receivable 1.16 1.19 1.14 1.49 1.60
Nonperforming assets to total assets 0.96 0.91 0.81 0.99 1.15
Allowance for loan losses to:
Loans receivable 0.94 0.82 0.87 0.84 0.80
Nonperforming loans 80.88 68.88 76.39 56.67 49.77
Core net income<F3> $ 32,584 30,013 28,572 25,435 21,696
Earnings per share based on core net income:<F1><F3>
Primary 2.29 1.99 1.77 1.46 0.93<F2>
Fully diluted 2.28 1.98 1.77 1.45 0.92<F2>
ROE based on core net income<F3> 10.20% 9.32% 9.11% 8.23% 8.02%
ROA based on core net income<F3> 0.96 1.01 1.02 0.92 0.88
Noninterest expense to average assets<F3> 2.36 2.22 2.20 2.17 2.24
Noninterest expense less other noninterest income
to average assets<F3> 2.00 1.86 1.84 1.81 1.86
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
<F2> 1992 earnings per share are calculated for the period April 1, 1992 (the date of conversion from mutual to stock form)
through December 31, 1992.
<F3> Core net income excludes the net after-tax effect of the September 30, 1996, $6.4 million special assessment to
recapitalize the Savings Association Insurance Fund (SAIF) and the March 31, 1995, $0.7 million write-off of the capital
investment in Nationar. Noninterest expense excludes the pre-tax SAIF special assessment amounting to $10.4 million.
</TABLE>
Management's Discussion and Analysis
General
ALBANK Financial Corporation ("ALBANK" or the "Company") is the holding
company and owner of 100% of the common stock of ALBANK, FSB (the "Bank"),
a federally chartered stock savings bank. On April 1, 1992, the Bank
completed its conversion from a mutual to a stock form savings bank at
which time ALBANK issued 15,697,500 shares of common stock at $10.00 per
share, realizing net proceeds of $150.8 million after expenses. ALBANK used
$75.4 million of the net proceeds to acquire all of the issued and
outstanding stock of the Bank.
ALBANK's business currently consists primarily of the business of the Bank.
The Bank's principal business is attracting retail deposits from the
general public and investing those deposits, together with funds generated
from operations and borrowings, in various loan products and investment
securities. With regard to loans, the Bank originates and purchases
primarily one- to four-family adjustable rate mortgage loans. The Bank's
results of operations are dependent on net interest income, provisions for
loan losses, the levels of noninterest income earned and noninterest
expense incurred and the effect of income taxes. The Bank's results of
operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and principal and
interest payments on loans and investment securities. While maturities and
scheduled amortization of loans and securities are a predictable source of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as defined
by regulations issued by its primary regulator, the Office of Thrift
Supervision (the "OTS"). This requirement, which may vary at the direction
of the OTS depending on economic conditions and deposit flows, is based
upon a percentage of deposits and short-term borrowings. The required ratio
of liquid assets to deposits and short-term borrowings is currently 5%. At
December 31, 1996 and 1995, the Bank's liquidity ratios were 23.7% and
21.8%, respectively.
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. The level of
these assets is dependent on the Company's operating, financing and
investing activities during any given period. At December 31, 1996 and
1995, cash and cash equivalents totaled $68.9 million and $105.0 million,
respectively.
At the time of its conversion to stock form, the Bank was required to
establish a liquidation account in an amount equal to its regulatory net
worth as of December 31, 1991. The amount of this liquidation account
reduces to the extent that eligible depositors' accounts are reduced. In
the unlikely event of a complete liquidation (and only in such an event),
each eligible depositor would be entitled to receive a distribution from
the liquidation account before any liquidation distribution could be made
to common stockholders of the Company.
Stockholders' equity totaled $319.1 million at December 31, 1996,
representing a capital-to-assets ratio of 9.10%. At year-end 1996, book
value and tangible book value per common share amounted to $24.72 and
$21.35, respectively. At December 31, 1996, the Bank exceeded all of the
capital requirements of the OTS. The Bank's ratios at December 31, 1996,
were as follows: tangible capital, 7.00%; core capital, 7.00%; core risk-
based capital, 10.80%; and total risk-based capital, 11.88%. The regulatory
capital ratio minimum requirements are 1.5%, 3.0%, 4.0% and 8.0%,
respectively.
Among other things, OTS regulations provide that an institution that
exceeds all capital requirements before and after a proposed capital
distribution could, after prior notice to but without the approval of the
OTS, make capital distributions during the calendar year of an amount that
would reduce by one half its "excess capital ratio" plus its net income for
the current calendar year. Under such limitation, the Bank could declare
dividends to the holding company in 1997 of approximately $43 million plus
an amount equal to 1997 earnings.
As one method of enhancing shareholder value, the Company instituted a
stock repurchase program in June 1992. In May 1996, the Board authorized a
seventh repurchase of the Company's outstanding shares of common stock
under this program. Through December 31, 1996, the Company had repurchased
5,144,247 shares of stock and had remaining authorization to repurchase
another 341,695 shares.
On February 27, 1996, the Board of Directors of the Company declared a 6-
for-5 stock split effected as a 20% stock dividend. This stock dividend was
paid April 1, 1996, to shareholders of record on March 15, 1996. By
maintaining the quarterly per share cash dividend at $0.12 following the
stock dividend, the Board effectively increased the dividend by 20%, the
second such increase in as many years. On November 25, 1996, the Company
announced that its Board increased the Company's quarterly cash dividend an
additional 25% by initiating payment at a quarterly rate of $0.15 per share
commencing with the dividend to be paid on January 2, 1997.
The analyses of net interest income that are shown in the following two
tables are an integral part of the discussion of the results of operations
for 1996, 1995 and 1994 that follows:
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Average Balance Sheets, Interest Rates and Interest Differential
<CAPTION>
Years Ended December 31, 1996 1995 1994
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Mortgage loans, net<F1> $1,923,787 155,914 8.10% $1,586,878 125,228 7.89% $1,352,972 98,630 7.29%
Other loans, net<F1> 418,506 38,621 9.23 301,892 28,905 9.57 247,853 21,576 8.71
Securities available
for sale 670,111 41,676 6.22 164,970 11,098 6.73 148,852 9,455 6.35
Investment securities 133,937 8,532 6.37 713,198 43,186 6.06 884,409 53,478 6.05
Federal funds sold 9,529 508 5.33 15,680 918 5.85 12,698 535 4.21
Securities purchased
under agreement
to resell 38,115 2,225 5.84 30,247 1,888 6.24 44,186 2,010 4.55
Stock in Federal Home
Loan Bank 16,754 1,050 6.27 15,554 1,279 8.22 14,189 1,120 7.89
Total interest-earning
assets 3,210,739 248,526 7.74 2,828,419 212,502 7.51 2,705,159 186,804 6.91
Noninterest-earning
assets 174,784 132,663 108,504
Total assets $3,385,523 $2,961,082 $2,813,663
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts<F2> $ 872,348 25,373 2.91% $ 909,019 26,544 2.92% $1,036,181 30,572 2.95%
Transaction accounts<F3> 463,864 11,898 2.56 336,647 6,925 2.06 320,767 6,288 1.96
Certificate accounts 1,521,036 82,735 5.44 1,280,662 70,341 5.49 1,020,737 44,027 4.31
Short-term borrowed
funds and repurchase
agreements 25,337 1,338 5.28 1,898 125 6.59 21,225 1,037 4.89
Long-term debt 28,305 1,541 5.44 1,463 80 5.47 3,090 168 5.44
Total interest-bearing
liabilities 2,910,890 122,885 4.22 2,529,689 104,015 4.11 2,402,000 82,092 3.42
Demand deposits 83,634 53,935 42,262
Noninterest-bearing
liabilities 71,405 55,478 55,788
Total liabilities 3,065,929 2,639,102 2,500,050
Stockholders' equity 319,594 321,980 313,613
Total liabilities and
stockholders' equity $3,385,523 $2,961,082 $2,813,663
Net interest income and
net interest spread $125,641 3.52% $108,487 3.40% $104,712 3.49%
Net interest-earning
assets and net
interest margin $ 299,849 3.91% $ 298,730 3.84% $ 303,159 3.87%
Interest-earning assets
to interest-bearing
liabilities 1.10x 1.12x 1.13x
Average balances are derived principally from average daily balances and include nonaccruing loans. Tax-exempt securities
income has not been calculated on a tax equivalent basis. Interest on securities available for sale includes dividends
received on equity securities.
<FN>
<F1> Net of unearned discounts, premiums and related deferred loan fees/costs, where applicable.
<F2> Includes passbook, statement and interest-bearing escrow accounts.
<F3> Includes NOW, Super NOW, money market and interest-bearing demand deposit accounts.
</TABLE>
<TABLE>
Analysis of Changes in Net Interest Income
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
Compared with Compared with
Year Ended December 31, 1995 Year Ended December 31, 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
(In thousands) Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Mortgage loans, net $27,224 3,462 30,686 18,004 8,594 26,598
Other loans, net 10,796 (1,080) 9,716 5,026 2,303 7,329
Securities available for sale 31,478 (900) 30,578 1,063 580 1,643
Investment securities (36,790) 2,136 (34,654) (10,367) 75 (10,292)
Federal funds sold (334) (76) (410) 144 239 383
Securities purchased under agreement
to resell 465 (128) 337 (742) 620 (122)
Stock in Federal Home Loan Bank 93 (322) (229) 111 48 159
Total 32,932 3,092 36,024 13,239 12,459 25,698
Interest Expense
Savings accounts (1,067) (104) (1,171) (3,716) (312) (4,028)
Transaction accounts 3,008 1,965 4,973 319 318 637
Certificate accounts 13,081 (687) 12,394 12,690 13,624 26,314
Short-term borrowed funds and
repurchase agreements 1,243 (30) 1,213 (1,182) 270 (912)
Long-term debt 1,461 -- 1,461 (89) 1 (88)
Total 17,726 1,144 18,870 8,022 13,901 21,923
Change in net interest income $15,206 1,948 17,154 5,217 (1,442) 3,775
</TABLE>
Information in the above table is provided in each category with respect to
(i) changes attributable to changes in volume (change in volume multiplied
by prior rate), (ii) changes attributable to changes in rate (change in
rate multiplied by prior volume) and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Results of Operations--1996 Compared With 1995
General
Net income for the year ended December 31, 1996, decreased $3.1 million
(11%) from 1995 and totaled $26.2 million for the year. Primary and fully
diluted per share earnings were $1.84 and $1.83 for 1996, each down 5%
compared with $1.94 and $1.93, respectively, in 1995. Return on average
equity was 8.20% for 1996 compared with 9.09% in 1995, while return on
average assets amounted to 0.77% and 0.99% for the respective years. Net
income for 1996 included a one-time Savings Association Insurance Fund
("SAIF") special assessment of $6.4 million after tax ($10.4 million before
tax) while 1995 net income included a $0.7 million after-tax ($1.2 million
before tax) writeoff of the Bank's investment in Nationar, a special
purpose commercial bank. Excluding these respective charges, core net
income totaled $32.6 million for the year ended December 31, 1996, an
increase of $2.6 million (9%) over 1995's core net income level of $30.0
million. Primary and fully diluted earnings per share based on core net
income were $2.29 and $2.28, respectively for 1996, both of which rose 15%
from the respective $1.99 and $1.98 per share earned in 1995. Return on
average equity based on core net income was 10.20% in 1996 and 9.32% in
1995; for return on average assets, the respective ratios were 0.96% and
1.01%. All of the per share earnings results above have been adjusted to
reflect the Company's April 1, 1996, 20% stock dividend.
Cash earnings, a relatively new concept now being used by financial
analysts to evaluate bank performance, is defined as core net income plus
amortization of goodwill and costs associated with the Bank's employees
benefit plans, both net of any related income tax benefits. On this basis,
the Company would have earned $36.3 million in 1996 an increase of 12%
compared with $32.3 million in 1995. On a cash basis, fully diluted
earnings per share were $2.54 compared with $2.13 in 1995. Return on
tangible equity (equity less goodwill) amounted to 12.95% compared with
10.65% in 1995, while return on tangible assets for the current year of
1.09% compared with 1.10% in 1995.
On January 3, 1996, the Bank acquired all of the outstanding common stock
of Marble Financial Corporation of Rutland, Vermont for $18.00 per share in
cash or approximately $61 million in total consideration. On the date of
closing, Marble and its banking subsidiary Marble Bank had consolidated
assets and deposits of $396.2 million and $326.6 million, respectively. An
additional Vermont acquisition was completed on September 27, 1996, when
the Company assumed the deposit liabilities and purchased loans owned and
serviced by six banking offices operated by the Green Mountain Bank of
Rutland, Vermont. This transaction included approximately $108 million in
loans and deposits. Both transactions were accounted for under the purchase
method of accounting and generated accounting goodwill of $20.1 million
with respect to the Marble acquisition and $8.2 million with respect to
Green Mountain. The banking offices from these Vermont acquisitions are
currently operating as the Bank's Marble Division.
On January 30, 1997, the Company entered into a purchase agreement with
KeyCorp. Under the terms of the agreement, the Company will assume deposit
liabilities of approximately $530 million and purchase 35 New York State
banking offices currently operated by KeyBank. The offices are located in
northern New York, the Hudson Valley, and the Binghamton area. The Company
will pay a deposit premium of approximately 7% based on average deposit
balances just prior to closing and has the option to purchase approximately
$53 million in small business, consumer, and mortgage loans. In order to
retain municipal funds currently on deposit in the KeyBank offices, the
Company intends to form a new commercial bank which will acquire the 35
offices. Since ALBANK Financial Corporation will then be the parent company
of both ALBANK, FSB and the new commercial bank, its legal classification
will shift from that of a thrift holding company to a bank holding company.
The agreement is subject to approval by bank regulatory authorities.
Pending those approvals, the two companies will move to close the sale in
mid-1997.
Interest Income
Interest income of $248.5 million for the year ended December 31, 1996, was
$36.0 million (17%) higher than the $212.5 million earned during 1995, as a
$382.3 million (14%) increase in average interest-earning assets to $3.211
billion combined with a 23 basis point (3%) rise in average rate earned to
7.74%. The increase in interest-bearing assets was primarily related to the
assets acquired from the Vermont acquisitions.
Interest income on mortgage loans totaled $155.9 million for the year, a
$30.7 million (25%) improvement from the prior year. The increase was
generally the result of increased average balances of $336.9 million (21%),
about two-thirds of which were related to the Vermont acquisitions, along
with an increase in the average rate earned of 21 basis points (3%).
Interest income on other loans increased $9.7 million (34%) to $38.6
million as an increase in the average amount invested of $116.6 million
(39%) was only partially offset by a decrease of 34 basis points (4%) in
the average rate earned. Commercial loans had the most significant impact
as an increase in the average balance of $96.8 million (101%), again about
two-thirds of which resulted from the Vermont acquisitions, more than
offset a 22 basis point (2%) decline in the average rate earned and
resulted in an increase in interest income of $8.5 million (96%) compared
with the prior year.
Interest income on securities available for sale amounted to $41.7 million,
an advance of $30.6 million (276%) over 1995. The higher earnings were a
net result of an increase in the average balance outstanding of $505.1
million (306%) and a 51 basis point (8%) reduction in the average rate
earned. The increased average amount invested was primarily the result of a
December 29, 1995, transfer of investment securities with a total market
value of $491.9 million to securities available for sale and, to a lesser
extent, the addition of securities from the Vermont acquisitions.
Earnings on investment securities amounted to $8.5 million, a decline of
$34.7 million (80%) from 1995 as a net result of a $579.3 million (81%)
reduction in the average amount invested and an increase of 31 basis points
(5%) in the average rate earned. Reductions in the average amount invested
were primarily the result of the previously mentioned transfer to
securities available for sale and a decision to redirect funds generated
from maturing investments into the loan portfolio.
A decline in the average amount invested and the average rate earned on
federal funds sold of $6.2 million (39%) and 52 basis points (9%),
respectively, combined to reduce the related interest income by $0.4
million (45%).
Interest income from securities purchased under agreement to resell rose
$0.3 million (18%) to $2.2 million as an increase in the average amount
invested of $7.9 million (26%) was partially offset by a decline in the
average rate earned of 40 basis points (6%).
A decline in the average rate earned of 195 basis points (24%) on stock in
the Federal Home Loan Bank was only partially offset by an increase in the
average amount invested of $1.2 million (8%) resulting in a $0.2 million
(18%) decline in interest income to $1.1 million.
Interest Expense
Interest expense for the year ended December 31, 1996, was $122.9 million,
an increase of $18.9 million (18%) over the $104.0 million paid in 1995.
The higher level of expense resulted from a $381.2 million (15%) increase
in average interest-bearing liabilities to $2.911 billion and a rise in the
average rate paid of 11 basis points (3%) to 4.22%. Almost 90% of the rise
in average interest-bearing liabilities was the result of deposits acquired
in the Vermont acquisitions.
Interest paid on savings accounts declined $1.2 million (4%) to total $25.4
million for 1996. Savings account average balances declined $36.7 million
(4%) while the average rate paid declined 1 basis point. The average
balance of savings accounts declined despite the addition of $30.8 million
in average balances that resulted from the Vermont acquisitions. The
decrease in savings balances resulted from the movement of savings balances
into higher yielding certificate accounts coupled with general deposit
outflow.
Interest paid on transaction accounts increased by $5.0 million (72%) as
the average balance increased $127.2 million (38%), four-fifths of which
was related to the Vermont acquisitions, while the average rate paid rose
50 basis points (24%).
Interest paid on certificate accounts for the year amounted to $82.7
million, an advance of $12.4 million (18%) over 1995. The balance in
certificate accounts averaged $1.521 billion for 1996, an increase of
$240.4 million (19%) over last year, while the average rate paid was 5.44%,
a 5 basis point (1%) decline compared with 1995. Over four-fifths of the
increase in the average balances of certificate accounts was directly
attributable to the Vermont acquisitions.
Interest paid on short-term borrowed funds and repurchase agreements
increased $1.2 million as the net effect of a $23.4 million increase in the
average balance, and a 131 basis point (20%) decrease in the average rate
paid.
Interest paid on long-term debt increased $1.5 million as a $26.8 million
increase in the average balance, which was the direct result of borrowings
to fund the Marble acquisition, more than offset a 3 basis point (1%)
decrease in the average rate paid.
Net Interest Income
Net interest income for the year ended December 31, 1996, totaled $125.6
million, $17.2 million (16%) greater than the prior year as an interest
income rise of $36.0 million (17%) to $248.5 million was somewhat offset by
an increase in interest expense of $18.9 million (18%) to $122.9 million.
The increase in net interest income was driven by an almost equal increase
in the levels of average interest-earning assets and interest-bearing
liabilities, which was primarily the result of the Vermont acquisitions,
coupled with improved interest spreads and margins. The net interest spread
for 1996 equaled 3.52%, an increase of 12 basis points (4%) over last year,
while the net interest margin advanced 7 basis points (2%) to total 3.91%
for 1996 compared with 3.84% in 1995.
Provision for Loan Losses
The provision for loan losses increased to $5.8 million for the year ended
December 31, 1996, up $1.3 million (28%) from the $4.5 million recorded in
1995. The allowance for loan losses at year-end 1996 was $24.1 million, an
increase of $8.2 million (51%) over the prior year. In addition to the
provision for loan losses, the allowance for loan losses increased due to
$11.3 million in balances acquired as components of the Vermont
acquisitions. Offsetting these additions were net charge-offs of $8.9
million which included a charge-off of $4.1 million resulting from the
December 1996 sale of a group of one- to four-family nonperforming loans
with a book value of $10.3 million.
The Bank utilizes the provision for loan losses to maintain an allowance
for loan losses that it deems appropriate to provide for known and inherent
risks in its loan portfolio. In determining the adequacy of its allowance
for loan losses, management takes into account the current status of the
Bank's loan portfolio and changes in appraised values of collateral as well
as general economic conditions. Although the Bank maintains its allowance
for loan losses at a level which it considers to be adequate to provide for
potential losses, there can be no absolute assurance that such losses will
not exceed the current estimated amounts. The allowance as a percentage of
loans receivable at year-end 1996 was 0.94% compared with 0.82% at the end
of 1995. The allowance as a percentage of nonperforming loans at December
31, 1996, was 81% compared with 69% a year earlier. Nonperforming loans at
December 31, 1996, were 1.16% of loans receivable while nonperforming
assets to total assets were 0.96%; comparable 1995 percentages were 1.19%
and 0.91%, respectively. Of the nonperforming loans outstanding at year-end
1996, approximately 55% were one- to four-family mortgages while federally
guaranteed loans comprised approximately 9% of nonperforming loans. The
increase in nonperforming assets between 1995 and 1996 was the combined
effect of nonperforming loans acquired from the Vermont acquisitions as
well as a measure of economic softening in the Bank's market area.
Noninterest Income
Noninterest income increased $2.7 million (29%) to $12.2 million for the
year ended December 31, 1996. Noninterest income for 1995 included a loss
of $1.2 million for the write-off of the Bank's investment in Nationar
stock and debentures. Excluding the Nationar loss, the increase in
noninterest income of $1.5 million (14%) was primarily the result of
service charges on deposits which rose $0.5 million (10%), driven by NOW
and business account activity; brokerage and insurance commissions were up
$0.4 million (26%) as stepped up cross-selling efforts by the Bank combined
with favorable market conditions for the financial products offered; and
increased servicing income on mortgage loans of $0.3 million (19%)
primarily due to loan servicing commitments resulting from the Vermont
acquisitions. These improvements in noninterest income were all positively
impacted by the Company's 1996 acquisition activity and the resultant
expansion of its branch network. Noninterest income also included increases
over 1995 of $0.3 million (42%) due to an increase in gains realized on the
origination of loans for sale and net increases in various other
noninterest income categories.
Noninterest Expense
Noninterest expense of $90.3 million for the year ended December 31, 1996,
included a one-time Federal Deposit Insurance Corporation ("FDIC") SAIF
special assessment of $10.4 million. Excluding the SAIF special assessment,
noninterest expense would have increased $14.1 million (21%) over the
previous year's total of $65.8 million. The increase was primarily the
result of costs associated with operating the Bank's expanded franchise
which includes branches added as a result of the Vermont acquisitions.
Compensation and employee benefits increased $6.7 million (21%) to equal
$38.5 million for 1996 compared with $31.8 million in 1995. Approximately
two-thirds of the 1996 increase was a result of salaries directly related
to the Vermont acquisitions while the remaining increase was split nearly
equally between salary merit increases and benefit costs related to the
Bank's expanded employee base.
Increases of $0.3 million (35%) in building depreciation, $0.3 million
(16%) in maintenance and repair expenses and $0.2 million (13%) in property
taxes contributed to the overall increase in occupancy expense of $0.9
million (11%) which totaled $9.2 million for 1996 compared with $8.3
million in 1995. These increases were due mainly to branches added to the
Bank's franchise during 1996.
Furniture, fixtures and equipment expense rose $1.2 million (31%) to $5.3
million in 1996. Approximately three-fifths of the 1996 increase was the
result of a full year's depreciation of the Bank's 1995 data processing
hardware and software upgrades while the operational costs of the Vermont
acquisitions accounted for most of the remaining increase.
Despite increased levels of total deposits, FDIC insurance expense declined
$0.8 million (16%) below 1995 to equal $4.3 million for the year ended
December 31, 1996. The reduction reflects a change in the Bank's deposit
mix as the percentage of Bank Insurance Fund ("BIF") insured deposits
increased as a result of deposits acquired in the Vermont acquisitions. At
December 31, 1996, approximately 34% of the Bank's deposits were BIF
insured with the remaining deposits insured by the SAIF. During 1996, the
BIF insurance rate was effectively zero while the SAIF insurance rate was
$0.23 per $100 for the first three quarters of 1996 and $0.18 per $100 for
the last quarter.
The FDIC special SAIF assessment in 1996 of $10.4 million represents a one-
time charge to the Bank to recapitalize the SAIF insurance fund. As a
result of the recapitalization, the Bank will receive a substantial
reduction in deposit insurance premiums on SAIF insured deposits beginning
in 1997. The Bank's SAIF insurance assessment rate was reduced to
approximately 6.5 basis points for its intital semi-annual assessment
period in 1997; simultaneously, the BIF insurance assessment rate has
increased from effectively zero to approximately 1.3 basis points.
Professional, legal and other fees increased $0.7 million (29%) to $3.2
million for the year ended December 31, 1996. Higher legal fees were the
most significant component of the increase.
Telephone, postage and printing expense of $4.4 million for 1996 increased
$0.3 million (8%) above 1995 levels, as higher 1996 postage and printing
costs associated with the operation of the expanded branch network were
somewhat offset by a reduction in telephone expense.
Goodwill amortization increased $1.5 million (96%) over 1995 levels as a
direct result of goodwill generated by the Vermont acquisitions.
Other noninterest expense of $12.0 million represented a $3.6 million (42%)
increase over 1995. Categories showing increases included advertising,
foreclosure and acquisition costs, real estate owned write-downs and
losses, appraisal fees, other losses, real estate owned expenses, and
computer processing and software charges; the operation of the Bank's
expanded branch network was a prominent factor in all of the aforementioned
increases.
Excluding the special SAIF assessment in 1996, the ratios of noninterest
expense to average assets were 2.36% and 2.22% for 1996 and 1995,
respectively. Another measure of cost containment is the efficiency ratio
which measures noninterest expense (excluding amortization of intangibles,
real estate owned related expense, and the FDIC special SAIF assessment) as
a percentage of net interest income plus noninterest income (exclusive of
net security transactions and real estate owned related income). The
efficiency ratio of 54.32% for 1996 compared with 52.91% in 1995.
Income Tax Expense
Income tax expense for the year ended December 31, 1996, was $15.5 million,
a decrease of $2.8 million (15%) from the previous year. The decrease was
the combined result of a lower amount of income before income taxes
combined with a slightly lower overall effective income tax rate for 1996
of 37.2% compared with 38.5% in 1995. A continuing trend of tax rate
reductions in New York State coupled with an expansion of operations into
the State of Vermont resulted in a lower effective state income tax rate.
Adjustments affecting the effective federal income tax rate are disclosed
in Footnote 14 to the consolidated financial statements.
Results of Operations--1995 Compared With 1994
General
Net income for 1995 totaled $29.3 million, an increase of $0.7 million (2%)
over 1994. Primary and fully diluted earnings per share for 1995 increased
over 9% from 1994 levels to $1.94 and $1.93, respectively. Return on
average equity was 9.09% and return on average assets was 0.99% in 1995
compared with 9.11% and 1.02% for 1994, respectively. Net income for 1995
included a $0.7 million after-tax writeoff of the the Bank's investment in
Nationar. Excluding the Nationar charge, core net income increased $1.4
million (5%) over 1994 and totaled $30.0 million for the year ended
December 31, 1995. Primary and fully diluted earnings per share based on
core net income were $1.99 and $1.98, respectively, for 1995 and
represented a 12% increase over the $1.77 earned on both a primary and
fully diluted basis in 1994. Return on average equity based on core net
income was 9.32% in 1995 and 9.11% in 1994; for return on average assets,
the respective ratios were 1.01% and 1.02%. The above per share earnings
results have been adjusted to reflect the Company's April 1, 1996, 20%
stock dividend.
On October 21, 1994, the Bank purchased the deposits of the Ludlow Savings
Bank of Ludlow, Massachusetts from the FDIC. The transaction added
approximately $216 million in deposits and nine banking offices, all
located in the metropolitan Springfield area. The acquisition was accounted
for under the purchase method of accounting and generated accounting
goodwill of approximately $14.6 million. Accordingly, ALBANK'S 1995 results
reflect the full year impact of the Ludlow acquisition.
Interest Income
Interest income increased $25.7 million (14%) from the prior year to equal
$212.5 million for 1995 as a $123.3 million (5%) rise in average earning
assets to $2.828 billion combined with a 60 basis point (9%) increase in
the average rate earned to 7.51%.
The most significant factor contributing to the higher level of interest
income was a rise of $26.6 million (27%) in interest earned on mortgage
loans to $125.2 million that was the combined effect of increases in both
the average outstandings of $233.9 million (17%) and the average rate
earned of 60 basis points (8%).
Income earned on other loans increased $7.3 million (34%) to $28.9 million
due to an increase of $54.0 million (22%) in average outstandings which
combined with an 86 basis point (10%) jump in the average rate earned.
Commercial loans accounted for almost half of the increase in average
outstandings.
Income earned on securities available for sale rose $1.6 million (17%) to
equal $11.1 million as a result of increases of $16.1 million (11%) in the
average amount invested and 38 basis points (6%) in yield.
A decline of $10.3 million (19%) to $43.2 million in interest income on
investment securities resulted primarily from a $171.2 million (19%)
decline in the average amount invested as funds generated from maturities
were reinvested in loan products.
Interest Expense
Interest expense for 1995 increased $21.9 million (27%) over 1994 levels to
$104.0 million as a result of increases in the average outstandings of
$127.7 million (5%) to $2.530 billion and a rise in the average rate paid
of 69 basis points (20%) to 4.11%. The increase in average outstandings was
the result of a full year's impact of the 1994 Ludlow acquisition.
Interest expense on savings accounts declined $4.0 million (13%) due to a
decrease in the average outstandings of $127.2 million (12%) and a drop in
the average rate paid of 3 basis points (1%).
Interest expense on transaction accounts rose $0.6 million (10%) as a
result of an increase of $15.9 million (5%) in the average balance and a 10
basis point (5%) increase in the average rate paid.
Most significantly, interest expense on certificate accounts rose $26.3
million (60%) to $70.3 million as an increase in the average outstandings
of $259.9 million (25%) combined with a rise in the average rate paid of
118 basis points (27%).
Average short-term borrowed funds decreased $19.3 million (91%) to $1.9
million and more than offset a 170 basis point (35%) jump in the average
rate paid; resulting interest expense declined $0.9 million (88%).
Interest expense on long-term debt declined primarily as a result of a $1.6
million (53%) decline in the average balance outstanding.
Net Interest Income
Net interest income totaled $108.5 million in 1995, an increase of $3.8
million (4%) from the prior year, as interest income advanced $25.7 million
(14%), while interest expense increased $21.9 million (27%). The net
interest spread declined 9 basis points (3%) to 3.40% in 1995, while the
net interest margin declined 3 basis points (1%) to 3.84%.
Provision for Loan Losses
The provision for loan losses amounted to $4.5 million for both 1995 and
1994. Net chargeoffs during 1995 totaled $4.1 million or 0.22% of average
loans; comparable 1994 figures were $2.1 million or 0.13%. The allowance
for loan loss as a percentage of nonperforming loans was 69% at December
31, 1995, compared with 76% a year earlier. The allowance as a percentage
of loans receivable at year-end 1995 and 1994 was 0.82% and 0.87%,
respectively. Nonperforming loans were 1.19% of loans receivable while
nonperforming assets to total assets equaled 0.91% at December 31, 1995;
comparable 1994 figures were 1.14% and 0.81%, respectively.
Noninterest Income
Noninterest income totaled $9.4 million for the year ended December 31,
1995, a decrease of $0.6 million (6%) from 1994. Excluding the Bank's $1.2
million write-off of its investment in Nationar, noninterest income would
have increased $0.6 million (6%). Service charges on deposit accounts
totaled $5.0 million for the year ended December 31, 1995, an increase of
$0.9 million (21%). This increase was reflective of fees related to deposits
acquired in the Ludlow acquisition. Brokerage and insurance commissions
decreased $0.7 million (29%) to $1.6 million as declining annuity sales
combined with a shift in the product mix away from higher-commission mutual
funds to lower-commission bonds. Other noninterest income rose $0.4 million
(10%) to total $4.0 million as a result of increases in loan related
servicing fees and customer based fees of $0.1 million (6%) and $0.3
million (20%), respectively.
Noninterest Expense
Noninterest expense for 1995 totaled $65.8 million, an increase of $4.0
million (6%) over 1994 levels. The full year impact of the operation of the
Ludlow branches and three supermarket branches combined with expenses
incurred in our data center conversion to drive up operating expenses.
Compensation and employee benefits increased $3.1 million (11%) to $31.8
million as a result of the full year impact of the Ludlow and supermarket
branches, annual merit increases, as well as overtime and temporary help
related to the data center conversion. Mitigating factors were decreases in
commission expense and costs related to employee benefits.
Net occupancy expense increased $0.6 million (7%) and totaled $8.3 million
as a result of the operation of an expanded branch network throughout all
of 1995. Similarly, expense related to furniture, fixtures and equipment
totaled $4.0 million, an increase of $0.6 million (18%).
Telephone, postage and printing expense increased $0.9 million (29%) to
$4.1 million as a result of the expanded branch network, the data center
conversion, and increased postal rates.
During 1995, FDIC premiums decreased $0.4 million (6%) to total $5.2
million. The reduction in the Bank's premium expense was directly related
to a lower premium rate paid on that portion of its deposits insured by the
BIF compared with SAIF insured deposits. Additionally, professional, legal
and other fees declined $0.5 million (16%) to $2.5 million.
During 1995, amortization of goodwill increased $0.8 million (98%) which
was reflective of a full year's amortization on goodwill generated in the
Ludlow acquisition.
Increases in computer processing and software charges and advertising
expenditures were offset by reductions in various other operating expense
categories and produced a decline in other noninterest expense of $1.2
million (12%) compared with the prior year.
The ratios of noninterest expense to average assets were 2.22% and 2.20%
for 1995 and 1994, respectively. The efficiency ratio of 52.91% for 1995
compared with 51.99% for 1994.
Income Tax Expense
Income tax expense totaled $18.3 million for the year ended December 31,
1995, a decrease of $1.6 million (8%) from 1994. The decrease was
principally the result of downward trends in state franchise tax rates
which produced an effective tax rate of 38.5% for 1995 compared with 41.0%
in 1994.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all the assets and liabilities of
the Company are monetary. As a result, interest rates have a greater impact
on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or
to the same extent as the price of goods and services.
Impact of Changes in Accounting Standards
Accounting for Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 a separate asset, the rights to service mortgage loans for
others, regardless of how those servicing rights are acquired.
Additionally, SFAS No. 122 requires that 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 resulted in increased gains recognized on the sale of
mortgage loans when the servicing rights are retained, offset by the
amortization of the capitalized mortgage servicing rights. The adoption of
SFAS No. 122 did not have a material effect on the Company's consolidated
financial statements.
Accounting for Stock-Based Compensation
In October 1995, the FASB 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 Accounting
Principles Board ("APB") Opinion No. 25 or (ii) the fair value based method
introduced in SFAS No. 123. Entities electing to continue the application
of APB Opinion No. 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 the method currently utilized by
the Company (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. Management elected to continue to measure stock-based compensation
costs in accordance with APB Opinion No. 25; accordingly, the required pro
forma disclosure requirements of SFAS No. 123 are presented in Note 17 of
the accompanying consolidated financial statements.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings. SFAS No. 125 is effective for transfers and servicing
of assets and extinguishments of liabilities occurring after December 31,
1996, and will supersede SFAS No. 122. Certain aspects of SFAS No. 125 were
amended by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." Management believes the adoption of
SFAS No. 125 will not have a material impact on the Company's consolidated
financial statements.
Interest rate sensitivity analysis
The Company employs many strategies to manage interest rate risk, the
general goal of which has been to shorten the repricing periods of assets
within the Company's balance sheet. This goal has been pursued actively in
the management of the mortgage loan and investment portfolios. Since the
early 1980's, the Company has emphasized the origination of one- to four-
family ARMs for portfolio retention. As a result, the percentage of ARMs
has grown steadily and at December 31, 1996, represented 76% of total
mortgage loans outstanding. Additions to the investment securities and
securities available for sale portfolios in 1996 of $70.8 million generally
had maturities or expected average lives of three to five years; applying
reasonable prepayment assumptions to the securities backed by certain
tangible assets, the entire portfolio at year-end 1996 had an expected
average life of between two and three years.
The interest rate risk analysis table that follows sets forth at December
31, 1996, the approximate amounts of interest-earning assets and interest-
bearing liabilities outstanding which are expected to reprice or mature in
each of the time periods indicated. Loans that have an adjustable interest
rate are shown as being due in the period during which the interest rate is
next subject to change.
Principal amortization of loans is shown in accordance with contractual
terms (scheduled amortization) and by using assumptions on the rate at
which the loan will repay in excess of scheduled amortization
(prepayments). Monthly prepayment factors were developed taking into
account current economic forecasts as well as historic prepayment activity.
The monthly prepayment factors utilized were as follows: ARMs, 0.57% to
1.08%; convertible ARMs, 3.33%; residential fixed rate mortgage loans,
0.32% to 1.29%; fixed rate home equity loans, 1.15% to 1.26%; adjustable
rate home equity loans, 1.72%; nonresidential fixed rate mortgage loans,
0.19% to 0.80%; consumer loans, 0.92% to 1.00%; and student loans, 1.00%.
With regard to deposit accounts, the following withdrawal/repricing rates
have been assumed: savings accounts, 20% per year; NOW and super NOW
accounts, 10% per year, in years one through four with the remainder
repricing in year five; regular money market accounts, 25% per year;
premium money market accounts, 100% repricing in less than one year. The
20% sensitivity of savings accounts represents the portion of total savings
that management believes to be interest rate sensitive. In arriving at this
judgment, management considered a number of factors including the trend and
level of overall interest rates and the review of historic, current and
projected future deposit flows. The perceived sensitivity of premium money
market accounts to interest rate shifts is reflected in their 100%
classification in the less than one year category. The lower relative
interest rate sensitivity of regular money market accounts is reflected in
their 25% per year classification. The classification of 10% of the NOW and
super NOW accounts in the less than one year category illustrates their
lesser degree of interest rate sensitivity.
Interest rate "gap" analysis is a common, though imperfect, measure of
interest rate risk. It measures the relative dollar amounts of interest-
earning assets and interest-bearing liabilities which reprice within a
specific time period, either through maturity or by rate adjustment.
A "positive" gap for a given period means that the amount of interest-
earning assets maturing or otherwise repricing exceeds the amount of
interest-bearing liabilities maturing or otherwise repricing within the
same period. Accordingly, in a rising interest rate environment, an
institution with a positive gap would generally be expected, absent the
effects of other factors, to experience a greater increase in the yield of
its assets relative to the cost of its liabilities. Conversely, the cost of
funds for an institution with a positive gap would generally be expected to
decline less quickly than the yield on its assets in a falling interest
rate environment. Changes in interest rates generally have the opposite
effect on an institution with a "negative" gap.
There are some shortcomings inherent in the method of analysis presented in
the following table. For example, although certain assets and liabilities
have similar periods to maturity or to repricing, they may react in
different degrees to changes in market rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets such as
adjustable rate mortgage loans have features which restrict changes in
interest rates on a short-term basis and over the life of the assets.
Further, in the event of a significant change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in the table. Finally, the ability of many borrowers to service
their debt may decrease in the event of a significant interest rate
increase. Management takes these factors into account when reviewing the
Bank's gap position and establishing future asset/liability strategy.
As of December 31, 1996, the following table indicates that total interest-
earning assets maturing or repricing within one year exceeded total
interest-bearing liabilities maturing or repricing in the same time period
by $345.6 million.
<TABLE>
<CAPTION>
One Year One to Three to Five to Over
(Dollars in thousands)
At December 31, 1996 or Less Three Years Five Years Ten Years Ten Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Mortgage loans $1,390,814 347,888 76,307 120,013 127,371 2,062,393<F1>
Other loans 223,362 106,183 54,789 61,647 28,174 474,155<F1>
Securities available for sale 239,020 215,901 74,303 85,225 598 615,047<F2>
Investment securities 31,785 29,616 33,497 14,454 255 109,607
Stock in Federal Home Loan Bank -- -- -- 16,913 -- 16,913
Total interest-earning assets 1,884,981 699,588 238,896 298,252 156,398 3,278,115
Interest-Bearing Liabilities
Deposits:
Savings accounts 164,831 329,660 329,660 -- 25,480 849,631<F3>
Transaction accounts 207,959 97,355 188,883 -- -- 494,197<F4>
Certificate accounts 1,114,227 417,300 44,674 7,676 48 1,583,925
Short-term borrowed funds
and repurchase agreements 42,346 -- -- -- -- 42,346
Long-term debt 10,000 20,000 -- -- 61 30,061
Total interest-bearing liabilities 1,539,363 864,315 563,217 7,676 25,589 3,000,160
Interest Sensitivity Gap
Per period $ 345,618 (164,727) (324,321) 290,576 130,809 277,955
Cumulative $ 345,618 180,891 (143,430) 147,146 277,955 277,955
Cumulative interest sensitivity gap
as a percentage of total assets 9.86% 5.16% (4.09)% 4.20% 7.93%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities 122.45% 107.53% 95.17% 104.95% 109.26%
<FN>
<F1> Mortgage and other loans are reduced for nonperforming loans but are not reduced for the allowance for loan losses.
<F2> Does not include SFAS No. 115 unrealized gain of $2,896.
<F3> Includes interest-bearing escrow accounts of $25,480.
<F4> Does not include noninterest-bearing demand deposits of $110,856.
</TABLE>
Management's Discussion and Analysis
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
<CAPTION>
The Company's quarterly results of operations for the years ended December 31, 1996 and 1995 are as follows:
(In thousands, except per share data)
Year Ended December 31, 1996 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Quarterly Operating Data
Interest income $ 61,588 61,089 61,660 64,189
Interest expense 30,696 29,847 30,282 32,060
Net interest income 30,892 31,242 31,378 32,129
Provision for loan losses 1,425 1,425 1,425 1,500
Noninterest income 3,010 3,092 2,910 3,142
Noninterest expense 19,648 19,729 30,571 20,355
Income before income taxes 12,829 13,180 2,292 13,416
Income tax expense 5,118 5,345 644 4,403
Net income $ 7,711 7,835 1,648 9,013
Core net income<F1> $ 7,711 7,835 8,025 9,013
Primary and fully diluted
earnings per share $ 0.53 0.54 0.12 0.64
Primary and fully diluted
earnings per share based on
core net income<F1> 0.53 0.54 0.57 0.64
Dividends declared per share 0.12 0.12 0.12 0.15
(In thousands, except per share data)
Year Ended December 31, 1995 First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly Operating Data
Interest income $ 51,224 52,779 54,549 53,950
Interest expense 23,545 26,113 27,268 27,089
Net interest income 27,679 26,666 27,281 26,861
Provision for loan losses 1,125 1,125 1,125 1,125
Noninterest income 1,419 2,916 2,602 2,511
Noninterest expense 16,547 16,513 16,253 16,491
Income before income taxes 11,426 11,944 12,505 11,756
Income tax expense 4,475 4,687 4,935 4,251
Net income $ 6,951 7,257 7,570 7,505
Core net income<F1> $ 7,681 7,257 7,570 7,505
Primary and fully diluted earnings
per share<F2> $ 0.45 0.48 0.50 0.51
Primary and fully diluted earnings
per share based on core net
income<F1><F2> 0.50 0.48 0.50 0.51
Dividends declared per share<F2> 0.10 0.10 0.10 0.10
<FN>
<F1> Core net income excludes the net after-tax effect of the September 30, 1996, $6.4 million special assessment to
recapitalize the SAIF and the March 31, 1995, $0.7 million write-off of the capital investment in Nationar.
<F2> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
</TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Statement of Management's Responsibility
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774
To Our Stockholders:
The accompanying consolidated financial statements and the related
financial information in this Annual Report were prepared by the management
of ALBANK Financial Corporation in accordance with generally accepted
accounting principles and, where appropriate, reflect management's best
estimates and judgment. Management is responsible for the integrity,
objectivity, consistency and fair presentation of the consolidated
financial statements and all financial information contained in this Annual
Report.
In order to fulfill its responsibility, management relies in part on a
system of internal accounting control which has been designed to safeguard
the Company's assets from material loss or misuse and ensure that
transactions are properly authorized and recorded in its financial records.
An extensive internal auditing program monitors compliance with established
procedures and controls to provide assurance that the system of internal
accounting control is functioning in a proper manner. There are limits
inherent in all systems of internal control based on the recognition that
the cost of such systems should not exceed the benefits to be derived.
Management believes the Company's system of internal accounting control
provides reasonable assurance that its assets are safeguarded and that its
financial records are reliable.
The consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent public accountants, who rendered an independent
professional opinion on the accompanying consolidated financial statements.
Their appointment was ratified by the stockholders of ALBANK Financial
Corporation. Their examination provides an objective assessment of the
degree to which the Company's management has met its responsibility for
financial reporting. The opinion of the independent public accountants on
the consolidated financial statements is based on auditing procedures which
include reviewing the internal control structure to determine the timing
and scope of audit procedures and performing selected tests of transactions
and records as they deem appropriate. Their auditing procedures are
designed to provide a reasonable level of assurance that the consolidated
financial statements are fairly presented in all material respects.
The Company's internal auditor and independent auditors have direct access
to the Audit Committee of the Board of Directors. This committee, which is
composed entirely of outside directors, meets periodically with management,
the internal auditor and the independent auditors to gain assurance the
financial accounting and audit process is properly conducted.
/s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
/s/ Richard J. Heller
Richard J. Heller
Executive Vice President
and Chief Financial Officer
Independent Auditors' Report
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
KPMG Peat Marwick LLP
Certified Public Accountants
74 North Pearl Street
Albany, NY 12207-2774
The Board of Directors and Stockholders
ALBANK Financial Corporation and Subsidiary:
We have audited the accompanying consolidated statements of financial
condition of ALBANK Financial Corporation and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of earnings, 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 ALBANK
Financial Corporation and subsidiary as of 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 31, 1997
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Earnings
<CAPTION>
(In thousands, except per share data)
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Interest Income
Mortgage loans $ 155,914 125,228 98,630
Other loans 38,621 28,905 21,576
Securities available for sale 41,676 11,098 9,455
Investment securities 8,532 43,186 53,478
Federal funds sold 508 918 535
Securities purchased under agreement
to resell 2,225 1,888 2,010
Stock in Federal Home Loan Bank 1,050 1,279 1,120
Total interest income 248,526 212,502 186,804
Interest Expense
Deposits and escrow accounts 120,006 103,810 80,887
Short-term borrowed funds and
repurchase agreements 1,338 125 1,037
Long-term debt 1,541 80 168
Total interest expense 122,885 104,015 82,092
Net interest income 125,641 108,487 104,712
Provision for loan losses 5,775 4,500 4,500
Net interest income after provision
for loan losses 119,866 103,987 100,212
Noninterest Income
Service charges on deposit accounts 5,556 5,046 4,181
Net security transactions 8 (1,198) 14
Brokerage and insurance commissions 2,049 1,621 2,276
Other 4,541 3,979 3,620
Total noninterest income 12,154 9,448 10,091
Noninterest Expense
Compensation and employee benefits 38,455 31,817 28,705
Occupancy, net 9,186 8,260 7,710
Furniture, fixtures and equipment 5,270 4,036 3,418
Federal deposit insurance premiums 4,331 5,152 5,508
Federal deposit insurance special
SAIF assessment 10,397 -- --
Professional, legal and other fees 3,242 2,512 2,982
Telephone, postage and printing 4,393 4,062 3,144
Goodwill amortization 3,078 1,570 794
Other 11,951 8,395 9,572
Total noninterest expense 90,303 65,804 61,833
Income before income taxes 41,717 47,631 48,470
Income tax expense 15,510 18,348 19,898
Net income $ 26,207 29,283 28,572
Earnings per share:
Primary $ 1.84 1.94 1.77
Fully diluted 1.83 1.93 1.77
See accompanying notes to consolidated financial statements.
</TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Financial Condition
<CAPTION>
(Dollars in thousands, except per share data)
December 31, 1996 1995
<S> <C> <C>
Assets
Cash and due from banks $ 68,883 54,002
Federal funds sold -- 1,000
Securities purchased under agreement
to resell -- 50,000
Total cash and cash equivalents 68,883 105,002
Securities available for sale, at
approximate market value 617,943 656,784
Investment securities (approximate market
value of $111,091 at December 31,
1996 and $155,862 at December 31, 1995) 109,607 153,740
Loans receivable 2,566,364 1,946,601
Less: allowance for loan losses 24,114 15,949
Loans receivable, net 2,542,250 1,930,652
Accrued interest receivable 27,092 26,351
Office premises and equipment, net 48,554 40,655
Stock in Federal Home Loan Bank, at cost 16,913 15,750
Real estate owned 4,012 3,899
Other assets 70,882 37,337
$ 3,506,136 2,970,170
Liabilities
Deposits $ 3,013,129 2,558,288
Escrow accounts 26,603 34,928
Accrued income taxes payable 3,938 4,529
Short-term borrowed funds and
repurchase agreements 42,346 1,290
Long-term debt 30,061 --
Obligation under capital lease 4,646 4,743
Other liabilities 66,288 43,210
Total liabilities 3,187,011 2,646,988
Commitments and contingent liabilities
Stockholders' Equity
Preferred stock, $.01 par value.
Authorized 25,000,000 shares;
none outstanding -- --
Common stock, $.01 par value. Authorized
50,000,000 shares; 15,697,500 shares
issued; 12,910,763 shares outstanding
at December 31, 1996 and 11,521,970
at December 31, 1995 157 157
Additional paid-in capital 180,670 151,969
Retained earnings, substantially restricted 214,283 258,631
Treasury stock, at cost (2,786,737 shares
at December 31, 1996 and 4,175,530 at
December 31, 1995) (71,235) (82,381)
Unrealized gain on securities available for
sale, net of tax 1,781 3,528
Common stock acquired by:
Employee stock ownership plan ("ESOP") (6,279) (7,535)
Bank recognition plan ("BRP") (252) (1,187)
Total stockholders' equity 319,125 323,182
$ 3,506,136 2,970,170
See accompanying notes to consolidated financial statements.
</TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Net Unrealized
Gain (Loss) Common Common
Additional on Securities Stock Stock
Common Paid-in Retained Treasury Available Acquired Acquired
(Dollars in thousands) Stock Capital Earnings Stock for Sale by ESOP by BRP Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at JANUARY 1, 1994 $ 157 150,976 211,659 (36,406) -- (10,046) (3,057) 313,283
January 1, 1994 cumulative effect
of change in accounting for
securities available for sale,
net of tax -- -- -- -- 3,239 -- -- 3,239
Net income -- -- 28,572 -- -- -- -- 28,572
Purchase of treasury stock
(1,008,122 shares) -- -- -- (22,072) -- -- -- (22,072)
Exercise of stock options -- -- (38) 260 -- -- -- 222
Tax benefits related to vested
BRP stock and stock options
exercised -- 457 -- -- -- -- -- 457
Adjustment of securities available
for sale to market, net of tax -- -- -- -- (3,974) -- -- (3,974)
Cash dividends declared -- -- (5,128) -- -- -- -- (5,128)
Amortization of award of ESOP stock -- -- -- -- -- 1,255 -- 1,255
Amortization of award of BRP stock -- -- -- -- -- -- 935 935
Balance at December 31, 1994 157 151,433 235,065 (58,218) (735) (8,791) (2,122) 316,789
Net income -- -- 29,283 -- -- -- -- 29,283
Purchase of treasury stock
(898,053 shares) -- -- -- (24,233) -- -- -- (24,233)
Exercise of stock options -- -- (10) 70 -- -- -- 60
Tax benefits related to vested
BRP stock and stock options
exercised -- 536 -- -- -- -- -- 536
Adjustment of securities available
for sale to market, net of tax -- -- -- -- 4,263 -- -- 4,263
Cash dividends declared -- -- (5,707) -- -- -- -- (5,707)
Amortization of award of
ESOP stock -- -- -- -- -- 1,256 -- 1,256
Amortization of award of BRP stock -- -- -- -- -- -- 935 935
Balance at December 31, 1995 157 151,969 258,631 (82,381) 3,528 (7,535) (1,187) 323,182
Net income -- -- 26,207 -- -- -- -- 26,207
Purchase of treasury stock
(926,517 shares) -- -- -- (25,847) -- -- -- (25,847)
Exercise of stock options -- -- 275 745 -- -- -- 1,020
Tax benefits related to
vested BRP stock and stock
options exercised -- 898 -- -- -- -- -- 898
Adjustment of securities
available for sale to market,
net of tax -- -- -- -- (1,747) -- -- (1,747)
Cash dividends declared -- -- (6,779) -- -- -- -- (6,779)
Stock dividend declared -- 27,803 (64,051) 36,248 -- -- -- --
Amortization of award
of ESOP stock -- -- -- -- -- 1,256 -- 1,256
Amortization of award
of BRP stock -- -- -- -- -- -- 935 935
Balance at December 31, 1996 $ 157 180,670 214,283 (71,235) 1,781 (6,279) (252) 319,125
See accompanying notes to consolidated financial statements.
</TABLE>
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Decrease in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 26,207 29,283 28,572
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and lease amortization 5,385 3,962 3,429
Goodwill amortization 3,078 1,570 794
Net amortization of premiums and accretion of
discounts on securities 1,233 1,326 2,128
Amortization of award of ESOP and BRP stock 2,191 2,191 2,190
Net loss (gain) on security transactions (8) 1,198 (14)
Net gain on sale of real estate owned (383) (328) (338)
Origination of loans receivable for sale (22,631) (15,401) (12,506)
Proceeds from sale of loans receivable 34,024 31,379 15,112
Provision for loan losses 5,775 4,500 4,500
Writedown of real estate owned 603 312 336
Net increase in accrued income taxes payable 277 2,632 131
Net decrease (increase) in accrued
interest receivable 2,814 (1,682) (2,299)
Net increase in other assets (619) (3,291) (3,956)
Net increase (decrease) in other liabilities and
obligation under capital lease 18,692 (6,272) 10,505
Net cash provided by operating activities 76,638 51,379 48,584
Cash Flows from Investing Activities
Net cash provided (used) by acquisition activity (61,439) 17,488 201,483
Proceeds from the sale of securities
available for sale 22,985 -- 5,015
Proceeds from the maturity or call of securities
available for sale 154,445 90,008 61,563
Proceeds from the maturity or call of
investment securities 70,032 173,113 211,279
Purchase of securities available for sale (45,105) (79,902) (95,248)
Purchase of investment securities (25,678) (20,350) (141,318)
Purchase of loans receivable (229,342) (125,894) (146,162)
Net increase in loans receivable (30,157) (58,002) (114,205)
Redemption (purchase) of Federal Home Loan
Bank stock 2,912 (1,621) 407
Proceeds from the sale of real estate owned 6,950 5,648 8,624
Capital expenditures (6,740) (9,882) (6,293)
Net cash used by investing activities (141,137) (9,394) (14,855)
Cash Flows from Financing Activities
Net increase (decrease) in deposits 20,530 (1,868) (55,704)
Net increase (decrease) in escrow accounts (8,465) 1,441 2,969
Net increase (decrease) in short-term borrowed
funds and repurchase agreements 17,907 (12,010) 13,300
Proceeds from long-term debt 30,061 -- --
Redemption of long-term debt -- (2,000) (2,200)
Purchase of treasury stock (25,847) (24,233) (22,072)
Dividends paid (6,210) (5,565) (3,884)
Cash proceeds from the exercise of stock options 404 60 222
Net cash provided (used) by financing activities 28,380 (44,175) (67,369)
Net decrease in cash and cash equivalents (36,119) (2,190) (33,640)
Cash and cash equivalents at beginning of year 105,002 107,192 140,832
Cash and cash equivalents at end of year $ 68,883 105,002 107,192
Supplemental Disclosures of Cash Flow
Information
Cash paid during the year:
Interest on deposits, escrows, short-term
borrowed funds, repurchase agreements and
long-term debt $ 122,662 104,022 82,055
Income taxes 12,804 16,118 18,576
Supplemental schedule of noncash investing and
financing activities:
Net reduction in loans resulting from transfers
to real estate owned 5,941 5,710 8,026
Net unrealized gain (loss) on securities
available for sale (3,098) 7,251 (1,256)
Transfer of investment securities to securities
available for sale -- 492,246 87,793
Transfer of investment securities to other
assets -- -- 353
Transfer of investment securities to commercial
loans -- -- 175
Tax benefits related to vested BRP stock and
stock options 898 536 457
Acquisition activity:
Fair value of noncash
assets acquired 523,406 712 15,843
Fair value of liabilities assumed 461,967 18,200 217,326
See accompanying notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
ALBANK
FINANCIAL
CORPORATION
AND SUBSIDIARY
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALBANK Financial Corporation (the "Holding Company") completed its
initial public offering on April 1, 1992. Simultaneously, the Holding
Company purchased all of the outstanding stock of ALBANK, FSB. To
date, the principal operations of ALBANK Financial Corporation and
subsidiary (the "Company") have been those of the ALBANK, FSB and
subsidiaries (the "Bank").
The accounting and reporting policies of the Company conform in all
material respects to generally accepted accounting principles and
to general practice within the savings bank industry. 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 consolidated financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates. Certain prior year amounts
have been reclassified to conform to current year classifications.
The following is a description of the more significant policies which
the Company followed in preparing and presenting its consolidated
financial statements.
(A) Basic Presentation
The accompanying consolidated financial statements include the accounts
of the Holding Company, its wholly owned subsidiary, ALBANK, FSB,
and the Bank's wholly owned subsidiaries. Significant intercompany
transactions and balances have been eliminated in consolidation.
(B) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.
(C) Restriction on Cash Balances
The Bank was required to retain cash funds of $28,164,000 at December 31, 1996,
and $23,546,000 at December 31, 1995, to satisfy minimum reserve requirements
established by the Federal Reserve Bank of New York.
(D) Securities
Securities are classified at the time of purchase as investment securities,
securities available for sale, or trading account securities. Investment
securities are those securities that management has the positive intent
and ability to hold to maturity and are carried at amortized cost.
Securities available for sale are those that management intends to
hold for an indefinite period of time. Such securities may be sold
in response to changes in interest rates, prepayment risk, liquidity
needs or other similar factors. Securities available for sale are
reported at fair value, with unrealized gains and losses reported,
net of tax, as a separate component of stockholders' equity. If securities
are purchased for the purpose of selling them in the near term, they
are classified as trading securities and are reported at fair value
with unrealized gains and losses reflected in current earnings. The
Company had no trading account securities during the three-year period
ended December 31, 1996.
Any portion of unrealized loss on an individual security deemed to
be other than temporary is recognized as a realized loss in the accounting
period in which such determination is made. Gains and losses on the
sale of securities are determined using the specific identification
method. Discounts and premiums on securities are accreted or amortized
into income using a method which approximates the level-yield method.
(E) Loans Receivable/Allowance for Loan Losses
Loans receivable are stated at unpaid principal amounts, net of unearned
discounts, unamortized premiums and net deferred loan fees/costs.
Discounts, premiums and deferred loan fees/costs on loans are accreted
into or amortized against interest income as appropriate using a method
that approximates the level-yield method over the estimated terms
of the loans.
Loans considered doubtful of collection by management are placed on
nonaccrual status. Generally, nonperforming one- to four-family residential
mortgage loans continue to accrue interest income until a formal summons
and complaint is executed by the Bank, at which time they are placed
on nonaccrual status. Loans other than residential mortgage loans
past due 90 days or more as to principal or interest are placed on
nonaccrual status except for those loans which, in management's judgment,
are adequately secured and for which collection is probable. Generally,
previously accrued income that has not been collected is reversed
from current income, and subsequent cash receipts are applied to reduce
the unpaid principal balance. Amortization of related deferred fees
is suspended when a loan is placed on nonaccrual status.
The Company accounts for impairment of loans in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosure."
These Statements prescribe recognition criteria for loan impairment,
generally related to commercial type loans. The statements also prescribe
measurement methods for certain impaired loans as well as all loans
whose terms are modified in troubled debt restructurings. A loan is
considered impaired when collection of principal and interest is doubtful,
and there is insufficient collateral or other repayment resources
available to repay the principal balance of the loan along with all
interest that would accrue until the loan is fully satisfied.
The Company generally places impaired loans on nonaccrual status and
recognizes interest income on such loans only on a cash basis upon
receipt of interest payments from the borrower. In some instances,
all moneys received from the borrower, or from the proceeds of collateral,
are applied directly to reduce the principal balance of the loan,
and no interest income is recognized until the principal balance of
the impaired loan is paid in full or is no longer considered impaired.
The Bank maintains a valuation allowance for losses on loans for estimable
and probable future losses. The allowance for loan losses is maintained
at a level deemed appropriate by management to adequately provide
for known and inherent risks in the present portfolio. The determination
of the amount of the allowance includes estimates that are susceptible
to significant changes due to changes in appraised values of collateral
and general economic conditions. In connection with such determination
concerning collateral, management obtains independent appraisals for
significant properties. While management uses available information
to recognize future losses on loans, future additions to the allowance
may be necessary based on changes in relevant facts and circumstances
including changes in general economic conditions. In addition, various
regulatory agencies as an integral part of their examination process
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of
their examinations.
(F) Originated Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board ("FASB") 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 rights 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
resulted in increased gains recognized on the sale of mortgage loans
when the servicing rights are retained, offset by the amortization
of the capitalized mortgage servicing rights. The adoption of SFAS
No. 122 did not have a material effect on the Company's consolidated
financial statements.
(G) Real Estate Owned
It is the Company's policy to include in real estate owned all assets
received from loan foreclosure and loans deemed to be in-substance
foreclosures. A loan is considered an in-substance foreclosure when
the Company has taken possession of the collateral regardless of whether
formal foreclosure proceedings have taken place.
Real estate owned is recorded on an individual asset basis at net
realizable value which is the lower of (1) fair value minus estimated
costs to sell or (2) "cost" (defined as the fair value at initial
foreclosure). When a property is acquired, any excess of the loan
balance over fair value is charged to the allowance for loan losses.
Subsequent write-downs to carry the property at net realizable value
are included in other noninterest expense.
(H) Office Premises and Equipment
Office premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of premises
and equipment are computed primarily using the straight-line method
over the estimated useful life of the respective asset. Useful lives
vary between 20 and 50 years for banking facilities and between 3
and 15 years for furniture, fixtures, and equipment. Amortization
of capital leases and leasehold improvements is computed on the straight-line
method over the lesser of the term of the lease or the useful life
of the property.
(I) Goodwill
In acquisitions accounted for as a purchase, goodwill results when
the consideration paid exceeds the fair value of net assets acquired.
Goodwill resulting from acquisition activity by the Company is being
amortized using the straight-line method generally over 15 years.
(J) Income Taxes
Deferred income taxes arise from the recognition of certain items
of income and expense for tax purposes in years different from those
in which they are recognized in the consolidated financial statements.
The Company records deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled. To the
extent that current available evidence about the future raises doubt
about the realization of a deferred tax asset, a valuation allowance
is established.
(K) Treasury Stock
Repurchases of common stock are accounted for under the cost method,
whereby shares repurchased are recorded in a contra-equity account.
(L) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market price
of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," with respect to employee stock options granted subsequent
to 1994. As such, the Company has adopted the provision of SFAS No.
123 whereby it will continue to apply the provisions of APB Opinion
No. 25 in its financial statements and supplementally provide in its
footnotes to financial statements pro forma net income and proforma
earnings per share disclosures as if the fair value based method of
valuing options defined in SFAS No. 123 had been applied.
(M) Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.
It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for
transfers and servicing of assets and extinguishments of liabilities
occurring after December 31, 1996, and will supersede SFAS No. 122.
Certain aspects of SFAS No. 125 were amended by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No.
125." Management believes the adoption of SFAS No. 125 will not have
a material impact on the Company's consolidated financial statements.
(N) Earnings Per Share
Earnings per share are calculated by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding
for the respective period, retroactively adjusted to give effect to
the declaration of stock dividends. Stock options are regarded as
common stock equivalents and are therefore considered in the earnings
per share calculations if dilutive. Common stock equivalents are computed
using the treasury stock method. The weighted average common stock
equivalents utilized for primary earnings per share were 14,259,059,
15,112,284 and 16,130,677 for 1996, 1995, and 1994, respectively.
The weighted average common stock equivalents utilized for fully diluted
earnings per share were 14,322,166, 15,161,602 and 16,149,694 for
1996, 1995, and 1994, respectively.
2.
RESTRICTIONS ON STOCKHOLDERS' EQUITY
As part of its conversion to a stock form savings bank, the Bank established
a liquidation account for the benefit of eligible depositors who continue
to maintain their deposit accounts in the Bank after conversion. In
the unlikely event of a complete liquidation of the Bank, each eligible
depositor will be entitled to receive a liquidation distribution from
the liquidation account, in the proportionate amount of the then current
adjusted balance for deposit accounts held, before distribution may
be made with respect to the Bank's capital stock. The Bank may not
declare or pay a cash dividend to the Holding Company on, or repurchase
any of, its capital stock if the effect thereof would cause the retained
earnings of the Bank to be reduced below the amount required for the
liquidation account. Except for such restrictions, the existence of
the liquidation account does not restrict the use or application of
retained earnings.
The Bank's capital exceeds all capital regulatory requirements. The
Office of Thrift Supervision (the "OTS") regulations provide that
an institution that exceeds all capital requirements before and after
a proposed capital distribution could, after prior notice to but without
the approval of the OTS, make capital distributions during the calendar
year of an amount that would reduce by one half its "excess capital
ratio" plus its net income for the current calendar year. Under such
limitation, the Bank could declare dividends to the Holding Company
in 1997 of approximately $43 million plus an amount equal to 1997
earnings.
3.
ACQUISITIONS
On January 3, 1996, the Bank acquired all of the outstanding common
stock of Marble Financial Corporation of Rutland, Vermont for $18.00
per share in cash or approximately $61 million in total consideration.
On the date of closing, Marble Financial and its banking subsidiary
Marble Bank had consolidated assets and deposits of approximately
$396 million and $327 million, respectively. The transaction, which
was accounted for under the purchase method of accounting, generated
accounting goodwill of $20.1 million which is being amortized over
15 years.
On September 27, 1996, the Company assumed the deposit liabilities
and purchased loans owned and serviced by six banking offices formerly
operated by the Green Mountain Bank of Rutland, Vermont, a wholly
owned subsidiary of Arrow Financial Corporation. The acquisition included
$107.7 million in deposits and loans with a net book value of $108.4
million. This acquisition, which was accounted for under the purchase
method of accounting, generated goodwill amounting to $8.2 million
which is being amortized over a period of 15 years. The Rutland banking
office of Green Mountain was consolidated with the existing Rutland
banking office acquired from Marble. The remaining Green Mountain
banking offices together with the seven former Marble banking offices
are currently operating as the Bank's Marble division.
On a pro forma basis, certain historical financial information for
the Company adjusted for the acquisition of Marble Financial Corporation
and calculated for the year ended December 31, 1995, as if such acquisition
had been consummated on January 1, 1995, follows: net interest income,
$120.4 million; net income, $29.7 million; and $1.96 for both primary
and fully diluted earnings per share.
Subsequent Event (Unaudited)
On January 30, 1997, the Company entered into a purchase agreement
with KeyCorp. Under the terms of the agreement, the Company will assume
deposit liabilities of approximately $530 million and purchase 35
New York State banking offices currently operated by KeyBank. The
offices are located in northern New York, the greater Hudson Valley,
and the Binghamton area. The Company will pay a deposit premium of
approximately 7% based on average deposit balances just prior to closing
and has the option to purchase $53 million in small business, consumer,
and mortgage loans. The agreement is subject to approval by bank regulatory
authorities. Pending those approvals, the two companies will move
to close the sale in mid-1997.
4.
SECURITIES
The amortized cost and estimated market value of investment securities
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1996 Amortized Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Government obligations $ 1,744 9 (6) 1,747
U.S. Government agency obligations 25,140 129 -- 25,269
Mortgage-backed securities 25,082 1,456 (5) 26,533
Corporate bonds 219 -- -- 219
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 34,587 21 (248) 34,360
Asset-backed securities 21,532 141 (48) 21,625
Other debt securities 1,303 35 -- 1,338
Total $ 109,607 1,791 (307) 111,091
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1995 Amortized Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Government obligations $ 1,592 35 -- 1,627
U.S. Government agency obligations 20,393 174 -- 20,567
Mortgage-backed securities 31,030 1,957 -- 32,987
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 55,446 241 (341) 55,346
Asset-backed securities 43,540 159 (151) 43,548
Other debt securities 1,739 54 (6) 1,787
Total $ 153,740 2,620 (498) 155,862
</TABLE>
There were no sales of investment securities in the three year period
ended December 31, 1996. Gross gains and losses recorded on calls
and writedowns of investment securities were as follows:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Gross gains recognized $ 3 1 14
Gross losses recognized -- (1,199) --
Total $ 3 (1,198) 14
</TABLE>
The contractual maturity schedule of investment securities at amortized
cost and estimated market value is as follows:
<TABLE>
<CAPTION>
Estimated
(In thousands) December 31, 1996 Amortized Cost Market Value
<S> <C> <C>
Within 1 year $ 7,432 7,527
After 1 year through 5 years 49,035 49,209
After 5 years through 10 years 10,380 10,477
After 10 years 42,760 43,878
Total $ 109,607 111,091
</TABLE>
In the foregoing table and the contractual maturity table of securities
available for sale on the following page, maturities of mortgage-backed
securities, collateralized mortgage obligation securities, real estate
mortgage investment conduit securities and asset-backed securities
are based on the maturity of the final scheduled payment. Such securities,
which comprise most of the balances shown as maturing beyond five
years, generally amortize on a regular basis, predominantly monthly,
and are subject to prepayment. Taking into account such contractual
amortization and expected prepayments, a significant amount of principal
reduction on the aforementioned securities will occur within five
years.
In November 1995, the FASB released its Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities." The Special Report contained a unique
provision that, as of one date between November 15, 1995, and December
31, 1995, allowed entities to assess the appropriateness of the
classifications of all securities held at that time. In conjunction with
the provisions of this Special Report, as of December 29, 1995, the
Company transferred investment securities with a book value of
$492.3 million and a market value of $491.9 million to securities
available for sale.
The amortized cost and estimated market value of securities available
for sale are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1996 Amortized Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Government obligations $ 75,910 604 (252) 76,262
U.S. Government agency obligations 6,032 24 (42) 6,014
Mortgage-backed securities 200,870 1,407 (2,235) 200,042
Corporate bonds 282,867 1,862 (869) 283,860
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 19,443 -- (392) 19,051
Asset-backed securities 23,093 94 (31) 23,156
Equity securities 6,832 2,732 (6) 9,558
Total $ 615,047 6,723 (3,827) 617,943
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1995 Amortized Cost Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Government obligations $ 120,980 1,602 (96) 122,486
Mortgage-backed securities 122,952 562 (1,072) 122,442
Corporate bonds 352,727 4,213 (461) 356,479
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 25,322 41 (269) 25,094
Asset-backed securities 24,043 178 (20) 24,201
Equity securities 4,766 1,329 (13) 6,082
Total $ 650,790 7,925 (1,931) 656,784
</TABLE>
Proceeds from the sale of securities available for sale in 1996, 1995
and 1994 amounted to $22,985,000, $0, and $5,015,000, respectively.
In 1996, gains and losses amounted to $11,198 and $6,575, respectively.
There were no gains or losses in 1995 or 1994.
The contractual maturity schedule of securities available for sale
(exclusive of equity securities) at amortized cost and estimated market
value is as follows:
<TABLE>
<CAPTION>
Estimated
(In thousands) December 31, 1996 Amortized Cost Market Value
<S> <C> <C>
Within 1 year $ 191,060 190,987
After 1 year through 5 years 269,831 270,066
After 5 years through 10 years 56,055 56,206
After 10 years 91,269 91,126
Total $ 608,215 608,385
</TABLE>
The book value of securities pledged as required by law and for other
purposes amounted to $107.2 million and $3.8 million at December 31, 1996
and 1995, respectively. The increase in such securities in 1996
was primarily used to secure municipal deposits located in the state
of Vermont.
The Bank has entered into an agreement to loan certain securities
to investment brokers for which the Bank receives a fee. The total
book value of securities loaned to brokers under this agreement was
approximately $67.0 million and $75.7 million at December 31, 1996
and 1995, respectively.
5.
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Loans $ 18,223 15,151
Securities available for sale 7,669 9,368
Investment securities 989 1,269
Other earning assets 211 563
Total $ 27,092 26,351
</TABLE>
6.
LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Mortgage Loans
One- to four-family $ 1,730,059 1,362,277
Home equity 169,214 147,136
Commercial real estate 135,284 81,448
Multi-family 31,792 28,313
Construction 13,338 11,577
Total 2,079,687 1,630,751
Other Loans
Commercial 247,783 115,698
Student 94,478 93,816
Personal, secured and unsecured 84,308 52,627
Home improvement 23,593 22,800
Credit cards 14,754 17,233
Overdraft and other 16,222 12,065
Total 481,138 314,239
Total loans receivable 2,560,825 1,944,990
Net discounts, premiums and
deferred loan fees and costs 5,539 1,611
Loans receivable $ 2,566,364 1,946,601
</TABLE>
Real estate mortgage loans serviced by the Bank for other institutions
of approximately $289.7 million and $138.2 million at December 31, 1996
and 1995, respectively, are not included in loans receivable.
Nonperforming loans are as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995 1994
<S> <C> <C> <C>
Mortgage Loans
Nonaccrual $ 15,298 12,571 10,231
Delinquent more than 90 days and still accruing 7,367 5,567 5,104
Total nonperforming mortgage loans 22,665 18,138 15,335
Other Loans
Nonaccrual 3,933 372 424
Delinquent more than 90 days and still accruing 3,218 4,646 4,544
Total nonperforming other loans 7,151 5,018 4,968
Total nonperforming loans $ 29,816 23,156 20,303
</TABLE>
Assuming all nonaccrual loans had been current, the amounts of interest
income recorded on such loans during the years ended December 31, 1996,
1995 and 1994, based on such loans' original rates of interest,
would have totaled $1.7 million, $1.0 million and $0.9 million, respectively.
The amounts included in interest income recorded in these periods
with respect to such loans were $320,000, $295,000 and $290,000, respectively.
The Bank has no commitments to extend further credit on nonaccrual
loans.
Certain directors and executive officers of the Company, as well as
certain affiliates of directors, were customers of and had other transactions
with the Company in the ordinary course of the Company's business.
Loans to these parties were made in the ordinary course of business
at the Company's normal credit terms, including interest rate and
collateralization. The aggregate of such loans totaled $463,000 and
$894,000 at December 31, 1996 and 1995, respectively. Total advances
to these directors and executive officers during the year ended
December 31, 1996, were $152,000. Total payments made on these loans
were $583,000.
7.
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Balance, beginning of year $ 15,949 15,510 12,984
Allowance of acquired banks 11,310 -- 151
Provision charged to operations 5,775 4,500 4,500
Loans charged-off (9,648) (4,421) (3,011)
Recoveries of loans previously charged-off 728 360 886
Balance, end of year $ 24,114 15,949 15,510
</TABLE>
Of the total loans charged-off in 1996, $4.1 million was related to
a sale of a group of one- to four-family nonperforming loans consummated
during the fourth quarter of 1996.
8.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
The allowance for loan losses related to impaired loans is based on
discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain loans where repayment
of the loan is expected to be provided solely by the underlying collateral
(collateral dependent loans). Impaired loans at December 31, 1996
and 1995, were generally collateral dependent. The Company considers
estimated costs to sell, on a discounted basis, when determining the
fair value of collateral in the measurement of impairment if those
costs are expected to reduce the cash flows available to repay or
otherwise satisfy the loans.
At December 31, 1996 and 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 totaled $4,358,000
and $948,000, respectively. Restructured loans included in the foregoing
impaired loan balances amounted to $320,000 and $398,000 at the respective
year-end dates. The allowance for loan losses allocated to impaired
loans at December 31, 1996 and 1995, was $1,375,000 and $390,000,
respectively. Included in the total impaired loans at December 31, 1995,
were $106,000 of impaired loans that as a result of charge-offs
of $75,000 did not have an allowance for loan losses determined in
accordance with SFAS No. 114. The average recorded investment in impaired
loans during the twelve months ended December 31, 1996 and 1995, was
approximately $3,560,000 and $1,433,000, respectively.
Impaired loans are included in nonperforming loans generally as nonaccrual
loans. Commercial type loans past due greater than 90 days and still
accruing are generally not considered to be impaired as the Company
expects to collect all amounts due, including interest accrued at
the contractual interest rate for the delinquent period. As of December
31, 1996, the balance of loans restructured prior to the adoption
of SFAS No. 114 amounted to $742,000; such loans were not considered
impaired.
For the years ended December 31, 1996 and 1995, the Company recognized
no interest income on impaired loans.
9.
REAL ESTATE OWNED
A summary of real estate acquired through foreclosure follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Residential (1-4 family) $ 2,750 3,760
Commercial properties 1,262 139
Total $ 4,012 3,899
</TABLE>
10.
DEPOSITS
A summary of depositors' balances is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996 1995
Weighted Weighted
Amount Average Rate Amount Average Rate
<S> <C> <C> <C> <C>
Passbook and statement accounts $ 824,151 2.94% $ 826,875 2.96%
Certificate accounts:
2.01% to 3.00% 9,215 4,626
3.01% to 4.00% 11,908 16,384
4.01% to 5.00% 411,986 237,755
5.01% to 6.00% 967,800 630,827
6.01% to 7.00% 110,113 348,158
7.01% to 8.00% 69,572 61,070
8.01% to 9.00% 3,196 9,502
9.01% to 10.00% -- 414
10.01% to 11.00% 135 122
Total certificate accounts 1,583,925 5.37 1,308,858 5.64
Money market accounts 260,521 3.14 157,056 2.74
Super NOW accounts 27,908 1.82 10,139 1.09
NOW accounts 195,479 1.02 181,022 1.00
Commercial demand deposit accounts
from 0% to 2.47% in 1996 and 0%
to 1.50% in 1995 74,238 0.29 45,113 0.05
Demand deposit accounts 46,907 -- 29,225 --
Total $ 3,013,129 3.99% $ 2,558,288 4.09%
</TABLE>
At December 31, 1996 and 1995, the aggregate amounts of certificate
accounts with balances equal to or in excess of $100,000 were approximately
$174.5 million and $91.0 million, respectively.
The approximate amount of contractual maturities of certificate accounts
for the years subsequent to December 31, 1996, is as follows:
<TABLE>
<CAPTION>
(In thousands) Amount
<S> <C>
1997 $ 1,114,101
1998 225,080
1999 192,220
2000 33,703
2001 10,971
Thereafter 7,850
Total $ 1,583,925
</TABLE>
Components of interest expense on deposits and escrow accounts are
detailed as follows:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Passbook and statement accounts $ 24,773 25,870 30,057
Certificate accounts 82,734 70,341 44,027
Money market accounts 9,320 4,346 3,124
Super NOW and NOW accounts 2,499 2,557 3,093
Commercial demand deposit accounts 79 22 21
Escrow accounts 601 674 565
Total $ 120,006 103,810 80,887
</TABLE>
11.
SHORT-TERM BORROWED FUNDS AND REPURCHASE AGREEMENTS
Short-term borrowed funds and repurchase agreements, consisting of
advances with maturities of less than one year are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, Interest Rate 1996 1995
<S> <C> <C> <C>
Federal Home Loan Bank advances 5.38% $ -- 1,290
6.88% to 7.38% 36,000 --
Repurchase agreements 4.00% 4,796 --
Other short-term borrowings 6.00% 1,550 --
Total $ 42,346 1,290
</TABLE>
Repurchase agreements are accounted for as borrowings and are secured
by certain mortgage-backed and other qualifying securities. Short-term
Federal Home Loan Bank advances are made pursuant to several different
credit programs, each of which has its own interest rate and range
of maturities, and are collateralized by Federal Home Loan Bank stock
and real estate mortgages.
12.
LONG-TERM DEBT
Long-term debt, consisting of advances from the Federal Home Loan
Bank with maturities of one year or more is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, Interest Rate 1996 1995
<S> <C> <C> <C>
Year of Maturity
1997 5.40% $ 10,000 --
1998 5.41% 10,000 --
1999 5.52% 10,000 --
2016 7.47% 61 --
Total $ 30,061 --
</TABLE>
Long-term Federal Home Loan Bank advances are collateralized by Federal
Home Loan Bank stock and real estate mortgages.
13.
OFFICE PREMISES AND EQUIPMENT
A summary of office premises and equipment follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Banking house, land and land improvements $ 37,975 30,607
Leasehold improvements 9,010 9,206
Furniture, fixtures and equipment 35,488 30,118
Capitalized lease 5,775 5,775
88,248 75,706
Less: accumulated depreciation and amortization 39,694 35,051
Total $ 48,554 40,655
</TABLE>
Amounts charged to expense for depreciation and amortization aggregated
$5,385,000, $3,962,000 and $3,429,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
14.
INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Current tax expense:
Federal $ 10,860 15,648 14,347
State 2,835 3,626 4,864
13,695 19,274 19,211
Deferred tax expense (benefit) 1,815 (926) 687
Total $ 15,510 18,348 19,898
</TABLE>
The income tax provisions are higher than the statutory federal income
tax rate. The reasons for the differences are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
% of % of % of
Pretax Pretax Pretax
(Dollars in thousands) Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at 35% $ 14,601 35.0% $ 16,671 35.0% $ 16,965 35.0%
Tax-exempt income and
dividend received deduction (272) (0.7) (178) (0.4) (122) (0.3)
State income taxes, net of
federal tax benefit 1,843 4.4 2,357 4.9 3,162 6.5
Other (662) (1.5) (502) (1.0) (107) (0.2)
Total $ 15,510 37.2% $ 18,348 38.5% $ 19,898 41.0%
</TABLE>
Prior to 1996, the Bank was allowed to claim a special bad debt deduction
in excess of its actual loss experience; such special deduction was
not subject to deferred tax allocation prior to 1988 in accordance
with SFAS No. 109. Accordingly, no deferred tax liability has been
recorded for the tax bad debt reserve at December 31, 1987 (the "base
year reserve"). The pre-1988 tax bad debt reserve, which was approximately
$27.3 million at December 31, 1996, will not be subject to tax as
long as the Bank does not redeem stock or distribute amounts to the
Company in excess of historical tax earnings.
As a result of tax legislation passed by Congress in 1996, the Bank
is no longer eligible to claim the special bad debt deduction for
federal income tax purposes. The total federal tax bad debt reserve,
aggregating approximately $33.5 million at December 31, 1995, exceeds
the base year reserve by approximately $6.2 million (the "excess reserve").
The excess reserve is to be recaptured as taxable income over a defined
number of years. The Company had previously established a deferred
tax liability for this excess reserve such that there is no impact
on total tax expense for the Company for 1996 or any future year based
on current tax rates.
Significant net temporary differences and carryforwards that give
rise to net deferred tax assets are as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Allowance for loan losses $ 6,279 5,000
Net operating loss carryforwards 247 389
Employee benefit plans 5,589 5,153
Net deferred fees on loans (1,225) (329)
Prepaid expenses (1,907) (1,826)
Accrued expenses 1,246 987
Unrealized gain on securities
available for sale (1,115) (2,466)
Other items (92) (161)
9,022 6,747
Valuation reserve (1,689) (2,150)
Net deferred tax asset--at year end 7,333 4,597
Less: net deferred tax asset--
at beginning of year 4,597 6,657
Decrease (increase) in deferred
tax asset (2,736) 2,060
Change in temporary difference
for unrealized gain on
securities available for sale 1,351 (2,986)
Deferred tax asset acquired 3,200 --
Deferred tax expense (benefit)
for the years ended $ 1,815 (926)
</TABLE>
The Company established valuation reserves at December 31, 1996 and
1995, based on an evaluation of the Company's historical levels of
taxable income in prior years and the anticipated time period for
the reversal of the items giving rise to the deferred tax asset. Management
believes that it is more likely than not that the results of future
operations of the Company will generate sufficient taxable income
to realize the net deferred tax asset as of December 31, 1996. At
December 31, 1996, the Company has a net operating loss carryforward
of $705,000 available to offset future taxable income. Such carrryforward
expires in 2004.
15.
RETIREMENT PLANS
The Company maintains a noncontributory defined benefit pension plan
covering substantially all employees 21 years of age or older who
have completed at least one year of service. 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
for benefits attributed to service to date and for those expected
to be earned in the future. Assets of the plan are primarily invested
in pooled equity funds and fixed income funds.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements at or for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits of $21,081
in 1996 and $21,434 in 1995 $ (23,488) (23,267)
Projected benefit obligation for
service rendered to date $ (30,379) (28,589)
Plan assets at fair value 33,261 30,097
Plan assets greater than projected
benefit obligation 2,882 1,508
Unrecognized net loss from past
experience different from that
assumed and effects and changes
in assumptions 359 1,987
Unrecognized prior service cost 758 816
Unrecognized net asset at July 1, 1987,
being recognized over a weighted
average period of 13 years (879) (1,077)
Prepaid pension asset $ 3,120 3,234
</TABLE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Service cost--benefits earned
during the year $ 820 561 794
Interest cost on projected
benefit obligation 2,119 1,959 1,921
Actual return on plan assets (4,245) (5,196) (17)
Net amortization and deferral 1,652 2,994 (1,928)
Net periodic pension cost $ 346 318 770
</TABLE>
Significant assumptions used in the accounting for the plan were:
<TABLE>
<CAPTION>
(In percentages) As of December 31, 1996 1995 1994
<S> <C> <C> <C>
Settlement rate 7.50% 7.50 8.50
Expected long-term rate of return
on plan assets 8.50 8.50 8.50
Salary increase rate 5.00 5.00 4.50
</TABLE>
The Company also has a directors' retirement plan which was amended
to freeze participation in the plan to directors who were participants
in the plan on January 1, 1992. The directors' retirement plan, which
is unfunded, provides a benefit of $500 for each quarter of service
not to exceed 40 quarters or a total annual maximum pension payment
of $20,000. The amount of pension liability recorded on the books
of the Company related to the directors' retirement plan was $2.4
million and $2.0 million at December 31, 1996 and 1995, respectively.
Net periodic pension costs for this plan for the years ended
December 31, 1996, 1995 and 1994, were $248,000, $284,000 and $348,000,
respectively. Settlement rates used in accounting for the plan were 7.50%,
7.50% and 8.50% as of December 31, 1996, 1995 and 1994, respectively.
The Company also has supplemental retirement contracts with certain
key executives. The amount of pension liability recorded on the books
of the Company related to these supplemental retirement contracts
was $1.0 million and $0.7 million at December 31, 1996 and 1995, respectively.
Net periodic pension costs in connection with these contracts for
the years ended December 31, 1996, 1995 and 1994 were $238,700, $173,300
and $116,200, respectively. Settlement rates used in accounting for
the plan were 7.50%, 7.50% and 8.50% as of December 31, 1996, 1995
and 1994, respectively.
16.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a defined benefit postretirement medical plan
that covers all of its full-time employees who have retired from the
Bank and attained age 55 with 15 years of service. Retired employees
contribute towards these benefits for themselves and their spouses
based on age and service at retirement. The Company also sponsors
an employer paid postretirement life insurance plan which covers all
employees who have retired from the Bank and attained 15 years of
service.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retired employees $ (5,586) (4,981)
Active employees (2,520) (1,720)
Unfunded postretirement benefit obligation (8,106) (6,701)
Unrecognized net loss (gain) resulting
from past experience different from that
assumed and changes in assumptions 521 (479)
Accrued postretirement benefit liability $ (7,585) (7,180)
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Service cost--benefits earned
during the year $ 169 81 83
Interest cost 580 474 453
Net amortization and deferral 6 (56) --
Net periodic postretirement benefit cost $ 755 499 536
</TABLE>
For measurement purposes, an 8.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal
1997; the rate was assumed to decrease gradually down to 5.5% for
fiscal 2003 and remain at that level thereafter. The healthcare cost
trend rate assumption has a significant effect on the amounts reported.
To illustrate, increasing the assumed health care cost trend rate
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by $712,000 (9%)
and the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for fiscal 1996 by $52,400 (7%). The
weighted average discount rates used in determining the accumulated
postretirement benefit obligation were 7.50%, 7.25% and 8.50% as of
December 31, 1996, 1995 and 1994, respectively.
17.
STOCK BENEFIT PLANS
At December 31, 1996, the Company had several stock-based compensation
plans, which are described below. As allowed by SFAS No. 123, the
Company has continued to apply APB Opinion No. 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. Alternatively, had
compensation cost for the Company's stock-based compensation plans
been determined consistent with the fair value based method outlined
in SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands, except per share data) Years Ended December 31, 1996 1995
<S> <C> <C>
Net income:
as reported $ 26,207 29,283
pro-forma 25,822 29,236
Primary earnings per share:
as reported 1.84 1.94
pro-forma 1.81 1.93
Fully dilurted earnings per share:
as reported 1.83 1.93
proforma 1.80 1.93
</TABLE>
Under the 1992 Incentive Stock Option Plan as amended, the Company
may grant up to 1,674,500 shares to senior officers. Under this plan,
the exercise price of each option equals the market price of the Company
stock on the date of grant. Options granted before December 18, 1995,
become exercisable on a cumulative basis in equal installments at
a rate of one-fifth per year commencing one year from the date of
grant; however, all options become 100% exercisable in the event the
employee's employment is terminated due to death, disability or in
the event of a change in control of the Bank or the Company. Options
granted on or after December 18, 1995, become exercisable on a cumulative
basis in equal installments at a rate of one-third per year commencing
one year from the date of grant. All options granted under the 1992
Incentive Stock Option Plan as amended give rise to a "limited right"
with respect to the shares covered by the options. Limited rights
granted are subject to certain terms and conditions and can be exercised
only in the event of a change in control of the Company. Upon exercise
of a limited right, the holder shall receive from the Company a cash
payment equal to the difference between the exercise price of the
option and the fair market value of the underlying shares of the Company's
common stock. All options granted under the 1992 Incentive Stock Option
Plan as amended, including limited rights, expire ten years following
the date of grant.
Under the 1992 Directors' Option Plan, the Company granted to directors
who were not officers or employees of the Company options to acquire
330,000 shares. Under this plan, the exercise price of each option
equals the market price of the Company stock on the date of grant
with limited rights. Options are exercisable by a director on a cumulative
basis in equal installments at the rate of one-fifth per year commencing
one year from the date of grant; however, all options become 100%
exercisable in the event a director dies or becomes disabled or in
the event of a change in control of the Bank or the Company. All options
granted under this Directors' Option Plan, including limited rights
which have characteristics similar to the rights granted under the
1992 Incentive Stock Option Plan as amended, expire upon the earlier
of ten years following the date of grant or one year following the
date the optionee's term as a director or a director emeritus expires.
Under the 1995 Directors' Option Plan, which superseded the 1992 Directors'
Option Plan, the Company may grant up to 240,000 options to acquire
shares to directors who are not officers or employees of the Company.
Options are exercisable by a director on a cumulative basis in equal
installments at a rate of one-third per year commencing one year from
the date of grant. All other significant provisions of this plan are
identical to those of the 1992 Directors' Option Plan.
In connection with the acquisition of Marble, the Company assumed
liability for the Marble stock option plans (the "Marble Option Plan").
All options granted under the Marble Option Plan were converted to
options to acquire 0.732 shares of ALBANK stock, based on the market
price of the Company stock and cash consideration paid for the Marble
common stock on the acquisition date. All options granted under these
plans have an original maximum term of ten years from the date of
grant and are fully vested. The Company recorded a liability of $1,867,000
for the estimated fair value of these options on the assumption date.
In regard to the disclosure required by SFAS No. 123, the fair value
of each of the option grants in the years ended December 31, 1996
and 1995, was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
used for grants in 1996 and 1995, respectively: dividend yields of
1.91% and 1.92%; expected volatility of 25% and 25%; risk-free interest
rates of 6.5% and 5.6%; and expected lives of 7.5 years for all plan
options.
A summary of the status of the Company's fixed-stock option plans
as of December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning of year 1,464,960 $ 10.7550 1,263,960 $ 8.5791 1,290,600 $ 8.5740
Granted 192,000 31.1146 208,200 23.8809 -- --
Assumed in acquisition 112,362 8.1784 -- -- -- --
Exercised (53,349) 7.5708 (7,200) 8.3333 (26,640) 8.3333
Forfeited -- -- -- -- -- --
Outstanding at end of year 1,715,973 $ 12.9633 1,464,960 $ 10.7550 1,263,960 $ 8.5791
Options exercisable at year-end 1,113,893 722,400 468,120
Weighted-average fair value of
options granted during the year $ 2,077,000 1,611,000
Weighted-average fair value of
options assumed during the year $ 1,867,000
</TABLE>
The following table summarizes information about fixed-stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ 6.6598 to $ 9.9999 1,228,029 5.1 years $ 8.2705 983,949 $ 8.2549
$10.0000 to $14.9999 85,914 6.5 years 12.9388 63,114 12.6339
$15.0000 to $24.9999 234,030 8.8 years 23.9184 66,830 23.9307
$25.0000 to $32.1250 168,000 9.9 years 32.0179 -- --
$ 6.6598 to $32.1250 1,715,973 6.1 years $ 12.9633 1,113,893 $ 9.4435
</TABLE>
Incentive Savings and Employee Stock Ownership Plans
The Bank maintains an Incentive Savings Plan which is a tax-qualified
defined contribution plan. All salaried employees of the Bank become
eligible to participate in the plan after completing one year of service.
The Incentive Savings Plan was amended effective April 1, 1992, to
discontinue after-tax contributions and instead provide for pretax
contributions pursuant to Section 401(k) of the Internal Revenue Code.
The plan as amended requires a minimum age of 21 for participation.
In connection with the amendment of the Incentive Savings Plan, the
Bank established an employee stock ownership plan ("ESOP"). The ESOP
borrowed $12.4 million from the Holding Company and, along with $126,000
contributed by the Bank, purchased 8%, or 1,255,800 shares, of common
stock issued in the Bank's conversion to stock form. The cost of the
purchased shares is being amortized over a ten-year period. At December
31, 1996, the total unamortized cost of $6.3 million is reflected
as a reduction of stockholders' equity. Shares purchased by the ESOP
are held in a suspense account for allocation among participants as
the ESOP loan is repaid. The Bank's current intention is to repay
the loan in substantially equal installments over a remaining term
of five years. The Bank will make scheduled discretionary cash contributions
as approved by the Board of Directors to the ESOP at least sufficient
to fund the scheduled principal and interest payments on the debt
of the ESOP. During 1996 and 1995, dividends on unallocated ESOP shares
amounted to $427,000 and $417,000, respectively and were used to reduce
the Company's compensation expense. The Company has elected to make
payments on the loan obligation equal to the amount of these dividends;
such amounts will be used to reduce the regularly scheduled principal
and interest payments due on the ESOP obligation. At December 31,
1996 and 1995, the loan had an outstanding balance of $6.3 million
and $7.5 million, respectively, and respective interest rates of 8.00%
and 8.25%, both of which were based on the prime lending rate less
0.25%. Interest paid by the Bank on the obligation of $596,000 and
$742,000 for the years ended December 31, 1996 and 1995, respectively,
was eliminated in consolidation. ESOP shares are allocated to contributing
participants in the Bank's amended 401(k) plan in order to satisfy
the Company's minimum matching obligation. The shares released from
the ESOP in excess of the amount necessary to satisfy the minimum
matching allocation of the 401(k) plan are allocated to eligible employees
on the basis of compensation subject to Internal Revenue Code limitations.
In connection with these plans, an expense of $780,000, $790,000 and
$849,000 was recognized for the years ended December 31, 1996, 1995
and 1994, respectively.
Bank Recognition Plans and Trusts
In conjunction with the Bank's conversion, a Bank recognition plan
("BRP") was established to acquire, in the aggregate, 3% of the shares
of common stock issued in the conversion to provide employees, officers,
and directors of the Company with a proprietary interest in the Holding
Company in a manner designed to encourage such persons to remain with
the Company. The Bank's BRP trustee acquired a total of 470,925 shares
of common stock in the conversion and an additional 6,183 shares during
the first quarter of 1993. The BRP will vest on the anniversary of
the date of award at a rate of one-fifth per year. The BRP becomes
100% vested in the event an employee, officer or director's employment
is terminated due to death, disability or in the event of a change
in control of the Bank or the Company.
The $4.8 million contributed to the BRP is being amortized to compensation
expense as the Company's employees become vested in those shares.
Amortized expense related to the BRP of $900,000, $907,000 and $916,000
was recognized for the years ended December 31, 1996, 1995 and 1994,
respectively. The expense includes the pro-rata amount of shares earned
but not yet vested. The Bank distributed 93,583, 80,010 and 83,442
shares of common stock pursuant to the BRP during the years ended
December 31, 1996, 1995 and 1994, respectively. The unamortized cost
is reflected as a reduction of stockholders' equity.
18.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires the Company to 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 ready market exists
for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected
net cash flows, current economic conditions, risk characteristics
of various financial instruments, and other factors. These estimates
are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
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 asset and office premises and equipment.
In addition, tax ramifications related to the realization of the unrealized
gains and losses on securities available for sale, which can have
a significant effect on fair value estimates, have not been considered
in the estimates of fair value under SFAS No. 107.
In addition there are significant intangible assets that SFAS No.
107 does not recognize, such as the value of "core deposits," the
Bank's branch network and other items generally referred to as "goodwill".
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 68,883 68,883 105,002 105,002
Securities available for sale 617,943 617,943 656,784 656,784
Investment securities 109,607 111,091 153,740 155,862
Stock in Federal Home Loan Bank 16,913 16,913 15,750 15,750
Accrued interest receivable 27,092 27,092 26,351 26,351
Loans receivable 2,560,825 2,602,160 1,944,990 1,963,541
Allowance for loan losses (24,114) -- (15,949) --
Net discounts, premiums and deferred
loan fees and costs 5,539 -- 1,611 --
Loans receivable, net 2,542,250 2,602,160 1,930,652 1,963,541
Demand deposits 121,145 121,145 74,338 74,338
Passbook, statement, NOW and
super NOW accounts 1,047,538 1,047,538 1,018,036 1,018,036
Money market accounts 260,521 260,521 157,056 157,056
Certificates of deposit 1,583,925 1,589,489 1,308,858 1,317,599
Escrow accounts 26,603 26,603 34,928 34,928
Short-term borrowed funds and
repurchase agreements 42,346 42,346 1,290 1,290
Long-term debt 30,061 29,958 -- --
</TABLE>
Financial Instruments with Carrying Amount Equal to Fair Value
The carrying amount of cash and due from banks, federal funds sold
and securities purchased under agreement to resell (collectively defined
as "cash and cash equivalents"), accrued interest receivable and
stock in the Federal Home Loan Bank is considered to be equal to fair
value as a result of their short-term nature or limited marketability.
Securities Available for Sale and Investment Securities
The fair value of securities available for sale and investment securities
is estimated based on bid prices published in financial newspapers
and bid quotations received from either quotation services or securities
dealers.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as one- to four-family,
commercial real estate, consumer and commercial loans. Each loan category
is further segmented into fixed and adjustable rate interest terms
and by performing and nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the contractual term of
the loans to maturity, adjusted for estimated prepayments.
The fair value estimate for credit card loans is based on the value
of existing loans at December 31, 1996 and 1995. This estimate does
not include the value of estimated cash flows from new loans generated
from existing cardholders over the remaining life of the portfolio.
Fair value for nonperforming 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.
Deposits, Escrow Accounts, Short-Term Borrowed Funds and Repurchase
Agreements, and Long-Term Debt
Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, passbook, statement,
NOW and super NOW accounts, money market accounts and escrow accounts,
is estimated to be the amount payable on demand as of December 31,
1996 and 1995. The 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. As per SFAS No. 107, the fair value estimates
of deposit liabilities in the foregoing table 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 debt market.
The fair value of short-term borrowed funds and repurchase agreements
for 1996 and 1995 is considered to be equal to the carrying amount
due to their short-term nature. The fair value of long-term debt for
1996 and 1995 is estimated using the present value of the anticipated
cash flows related to the debt considering the remaining maturity
and yield.
Commitments to Extend Credit and Standby Letters of Credit
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
credit worthiness 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 fair value of 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 Bank's business. Based on an analysis of the foregoing
factors, the fair value of these items is deemed insignificant at
December 31, 1996 and 1995.
19.
COMMITMENTS AND CONTINGENT LIABILITIES
(A) Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit
The Bank enters into financial agreements in the normal course of
business that have off-balance sheet risk. These agreements include
commitments to extend credit and standby letters of credit and involve,
to varying degrees, elements of credit risk in excess of the amount
recognized on the consolidated statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the commitments to extend credit and standby
letters of credit is represented by a contractual amount. The Bank
uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk
are as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Mortgage loans $ 30,757 19,404
Commercial real estate loans 9,726 5,320
Construction loans 12,247 6,722
Credit cards 42,002 43,942
Commercial loans 98,115 74,972
Student loans 6,322 6,063
Overdraft loans 17,883 13,808
217,052 170,231
Standby letters of credit 1,599 230
Total $ 218,651 170,461
</TABLE>
The range of interest rates on fixed rate commitments was 7.13% to
18.00% at December 31, 1996, and 7.00% to 18.00% at December 31, 1995.
The Bank offers a variety of adjustable rate mortgage ("ARM") products
on one- to four-family residential dwellings. Generally, the principal
one-year ARM offered by the Bank has a 2.00% annual interest rate
adjustment cap, and uses the weekly average from the one-year Treasury
Constant Maturity Index, plus a margin of 3.00%, as an index for rate
adjustments. The lifetime rate ceilings for one-year ARM originations
generally are 6.00% over the initial first year rate. Another one-year
product offered by the Bank is an ARM that is convertible to a fixed
rate loan between the 13th and 60th months. Three-, five- and seven-year
ARMs are also available; such loans have a 3.00% periodic adjustment
cap at the first adjustment date and a 2.00% cap in all subsequent
years. The Bank does not originate loans which provide for negative
amortization. Loan terms vary from 5 to 30 years.
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 Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral, if any, required
by the Bank upon the extension of credit is based on management's
credit evaluation of the customer. Mortgage and construction loan
commitments are secured by a first lien on real estate. Collateral
on 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 by the
Bank 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 Bank grants residential, consumer and commercial loans to customers
principally throughout much of upstate New York State and Vermont,
and in a part of western Massachusetts. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate and construction
related sectors of the local/regional economy.
(B) Leases
The Bank leases several branch office facilities and equipment used
in its operations which are accounted for as operating leases. These
leases expire (excluding renewal options) in periods ranging from
1 to 9 years. The Bank also occupies its main office building under
a lease agreement which is accounted for as a "capital lease" for
financial reporting purposes. Minimum rental commitments under operating
and capital leases are as follows:
<TABLE>
<CAPTION>
(In thousands) Operating Leases Capital Leases
<S> <C> <C>
1997 $ 2,311 415
1998 1,502 415
1999 1,052 415
2000 761 415
2001 616 415
Thereafter 2,483 6,656
Total minimum lease payments 8,725 8,731
Imputed interest at 6.76% n.a. 4,085
Present value of minimum
lease payments $ n.a. 4,646
</TABLE>
Rent expense aggregated $2,544,000, $2,082,000 and $1,873,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
(C) Litigation
There are legal proceedings against the Company arising in the ordinary
course of business. Although it is not possible to determine the ultimate
outcome of the Company's legal proceedings, management believes that
the outstanding litigation will not result in material losses to the
Company upon resolution.
20.
CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of December
31, 1996 and 1995, and condensed statements of earnings and cash flows
for each of the years in the three-year period ended December 31, 1996,
for ALBANK Financial Corporation (parent company only) should
be read in conjunction with the consolidated financial statements
and accompanying notes.
<TABLE>
Statements of Financial Condition
<CAPTION>
(In thousands) December 31, 1996 1995
<S> <C> <C>
Assets
Cash and cash equivalents $ 13,813 1,581
Securities available for sale 9,453 16,137
Loans receivable 12,994 14,752
Equity in net assets of subsidiary 284,813 290,890
Intercompany accounts receivable 3,037 2,073
Other assets 180 129
$ 324,290 325,562
Liabilities
Accrued income taxes payable $ 1,031 571
Other liabilities 4,134 1,809
Total liabilities 5,165 2,380
Stockholders' Equity
Preferred stock -- --
Common stock 157 157
Additional paid-in capital 180,670 151,969
Retained earnings 214,283 258,631
Treasury stock (71,235) (82,381)
Unrealized gain on securities
available for sale, net of tax 1,781 3,528
Common stock acquired by ESOP (6,279) (7,535)
Common stock acquired by BRP (252) (1,187)
Total stockholders' equity 319,125 323,182
$ 324,290 325,562
</TABLE>
<TABLE>
Statements of Earnings
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Interest income $ 1,984 2,091 2,742
Interest expense 63 215 435
Net interest income 1,921 1,876 2,307
Noninterest income 2 157 16
Noninterest expense 967 782 951
Income before income taxes and
equity in earnings of subsidiary 956 1,251 1,372
Income tax expense 256 459 577
Income before equity in earnings
of subsidiary 700 792 795
Equity in earnings of subsidiary 25,507 28,491 27,777
Net income $ 26,207 29,283 28,572
</TABLE>
<TABLE>
Statements of Cash Flows
<CAPTION>
(In thousands) Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Increase (Decrease) in Cash
and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 26,207 29,283 28,572
Reconciliation of net income to net
cash provided (used) by
operating activities:
Equity in earnings of subsidiary (25,507) (28,491) (27,777)
Net amortization of premiums and accretion
of discounts on securities 32 106 316
Net decrease (increase) in other assets (51) 61 14
Net increase in intercompany
accounts receivable (964) (47) (1,791)
Net increase in accrued income
taxes payable 103 5 110
Net increase (decrease) in other liabilities 2,372 (128) (740)
Net cash provided (used) by
operating activities 2,192 789 (1,296)
Cash Flows from Investing Activities
Net decrease (increase) in loans receivable 1,758 (1,359) (3,347)
Proceeds from the sale of securities
available for sale -- -- 5,015
Proceeds from the maturity of
investment securities -- 7,500 10,000
Proceeds from the maturity of securities
available for sale 10,000 -- --
Purchase of securities available for sale (2,065) (3,205) (1,182)
Net cash provided by investing activities 9,693 2,936 10,486
Cash Flows from Financing Activities
Net increase (decrease) in repurchase
agreements -- (11,800) 9,300
Dividends received 32,000 28,000 17,500
Dividends paid (6,210) (5,565) (3,884)
Purchase of treasury stock (25,847) (24,233) (22,072)
Cash proceeds from the exercise
of stock options 404 60 222
Net cash provided (used) by
financing activities 347 (13,538) 1,066
Net increase (decrease) in cash and
cash equivalents 12,232 (9,813) 10,256
Cash and cash equivalents at
beginning of year 1,581 11,394 1,138
Cash and cash equivalents at end of year $ 13,813 1,581 11,394
Supplemental Disclosures of Cash
Flow Information
Net unrealized gain on securities
available for sale, net of tax $ 824 677 125
Transfer of investment securities to
securities available for sale -- -- 23,196
Tax benefits related to stock
options exercised 100 40 117
</TABLE>
21.
REGULATORY CAPITAL REQUIREMENTS
Office of Thrift Supervision ("OTS") capital regulations require savings
institutions to maintain minimum levels of regulatory capital. Under
the regulations in effect at December 31, 1996, the Bank was required
to maintain a minimum ratio of tangible capital to tangible assets
of 1.5%; a minimum leverage ratio of core (Tier 1) capital to total
adjusted tangible assets of 3.0%; and a minimum ratio of total capital
(core capital and supplementary capital) to risk-weighted assets of
8.0%, of which 4.0% must be core (Tier 1) capital.
Under its prompt corrective action regulations, the OTS is required
to take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions
could have a direct material effect on an institution's financial
statements. The regulations establish a framework for the classification
of savings institutions into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Generally, an institution is considered
well capitalized if it has a core (Tier 1) capital ratio of at least
5.0% (based on adjusted total assets); a core (Tier 1) risk-based
capital ratio of at least 6.0%; and a total risk-based capital ratio
of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by the
OTS about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1996, the Bank meets
all capital adequacy requirements to which it is subject. Further,
the most recent OTS notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There
have been no conditions or events since that notification that management
believes have changed the Bank's capital classification.
The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1996, compared to the OTS minimum bank capital
adequacy requirements and the OTS requirements for classification
as a well-capitalized institution. Although the OTS capital regulations
apply at the Bank level only, the Company's consolidated capital amounts
and ratios are also presented. The OTS does not have a holding company
capital requirement.
<TABLE>
<CAPTION>
OTS Bank Capital Requirements
Minimum For Classification
Capital Adequacy as Well Capitalized
(Dollars in thousands) Amount Ratio Ratio Ratio
<S> <C> <C> <C> <C>
Tangible capital:
Bank only $ 241,150 7.00% 1.50% 5.00%
Consolidated 273,835 7.92
Core (Tier 1) capital:
Bank only 241,150 7.00 3.00 5.00
Consolidated 273,835 7.92
Risk-based capital:
Core (Tier 1):
Bank only 241,150 10.80 4.00 6.00
Consolidated 273,835 12.24
Total:
Bank only 265,094 11.88 8.00 10.00
Consolidated 290,971 13.00
</TABLE>
Directors and Officers
BOARD OF DIRECTORS
Herbert G. Chorbajian
Chairman of the Board, President and Chief Executive Officer
William J. Barr
Retired Senior Vice President and Controller, ALBANK, FSB
Henry M. Elliot, Jr.
Retired Agency Manager, Equitable Life Assurance Society of the United States
John E. Maloy, Sr.
President, J.H. Maloy, Inc.
Susan J. Stabile, Esq.
Associate Professor of Law, St. John's University School of Law
Anthony P. Tartaglia, M.D.
Professor of Medicine, Albany Medical College
John G. Underhill
Retired President, Sager Spuck Supply Company, Inc.
Karen R. Hitchcock, Ph.D.
President, University at Albany, State University of New York
Francis L. McKone
President and Chief Executive Officer, Albany International Corp.
OFFICERS
Herbert G. Chorbajian
Chairman of the Board, President and Chief Executive Officer
Clifford M. Apgar
Executive Vice President--Senior Credit Officer
Barry G. Blenis
Executive Vice President--Operations and Strategic Planning
Richard J. Heller
Executive Vice President and Chief Financial Officer
Freling H. Smith, Esq.
Senior Vice President, Secretary and General Counsel
Frank J. Vaselewski
Senior Vice President--Retail Banking
Margaret F. Ludington
Senior Vice President--Human Resources
Robert L. Meyer
Senior Vice President--Retail Lending
Joseph P. Richardson
Senior Vice President--Commercial Lending
Margaret J. Welch
Senior Vice President--Branch Administration
Robert J. Gould
Vice President and Controller
Mary Jean Laraway
Vice President--Corporate Services
Edward C. Tremblay
Vice President and Auditor
Exhibit 21.01
<TABLE>
Subsidiary of the Registrant and Related Subsidiaries
<CAPTION>
State of
Incorporation or
Parent Organization Subsidiary Ownership
<S> <C> <C> <C>
ALBANK Financial Corporation ALBANK, FSB 100% New York
ALBANK, FSB ALVEST FINANCIAL 100% New York
SERVICES, INC.
ALBANK, FSB ASBANY CORP. 100% New York
ALBANK, FSB ASBANY FUNDING CORP. 100% New York
ASBANY CORP. CDC-ASBANY CORP. 100% New York
ASBANY CORP. GABLES CVF, INC. 100% Nebraska
ASBANY CORP. PAGE-ASBANY CORP. 100% New York
</TABLE>
Exhibit 23.01
KPMG Peat Marwick
74 North Pearl Street
Albany, New York 12207
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
ALBANK Financial Corporation:
We consent to the incorporation by reference in the
following Registration Statements:
No. 33-46977 on Form S-8,
No. 33-57674 on Form S-8,
No. 33-57672 on Form S-8,
No. 333-00016 on Form S-8,
No. 333-00082 on Form S-8, and
No. 333-00084 on Form S-8
of our report dated January 31, 1997, relating
to the consolidated statements of financial
condition of ALBANK Financial Corporation and
subsidiary as of December 31, 1996 and
1995, and the related consolidated statements
of earnings, 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 ALBANK
Financial Corporation.
Albany, New York
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,883
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 617,943
<INVESTMENTS-CARRYING> 109,607
<INVESTMENTS-MARKET> 111,091
<LOANS> 2,566,364
<ALLOWANCE> 24,114
<TOTAL-ASSETS> 3,506,136
<DEPOSITS> 3,013,129
<SHORT-TERM> 42,346
<LIABILITIES-OTHER> 101,475
<LONG-TERM> 30,061
0
0
<COMMON> 157
<OTHER-SE> 318,968
<TOTAL-LIABILITIES-AND-EQUITY> 3,506,136
<INTEREST-LOAN> 194,535
<INTEREST-INVEST> 50,208
<INTEREST-OTHER> 3,783
<INTEREST-TOTAL> 248,526
<INTEREST-DEPOSIT> 119,405
<INTEREST-EXPENSE> 122,885
<INTEREST-INCOME-NET> 125,641
<LOAN-LOSSES> 5,775
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 90,303
<INCOME-PRETAX> 41,717
<INCOME-PRE-EXTRAORDINARY> 26,207
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,207
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.83
<YIELD-ACTUAL> 3.91
<LOANS-NON> 19,231
<LOANS-PAST> 10,585
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,949
<CHARGE-OFFS> 9,648
<RECOVERIES> 728
<ALLOWANCE-CLOSE> 24,114
<ALLOWANCE-DOMESTIC> 19,048
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,066
</TABLE>
