Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ALBION BANC CORP.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
ALBION BANC CORP.
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box): $ 2,501*
-----------------
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Albion Banc Corp. Common Stock, par value $.01 per share
- ------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
753,058 shares of Common Stock (plus outstanding options to acquire
40,835 shares of Common Stock)
- ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
$15.75 -- Pursuant to the Merger Agreement described herein, each share
of Common Stock of Albion Banc Corp. will be exchanged for $15.75 in
cash.
- ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$12,503,814
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
- ------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
N/A
- ------------------------------------------------------------------------------
(3) Filing party:
N/A
- ------------------------------------------------------------------------------
(4) Date filed:
N/A
- ------------------------------------------------------------------------------
* Includes an additional filing fee of $2.00; other amount was previously
paid.
<PAGE>
Albion Banc Corp.
48 North Main Street
Albion, New York 14411
December 17, 1999
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Albion Banc Corp., to be held at the Tillman's Village Inn located at Routes
98 and 104, Albion, New York, on Wednesday, January 19, 2000 at 4:00 p.m.,
local time.
On August 30, 1999, Albion Banc Corp. agreed to merge with Niagara
Bancorp, Inc. If the merger is completed, you will receive a cash payment of
$15.75 for each share of Albion Banc Corp. stock that you own. Upon
completion of the merger you will no longer own any stock or have any interest
in Albion Banc Corp., nor will you receive, as a result of the merger, any
stock of Niagara Bancorp, Inc.
At the special meeting, you will be asked to approve and adopt the merger
agreement. A majority of the votes entitled to be cast at the special meeting
must vote for approval and adoption of the merger agreement for the merger to
be completed. If the merger agreement is approved, and all other conditions
described in the merger agreement have been met or waived, the merger is
expected to occur during the first quarter of 2000.
Your board of directors believes that the merger is in the best interests
of Albion Banc Corp. stockholders and unanimously recommends that you vote FOR
the merger agreement. Your board of directors has received the opinion of RP
Financial, LC. that the consideration to be received by Albion Banc Corp.'s
stockholders in the merger is fair.
This proxy statement provides you with detailed information about the
proposed merger and includes, as Appendix A, a complete text of the merger
agreement. I urge you to read the enclosed materials carefully for a complete
description of the merger. Please complete, sign and return the enclosed
proxy card as promptly as possible. We look forward to seeing you at the
special meeting.
Sincerely,
/s/Jeffrey S. Rheinwald
Jeffrey S. Rheinwald
President and Chief Executive Officer
<PAGE>
Albion Banc Corp.
48 North Main Street
Albion, New York 14411
(716) 589-5501
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of stockholders of Albion Banc Corp. will be held on
Wednesday, January 19, 2000, 4:00 p.m., local time, at the Tillman's Village
Inn located at Routes 98 and 104, Albion, New York, for the following
purposes:
1. To approve the Agreement and Plan of Merger dated August 30, 1999
between Niagara Bancorp, Inc., Niagara Merger Subsidiary, Inc.,
Lockport Savings Bank, Albion Banc Corp. and Albion Federal Savings
and Loan Association.
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements.
NOTE: The board of directors is not aware of any other business to
come before the special meeting.
Any action may be taken on this proposal at the special meeting or on
any date or dates to which the special meeting may be adjourned or postponed.
You can vote at the special meeting if you owned Albion Banc Corp. common
stock at the close of business on December 10, 1999. A complete list of
stockholders entitled to vote at the special meeting will be available at the
main office of Albion Banc Corp. during the ten days prior to the special
meeting and at the special meeting.
As a stockholder of Albion Banc Corp., you have the right to dissent from
the merger and obtain an appraisal of the fair value of your shares of Albion
Banc Corp. common stock under applicable provisions of Delaware law. In order
to perfect dissenters' rights, you must give written demand for appraisal of
your shares before the merger is voted on at the special meeting and must not
vote in favor of the merger. A copy of the Delaware statutory provisions
regarding dissenters' rights is included as Appendix C to the accompanying
proxy statement and a summary of these provisions can be found under "PROPOSAL
I -- ADOPTION OF THE MERGER AGREEMENT -- Dissenters' Appraisal Rights."
In the event there are not sufficient votes to approve the proposal for
the adoption of the merger agreement at the time of the meeting, the meeting
may be adjourned in order to permit further solicitation by Albion Banc Corp.
Your attention is directed to the proxy statement accompanying this
notice for a more complete statement regarding the matters to be acted upon at
the special meeting.
By Order of the Board of Directors
/s/Laura L. Marek
Laura L. Marek
Secretary
Albion, New York
December 17, 1999
Important: the prompt return of proxies will save Albion Banc Corp. the
expense of further requests for proxies to ensure a quorum at the special
meeting. Please complete, sign and date the enclosed proxy and promptly mail
it in the enclosed envelope. You may revoke your proxy in the manner
described in the proxy statement at any time before it is exercised.
Please do not send in any stock certificates at this time.
<PAGE>
TABLE OF CONTENTS
Page
Questions and Answers About the Niagara Bancorp, Inc./
Albion Banc Corp. Merger............................................ 1
Summary............................................................... 3
Historical Consolidated Financial Data - Albion Banc Corp............. 7
Market Price and Dividend Data for Albion Banc Corp. Common Stock..... 8
Albion Banc Corp.'s Special Meeting of Stockholders................... 8
General.......................................................... 8
Record Date; Voting Rights; Vote Required........................ 9
Voting and Revocation of Proxies ................................ 9
Solicitation of Proxies. ........................................ 9
Participants in the Albion Federal ESOP.......................... 10
Independent Public Accountants................................... 10
Principal Holders of Albion Banc Corp. Common Stock................... 10
Proposal I - Adoption of the Merger Agreement......................... 12
The Parties to the Merger........................................ 12
Overview of the Transaction...................................... 13
What You Will Receive in the Merger.............................. 13
Taxable Transaction for Albion Banc Corp. Stockholders........... 13
Background of the Merger......................................... 14
Albion Banc Corp.'s Reasons for the Merger and Recommendation
of its Board of Directors...................................... 16
Opinion of Albion Banc Corp.'s Financial Advisor................. 17
Dissenters' Appraisal Rights .................................... 21
Regulatory Approvals............................................. 23
The Merger Agreement............................................. 24
Terms of the Merger.............................................. 24
When the Merger Will be Completed................................ 25
Surrender of Certificates........................................ 25
Conduct of Business Pending the Merger........................... 26
Agreement Not to Solicit Other Offers............................ 27
Conditions to the Merger......................................... 28
Termination of the Merger Agreement.............................. 28
Representations and Warranties Made by Albion Banc Corp.
and Niagara Bancorp in the Merger Agreement.................... 29
Amendment of Merger Agreement.................................... 29
Waiver of Performance of Obligations............................. 29
Interests of Certain Persons in the Merger....................... 29
Employee Matters................................................. 30
Accounting Treatment............................................. 31
Expenses and Termination Fee..................................... 31
Other Matters......................................................... 31
Where You Can Find More Information................................... 31
Stockholder Proposals................................................. 32
Appendix A - Agreement and Plan of Merger
Appendix B - Fairness Opinion of RP Financial, LC.
Appendix C - Section 262 of the Delaware General Corporation Law
Appendix D - Financial Information for Albion Banc Corp.
-i-
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE NIAGARA BANCORP, INC./ALBION BANC CORP. MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: Albion Banc Corp. and Niagara Bancorp share a commitment to community
banking, which emphasizes responsiveness to local markets and the
delivery of personalized services. The companies believe that the
merger will provide customers and the local communities access to a
wider variety of quality products and services while continuing to
receive the high level of personal service they have come to expect.
The merger will provide Albion Federal customers with 20 offices
located throughout western New York, including its existing offices in
Albion and Brockport, New York.
As a shareholder of Albion Banc Corp., the Board of Directors believes
that the merger allows you to realize a greater value for your shares
of common stock than you could have if Albion Banc Corp. followed its
existing business plan, or considered other alternative strategies to
maximize shareholder value.
Q: WHAT WILL ALBION BANC CORP. STOCKHOLDERS RECEIVE FOR THEIR SHARES OF
ALBION BANC CORP. COMMON STOCK?
A: Albion Banc Corp. stockholders will receive $15.75 in cash for each of
their shares of Albion Banc Corp. common stock.
Q: DO I HAVE APPRAISAL RIGHTS IN THE MERGER?
A: Yes. Delaware law provides you with dissenters' appraisal rights in
the merger. This means that if you are not satisfied with the amount
you are receiving in the merger, you are legally entitled to have the
value of your shares independently determined and to receive payment
based on that valuation. To exercise your dissenters' rights you must
deliver a written objection to the merger to Albion Banc Corp. at or
before the special meeting and must not vote in favor of the merger.
Objections to the merger should be addressed to Albion Banc Corp. at 48
North Main Street, Albion, New York 14411. Your failure to follow
exactly the procedures specified under Delaware law will result in the
loss of your dissenters' rights. A copy of the dissenters' rights
provisions to Delaware law is provided as Appendix C to this proxy
statement.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ALBION BANC CORP.'S
STOCKHOLDERS?
A: For United States federal income tax purposes, your exchange of shares
of Albion Banc Corp. common stock for cash generally will cause you to
recognize a gain or loss measured by the difference between the cash
you receive in the merger and your tax basis in the shares of Albion
Banc Corp. common stock.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR OWN
SITUATION. YOU SHOULD CONSULT WITH YOUR TAX ADVISORS FOR A FULL
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger in the first quarter of 2000.
1
<PAGE>
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares can be voted at the January 19,
2000, Albion Banc Corp. special meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger, you should contact:
Albion Banc Corp.
48 North Main Street
Albion, New York 14411
Attention: Jeffrey S. Rheinwald
Tel: (716) 589-5501
2
<PAGE>
SUMMARY
This brief summary highlights selected information contained in this
proxy statement. It does not contain all of the information that is important
to you. To fully understand the merger, we urge you to carefully read the
entire proxy statement and the other documents to which this document refers.
See "Where You Can Find More Information" (page 31). We have attached the
merger agreement to this proxy statement as Appendix A. We encourage you to
read the merger agreement because it is the legal document that governs the
merger of Niagara Bancorp, Inc. and Albion Banc Corp.
The Companies
Niagara Bancorp, Inc.
6950 South Transit Road
Lockport, New York 14095
(716) 625-7500
Niagara Bancorp, Inc. is headquartered in Lockport, New York and is the
parent bank holding company of Lockport Savings Bank, a state chartered
savings bank. Lockport Savings operates 18 branch offices in the Erie,
Genesee, Niagara and Orleans counties of Western New York and is scheduled to
open additional branches in Erie and Monroe counties. Lockport Savings'
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC")
through the Bank Insurance Fund.
At September 30, 1999, Niagara Bancorp had assets of $1.7 billion, gross
loans of $941.4 million, deposits of $1.1 billion and stockholders' equity of
$235.7 million.
Albion Banc Corp.
48 North Main Street
Albion, New York 14411
(716) 589-5501
Albion Banc Corp. is a Delaware corporation and was incorporated in 1993
for the purpose of becoming the holding company for Albion Federal Savings and
Loan Association.
Albion Federal was organized in 1934 and has been a member of the Federal
Home Loan Bank System since 1935. At September 30, 1999, Albion Federal had
assets of $78.6 million, net loans of $63.0 million, deposits of $60.4 million
and total equity of $6.5 million. Albion Federal has its main office in
Albion and a branch office in Brockport, New York. Albion Federal is
regulated by the Office of Thrift Supervision and its deposits are insured up
to applicable limits under the Savings Association Insurance Fund of the FDIC.
A copy of Albion Banc Corp.'s annual report to stockholders for the year
ended December 31, 1998 and the quarterly report on Form 10-QSB for the
quarter ended September 30, 1999 are included in the proxy statement in
Appendix D.
The Special Meeting (Pages 8 through 10)
A special meeting will be held on January 19, 2000, at the Tillman's
Village Inn located at Routes 98 and 104, Albion, New York, to vote on the
proposal to approve the merger agreement. You can vote at the special meeting
if you owned Albion Banc Corp. common stock on December 10, 1999.
3
<PAGE>
Albion Banc Corp.'s Reasons for Entering into the Merger (Page 16)
The board of directors of Albion Banc Corp. reviewed a number of items in
deciding to enter into the merger agreement with Niagara Bancorp, including
the following:
. that the merger price exceeded the estimated value that could be
realized by Albion Banc Corp. stockholders over the intermediate
term, given the rapidly changing nature of banking, competition and
delivery systems;
. Albion Banc Corp.'s low profitability in comparison with other
institutions;
. Albion Banc Corp.'s comparatively low return on equity and limited
dividend growth prospects;
. the historically limited liquidity of Albion Banc Corp.'s common
stock;
. Niagara Bancorp's community orientation and expanded services that
would be available to existing customers;
. lower acquisition prices offered by other interested institutions;
. the return to stockholders who purchased stock in Albion Banc
Corp.'s initial public offering; and
. the opinion of Albion Banc Corp.'s financial advisor, RP Financial,
that the transaction is fair to Albion Banc Corp.'s stockholders
from a financial point of view.
Generally, the board of directors concluded that in the long term Albion
Banc Corp. could not produce stockholder value in excess of the merger price,
and that the merger price was fair, from a financial point of view, to Albion
Banc Corp.'s stockholders.
The Merger (Pages 12 through 30)
If the merger is approved by Albion Banc Corp. stockholders and the
parties meet the other conditions of the merger agreement, Albion Banc Corp.
will be merged into Niagara Bancorp and Niagara Bancorp will continue as the
surviving corporation. Immediately after Albion Banc Corp. is merged into
Niagara Bancorp, Albion Federal will be merged into Lockport Savings. The
offices of Albion Federal will be operated as offices of Lockport Savings
immediately following the effective date of the merger. If the merger
agreement is not approved, Albion Banc Corp. and Albion Federal will continue
as separate entities.
What You Will Receive for Your Shares of Albion Banc Corp. Common Stock (Page
24)
As an Albion Banc Corp. stockholder, each of your shares of Albion Banc
Corp. common stock will automatically become exchangeable for $15.75 in cash.
You will have to surrender your Albion Banc Corp. stock certificate(s) to
receive this cash payment. Niagara Bancorp, or its exchange agent, will send
you written instructions for surrendering your certificates after the merger
is completed. For more information on how this exchange procedure works, see
"PROPOSAL I -- ADOPTION OF THE MERGER AGREEMENT -- The Merger Agreement --
Terms of the Merger" and "-- Surrender of Certificates" on pages 24 and 25 of
this proxy statement.
Albion Banc Corp.'s common stock is quoted on Nasdaq SmallCap Market
under the symbol "ALBC." On August 30, 1999, which is the day the last trade
occurred before the merger was announced, Albion Banc Corp. common stock was
sold at $13.25 per share.
4
<PAGE>
Vote Required to Approve the Merger Agreement (Page 9)
The merger agreement will be approved if the holders of at least a
majority of the outstanding shares of Albion Banc Corp. common stock vote for
it. Directors and executive officers of Albion Banc Corp. and their
affiliates beneficially owned an aggregate of 179,014, or approximately
23.77%, of the shares of Albion Banc Corp. common stock outstanding on the
December 10, 1999 record date. A failure to vote, either by not returning the
enclosed proxy or by checking the "Abstain" box, will have the same effect as
a vote against the merger agreement. All of the directors of Albion Banc
Corp. have executed an agreement with Niagara Bancorp pursuant to which each
director agreed to vote his or her shares for the merger agreement.
Recommendation to Albion Banc Corp.'s Stockholders (Page 16)
The board of directors of Albion Banc Corp. believes that the merger is
fair to you and in your best interests and unanimously recommends that you
vote "FOR" the merger agreement. For a discussion of the circumstances
surrounding the merger and the factors considered by the Albion Banc Corp.'s
board of directors in approving the merger agreement, see pages 14 through 16.
Opinion of Albion Banc Corp.'s Financial Advisor (Pages 17 through 20)
RP Financial, LC. has delivered its written opinion to the Albion Banc
Corp. board of directors, dated as of August 30, 1999 and updated as of the
date of this proxy statement, that the consideration to be received by the
stockholders of Albion Banc Corp. in the merger is fair from a financial point
of view. We have attached this opinion as Appendix B to this proxy statement.
You should read it carefully for a description of the procedures followed,
matters considered and limitations on the reviews undertaken by RP Financial
in providing its opinion.
Interests of Certain Persons in the Merger (Pages 29 and 30)
Some of Albion Banc Corp.'s directors and officers have interests in the
merger that are different from, or are in addition to their interests as
stockholders in Albion Banc Corp. The members of Albion Banc Corp.'s board of
directors knew about these additional interests and considered them when they
approved the agreement and the merger. These include:
1. the cancellation of existing stock options in exchange for a cash
payment equal to the value of the stock option;
2. the payment of severance payments under the employment agreement
with Albion Banc Corp.'s chief executive officer;
3. provisions in the merger agreement relating to protection against
claims; and
4. the establishment of an Albion Federal advisory board for two
years after the effective date of the merger.
Dissenters' Rights of Appraisal (Pages 20 through 22)
As noted in the questions and answers above, Albion Banc Corp.
stockholders have dissenters' rights of appraisal under Delaware law. See
"PROPOSAL I -- ADOPTION OF THE MERGER AGREEMENT -- Dissenters' Rights
Appraisal Rights."
5
<PAGE>
Taxable Transaction for Albion Banc Corp. Stockholders (Pages 13 and 14)
For United States federal income tax purposes your exchange of shares of
Albion Banc Corp. common stock for cash generally will cause you to recognize
a gain or loss measured by the difference between the cash you receive in the
merger and your tax basis in the shares of Albion Banc Corp. common stock See
"PROPOSAL I -- ADOPTION OF THE MERGER AGREEMENT -- Taxable Transaction For
Albion Banc Corp. Stockholders."
HISTORICAL CONSOLIDATED FINANCIAL DATA
ALBION BANC CORP.
These tables show financial results actually achieved by Albion Banc
Corp. The annual historical financial amounts are derived from Albion Banc
Corp.'s consolidated financial statements audited by PricewaterhouseCoopers
LLP, independent accountants. Financial amounts as of and for the nine months
ended September 30, 1999 and 1998 are unaudited, but Albion Banc Corp.
believes such amounts reflect all normal recurring adjustments necessary for a
fair presentation of the results of operations and financial position for
those periods. You should not assume that the six-month results indicate
results for any future period. The information below should also be read in
conjunction with Albion Banc Corp.'s financial information contained in
Appendix D. Per share prices have been restated to adjust for the three-for-
one stock split paid on February 5, 1998.
6
<PAGE>
<TABLE>
At or For the At or For the
Nine Months Ended Years Ended
September 30, December 31,
----------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income. . . . . . . . .$ 4,070 $ 4,080 $ 5,347 $ 5,184 $ 4,446 $ 4,398 $ 3,852
Interest expense . . . . . . . . 2,252 2,255 3,007 2,880 2,377 2,482 1,799
-------- -------- -------- -------- -------- -------- --------
Net interest income . . . . . 1,818 1,753 2,340 2,304 2,069 1,916 2,053
Provision for loan losses. . . . 63 43 65 35 140 36 132
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses. . 1,755 1,710 2,275 2,269 1,929 1,880 1,921
Noninterest income . . . . . . . 277 279 368 390 260 197 146
Noninterest expense. . . . . . . 1,771 1,522 2,073 2,081 2,231 1,817 1,550
-------- -------- -------- -------- -------- -------- --------
Income before income taxes . . 261 467 570 578 (42) 260 517
Provision for income taxes . . . 98 181 208 227 (38) 79 165
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . .$ 163 $ 286 $ 362 $ 351 $ (4) $ 181 $ 352
======== ======== ======== ======== ======== ======== ========
Per Share Data:
Basic earnings per share . . . .$ 0.22 $ 0.39 $ 0.49 $ 0.48 $ (0.01) $ 0.24 $ 0.47
Diluted earnings per share (1) . 0.21 0.37 0.47 0.46 (0.01) 0.24 0.47
Book value per share . . . . . . 8.66 8.47 8.53 8.20 7.82 7.79 7.54
Weighted average shares
outstanding. . . . . . . . . . 743,019 739,342 739,867 733,047 738,284 748,493 739,610
Weighted average shares
outstanding including
dilutive effect of stock
options. . . . . . . . . . . . 774,538 769,092 768,616 756,545 752,041 763,939 755,352
Performance Ratios(2):
Return on average assets . . . . 0.3% 0.5% 0.5% 0.5% --% 0.3% 0.7%
Return on average equity . . . . 3.4 6.1 5.8 5.8 (0.1) 3.0 6.1
Net interest margin. . . . . . . 3.3 3.4 3.4 3.6 3.7 3.4 4.0
Efficiency ratio . . . . . . . . 84.53 75.47 76.28 77.31 95.20 87.62 70.76
Balance Sheet Data:
Total assets . . . . . . . . . .$ 78,624 $ 73,027 $ 76,470 $ 71,719 $ 64,585 $ 56,992 $ 55,334
Securities . . . . . . . . . . . 7,313 8,491 7,765 10,868 11,248 7,417 5,664
Loans. . . . . . . . . . . . . . 63,035 57,393 58,929 53,017 47,839 44,0494 7,010
Allowance for loan losses. . . . 290 276 267 276 306 244 224
Total deposits . . . . . . . . . 60,378 56,188 59,120 54,910 48,492 46,559 37,782
Total stockholders' equity . . . 6,520 6,372 6,423 6,155 5,864 6,089 5,898
Asset Quality Ratios:
Nonperforming assets to loans
receivable . . . . . . . . . . 0.67% 0.56% 0.45% 0.53% 0.53% 0.73% 0.47%
Net charge-offs to average
loans . . . . . . . . . . . . 0.07 0.08 0.13 0.13 0.17 0.04 0.03
Allowance for loan losses to
total loans receivable. . . . 0.5 0.5 0.5 0.5 0.6 0.6 0.5
Allowance for loan losses to
nonperforming loans . . . . . 68.6 85.7 101.8 100.0 121.6 75.9 101.0
- -------------------
(1) Diluted earnings per share is based upon the weighted average number of common shares outstanding
plus the dilutive share outstanding resulting from stock options calculated using the treasury stock
method.
(2) Ratios for the nine months ended September 30, 1999 and 1998 are annualized where appropriate.
</TABLE>
7
<PAGE>
MARKET PRICE AND DIVIDEND DATA FOR ALBION BANC CORP.'S COMMON STOCK
Albion Banc Corp.'s common stock is quoted on the Nasdaq SmallCap Market
under the symbol "ALBC."
The following table includes, for the periods indicated, the range of
high and low sale prices of the common stock of Albion Banc Corp. and
dividends paid per share on the common stock. Share prices for the Albion Banc
Corp. common stock have been restated to adjust for the three-for-one stock
split in the form of a stock dividend paid on February 5, 1998.
High Low Dividend
---- --- --------
1997 Fiscal Year
First Quarter............... $ 6.33 $ 5.50 $0.11
Second Quarter.............. 7.67 6.00 --
Third Quarter............... 8.58 7.33 0.05
Fourth Quarter.............. 13.58 8.83 --
1998 Fiscal Year
First Quarter............... 14.58 9.75 0.05
Second Quarter.............. 11.00 8.00 0.03
Third Quarter............... 9.75 7.75 0.03
Fourth Quarter.............. 11.00 7.63 0.03
1999 Fiscal Year
First Quarter............... 10.75 8.50 0.03
Second Quarter.............. 11.00 8.375 0.03
Third Quarter............... 15.125 10.625 0.03
On August 30, 1999, the last trading day prior to the joint announcement
by Niagara Bancorp and Albion Banc Corp. that they had entered into the merger
agreement, the closing per share sales price of Albion Banc Corp. common stock
was $13.25. On December 1, 1999, which is the last practicable date prior to
the printing of the proxy statement, the closing price for the Albion Banc
Corp. common stock was $15.125.
As of October 6, 1999, there were approximately 236 holders of record of
Albion Banc Corp. common stock. This number does not reflect the number of
persons or entities who may hold their stock in nominee or "street" name
through brokerage firms.
ALBION BANC CORP.'S SPECIAL MEETING OF STOCKHOLDERS
General
This proxy statement is being furnished to you in connection with the
solicitation of proxies by Albion Banc Corp.'s board of directors for use at a
special meeting to be held on January 19, 2000, and at any adjournments or
postponements thereof. At the special meeting, you will be requested to vote
upon a proposal to approve the Agreement and Plan of Merger dated August 30,
1999 between Albion Banc Corp., Albion Federal, Niagara Bancorp, Niagara
Merger Subsidiary, Inc. and Lockport Savings. The merger agreement provides
that Albion Banc Corp. will merge with and into Niagara Merger Subsidiary.
Thereafter, the merged entity will merge into Niagara Bancorp and stockholders
of Albion Banc Corp. will receive $15.75 in cash for each outstanding share of
Albion Banc Corp. common stock. As of the date of this proxy statement, the
Albion Banc Corp. board of directors is not aware of any business to be acted
upon at the special meeting other than the proposal to approve the merger
agreement. If other matters are properly brought before the special meeting
or any adjournments or
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postponements of the special meeting, the persons appointed as proxies will
have discretion to vote or act on such matters according to their best
judgment.
Record Date; Voting Rights; Vote Required
The Albion Banc Corp. board of directors has fixed the close of business
on December 10, 1999 as the record date for the determination of stockholders
of Albion Banc Corp. entitled to receive notice of and to vote at the special
meeting. On the record date, there were 753,058 shares of Albion Banc Corp.
common stock outstanding. Each holder of Albion Banc Corp. common stock is
entitled to one vote per share held of record on the record date.
The presence in person or by proxy at the special meeting of the holders
of a majority of the outstanding shares of Albion Banc Corp. common stock will
constitute a quorum. Under the Delaware Business Corporation Act, approval of
the merger agreement will require the affirmative vote of the holders of a
majority of the outstanding shares of Albion Banc Corp. common stock.
Directors and executive officers of Albion Banc Corp. and their affiliates
beneficially owned on the December 10, 1999 record date an aggregate of
179,014, or approximately 23.77%, of the outstanding shares of Albion Banc
Corp. common stock. Members of Albion Banc Corp.'s board of directors have
entered into agreements to vote all shares of Albion Banc Corp. common stock
held by them for the approval of the merger agreement.
Voting and Revocation of Proxies
Shares of Albion Banc Corp. common stock represented by a proxy properly
signed and received at or prior to the special meeting, unless subsequently
revoked, will be voted at the special meeting in accordance with the
instructions on the proxy. If a proxy is signed and returned without
indicating any voting instructions, shares of Albion Banc Corp. common stock
represented by the proxy will be voted "FOR" approval of the merger agreement.
If your shares of Albion Banc Corp. common stock are held in street name by
your broker, your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote your shares
following the procedure provided by your broker.
Any proxy given in connection with this solicitation may be revoked by
the person giving it at any time before the proxy is voted by filing either an
instrument revoking it or a duly executed proxy bearing a later date with the
Secretary of Albion Banc Corp. prior to or at the special meeting or by voting
the shares subject to the proxy in person at the special meeting. Attendance
at the special meeting will not in and of itself constitute a revocation of a
proxy.
A proxy may indicate that all or a portion of the shares represented by
the proxy are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in
street name on certain proposals in the absence of instructions from the
beneficial owner. Shares that are not voted with respect to a specific
proposal will be considered as not present for such proposal, even though such
shares will be considered present for purposes of determining a quorum and
voting on other proposals. Abstentions on a specific proposal will be
considered as present but will not be counted as voting in favor of such
proposal. The proposal to approve the merger agreement must be approved by
the holders of a majority of the shares of Albion Banc Corp. common stock
outstanding on the December 10, 1999 record date. Accordingly, any nonvoted
shares and abstentions with regard to this proposal will have the same effect
as votes against the proposal.
Solicitation of Proxies
In addition to solicitation by mail, the directors, officers, employees
and agents of Albion Banc Corp. may solicit proxies from Albion Banc Corp.'s
stockholders, either personally or by telephone or other form of
communication. None of these persons who solicit proxies will be specifically
compensated for such services. Nominees, fiduciaries and other custodians will
be requested to forward soliciting materials to beneficial owners.
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Albion Banc Corp. will reimburse such nominees, fiduciaries and other
custodians for the reasonable out-of-pocket expenses incurred by them in
connection with this process. In addition, Albion Banc Corp. will bear its
own expenses in connection with the solicitation of its proxies for the
special meeting. Albion Banc Corp. has retained Regan & Associates, Inc. to
assist in soliciting proxies for the special meeting and to send proxy
materials to brokerage houses and other custodians, nominees and fiduciaries
for transmittal to their principals, at a cost of $3,500, including out of
pocket expenses.
Participants in the Albion Federal ESOP
If you participate in the Albion Federal Employee Stock Ownership Plan,
the proxy card represents a voting instruction to the trustee of the Employee
Stock Ownership Plan as to the number of shares in your plan account. Each
participant in the Employee Stock Ownership Plan may direct the trustee as to
the manner in which shares of common stock allocated to the participant's plan
account are to be voted. Unallocated shares of common stock held by the
Employee Stock Ownership Plan and allocated shares for which no voting
instructions are received will be voted by the trustee in the same proportion
as shares for which the trustee has received voting instructions, subject to
the trustee's exercise of his fiduciary obligations.
Independent Public Accountants
PricewaterhouseCoopers LLP serves as Albion Banc Corp.'s independent
auditors. A representative of PricewaterhouseCoopers LLP is expected to be
present at the special meeting to respond to appropriate questions of
stockholders, and will have the opportunity to make a statement if he desires.
PRINCIPAL HOLDERS OF ALBION BANC CORP. COMMON STOCK
The following table provides information regarding ownership of Albion
Banc Corp. common stock as of September 30, 1999, by: beneficial owners of
more than 5% of the outstanding shares of Albion Banc Corp. common stock; each
director and each executive officer whose salary and bonus for the fiscal year
ended December 31, 1998 exceeded $100,000; and all directors and executive
officers of Albion Banc Corp. and Albion Federal as a group:
Amount and Nature of Percent of Common
Beneficial Owner Beneficial Ownership (1) Stock Outstanding
- ---------------- ------------------------ -----------------
Beneficial Owners of More Than 5%
Albion Federal Employee Stock
Ownership Plan Trust 54,434 7.23%
James H. Keeler
13517 West Lee Road
Albion, New York 14411 42,972(2) 5.71
Harold P. Kludt
1155 Center Road
Kendall, New York 14476 39,069(3) 5.19
Stephen H. Hersch
1578 West Jackson Street, Suite 150
Painesville, Ohio 44077 42,450(4) 5.64
(table continued on following page)
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Amount and Nature of Percent of Common
Beneficial Owner Beneficial Ownership (1) Stock Outstanding
- ---------------- ------------------------ -----------------
Directors
James H. Keeler 42,972 5.71%
Chriss M. Andrews 20,064 2.66
Robert R. Brown II 15,018 1.99
Dolores L. Giarrizzo 3,990 0.53
Harold P. Kludt 39,069 5.19
Richard A. Pilon 15,918 2.11
Gregory L. Speer 1,000 0.13
Named Executive Officer (5)
Jeffrey S. Rheinwald, President and Chief
Executive Officer 24,438 3.25
All Officers and Directors as a
Group (13 persons) 179,014 23.77%
- ---------------------
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of
this table, of any shares of Albion Banc Corp.'s common stock if he or
she has voting and/or investment power with respect to such security or
has a right to acquire, through the exercise of outstanding options or
otherwise, beneficial ownership at any time within 60 days from the
December 10, 1999 voting record date. The table includes shares owned
by spouses, other immediate family members in trust, shares held in
retirement accounts or funds for the benefit of the named individuals,
and other forms of ownership, over which shares the named persons
possess voting and/or investment power.
(2) This information is based on records maintained by Albion Banc Corp.
and information from a Schedule 13D filed with the Securities and
Exchange Commission in March 1994.
(3) This information is based on records maintained by Albion Banc Corp.
and information from a Schedule 13D filed with the Securities and
Exchange Commission in March 1994.
(4) Based on information contained in a Schedule 13D filed with the
Securities and Exchange Commission in April 1997.
(5) Under Securities and Exchange Commission regulations, the term "named
executive officer" is defined to include the chief executive officer,
regardless of compensation level, and the four most highly compensated
executive officers, other than the chief executive officer, whose total
annual salary and bonus for the last completed fiscal year exceeded
$100,000. Jeffrey S. Rheinwald was Albion Banc Corp.'s only "named
executive officer" for the fiscal year ended December 31, 1998.
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PROPOSAL I -- ADOPTION OF THE MERGER AGREEMENT
The following discussion is qualified by reference to the merger
agreement which is attached as Appendix A to this proxy statement and
incorporated herein by reference. You are urged to read the merger agreement
carefully in its entirety.
The Parties to the Merger
Niagara Bancorp, Inc.
Niagara Bancorp is a Delaware corporation organized in December 1997 by
Lockport Savings in connection with Lockport Savings' conversion from a New
York chartered mutual savings bank to a New York chartered stock savings bank
and the reorganization to a two-tiered mutual holding company structure. A
majority of Niagara Bancorp's common stock is owned by Niagara Bancorp, MHC, a
state chartered mutual holding company incorporated by Lockport Savings in the
state of New York as part of Lockport Savings' reorganization. At September
30, 1999, Niagara Bancorp had assets of $1.7 billion, gross loans of $941.4
million, deposits of $1.1 billion and total stockholders' equity of $235.7
million.
Lockport Savings is a traditional, full-service, community-oriented
savings bank engaged primarily in the business of accepting deposits from
customers through its 18 branch offices in the Western New York counties of
Erie, Genesee, Niagara and Orleans, and investing those deposits, together
with funds generated from operations and borrowings, in one- to- four family
residential, multi-family residential and commercial real estate loans,
commercial business loans, consumer loans, and investment securities. At
September 30, 1999, Lockport Savings' gross loans totaled $941.4 million,
including $590.2 million, or 62.7% of one- to- four family real estate loans,
$117.2 million, or 12.5% of commercial real estate loans, and $71.7 million,
or 7.6% of multi-family real estate loans.
Albion Banc. Corp.
Albion Banc Corp. is a Delaware corporation that was incorporated on
March 23, 1993 for the purpose of becoming the holding company for Albion
Federal upon Albion Federal's conversion from a federal mutual to a federal
stock savings and loan association. The mutual to stock conversion was
completed on July 23, 1993. At September 30, 1999, Albion Banc Corp. had
total assets of $78.6 million, total deposits of $60.4 million and
shareholders' equity of $6.5 million. Since its incorporation, Albion Banc
Corp. has not engaged in any significant activity other than holding the stock
of Albion Federal.
Albion Federal was organized in 1934 as a federally chartered mutual
savings and loan association and has been a member of the Federal Home Loan
Bank System since 1935. Albion Federal is regulated by the Office of Thrift
Supervision and its deposits are insured up to applicable limits under the
Savings Association Insurance Fund of the FDIC.
Albion Federal is primarily engaged in the business of attracting
deposits from the general public and using such deposits, together with other
funding sources, to invest in one- to- four family residential mortgage loans
and, to a lesser extent, multi-family residential, consumer, and commercial
mortgage loans, including home equity loans, for its loan portfolio, as well
as for mortgage-backed and U.S. Government and agency securities and other
assets. At September 30, 1999, Albion Federal's loans totaled $64.4 million,
or 82% of total assets, including $64.4 million, or 82%, of gross loans
secured by one- to- four family properties, $3.0 million, or 5% of gross loans
secured by other real estate properties and $8.6 million of consumer loans, or
13% of gross loans. Of Albion Federal's residential mortgage loans secured by
one- to- four family and other real estate properties, $45.9 million, or 83%,
are fixed-rate loans and $9.7 million, or 17%, are adjustable rate residential
mortgage loans.
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Overview of the Transaction
The boards of directors of Albion Banc Corp. and Niagara Bancorp have
each unanimously approved a merger agreement that provides that Albion Banc
Corp. will merge with Niagara Merger Subsidiary and thereafter the merged
entity will merge into Niagara Bancorp. In the merger, your shares of Albion
Banc Corp. common stock will be converted into the right to receive a cash
payment of $15.75 per share. Upon completion of the merger you will no longer
own any stock or have an interest in Albion Banc Corp., nor will you receive,
as a result of the merger, any stock of Niagara Bancorp or Lockport Savings.
Immediately after the merger, Albion Federal will merge into Lockport
Savings. The surviving bank will be Lockport Savings. It is the intent of
Lockport Savings to operate the offices of Albion Federal as branch offices of
Lockport Savings.
What You Will Receive in the Merger
Each outstanding share of Albion Banc Corp. common stock issued and
outstanding at the merger effective date, shall cease to be outstanding, shall
cease to exist and shall be converted into the right to receive $15.75 in
cash.
Taxable Transaction for Albion Banc Corp. Stockholders
The following is a discussion of the material federal income tax
consequences of the merger to certain holders of Albion Banc Corp. common
stock. The discussion is based upon the Internal Revenue Code, Treasury
Regulations, Internal Revenue Service rulings and judicial and administrative
decisions in effect as of the date of this proxy statement. This discussion
assumes that the Albion Banc Corp. common stock is generally held for
investment. In addition, this discussion does not address all of the tax
consequences that may be relevant to you in light of your particular
circumstances or to Albion Banc Corp. stockholders subject to special rules,
such as foreign persons, financial institutions, tax-exempt organizations,
dealers in securities or foreign currencies or insurance companies.
The receipt of cash for Albion Banc Corp. common stock in connection with
the merger will be a taxable transaction for federal income tax purposes to
stockholders receiving such cash, and may be a taxable transaction for state,
local and foreign tax purposes as well. You will recognize a gain or loss
measured by the difference between your tax basis for the Albion Banc Corp.
common stock owned by you at the time of the merger and the amount of cash you
receive for your Albion Banc Corp. shares. Your gain or loss will be a
capital gain or loss if your Albion Banc Corp. common stock is a capital asset
to you.
The cash payments the holders of Albion Banc Corp. common stock will
receive upon their exchange of the Albion Banc Corp. common stock pursuant to
the merger generally will be subject to "backup withholding" for federal
income tax purposes unless certain requirements are met. Under federal law,
the third-party paying agent must withhold 31% of the cash payments to holders
of Albion Banc Corp. common stock to whom backup withholding applies, and the
federal income tax liability of these persons will be reduced by the amount
that is withheld. To avoid backup withholding, a holder of Albion Banc Corp.
common stock must provide the third-party exchange agent with his or her
taxpayer identification number and complete a form in which he or she
certifies that he or she has not been notified by the Internal Revenue Service
that he or she is subject to backup withholding as a result of a failure to
report interest and dividends. The taxpayer identification number of an
individual is his or her social security number.
Neither Niagara Bancorp nor Albion Banc Corp. has requested or will
request a ruling from the Internal Revenue Service as to any of the tax
effects to Albion Banc Corp.'s stockholders of the transactions discussed in
this proxy statement, and no opinion of counsel has been or will be rendered
to Albion Banc Corp.'s stockholders with respect to any of the tax effects of
the merger to stockholders.
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The above summary of the material federal income tax consequences of the
merger is not intended as a substitute for careful tax planning on an
individual basis. In addition to the federal income tax consequences
discussed above, consummation of the merger may have significant state and
local income tax consequences that are not discussed in this proxy statement.
Accordingly, persons considering the merger are urged to consult their tax
advisors with specific reference to the effect of their own particular facts
and circumstances on the matters discussed in this proxy statement.
Background of the Merger
Albion Federal has operated since its organization in 1934 as a
community-oriented thrift in western New York through its headquarters in
Albion and, more recently, a branch office in Brockport. Albion Federal
continued to maintain its community orientation following its mutual-to-stock
conversion in July 1993, and its simultaneous reorganization as a subsidiary
of Albion Banc Corp. The operating history of Albion Federal can be
characterized as a traditional thrift, with its primary lending activities
consisting of permanent residential lending secured by one-to-four family
properties in the general region served by its offices, funded principally by
retail deposits from local customers.
During 1998, the board of directors sought to reevaluate the strategic
alternatives available as the financial goals set forth within Albion Banc
Corp.'s five year plan, developed in January 1998, were not being met,
particularly targeted earnings and profitability levels, and in view of the
rapidly changing nature of banking and competitive forces. Albion Banc Corp.
engaged RP Financial, LC. in October 1998 to conduct a third party evaluation
of the strategic alternatives available to Albion Banc Corp., including the
strategies set forth with Albion Banc Corp.'s five year plan. RP Financial
presented its evaluation of strategic alternatives to the board of directors
on December 14, 1998. Such evaluation indicated that a number of the
potential alternative strategies may require considerable investment in
systems, personnel, marketing and time to fully realize the potential benefits
of implementing such strategies, which may initially adversely impact
earnings; increase the credit or interest rate risk profile of Albion Banc
Corp.; and, not generate the anticipated revenues or earnings in the face of
considerable competition from larger institutions and other nonbank financial
intermediaries operating in the regional market area. Such evaluation also
indicated that a sale of control may generate a higher return for stockholders
than operating independently, based on an analysis of comparable transactions.
Following the December 14, 1998 meeting, the Albion Banc Corp. board of
directors continued to deliberate the strategic alternatives available and the
potential returns to stockholders, and for this purpose, the board of
directors activated its long range planning committee comprised of certain
directors and senior officers to conduct further analysis of alternative
strategies to enhance shareholder value. On February 11, 1999, Albion Banc
Corp. received from a local financial institution a letter addressed to the
Albion Banc Corp. board of directors outlining the potential terms of a cash
acquisition of Albion Banc Corp. for $13.50. Albion Banc Corp.'s long range
planning committee met on March 12, 1999 to evaluate the letter in the context
of the ongoing strategic planning. Albion Banc Corp. responded in writing to
the local financial institution on March 12, 1999 that Albion Banc Corp. was
not in a position to make a decision at the time.
Albion Banc Corp. subsequently engaged RP Financial as its financial
advisor to evaluate potential merger transactions in conjunction with Albion
Banc Corp.'s long term planning, including the prospects for Albion Banc Corp.
as an acquiror and as a seller. On May 25, 1999, the long range planning
committee met to review RP Financial's evaluation of strategic alternatives to
enhance shareholder value, including the potential merger analyses. Given
Albion Banc Corp.'s size, capitalization and market pricing, coupled with
limited potential targets in western New York for Albion Banc Corp. to
acquire, the prospects for Albion Banc Corp. to be an acquiror were considered
to be relatively unattractive due to the pro forma ownership or per share
dilution to Albion Banc Corp. stockholders, the resulting goodwill if purchase
accounting was applicable and Albion Banc Corp.'s limited ability to pay a
price which may be considered fair by such targets based on a comparable
transactions analysis. The long range planning committee also reviewed RP
Financial's analysis pertaining to
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Albion Banc Corp. as an acquisition target by several regional publicly-traded
and closely-held financial institutions, including both commercial banks and
savings banks, reflecting the ability of such institutions to pay a price,
either in cash or stock, to Albion Banc Corp.'s stockholders which would be
considered fair to such stockholders from a financial point of view. In view
of the potentially greater value to stockholders from a potential sale of
control relative to alternative strategies, the long range planning committee
authorized RP Financial to contact five regional financial institutions which
appeared to have both the strategic interest in an acquisition of Albion Banc
Corp. and the ability to pay a price which would be considered fair from a
financial point of view. Niagara Bancorp, as well as the institution which
had previously communicated its interest, were included among these five
institutions.
In late June 1999, RP Financial began the process of contacting the five
designated prospective parties to determine the nature of their interest, if
any, in an acquisition of Albion Banc Corp. All five parties executed
confidentiality agreements and received the same confidential information,
during late June and the first two weeks of July. The confidential
information provided to these five parties consisted of financial,
organizational, operational and stock ownership information drawn from
shareholder reports over the prior five years as well as selected nonpublic
information pertaining to loans, deposits, salary, benefits, office facilities
and publicly available local market area data information. During this period,
Albion Banc Corp. received an unsolicited letter from an investment banker
representing an unidentified prospective acquiror, represented as a
publicly-traded nonbanking company; subsequent correspondence did not lead to
the execution of a confidentiality agreement with this party. One of the five
designated institutions responded in early July that the market area served by
Albion Banc Corp. was not consistent with the strategic plan of the
prospective acquiror. Supplemental materials, reflecting requests for
additional information from the interested parties, included additional
information pertaining to the office facilities and furniture, fixtures and
equipment, general ledger information for Albion Federal, offering rates for
loans and deposits, service fee schedule, the 1999 budget prepared in the Fall
1998 and the five year forecast prepared in early 1998. The two page summary
of the five year forecast provided to the four institutions, including Niagara
Bancorp, incorporated a 10% annual asset growth assumption, funded largely by
growth in deposits through Albion Banc Corp's existing offices. The five year
forecast reflected a gradual increase in profitability (both in terms of
return on average assets and return on average equity) attributable to
improvement in efficiency and increased non-interest income. The projected
data for the five year forecast beginning in 1998 through 2002 included the
following (per share prices have been restated to adjust for the three-for-one
stock split paid on February 5, 1998):
1998 1999 2000 2001 2002
(Dollars in thousands, except per share data)
Total assets $ 81,000 $ 92,000 $100,000 $104,000 $108,000
Loans $ 56,500 $ 62,150 $ 67,300 $ 71,000 $ 74,800
Deposits $ 61,000 $ 66,411 $ 73,477 $ 76,466 $ 80,286
Borrowings $ 12,372 $ 17,382 $ 17,578 $ 18,000 $ 17,500
Stockholders equity $ 6,403 $ 6,814 $ 7,351 $ 7,914 $ 8,514
Net income $ 384 $ 521 $ 657 $ 693 $ 740
Dividends $ 110 $ 100 $ 120 $ 130 $ 140
Return on assets 0.50% 0.60% 0.68% 0.68% 0.70%
Return on equity 7.09% 7.88% 9.28% 9.08% 9.01%
Efficiency ratio 77.00% 70.00% 66.00% 65.00% 64.00%
Net interest margin 3.03% 3.02% 3.02% 3.02% 3.06%
Earnings per share $ 0.51 $ 0.69 $ 0.88 $ 0.92 $ 0.99
Book value per share $ 8.54 $ 9.09 $ 9.80 $ 10.55 $ 10.92
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Two of the remaining four institutions indicated in late July that, due
to other corporate activities, they were not in a position to consider an
acquisition at the time, one of which became subject to acquisition shortly
thereafter. The other two interested parties, Niagara Bancorp and the
institution which previously communicated its interest, submitted written
expressions of interest for review by the long range planning committee at its
July 27, 1999 meeting, with both parties indicating similar cash proposals.
Both interested parties also addressed their intentions with regard to
organizational structure, benefits, operational considerations, conditions and
termination provisions. In view of the similarity of the expressions of
interest and the indicated price levels, and in comparison to the estimated
value of alternative strategies and the comparable transactions analysis, the
long range planning committee authorized the opportunity for both interested
parties to conduct due diligence of Albion Banc Corp. during the first week of
August at an offsite location. The due diligence included tax returns, Board
and committee minutes, examinations, certain loan files and other information.
The purpose of such due diligence was to allow the interested parties the
opportunity to refine their expressions of interest. The long range planning
committee met on August 10, 1999 to review the higher revised expressions of
interest, which again revealed similar pricing by both parties. With the long
range planning committee's authorization, on August 10, 1999, RP Financial
invited each interested party to reevaluate its expression of interest over
the course of the next day, which resulted in Niagara Bancorp's price
indication of $15.75 per share in cash being the highest price.
The long range planning committee convened a meeting on August 12, 1999
to review the revised expressions of interest, and made the recommendation to
the Albion Banc Corp. board of directors to pursue the negotiations of a
definitive agreement with Niagara Bancorp. On August 12, 1999, the Albion
Banc Corp. board of directors met to review the recommendations of the long
range planning committee and the events leading up to the receipt of the
expressions of interest. The board of directors then authorized Albion Banc
Corp.'s financial and legal advisors to conduct negotiations of a definitive
merger agreement with Niagara Bancorp. Active negotiations took place over
the next two weeks through August 30, 1999, following receipt of the first
draft of the merger agreement from Niagara Bancorp on August 13, 1999. Two
black-lined drafts of the merger agreement were provided to each of the Albion
Banc Corp. directors during the period leading up to August 30, 1999. On
August 30, 1999, the Albion Banc Corp. board of directors met to review RP
Financial's updated analysis and RP Financial's opinion that the proposed
merger was fair to the stockholders of Albion Banc Corp. from a financial
point of view. The board of directors then reviewed the merger agreement.
The Albion Banc Corp. board of directors subsequently voted unanimously to
approve the merger agreement. The agreement was signed by both Albion Banc
Corp. and Niagara Bancorp at the conclusion of the meeting of the Albion Banc
Corp. board of directors at the end of the day on August 30, 1999.
Albion Banc Corp.'s Reasons for the Merger and Recommendation of its Board of
Directors
In forming its opinion to approve the merger agreement, the board of
directors of Albion Banc Corp. considered a number of factors, including the
following:
. The Albion Banc Corp. board of directors considered that the merger
price exceeded the estimated value that could be realized by Albion
Banc Corp. stockholders over the intermediate term pursuant to the
existing business plan and alternative strategies in view of current
resources and the market area served, given the rapidly changing
nature of banking, competition and delivery systems;
. The comparatively low profitability of Albion Banc Corp. given its
small size, limited products and services and the intense nature of
local competition, and the resulting expectation for earnings growth
to fall below targeted levels;
. The comparatively low return on equity and limited dividend growth
prospects;
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. The historically limited liquidity of Albion Banc Corp.'s stock
despite the listing on the Nasdaq SmallCap Market;
. The community orientation of Niagara Bancorp in western New York and
the broader array of products and services which can be offered
through Albion Federal's offices to existing customers and to the
local communities served following a merger with Niagara Bancorp;
. The expression of interest by the other interested institution which
reflected a lower acquisition price;
. The return to stockholders who purchased stock in Albion Banc
Corp.'s initial public offering in 1993; and
. The opinion of RP Financial that the transaction is fair to Albion
Banc Corp.'s stockholders from a financial point of view.
In making its determination, the board of directors of Albion Banc Corp.
did not assign any relative or specific weights to the factors that it
considered.
Generally, the board of directors concluded that in the long term Albion
Banc Corp. could not produce stockholder value in excess of the merger price,
and that the merger price was fair, from a financial point of view, to Albion
Banc Corp.'s stockholders. After careful and thorough consideration of the
merger agreement, the factors discussed above and the opinion of RP Financial,
the board of directors of Albion Banc Corp. unanimously approved and adopted
the merger agreement as being in the best interests of Albion Banc Corp. and
its stockholders. Accordingly, the board of directors of Albion Banc Corp.
unanimously recommends that you vote for the approval and adoption of the
merger agreement.
Opinion of Albion Banc Corp.'s Financial Advisor
The board of directors of Albion Banc Corp. retained RP Financial in
April 1999 to evaluate the financial merits of various strategic options,
including potential strategic mergers with other regional financial
institutions, and to render its opinion with respect to any transaction from a
financial point of view to Albion Banc Corp. stockholders in the event Albion
Banc Corp. entered into an agreement to be acquired. In requesting RP
Financial's advice and opinion, the board of directors of Albion Banc Corp.
did not give any special instructions to RP Financial, nor did it impose any
limitations upon the scope of the investigation that RP Financial might wish
to conduct to enable it to give its opinion. RP Financial has delivered to
Albion Banc Corp. its written opinion, dated August 30, 1999, and its updated
opinion as of December 17, 1999, to the effect that, based upon and subject to
the matters set forth therein, as of the date thereof, the consideration to be
received by stockholders of Albion Banc Corp. in the merger is fair to the
holders of Albion Banc Corp. common stock from a financial point of view.
RP Financial was selected by Albion Banc Corp. to act as its financial
advisor because of RP Financial's expertise in the valuation of businesses and
their securities for a variety of purposes, particularly its expertise in
connection with mergers and acquisitions of financial institutions, including
savings institutions, and their respective holding companies. RP Financial
was engaged by Albion Banc Corp. on April 27, 1999, pursuant to terms set
forth in an engagement letter. RP Financial estimates that it will receive
from Albion Banc Corp. total professional fees of approximately $60,000, of
which approximately $57,000 has been paid to date, plus reimbursement of
certain out-of-pocket expenses, for its services in connection with the
merger. In addition, Albion Banc Corp. has agreed to indemnify and hold
harmless, to the fullest extent permitted by law, RP Financial, any affiliates
of RP Financial, and the respective directors, officers, agents and employees
of RP Financial or their successors and assigns who act for or on behalf of RP
Financial in connection with the services called for under the engagement
letter from and against any and all losses, claims, damages and liabilities,
joint or several, that RP
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Financial may become obligated to pay, to which RP Financial may become
subject or for which RP Financial may become liable, in connection with any of
the services rendered pursuant to or matters that are the subject or arise out
of the services rendered pursuant to the engagement letter. Albion Banc Corp.
will be under no obligation to indemnify or hold harmless RP Financial if a
court of competent jurisdiction determines by a final nonappealable judgment
that RP Financial was negligent or acted in bad faith with respect to any
actions or omissions of RP Financial related to a matter for which
indemnification is sought hereunder. Any time devoted by employees of RP
Financial to situations for which indemnification is provided hereunder is an
indemnifiable cost payable by Albion Banc Corp. at the normal hourly
professional rate chargeable by such employee. Albion Banc Corp. is required
to pay for or reimburse the reasonable expenses, including attorney's fees,
incurred by RP Financial in advance of the final disposition of any proceeding
within 30 days of the receipt of such request if RP Financial furnishes Albion
Banc Corp.:
(i) a written statement of RP Financial's good faith belief that it
is entitled to indemnification; and
(ii) a written undertaking to repay the advance if it ultimately is
determined in a final adjudication of such proceeding that it or
he is not entitled to such indemnification.
In rendering this opinion, RP Financial reviewed the following material:
(1) the merger agreement, dated August 30, 1999, including exhibits;
(2) the following information for Albion Banc Corp. and Albion
Federal:
(a) audited financial statements for the fiscal years ended
December 31, 1993 through 1998, and
(b) shareholder, regulatory and internal financial and other
reports through September 30, 1999 -- all with regard to
balance sheet and off-balance sheet composition,
profitability, interest rates, volumes, maturities, market
values, trends, credit risk, interest rate risk, liquidity
risk and operations;
(3) discussions with Albion Banc Corp.'s management regarding past and
current business, operations, financial condition, and future
prospects;
(4) an analysis of the pro forma impact of alternative strategies as
an independent institution;
(5) competitive, economic and demographic characteristics in the local
market area;
(6) the potential impact of regulatory and legislative changes on
savings institutions;
(7) the financial terms of other recently completed and pending
acquisitions of savings institutions in New York, regionally and
nationally with similar characteristics;
(8) the indications of interest received by other interested parties;
and
(9) Niagara Bancorp's financial condition as of September 30, 1999
regarding the perceived ability to complete the merger from a cash
and capital perspective.
In the past, RP Financial has provided services to Lockport Savings Bank.
In particular, RP Financial was engaged by Lockport Savings Bank in October
1997, in conjunction with the mutual holding company reorganization and stock
offering completed in the Spring of 1998, to provide the related independent
appraisal services and business planning services. RP Financial received
remuneration of $62,500 for these services, plus
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reimbursement of out-of-pocket expenses. RP Financial has not been engaged by
Niagara Bancorp or Lockport Savings Bank for any other matter.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Albion Banc Corp. which was furnished by Albion Banc Corp. to RP Financial for
review for purposes of its opinion, as well as publicly-available information
regarding other financial institutions and economic and demographic data.
Albion Banc Corp. did not restrict RP Financial as to the material it was
permitted to review. RP Financial did not perform or obtain any independent
appraisals or evaluations of the assets and liabilities and potential and/or
contingent liabilities of Albion Banc Corp.
RP Financial expresses no opinion on matters of a legal, regulatory, tax
or accounting nature or the ability of the merger as set forth in the
Agreement to be consummated. In rendering its opinion, RP Financial assumed
that, in the course of obtaining the necessary regulatory and governmental
approvals for the proposed merger, no restriction will be imposed on Niagara
Bancorp that would have a material adverse effect on the ability of the merger
to be consummated as set forth in the merger agreement.
RP Financial's opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of
August 30, 1999, and December 17, 1999; events occurring after the most recent
date could materially affect the assumptions used in preparing the opinion.
In connection with rendering its opinion dated August 30, 1999, and
updated as of December 17, 1999, RP Financial performed a variety of financial
analyses that are summarized below. Although the evaluation of the fairness,
from a financial point of view, of the merger consideration was to some extent
subjective based on the experience and judgment of RP Financial, and not
merely the result of mathematical analyses of financial data, RP Financial
relied, in part, on the financial analyses summarized below in its
determinations. The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to partial analyses or summary description.
RP Financial believes its analyses must be considered as a whole and that
selecting portions of such analyses and factors considered by RP Financial
without considering all such analyses and factors could create an incomplete
view of the process underlying RP Financial's opinion. In its analyses, RP
Financial took into account its assessment of general business, market,
monetary, financial and economic conditions, industry performance and other
matters, many of which are beyond the control of Albion Banc Corp., as well as
RP Financial's experience in securities valuation, its knowledge of financial
institutions and its experience in similar transactions. With respect to the
comparable transactions analysis described below, no public company utilized
as a comparison is identical to Albion Banc Corp. and such analyses
necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition values of the companies
concerned. The analyses were prepared solely for purposes of RP Financial
providing its opinion as to the fairness of the merger consideration and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Any estimates contained in RP
Financial's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
None of the analyses performed by RP Financial was assigned a greater
significance by RP Financial than any other.
Comparable Transactions Analysis. RP Financial compared the merger on
the basis of acquisition pricing multiples or ratios of reported earnings,
book value, tangible book value, assets and tangible book premium to core
deposits of Albion Banc Corp. implied by the merger consideration to be paid
to the holders of Albion Banc Corp. common stock with the same ratios in two
groups of pending and completed acquisitions of publicly-traded and
non-publicly traded thrifts and thrift holding companies from 1997 to the
August 30, 1999 opinion: all MidAtlantic thrifts with assets less than $500
million (MidAtlantic Thrift Group); and all thrifts with assets less than $150
million with equity/assets ratios less than 10% (Small Thrift Group). The
median acquisition pricing multiples or ratios at announcement for these two
groups are set forth below:
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MidAtlantic Small Acquisition
Thrift Thrift of
Group(1) Group(1) Albion Banc Corp.(2)
-------- -------- --------------------
Price/Book 165.81% 168.67% 182.50%
Price/Tangible Book 166.50% 169.30% 182.50%
Price/Earnings (Trailing
12 Months) 26.60x 20.83x 40.38x
Price/Assets 18.28% 12.06% 15.07%
Tangible Book Premium/
Core Deposits 10.95% 7.13% 9.52%
- -------------------
(1) Includes pending and completed acquisition transactions announced 1997
to present.
(2) As of or for the 12 months ended June 30, 1999.
In comparison to the MidAtlantic Thrift Group medians, Albion Banc Corp.
was smaller, had a lower capital level, reported lower profitability prior to
the merger announcement both in terms of return on average assets and return
on equity and maintained lower non-performing assets and a more favorable
reserve coverage ratio. In comparison to the Small Thrift Group medians,
Albion Banc Corp. was similarly-sized, had a higher capital level, reported
similar profitability on a return on average assets basis but a lower return
on average equity and maintained lower non-performing assets and a more
favorable reserve coverage ratio. Albion Banc Corp.'s acquisition pricing
multiples or ratios based on the merger consideration for price/earnings,
price/book, price/tangible book, price/assets and tangible book premium/core
deposits are consistent with or higher than the respective median of these
two groups, based on Albion Banc Corp.'s financial statements as of or for the
12 months ended June 30, 1999: 40.38 times fully diluted earnings; 182.50
percent of reported and tangible book value; 15.07 percent of assets; and 9.52
percent tangible book premium on core deposits.
No company or transaction used in this composite is identical to Albion
Banc Corp. or the merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies involved and other factors that could affect the public trading
values of the securities of the company or companies to which they are being
compared.
Discounted Cash Flow Analysis. In applying the discounted cash flow
analysis, RP Financial estimated the present value of both future dividends
over a five year period and a terminal value at the end of the fifth year,
reflecting alternative strategies in comparison to a continuation of Albion
Banc Corp.'s recent operating strategy, growth and profitability. Such
strategies included: diversification of revenues through the introduction of
commercial lending and increasing non-interest income through expanding less
traditional products and services; wholesale leveraging; capital management
strategies; de novo branching; and a secondary offering. The price/tangible
book value and price/earnings multiples utilized to determine the terminal
value range were derived from the comparable transaction analyses discussed
above. The cash flows were then discounted to present value based on a 15
percent to 20 percent discount rate taking into consideration the earnings
capitalization rate of publicly-traded thrifts, the treasury yield curve
(i.e., the risk-free rate) and perceived investment risks, with the higher
discount rate applied to the higher risk alternative strategies evaluated.
The merger consideration exceeds the upper end of the range of discounted cash
flows based on these alternative scenarios.
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The dollar amounts per share of the discounted cash flow analyses ranged
from $12.35 per share to $15.06 per share, as follows for each of the
scenarios analyzed:
Base Case $12.57
De Novo Branching $12.96
Acquisition of an Insurance Agency $13.06
Emphasizing Higher Yielding Loans $15.06
Emphasizing Higher Fee Income $13.37
Wholesale Leveraging $13.87
Stock Repurchases $14.34
Increased Cash Dividend $12.73
Secondary Offering $12.35
The opinion of RP Financial is directed toward the consideration to be
received by Albion Banc Corp. stockholders and does not constitute a
recommendation to any Albion Banc Corp. shareholder to vote in favor of
approval of the merger agreement. The full text of the RP Financial opinion
which sets forth the assumptions made, procedures followed, matters considered
and limits on the review undertaken is set forth as Appendix B to this proxy
statement and should be read in its entirety by stockholders of Albion Banc
Corp. RP Financial has consented to the inclusion and description of its
written opinion in this proxy statement.
Dissenters' Appraisal Rights
Under Delaware law, if you do not wish to accept the cash payment
provided for in the merger agreement, you have the right to dissent from the
merger and to have an appraisal of the fair value of your shares conducted by
the Delaware Court of Chancery. Albion Banc Corp. stockholders electing to
receive dissenters' rights must comply with the provisions of Section 262 of
the Delaware General Corporation Law in order to perfect their rights. Albion
Banc Corp. will require strict compliance with the statutory procedures. A
copy of Section 262 is attached as Appendix C.
The following is intended as a brief summary of the material provisions
of the Delaware statutory procedures required to be followed by a Albion Banc
Corp. stockholder in order to dissent from the merger and perfect the
stockholder's dissenters' rights. This summary, however, is not a complete
statement of all applicable requirements and is qualified in its entirety by
reference to Section 262 of the Delaware General Corporation Law, the full
text of which appears in Appendix C of this proxy statement.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that dissenters' appraisal
rights will be available. A copy of Section 262 must be included with such
notice. This proxy statement constitutes Albion Banc Corp.'s notice to its
stockholders of the availability of dissenters' rights in connection with the
merger in compliance with the requirements of Section 262. If you wish to
consider exercising your dissenters' rights you should carefully review the
text of Section 262 contained in Appendix C because failure to timely and
properly comply with the requirements of Section 262 will result in the loss
of your rights under Delaware law.
If you elect to demand appraisal of your shares, you must satisfy both of
the following conditions:
1. You must deliver to Albion Banc Corp. a written demand for
appraisal of your shares before the vote with respect to the
merger is taken. This written demand for appraisal must be
in addition to and separate from any proxy or vote abstaining
from or against the merger. Voting against or failing to
vote for the merger by itself does not constitute a demand
for appraisal within the meaning of Section 262.
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2. You must not vote in favor of the merger. An abstention or
failure to vote will satisfy this requirement, but a vote in
favor of the merger, by proxy or in person, will constitute a
waiver of your dissenters' rights in respect of the shares so
voted and will nullify any previously filed written demands
for appraisal.
If you fail to comply with either of these conditions and the merger is
completed, you will be entitled to receive the cash payment for your shares of
Albion Banc Corp. common stock as provided for in the merger agreement but
will have no dissenters' rights of appraisal with respect to your shares of
Albion Banc Corp. common stock.
All demands for appraisal should be addressed to the Corporate
Secretary, Albion Banc Corp., 48 North Main Street, Albion, New York 14411,
before the vote on the merger is taken at the special meeting, and should be
executed by, or on behalf of, the record holder of the shares of Albion Banc
Corp. common stock. The demand must reasonably inform Albion Banc Corp. of
the identity of the stockholder and the intention of the stockholder to demand
appraisal of his or her shares.
To be effective, a demand for appraisal by a holder of Albion Banc Corp.
common stock must be made by or in the name of such registered stockholder,
fully and correctly, as the stockholder's name appears on his or her stock
certificate(s) and cannot be made by the beneficial owner if he or she does
not also hold the shares of record. The beneficial holder must, in such
cases, have the registered owner submit the required demand in respect of such
shares.
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity; and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one for
two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner, such as a
broker, who holds shares as a nominee for others, may exercise his or her
right of appraisal with respect to the shares held for one or more beneficial
owners, while not exercising this right for other beneficial owners. In such
case, the written demand should state the number of shares as to which
appraisal is sought. Where no number of shares is expressly mentioned, the
demand will be presumed to cover all shares held in the name of such record
owner.
If you hold your shares of Albion Banc Corp. common stock in a brokerage
account or in other nominee form and you wish to exercise appraisal rights,
you should consult with your broker or such other nominee to determine the
appropriate procedures for the making of a demand for appraisal by such
nominee.
Within ten days after the effective date of the merger, Niagara Bancorp
must give written notice that the merger has become effective to each Albion
Banc Corp. stockholder who has properly filed a written demand for appraisal
and who did not vote in favor of the merger. Within 120 days after the
effective date, either Niagara Bancorp or any stockholder who has complied
with the requirements of Section 262 may file a petition in the Delaware Court
of Chancery demanding a determination of the fair value of the shares held by
all stockholders entitled to appraisal. Niagara Bancorp does not presently
intend to file such a petition in the event there are dissenting stockholders
and has no obligation to do so. Accordingly, your failure to file such a
petition within the period specified could nullify your previously written
demand for appraisal.
At any time within 60 days after the effective date, any stockholder who
has demanded an appraisal has the right to withdraw the demand and to accept
the cash payment specified by the merger agreement for his or her shares of
Albion Banc Corp. common stock. If a petition for appraisal is duly filed by
a stockholder and a copy of the petition is delivered to Niagara Bancorp,
Niagara Bancorp will then be obligated within 20 days after receiving service
of a copy of the petition to provide the Chancery Court with a duly verified
list containing the names and addresses of all stockholders who have demanded
an appraisal of their shares. After notice to dissenting
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stockholders, the Chancery Court is empowered to conduct a hearing upon the
petition, to determine those stockholders who have complied with Section 262
and who have become entitled to the appraisal rights provided thereby. The
Chancery Court may require the stockholders who have demanded payment for
their shares to submit their stock certificates to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their
shares of Albion Banc Corp. common stock, the Chancery Court will appraise the
shares, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair
rate of interest. When the value is determined, the Chancery Court will
direct the payment of such value, with interest thereon accrued during the
pendency of the proceeding if the Chancery Court so determines, to the
stockholders entitled to receive the same, upon surrender by such holders of
the certificates representing such shares.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of the
shares as determined under Section 262 could be more, the same, or less than
the value that you are entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon Niagara Bancorp
and the stockholders participating in the appraisal proceeding by the Chancery
Court as the Chancery Court deems equitable in the circumstances. Upon the
application of a stockholder, the Chancery Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
shares entitled to appraisal. Any stockholder who had demanded appraisal
rights will not, after the effective date, be entitled to vote shares subject
to such demand for any purpose or to receive payments of dividends or any
other distribution with respect to such shares, other than with respect to
payment as of a record date prior to the effective date; however, if no
petition for appraisal is filed within 120 days after the effective date, or
if such stockholder delivers a written withdrawal of his or her demand for
appraisal and an acceptance of the merger within 60 days after the effective
date, then the right of such stockholder to appraisal will cease and such
stockholder will be entitled to receive the cash payment for shares of his or
her Albion Banc Corp. common stock pursuant to the merger agreement. Any
withdrawal of a demand for appraisal made more than 60 days after the
effective date of the merger may only be made with the written approval of the
surviving corporation and must, to be effective, be made within 120 days after
the effective date.
In view of the complexity of Section 262, Albion Banc Corp. stockholders
who may wish to dissent from the merger and pursue appraisal rights should
consult their legal advisors.
Regulatory Approvals
Completion of the merger of Albion Banc Corp. into Niagara Bancorp and
the merger of Albion Federal into Lockport Savings is subject to a number of
regulatory approvals and consents. The acquisition of Albion Federal by
Niagara Bancorp is subject to the approval of the Board of Governors of the
Federal Reserve System or the Federal Reserve Bank of New York under the Bank
Holding Company Act. Niagara Bancorp filed a request for a waiver of this
application requirement on October 18, 1999. The merger of Albion Federal
into Lockport Savings is subject to the prior approval of the FDIC under the
Bank Merger Act. In reviewing applications under the Bank Merger Act, the
FDIC must consider, among other factors, the financial and managerial
resources and future prospects of the existing and resulting institutions,
and the convenience and needs of the communities to be served. In addition,
the FDIC may not approve a transaction if it will result in a monopoly or
otherwise be anticompetitive. Lockport Savings filed an application with the
FDIC on October 18, 1999. The merger of Albion Federal into Lockport Savings
also requires advance notice to the Office of Thrift Supervision.
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Further, under New York law, the merger of Albion Federal into Lockport
Savings is subject to the prior approval of the Superintendent of Banks.
Lockport Savings filed a copy of the plan of bank merger and copies of the
proceedings of the respective boards of directors with the Superintendent of
Banks on October 18, 1999.
Under the Community Reinvestment Act of 1977, the FDIC and the Federal
Reserve System must take into account the record of performance of Lockport
Savings and Albion Federal in meeting the credit needs of the entire
community, including low- and moderate-income neighborhoods, served by each
institution. As part of the review process, the banking agencies frequently
receive comments and protests from community groups and others. Lockport
Savings received a "satisfactory" rating and Albion Federal received a
"satisfactory" rating during their last respective federal Community
Reinvestment Act examinations.
In addition, a period of 15 to 30 days must expire following approval by
the FDIC and the Federal Reserve System, within which period the United States
Department of Justice may file objections to the merger under the federal
antitrust laws. While Albion Bancorp believes that the likelihood of such
action by the Department of Justice is remote in this case, there can be no
assurance that the Department of Justice will not initiate such proceeding, or
that the Attorney General of the State of New York will not challenge the
merger, or if such proceeding is instituted or challenge is made, as to the
result of the challenge.
The merger of Albion Banc Corp. into Niagara Bancorp and the merger of
Albion Federal into Lockport Savings cannot proceed in the absence of the
requisite regulatory approvals. See "-- The Merger Agreement -- Conditions to
the Merger" and "--Termination of the Merger Agreement." There can be no
assurance that the requisite regulatory approvals will be obtained, and if
obtained, there can be no assurance as to the date of any such approval.
There can also be no assurance that any such approvals will not contain a
condition or requirement that causes such approvals to fail to satisfy the
conditions set forth in the merger agreement and described under "-- The
Merger Agreement -- Conditions to the Merger."
Niagara Bancorp is not aware of any other regulatory approvals that would
be required for completion of the merger or the merger of Albion Federal into
Lockport Savings, except as described above. Should any other approvals be
required, it is presently contemplated that such approvals would be sought.
There can be no assurance that any other approvals, if required, will be
obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by
Albion Banc Corp. stockholders. Furthermore, regulatory approvals do not
constitute an endorsement or recommendation of the merger.
The merger agreement provides that if the merger has not been consummated
by May 31, 2000, the merger agreement may be terminated by Niagara Bancorp or
Albion Banc Corp. Since there is the possibility that regulatory approval may
not be obtained for a substantial period of time after approval of the merger
agreement by Albion Banc Corp.'s stockholders, there can be no assurance that
the merger will be consummated by May 31, 2000. In addition, should
regulatory approval require any material change, a resolicitation of
stockholders may be required if regulatory approval is obtained after
shareholder approval of the merger agreement.
The Merger Agreement
The following discussion describes material provisions of the merger
agreement. This description does not purport to be complete and is qualified
by reference to the merger agreement, which is attached as Appendix A and is
incorporated into this proxy statement by reference.
Terms of the Merger. The merger agreement provides for a business
combination in which Albion Banc Corp. will merge into Niagara Merger
Subsidiary and thereafter the merged entity will merge into Niagara
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Bancorp. Niagara Bancorp will be the surviving corporation in the merger.
The current directors and officers of Albion Banc Corp. will cease to be
directors and officers of Albion Banc Corp. upon completion of the merger.
Under the merger agreement, Niagara Bancorp has the right to revise the
structure of the transaction so long as the revised structure does not change
the amount or kind of consideration being paid to Albion Banc Corp.
stockholders, adversely affect the tax consequences to stockholders, or
materially delay or impede the receipt of any required regulatory approval.
As a result of the merger, except as noted below, each outstanding share
of Albion Banc Corp. common stock will become exchangeable for a cash payment
equal to $15.75. If there is a change in the capitalization of Albion Banc
Corp. as a result of a stock split, stock dividend, reclassification,
recapitalization or other similar transaction, the amount of the merger
consideration will be equitably adjusted. Shares held directly or indirectly
by Niagara Bancorp and shares held by Albion Banc Corp. as treasury stock will
be canceled and retired upon completion of the merger, and no payment will be
made for them. Canceled shares will not include shares held by either Albion
Banc Corp. or Niagara Bancorp in a fiduciary capacity or in satisfaction of a
debt previously contracted. Holders of shares for which dissenters' rights
of appraisal have been exercised will be entitled only to the rights granted
by Section 262 of the Delaware General Corporation Law.
Under the merger agreement, each outstanding stock option granted under
Albion Banc Corp.'s stock option plans will be canceled at the consummation of
the merger and the option holder will receive a cash payment equal to the
number of shares of Albion Banc Corp. common stock subject to the option
multiplied by an amount equal to the difference between the merger
consideration and the exercise price of the option.
In connection with the merger, Lockport Savings and Albion Federal have
entered into a plan of merger under which Lockport Savings and Albion Federal
will merge, with Lockport Savings being the surviving bank. It is the
intention of Lockport Savings to operate the former offices of Albion Federal
as offices of Lockport Savings. The bank merger agreement between Albion
Federal and Lockport Savings may be terminated by mutual consent of the
parties at any time and will be terminated automatically in the event the
merger agreement is terminated.
When the Merger Will be Completed. The closing of the merger will take
place no later than 15 days after the satisfaction or waiver of all of the
conditions to the merger contained in the merger agreement, unless Niagara
Bancorp and Albion Banc Corp. agree to another date. On the date of the
closing, Niagara Bancorp will file a certificate of merger with the Delaware
Secretary of State. The merger will become effective at the time stated in
the certificate of merger. At the effective time of the merger, Albion
Federal will be merged into Lockport Savings.
Albion Banc Corp. expects to complete the merger in the first quarter of
2000. However, we cannot guarantee when or if the required approval will be
obtained. Furthermore, either party may terminate the merger agreement if,
among other reasons, the merger has not been completed on or before May 31,
2000, unless failure to complete the merger by that time is due to the breach
of any representation, warranty or covenant by the party seeking to terminate.
Surrender of Certificates. Within ten calendar days after the
completion of the merger, an exchange agent designated by Niagara Bancorp will
mail to each former holder of record of Albion Banc Corp. common stock a
letter with instructions on how to exchange Albion Banc Corp. stock
certificates for the cash merger consideration.
Please do not send in your Albion Banc Corp. stock certificates until you
receive the letter of transmittal and instructions from the exchange agent and
have completed the transmittal materials accordingly. Do not return your
stock certificates with the enclosed proxy.
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After you mail the letter of transmittal and your stock certificates to
the exchange agent, your check will be mailed to you. The Albion Banc Corp.
certificate(s) you surrender will be canceled. You will not be entitled to
receive interest on any cash to be received in the merger.
In the event of a transfer of ownership of any shares of Albion Banc
Corp. common stock that has not been registered in the transfer records of
Albion Banc Corp., a check for the cash to be received in the merger may be
issued to the person who holds such shares if the certificate representing
such shares is presented to the exchange agent with documents that are
sufficient in the reasonable discretion of Niagara Bancorp and the exchange
agent:
1. to evidence and effect such transfer, and
2. to evidence that all applicable stock transfer taxes have
been paid.
After the completion of the merger, there will be no further transfers of
Albion Banc Corp. common stock. Albion Banc Corp. stock certificates
presented for transfer after the completion of the merger will be canceled and
exchanged for the merger consideration.
Any portion of the cash to be paid in the merger or the proceeds of any
investments thereof that remains unclaimed by the stockholders of Albion Banc
Corp. for 12 months after the effective date will be repaid by the exchange
agent to Niagara Bancorp. If you have not complied with the procedures
regarding payment for shares in accordance with the merger agreement after
that time you can only look to Niagara Bancorp for payment of the cash you are
entitled to receive in exchange for your shares and this payment will not
include any interest.
If your Albion Banc Corp. stock certificate(s) have been lost, stolen or
destroyed, you will have to prove your ownership of these certificates and
that they were lost, stolen or destroyed before you receive any consideration
for your shares. The exchange agent will send you instructions on how to
provide such evidence and any additional requirements that need to be
satisfied.
Conduct of Business Pending the Merger. Pursuant to the merger
agreement, Albion Banc Corp. has agreed to use its best efforts to preserve
its business organization intact, to maintain good relationships with
employees and to preserve the goodwill of customers and others with whom
business relationships exist.
In addition, Albion Banc Corp. has agreed to conduct its business and to
engage in transactions only in the ordinary course of business, consistent
with past practice, except as otherwise required by the merger agreement or
with the written consent of Niagara Bancorp. In addition, Albion Banc Corp.
has agreed in the merger agreement that it may not, without the written
consent of Niagara Bancorp, among other things:
1. amend or change its certificate of incorporation or bylaws;
2. change the number of shares of its capital stock or issue any
option relating to its capital stock or split, or reclassify any
shares of capital stock, or declare or pay any dividend or other
distribution in respect of capital stock, other than the
quarterly cash dividend of $.03 per share, or redeem or otherwise
acquire any shares of capital stock, except for shares of Albion
Banc Corp. common stock that may be issued upon the exercise of
options identified in the merger agreement as outstanding as of
the date of the merger agreement;
3. except pursuant to the arrangements identified in the merger
agreement, grant any severance or termination pay to, or enter
into any new or amend any existing employment agreement with, or
increase the compensation of any employee, officer or director of
Albion Banc Corp., except for normal increases in the ordinary
course of business consistent with past practice;
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<PAGE>
4. implement any new employee plan, or materially amend any existing
plan except to the extent such amendments do not result in an
increase in cost, or contribute to any employee benefit plan
other than in amounts and in a manner consistent with past
practice;
5. engage in any merger, acquisition or similar transaction;
6. sell or dispose of any capital stock or assets other than in the
ordinary course of business;
7. take any action which would result in any of its representations
and warranties becoming untrue as of a later date;
8. change any accounting practices;
9. waive, grant or transfer any material rights of value or
materially modify or change any existing material agreement or
indebtedness other than in the ordinary course of business,
consistent with past practice;
10. purchase any security for its investment portfolio not rated "A"
or higher by either Standard & Poor's Corporation or Moody's
Investor Services, Inc.;
11. make any new loan or renew loans in excess of $50,000 except for
loans secured by one-to-four family properties;
12. except as set forth in the schedules to the merger agreement,
enter into or modify any other transaction with any affiliate;
13. enter into any interest rate swap or similar arrangement;
14. except for the execution of the merger agreement, take any action
that would give rise to a right of payment to any individual
under any employment agreement;
15. change any policies regarding the extension of credit or
establishment of reserves;
16. make any capital expenditures of over $25,000 individually or
$50,000 in the aggregate; and
17. purchase or sell assets or incur liabilities other than in the
ordinary course of business.
See Article V of the merger agreement, which is attached to this proxy
statement as Appendix A, for additional restrictions on the conduct of
business of Albion Banc Corp. pending the merger.
Agreement Not to Solicit Other Offers. Albion Banc Corp. has agreed not
to seek to have an outside third party try to buy a material interest in
Albion Banc Corp. or its subsidiaries. Generally, an effort by Albion Banc
Corp. to obtain an offer to engage in a merger or similar business
combination, buy at least 20% of Albion Banc Corp.'s assets or 20% of Albion
Banc Corp.'s stock, or a public announcement to enter into an agreement to do
any of these things, would violate this covenant. Despite Albion Banc Corp.'s
agreement not to solicit other offers, the Albion Banc Corp. board of
directors may generally enter into discussions or negotiations with anyone who
makes an unsolicited, written bona fide proposal to acquire Albion Banc Corp.
that is a financially superior proposal to that of Niagara Bancorp. For the
Albion Banc Corp. board to enter into negotiations on a superior proposal, it
would also have to first determine that their fiduciary duties obligate them
to do so. If Albion Banc Corp. does enter into negotiations with a third party
regarding a superior proposal, it has to notify Niagara Bancorp and provide
Niagara Bancorp with information about the other party and its proposal. The
Albion Banc
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<PAGE>
Corp. board of directors may also withdraw or modify its recommendation for
the merger and enter into a business combination with a third party if, after
consulting with independent legal counsel, the board determines in good faith
that doing so is necessary for it to comply with its fiduciary duties to
stockholders.
Conditions to the Merger. The obligations of Niagara Bancorp and Albion
Banc Corp. to consummate the merger are subject to the satisfaction or mutual
waiver at or prior to the effective date of the following conditions, among
others:
1. the taking of all required corporate action;
2. the obligations and covenants required by the merger agreement to
be performed at or prior to the closing date shall have been
performed and complied with in all material respects;
3. each of the representations and warranties in the merger agreement
shall be true and correct in all material respects;
4. the receipt of all required approvals of the merger by regulatory
authorities without the imposition of unduly burdensome conditions
and the expiration or termination of all notice and waiting
periods required thereunder;
5. there is no order in effect that enjoins or prohibits consummation
of the merger;
6. the receipt of opinions of counsel in form and substance
reasonably satisfactory to Niagara Bancorp and Albion Banc Corp.;
7. the receipt of an opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C. that, among other things, the Merger will be treated for
federal income tax purposes as a "reorganization" within the
meaning of the Internal Revenue Code of 1986, as amended; and
8. the approval of the merger agreement by the stockholders of Albion
Banc Corp.
The obligations of Niagara Bancorp under the merger agreement also shall
be subject to satisfaction of the condition that since December 31, 1998,
there shall not have occurred any "material adverse effect", as defined in the
merger agreement, on the assets, financial condition or results of operations
of Albion Banc Corp.
The obligations of Albion Banc Corp. under the merger agreement also
shall be subject to satisfaction of the condition that Niagara Bancorp shall
deposit with the exchange agent, an amount of cash equal to the total amount
of cash that the Albion Banc Corp. stockholders will receive on the merger
effective date.
For a complete description of all of the conditions to the obligations of
the parties to effect the merger, see Article VI of the merger agreement,
which is attached to this proxy statement as Appendix A.
Termination of the Merger Agreement. The merger agreement may be
terminated on or at any time prior to the closing date by the mutual written
consent of the parties to the merger agreement. In addition, the merger
agreement may be terminated by Niagara Bancorp or Albion Banc Corp:
1. if there is a material breach of any representation, warranty,
covenant or other obligation that results in a material adverse
effect to the breaching party, and the breach is not remedied
within 30 days after receipt of a written notice requesting that
it be remedied;
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<PAGE>
2. if the closing date has not occurred before May 31, 2000, unless
the failure to close is because of the failure of the party
seeking to terminate the merger agreement to perform or observe
its agreements under the merger agreement; or
3. if either party has been informed in writing by a regulatory
authority whose approval or consent has been requested that such
approval or consent is unlikely to be granted, unless the failure
to receive such approval is due to the failure of the party
seeking to terminate the merger agreement to perform or observe
its agreements under the merger agreement; or
4. if the approval of the stockholders of Albion Banc Corp. has not
been obtained. If the merger agreement is terminated it shall
generally become void, and there shall be no further liability on
the part of Albion Banc Corp. or Niagara Bancorp to the other,
except for any liability arising out of any willful breach of any
provision of the merger agreement.
Also, the merger agreement may be terminated by Niagara Bancorp if the
board of directors of Albion Banc Corp. withdraws its recommendation of the
merger agreement; fails to make such recommendation or modifies or qualifies
its recommendation in a manner adverse to Niagara Bancorp; or enters into an
agreement to be acquired by another party.
Representations and Warranties Made by Albion Banc Corp. and Niagara
Bancorp in the Merger Agreement. Both Niagara Bancorp and Albion Banc Corp.
have made certain customary representations and warranties to each other
relating to their businesses. For information on these representations and
warranties, please refer to the merger agreement, which is attached to this
proxy statement as Appendix A. The representations and warranties of Albion
Banc Corp. must be true in all material respects through the completion of the
merger unless the change does not have a material negative impact on Albion
Banc Corp.'s business, financial condition or results of operations. See "--
Conditions to the Merger."
Amendment of Merger Agreement. The merger agreement may be amended by
the respective boards of directors of the parties at any time before or after
approval of the merger agreement by Albion Banc Corp.'s stockholders. Unless
required by law, no amendment of the merger agreement effected after the
merger agreement is approved by Albion Banc Corp.'s stockholders shall require
any further stockholder approval.
Waiver of Performance of Obligations. Either of the parties to the
merger agreement may, by a signed writing, give any consent, take any action
with respect to the termination of the merger agreement or otherwise, or waive
any of the inaccuracies in the representations and warranties of the other
party or compliance by the other party with any of the covenants or conditions
contained in the merger agreement.
Interests of Certain Persons in the Merger. Some members of Albion Banc
Corp.'s directors and officers may have interests in the merger that are in
addition to, or different from the interests of stockholders. The Albion Banc
Corp. board was aware of these interests and considered them in approving the
merger agreement.
Stock Ownership. The directors and executive officers of Albion Banc
Corp., together with their affiliates, beneficially owned a total of 179,014
shares of Albion Banc Corp. common stock (representing 23.77% of all
outstanding shares of Albion Banc Corp. common stock) as of the December 10,
1999 record date. The directors and executive officers will receive the same
consideration in the merger for their shares as the other stockholders of
Albion Banc Corp.
Indemnification of Albion Banc Corp. and Albion Federal Directors and
Officers Against Claims. Niagara Bancorp has agreed to indemnify and hold
harmless each present and former director and officer of Albion Banc Corp. and
Albion Federal from liability and expenses arising out of matters existing or
occurring at or prior to the consummation of the merger to the fullest extent
allowed under Delaware law and Albion Banc Corp.'s
29
<PAGE>
certificate of incorporation as in effect at the time of closing. This
indemnification includes but is not limited to liability arising out of the
transactions contemplated by the merger agreement. Niagara Bancorp has also
agreed to advance any costs to each of these persons as they are incurred.
Niagara Bancorp has also agreed to pay up to 150% of the current annual
premium to maintain directors' and officers' liability insurance coverage for
the benefit of Albion Bancorp's directors and officers for three years
following consummation of the merger.
Conversion of Stock Options. At the merger effective date, each option
granted by Albion Banc Corp. to purchase shares of Albion Banc Corp. common
stock issued and outstanding pursuant to the 1993 Stock Option Plan, whether
or not such option is exercisable on the merger effective date, will be
converted into the right to receive in cash an amount equal to the difference
(if a positive number) between $15.75 and the exercise price of each option
multiplied by the number of shares of Albion Banc Corp. common stock subject
to the option. As of September 30, 1999, the directors and executive officers
of Albion Banc Corp. held options to purchase a total of 40,835 shares of
Albion Banc Corp. common stock. The following table reflects the number of
options, the weighted average exercise price of the options and the amounts
payable to each director and executive officer upon cancellation of their
stock options based on the per share merger consideration of $15.75.
Number of Weighted Average
Name of Director Securities Underlying Exercise Price Net Proceeds
or Executive Officer Unexercised Options Per Share Through Conversion
- -------------------- ------------------- ---------- ------------------
James H. Keeler 2,190 $3.33 $27,200
Richard A. Pilon 2,190 3.33 27,200
Robert R. Brown II 2,190 3.33 27,200
Delores L. Giarrizzo 2,190 3.33 27,200
Harold P. Kludt 2,190 3.33 27,200
Chriss M. Andrews 2,190 3.33 27,200
Jeffrey S. Rheinwald 13,025 3.33 161,771
John S. Kettle 6,000 5.79 59,760
Marie A. Rice 7,170 3.33 89,051
Kathleen Dold 1,500 5.79 14,940
Existing Employment Agreement. Albion Banc Corp. is a party to an
employment agreement with its chief executive officer, Jeffrey S. Rheinwald,
which provides Mr. Rheinwald with a severance payment and continuation of his
employee benefits for one year if he is terminated following a "change in
control" of Albion Banc Corp or Albion Federal, as defined in the agreement.
The merger will constitute a change in control of Albion Banc Corp. and Albion
Federal and following Mr. Rheinwald's termination of employment after
completion of the merger, he will be entitled to a severance payment in the
amount of approximately $120,000.
Advisory Board of Directors. At the effective date, Niagara Bancorp
will establish an Albion Federal advisory board of directors comprised of the
current members of Albion Banc Corp.'s board of directors. The advisory board
shall be maintained for at least two years after the completion of the merger
and will meet at least quarterly. Each member of the advisory board will
receive a fee of $250 per meeting.
Employee Matters. Other than the establishment of the Albion Federal
advisory board discussed above, no director or officer of Albion Banc Corp.
has entered into an employment agreement or understanding with Niagara Bancorp
for employment or services following the consummation of the merger. The
following is a discussion of the Albion Banc Corp. benefits plans in
connection with the consummation of the merger.
Severance Plan. Following the merger, any former employee of Albion
Banc Corp. or Albion Federal whose employment is terminated, other than for
cause, shall be provided with severance benefits in accordance with the Albion
Federal severance plan in effect on the date of execution of the merger
agreement.
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<PAGE>
Employee Benefit Plans. To the extent permitted by applicable law, the
employee pension and welfare benefit plans of Albion Federal will continue to
be maintained separately, terminated or consolidated with Lockport Savings'
benefit plans, at the election of Niagara Bancorp. In the event of
consolidation or termination of any or all of the Albion Federal benefit
plans, Albion Federal employees who continue to work for Niagara Bancorp or
Lockport Savings will receive credit for service under any Niagara Bancorp
benefit plan in which the continuing employee would be eligible to enroll for
purposes of eligibility and vesting but not for benefit accrual purposes.
Niagara Bancorp will make health coverage available to continuing employees on
the same basis as is provided to other employees of Niagara Bancorp. In the
event of termination or consolidation of any Albion Banc Corp. health plan
with any Niagara Bancorp health plan, full time continuing employees who were
eligible for continued coverage under the terminated or consolidated plan will
have immediate coverage of any pre-existing condition. Albion Banc Corp.
employees whose employment has been terminated, and their qualified
beneficiaries, or continuing employees who do not satisfy the requirements for
coverage under the Niagara Bancorp health plans, will have the right to
continued health care coverage provided by law.
Employee Stock Ownership Plan. Prior to the consummation of the
merger, Albion Federal will terminate its ESOP. After consummation of the
merger, the ESOP will repay the outstanding balance of its loan and allocate
any surplus cash to the accounts of ESOP participants in proportion to their
account balances, to the extent allowed under applicable law and the governing
documents of the ESOP.
Accounting Treatment
Niagara Bancorp will account for the merger under the purchase method of
accounting. This means that Niagara Bancorp and Albion Banc Corp. will be
treated as one company as of the date of the merger and Niagara Bancorp will
record the fair market value of Albion Banc Corp.'s assets less liabilities on
its financial statements. Niagara Bancorp will record any difference between
the purchase price and the fair value of Albion Banc Corp.'s identifiable net
assets as goodwill.
Expenses and Termination Fee
Except as otherwise provided in the merger agreement, Niagara Bancorp
and Albion Banc Corp. will each pay their own expenses in connection with the
merger and the merger of Albion Federal into Lockport Savings. In addition,
if the merger agreement is terminated because the board of directors of Albion
Banc Corp. has either failed to recommend approval of the merger to Albion
Banc Corp.'s stockholders or has recommended against approval of the merger
because of the receipt by Albion Banc Corp. of an acquisition proposal from a
third party, Albion Banc Corp. shall pay Niagara Bancorp, concurrently with
such termination, a termination fee of $619,000.
OTHER MATTERS
The Albion Banc Corp. board of directors is not aware of any business to
come before the Albion Banc Corp. special meeting other than those matters
described above in this proxy statement. However, if any other matters should
properly come before the Albion Banc Corp. special meeting, it is intended
that proxies in the accompanying form will be voted in respect thereof in
accordance with the judgment of the person or persons voting the proxies.
WHERE YOU CAN FIND MORE INFORMATION
Albion Banc Corp. files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy such reports, statements and information at the
Securities and Exchange Commission's public reference room in Washington, D.C.
You can request copies of these documents, upon payment of a duplicating fee,
by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Reports, proxy statements and
other information filed by Albion Banc Corp. are also available on the
Internet at the Securities and Exchange Commission's World Wide Web site at
http://www.sec.gov.
The Securities and Exchange Commission allows Albion Banc Corp. to
"incorporate by reference" information into this proxy statement/ prospectus,
which means that Albion Banc Corp. can disclose important information to you
by referring you to another document filed separately with the Securities and
Exchange Commission. The information incorporated by reference is deemed to
be a part of this proxy statement, except for any information superseded by
information contained directly in the proxy statement. This document
incorporates by reference the following documents that Albion Banc Corp. has
filed with the Securities and Exchange Commission:
1. Management's discussion and analysis of financial condition and
results of operations on Pages 4 to 16 of Albion Banc Corp.'s
1998 annual report to stockholders;
2. Albion Banc Corp.'s annual report on Form 10-KSB for the year
ended December 31, 1998;
3. Albion Banc Corp.'s quarterly reports on Form 10-QSB for the
quarters ended March 31, 1999, June 30, 1999 and September 30,
1999; and
4. Albion Banc Corp.'s current report on Form 8-K dated September
10, 1999.
A copy of Albion Banc Corp.'s annual report to stockholders for the year
ended December 31, 1998 and its quarterly report on Form 10-QSB for the
quarter ended September 30, 1999, accompanies this proxy statement. Albion
Banc Corp. incorporates by reference additional documents that it may file
with the Securities and Exchange Commission between the date of this proxy
statement and the date of the special meeting. These include periodic
reports, such as annual reports on Form 10-KSB, quarterly reports on Form
10-QSB and current reports on Form 8-K, as well as proxy statements.
Documents incorporated by reference are available from Albion Banc Corp.
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this proxy statement/prospectus. Stockholders of
Albion Banc Corp. may obtain documents incorporated by reference in this proxy
statement by requesting them in writing or by telephone from Laura L. Marek,
Corporate Secretary, Albion Banc Corp. 48 North Main Street, Albion, New York
14411 (telephone number: (716) 589-5501). In order to ensure timely delivery
of the documents, any request should be made by January 5, 2000.
Niagara Bancorp has supplied all information contained or incorporated
by reference in this proxy statement relating to Niagara Bancorp and Albion
Banc Corp. has supplied all information contained in this proxy statement
relating to Albion Banc Corp.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote your shares at the special meeting.
We have not authorized anyone to provide you with information that differs
from that contained in this proxy statement. This proxy statement is dated
December 17, 1999. You should not assume that the information contained in
this proxy statement is accurate as of any date other than that date, and the
mailing of this proxy statement to stockholders should not create any
implication to the contrary.
STOCKHOLDER PROPOSALS
In the event that the merger is not approved by stockholders at the
special meeting, Albion Banc Corp. expects it would hold its 2000 annual
meeting of stockholders in April 2000. Any proposal intended to be
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<PAGE>
presented by any stockholder for action at the 2000 annual meeting of
stockholders must have been received by the Corporate Secretary of Albion Banc
Corp. at Albion Banc Corp.'s main office at 48 North Main Street, Albion, New
York 14411, no later than November 23, 1999 in order to be eligible for
inclusion in Albion Banc Corp's proxy materials for the 2000 Annual Meeting of
Stockholders. Any such proposals shall be subject to the requirements of the
proxy rules adopted under the Securities Exchange Act of 1934, as amended.
If a stockholder wishes to present a proposal at Albion Banc Corp.'s
annual meeting, the stockholder must give advance notice to Albion Banc Corp.
not less than 30 nor more than 60 days prior to the meeting unless less than
31 days notice is given, in which case the stockholder must give notice to
Albion Banc Corp. within 10 days after disclosure of the meeting date. Albion
Banc Corp.'s Certificate of Incorporation specifies the information that must
accompany notice of a stockholder proposal. Copies of the Certificate of
Incorporation may be obtained from the Corporate Secretary of Albion Banc
Corp.
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APPENDIX A -- AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF MERGER
By and Between
NIAGARA BANCORP, INC.,
NIAGARA MERGER SUBSIDIARY, INC.,
LOCKPORT SAVINGS BANK
And
ALBION BANC CORP.
And
ALBION FEDERAL SAVINGS AND LOAN ASSOCIATION
Dated as of August 30, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions............................................... 2
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01 Effects of Merger; Surviving Corporation.................. 7
Section 2.02 Conversion of Shares...................................... 8
Section 2.03 Exchange Procedures....................................... 8
Section 2.04 Stock Options.............................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ABC AND ALBION FEDERAL
Section 3.01 Organization..............................................10
Section 3.02 Capitalization............................................11
Section 3.03 Authority; No Violation...................................12
Section 3.04 Consents..................................................12
Section 3.05 Financial Statements......................................13
Section 3.06 Taxes.....................................................13
Section 3.07 No Material Adverse Effect................................14
Section 3.08 Contracts.................................................14
Section 3.09 Ownership of Property; Insurance Coverage.................15
Section 3.10 Legal Proceedings.........................................16
Section 3.11 Compliance With Applicable Law............................16
Section 3.12 ERISA.....................................................17
Section 3.13 Brokers, Finders and Financial Advisors...................19
Section 3.14 Environmental Matters.....................................19
Section 3.15 Loan Portfolio............................................20
Section 3.16 Information to be Supplied................................22
Section 3.17 Securities Documents......................................22
Section 3.18 Related Party Transactions................................22
Section 3.19 Schedule of Termination Benefits..........................22
Section 3.20 Deposits..................................................23
<PAGE>
Section 3.21 Antitakeover Provisions Inapplicable......................23
Section 3.22 Fairness Opinion..........................................23
Section 3.21 Year 2000.................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LOCKPORT SAVINGS
AND NIAGARA BANCORP
Section 4.01 Organization..............................................24
Section 4.02 Authority; No Violation...................................24
Section 4.03 Consents..................................................25
Section 4.04 Financial Statements......................................26
Section 4.05 Compliance With Applicable Law............................26
Section 4.06 Information to be Supplied................................26
Section 4.07 Year 2000.................................................27
Section 4.08 Financing.................................................27
Section 4.09 Regulatory Approvals......................................27
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01 Conduct of ABC's Business.................................28
Section 5.02 Access; Confidentiality...................................31
Section 5.03 Regulatory Matters and Consents...........................32
Section 5.04 Taking of Necessary Action................................33
Section 5.05 Certain Agreements........................................33
Section 5.06 No Other Bids and Related Matters.........................35
Section 5.07 Duty to Advise; Duty to Update ABC's Disclosure Schedules.36
Section 5.08 Conduct of Niagara Bancorp's Business.....................36
Section 5.09 Board and Committee Minutes...............................36
Section 5.10 Undertakings by ABC and Niagara Bancorp...................37
Section 5.11 Employee and Termination Benefits; Directors and
Management..............................................39
Section 5.12 Duty to Advise; Duty to Update Niagara Bancorp's
Disclosure Schedules....................................40
Section 5.13 Bank and Related Merger Transactions......................41
ARTICLE VI
CONDITIONS
Section 6.01 Conditions to ABC's Obligations under this Agreement......41
Section 6.02 Conditions to Niagara Bancorp's Obligations under this
Agreement...............................................43
<PAGE>
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.01 Termination...............................................44
Section 7.02 Effect of Termination.....................................45
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Expenses..................................................45
Section 8.02 Non-Survival of Representations and Warranties............46
Section 8.03 Amendment, Extension and Waiver...........................46
Section 8.04 Entire Agreement..........................................46
Section 8.05 No Assignment.............................................46
Section 8.06 Notices...................................................46
Section 8.07 Captions..................................................47
Section 8.08 Counterparts..............................................47
Section 8.09 Severability..............................................47
Section 8.10 Governing Law.............................................48
Section 8.11 Specific Performance......................................48
<PAGE>
Exhibits:
Exhibit A Form of Bank Merger Agreement
Exhibit B Form of ABC Voting Agreement
Exhibit 6.1 Form of Opinion of Counsel for Niagara Bancorp
Exhibit 6.2 Form of Tax Opinion of Counsel for Niagara Bancorp
Exhibit 6.3 Form of Opinion of Counsel for ABC
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August
30, 1999, is by and among Niagara Bancorp, Inc., a Delaware corporation
("Niagara Bancorp"), Niagara Merger Subsidiary, Inc., a wholly-owned
subsidiary of Niagara Bancorp incorporated under the laws of the State of
Delaware ("Niagara Merger Subsidiary"), Lockport Savings Bank, a New York
chartered savings bank ("Lockport Savings"), and Albion Banc Corp., a Delaware
corporation ("ABC") and Albion Federal Savings and Loan Association, a
federally chartered savings and loan association ("Albion Federal"). Each of
Niagara Bancorp, Niagara Merger Subsidiary, Lockport Savings, Albion Federal
and ABC is sometimes individually referred to herein as a "party," and Niagara
Bancorp, Niagara Merger Subsidiary, Lockport Savings, Albion Federal and ABC
are sometimes collectively referred to herein as the "parties."
RECITALS
WHEREAS, Niagara Bancorp, a registered bank holding company, with
principal offices in Lockport, New York, owns all of the issued and
outstanding capital stock of Lockport Savings, with principal offices in
Lockport, New York.
WHEREAS, ABC, a registered savings and loan holding company, with
principal offices in Albion, New York, owns all of the issued and outstanding
capital stock of Albion Federal, a federal savings and loan association
organized under the laws of the United States, with principal offices in
Albion, New York.
WHEREAS, the Boards of Directors of the respective parties hereto deem it
advisable and in the best interests of the respective stockholders to
consummate the business combination transaction contemplated herein in which:
(i) Niagara Merger Subsidiary, subject to the terms and conditions set forth
herein, shall be merged with and into ABC, with ABC surviving the merger,
(ii) to be followed by the merger of ABC with and into Niagara Bancorp, with
Niagara Bancorp surviving the merger (collectively referred to as the "Company
Merger"), with the result that Albion Federal shall be a wholly-owned
subsidiary of Niagara Bancorp, and (iii) Albion Federal shall be merged with
and into Lockport Savings, with Lockport Savings surviving the merger (the
"Bank Merger") (the Company Merger and the Bank Merger are sometimes
collectively referred to as the "Merger"); and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
Merger, and the other transactions contemplated by this Agreement
(collectively, the "Merger Documents").
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions. Except as otherwise provided herein, as used
in this Agreement, the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"ABC Common Stock" means the common stock of ABC described in Section
3.02(a).
"ABC Disclosure Schedules" means the Disclosure Schedules delivered by
ABC to Niagara Bancorp pursuant to Article III of this Agreement.
"ABC Financials" means (i) the audited consolidated financial statements
of ABC as of December 31, 1997 and 1998 and for the three years ended December
31, 1998, including the notes thereto, and (ii) the unaudited interim
consolidated financial statements of ABC as of each calendar quarter
thereafter included in Securities filed by ABC.
"ABC Regulatory Reports" means the Thrift Financial Reports of Albion
Federal and accompanying schedules, as filed with the OTS, for each calendar
quarter beginning with the quarter ended March 31, 1997, through the Closing
Date, and all Annual, Quarterly and Current Reports filed on Form H-(b)11 with
the OTS by ABC from March 31, 1997 through the Closing Date.
"ABC Subsidiary" means any corporation, 50% or more of the capital stock
of which is owned, either directly or indirectly, by ABC or Albion Federal,
except any corporation the stock of which is held in the ordinary course of
the lending activities of ABC.
"Affiliate" means, with respect to any Person, any Person who directly,
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer or director of
such Person and any Affiliate of such executive officer or director.
"Agreement" means this agreement, and any amendment or supplement hereto,
which constitutes a "plan of merger" between Niagara Bancorp, Niagara Merger
Subsidiary and ABC.
"Applications" means the applications for regulatory approval which are
required by the transactions contemplated hereby.
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"Bank Merger" means the merger of Albion Federal with and into Lockport
Savings, with Lockport Savings as the surviving institution.
"Bank Merger Effective Date" shall mean the date, after the Bank Merger
is approved by the Department, that all filings are made with the Department.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"BIF" means the Bank Insurance Fund administered by the FDIC.
"Closing Date" means the date determined by Niagara Bancorp, in its sole
discretion, upon five (5) days prior written notice to ABC, but in no event
later than fifteen (15) days after the last condition precedent pursuant to
this Agreement has been fulfilled or waived (including the expiration of any
applicable waiting period), or such other date as to which Niagara Bancorp
and ABC shall mutually agree.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Merger" means the merger of Niagara Merger Subsidiary with and
into ABC, with ABC surviving the merger, to be followed by the merger of ABC,
as a wholly-owned subsidiary of Niagara Bancorp, with and into Niagara
Bancorp, with Niagara Bancorp being the surviving corporation.
"Department" means the State of New York Department of Banking.
"DGCL" means the Delaware General Corporation Law.
"Dissenters' Shares" means shares of ABC Common Stock that have not been
voted in favor of approval of the Company Merger and with respect to which
appraisal rights have been perfected in accordance with Section 262 of the
DGCL.
"DOL" means the U.S. Department of Labor.
"Environmental Law" means any Federal or state law, statute, rule,
regulation, code, order, judgement, decree, injunction, common law or
agreement with any Federal or state governmental authority relating to (i) the
protection, preservation or restoration of the environment (including air,
water vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource), (ii)
human health or safety, or (iii) exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of, hazardous substances, in each case as
amended and now in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated from time to time thereunder.
"Exchange Agent" means the entity selected by Niagara Bancorp and agreed
to by ABC, as provided in Section 2.03(a) of this Agreement.
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLB" means the Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal Reserve System.
"GAAP" means generally accepted accounting principles as in effect at the
relevant date and consistently applied.
"Hazardous Material" means any substance (whether solid, liquid or gas)
which is or could be detrimental to human health or safety or to the
environment, currently or hereafter listed, defined, designated or classified
as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under
any Environmental Law, whether by type or by quantity, including any substance
containing any such substance as a component. Hazardous Material includes,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance, oil or petroleum, or any derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos-containing material, urea
formaldehyde foam insulation, lead and polychlorinated biphenyl.
"HOLA" means the Home Owners' Loan Act, as amended.
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Loan Property" shall have the meaning given to such term in Section
3.14(b) of this Agreement.
"Material Adverse Effect" shall mean, with respect to Niagara Bancorp or
ABC, any adverse effect on its assets, financial condition or results of
operations which is material to its assets, financial condition or results of
operations on a consolidated basis, except for any material adverse effect
caused by (i) any change in the value of the assets of Niagara Bancorp or ABC
resulting from a change in interest rates generally, (ii) any individual or
combination of changes occurring after the date hereof in any federal or state
law, rule or regulation or in
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GAAP, which change(s) affect(s) financial institutions generally, including
any changes affecting the Bank Insurance Fund or the Savings Association
Insurance Fund, or (ii) expenses incurred in connection with this Agreement
and the transactions contemplated thereby.
"Merger Effective Date" means that date upon which the certificate of
merger as to the merger of Niagara Merger Subsidiary with and into ABC is
filed with the Delaware Office of the Secretary of State or as otherwise
stated in the certificate of merger, in accordance with the DGCL.
"Merger Consideration" has the meaning given to that term in Section
2.02(a)(i) of this Agreement.
"Niagara Bancorp Common Stock" has the meaning given to that term in
Section 4.02(a) of this Agreement.
"Niagara Bancorp Disclosure Schedules" means the Disclosure Schedules
delivered by Niagara Bancorp to ABC pursuant to Article IV of this Agreement.
"Niagara Bancorp Financials" means (i) the audited consolidated financial
statements of Niagara Bancorp as of December 31, 1997 and 1998 and for the
three years ended December 31, 1998, including the notes thereto, and (ii) the
unaudited interim consolidated financial statements of Niagara Bancorp as of
each calendar quarter thereafter included in Securities Documents filed by
Niagara Bancorp.
"Niagara Bancorp Subsidiary" means any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by Niagara
Bancorp or Lockport Savings, except any corporation the stock of which is held
as security by Lockport Savings in the ordinary course of its lending
activities.
"OTS" means the Office of Thrift Supervision.
"Participation Facility" shall have the meaning given to such term in
Section 3.14(b) of this Agreement.
"Person" means any individual, corporation, partnership, joint venture,
association, trust or "group" (as that term is defined under the Exchange
Act).
"Proxy Statement" means the proxy statement, together with any
supplements thereto, to be transmitted to holders of ABC Common Stock in
connection with the transactions contemplated by this Agreement.
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"Regulatory Agreement" has the meaning given to that term in Section 3.11
of this Agreement.
"Regulatory Authority" means any agency or department of any Federal or
state government, including without limitation the Superintendent, OTS, the
FDIC, the FRB, the SEC or the respective staffs thereof.
"Rights" means warrants, options, rights, convertible securities and
other capital stock equivalents which obligate an entity to issue its
securities.
"SAIF" means the Savings Association Insurance Fund, as administered by
the FDIC.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time thereunder.
"Securities Documents" means all registration statements, schedules,
statements, forms, reports, proxy material, and other documents required to be
filed under the Securities Laws.
"Securities Laws" means the Securities Act and the Exchange Act and the
rules and regulations promulgated from time to time thereunder.
"Subsidiary" means any corporation, 50% or more of the capital stock of
which is owned, either directly or indirectly, by another entity, except any
corporation the stock of which is held as security by either Lockport Savings
or Albion Federal, as the case may be, in the ordinary course of its lending
activities.
"Superintendent" means the Superintendent of Banks of the State of New
York, and where appropriate includes the State of New York Banking Department
and the Banking Board of the State of New York.
"Surviving Corporation" has the meaning given to that term in Section
2.01(a)(i) of this Agreement.
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ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01 Effects of Merger; Surviving Corporation.
(a) (i) On the Merger Effective Date, ABC shall merge with and into
Niagara Merger Subsidiary; the separate existence of Niagara Merger Subsidiary
shall cease; ABC shall be the surviving corporation in the Merger (the
"Surviving Corporation") and a wholly-owned subsidiary of Niagara Bancorp; and
all of the property (real, personal and mixed), rights, powers and duties and
obligations of Niagara Merger Subsidiary shall be taken and deemed to be
transferred to and vested in ABC, as the Surviving Corporation in the Merger,
without further act or deed; all in accordance with the applicable laws of the
State of Delaware.
(ii) On the Merger Effective Date: the Certificate of
Incorporation of the Surviving Corporation shall be amended and restated to
read in its entirety as the Certificate of Incorporation of Niagara Merger
Subsidiary, as in effect immediately prior to the Merger Effective Date; and
the Bylaws of the Surviving Corporation shall be amended and restated to read
in their entirety as the Bylaws of Niagara Merger Subsidiary, as in effect
immediately prior to the Merger Effective Date, until thereafter altered,
amended or repealed in accordance with applicable law.
(iii) On the Merger Effective Date, the directors of Niagara
Merger Subsidiary duly elected and holding office immediately prior to the
Effective Date shall be the directors of the Surviving Corporation in the
Merger, each to hold office until his or her successor is elected and
qualified or otherwise in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation.
(iv) On the Merger Effective Date, the officers of Niagara
Merger Subsidiary duly elected and holding office immediately prior to the
Effective Date shall be the officers of the Surviving Corporation in the
Merger, each to hold office until his or her successor is elected and
qualified or otherwise in accordance with the Certificate of Incorporation and
the Bylaws of the Surviving Corporation.
(b) Notwithstanding any provision of this Agreement to the contrary,
Niagara Bancorp may elect, subject to the filing of all necessary applications
and the receipt of all required regulatory approvals, to modify the structure
of the transactions contemplated hereby, and the parties shall enter into such
alternative transactions, so long as (i) there are no adverse tax consequences
to any of the stockholders of ABC as a result of such modification, (ii) the
Merger Consideration is not thereby changed in kind or reduced in amount
because of such modification and (iii) such modification will not be likely to
materially delay or jeopardize receipt of any required regulatory approvals or
of the tax opinion required under Sections 6.02(d) and (i).
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2.02 Conversion of Shares. At the Merger Effective Date, by virtue of
the Company Merger and without any action on the part of ABC or the holders of
shares of ABC Common Stock:
(i) Each outstanding share of ABC Common Stock issued and
outstanding at the Merger Effective Date, except as provided in clause (a)
(ii) and (iii) of this Section, shall cease to be outstanding, shall cease to
exist and shall be converted into the right to receive $15.75 in cash
(referred to as the "Merger Consideration).
(ii) Any shares of ABC Common Stock which are owned or held by
either party hereto or any of their respective Subsidiaries (other than in a
fiduciary capacity or in connection with debts previously contracted) at the
Merger Effective Date shall cease to exist, the certificates for such shares
shall as promptly as practicable be canceled, such shares shall not be
converted into the Merger Consideration, and no cash or shares of capital
stock of Niagara Bancorp shall be issued or exchanged therefor.
(iii) The Surviving Corporation shall pay for any Dissenters'
Shares in accordance with Section 262 of the DGCL, and the holders thereof
shall not be entitled to receive any Merger Consideration; provided, that if
appraisal rights under Section 262 of the DGCL with respect to any Dissenters'
Shares shall have been effectively withdrawn or lost, such shares will
thereupon cease to be treated as Dissenters' Shares and shall be converted
into the right to receive the Merger Consideration pursuant to Section
2.02(a).
(iv) Each share of Niagara Bancorp Common Stock issued and
outstanding immediately before the Merger Effective Date shall remain an
outstanding share of Common Stock of Niagara Bancorp.
(v) The holders of certificates representing shares of ABC
Common Stock (any such certificate being hereinafter referred to as a
"Certificate") shall cease to have any rights as stockholders of ABC, except
such rights, if any, as they may have pursuant to applicable law.
2.03 Exchange Procedures.
(a) As promptly as practicable after the Effective Date, and in any
event within ten calendar days of the Merger Effective Date, an Exchange Agent
designated by Niagara Bancorp shall mail to each holder of record of an
outstanding share Certificate or Certificates a Letter of Transmittal
containing instructions for the surrender of the Certificate or Certificates
held by such holder for payment therefor. Upon surrender of the Certificate
or Certificates to the Exchange Agent in accordance with the instructions set
forth in the Letter of Transmittal, such holder shall promptly receive in
exchange therefor the Merger Consideration, without interest thereon.
Adequate provisions shall be made to permit Certificates to be surrendered in
person to the Exchange Agent no later than the next business day after the
Merger Effective Date. Approval of this Agreement by the stockholders of ABC
shall constitute authorization for Niagara Bancorp to designate and appoint
such Exchange Agent. Neither Niagara Bancorp nor the Exchange Agent shall be
obligated to
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deliver the Merger Consideration to a former stockholder of ABC until such
former stockholder surrenders his Certificate or Certificates or, in lieu
thereof, any such appropriate affidavit of loss and indemnity agreement and
bond as may be reasonably required by Niagara Bancorp.
(b) If payment of the Merger Consideration is to be made to a person
other than the person in whose name a Certificate surrendered in exchange
therefore is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered, or required for any other reason, or
shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(c) On or prior to the Merger Effective Date, Niagara Bancorp shall
deposit or cause to be deposited, in trust with the Exchange Agent, an amount
of cash equal to the aggregate Merger Consideration that the ABC stockholders
shall be entitled to receive on the Merger Effective Date pursuant to Section
2.02 hereof.
(d) The payment of the Merger Consideration upon the conversion of
ABC Common Stock in accordance with the above terms and conditions shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to such ABC Common Stock.
(e) Promptly following the date which is twelve months after the
Merger Effective Date, the Exchange Agent shall deliver to Niagara Bancorp all
cash, certificates and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate formerly
representing shares of ABC Common Stock may surrender such Certificate to
Niagara Bancorp and (subject to applicable abandoned property, escheat and
similar laws) receive in consideration therefore the Merger Consideration
multiplied by the number of shares of ABC Common Stock formerly represented by
such Certificate, without any interest or dividends thereon.
(f) After the close of business on the Merger Effective Date, there
shall be no transfers on the stock transfer books of ABC of the shares of ABC
Common Stock which are outstanding immediately prior to the Merger Effective
Date, and the stock transfer books of ABC shall be closed with respect to such
shares. If, after the Merger Effective Date, Certificates representing such
shares are presented for transfer to the Exchange Agent, they shall be
canceled and exchanged for the Merger Consideration as provided in this
Article II.
(g) In the event any certificate for ABC Common Stock shall have been
lost, stolen or destroyed, the Exchange Agent shall deliver (except as
otherwise provided in Section 2.02(iii)) in exchange for such lost, stolen or
destroyed certificate, upon the making of an affidavit of the fact by the
holder thereof, the cash to be paid in the Company Merger as provided for
herein; provided, however, that Niagara Bancorp may, in its sole discretion
and as a condition precedent to the
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delivery thereof, require the owner of such lost, stolen or destroyed
certificate to deliver a bond in such reasonable sum as Niagara Bancorp as
indemnity against any claim that may be made against ABC, Niagara Bancorp or
any other party with respect to the certificate alleged to have been lost,
stolen or destroyed.
(h) Niagara Bancorp is hereby authorized to adopt additional rules
and regulations with respect to the matters referred to in this Section 2.03
not inconsistent with the provisions of this Agreement and which do not
adversely affect the stockholders of ABC.
Section 2.04 Stock Options. At the Merger Effective Date, each option
granted by ABC (an "ABC Option") to purchase shares of ABC Common Stock issued
and outstanding pursuant to the 1993 Stock Option Plan (the "ABC Stock Option
Plan"), whether or not such option is exercisable on the Merger Effective
Date, shall, by reason of the Company Merger, cease to be outstanding and be
converted into the right to receive in cash an amount equal to (i) the
difference (if a positive number) between (A) $15.75 and (B) the exercise
price of each such option multiplied by (ii) the number of shares of ABC
Common Stock subject to the option.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ABC AND ALBION FEDERAL
ABC and Albion Federal represent and warrant to Niagara Bancorp and
Lockport Savings that the statements contained in this Article III are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date
were substituted for the date of this Agreement throughout this Article III),
except as set forth in the ABC Disclosure Schedules delivered by ABC to
Niagara Bancorp on the date hereof, and except as to any representation or
warranty which specifically relates to an earlier date. ABC and Albion
Federal have made a good faith effort to ensure that the disclosure on each
schedule of the ABC Disclosure Schedules corresponds to the section reference
herein. However, for purposes of the ABC Disclosure Schedules, any item
disclosed on any schedule therein is deemed to be fully disclosed with respect
to all schedules under which such item may be relevant.
Section 3.01 Organization.
(a) ABC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly registered as a
savings and loan holding company under the HOLA. ABC has full corporate power
and authority to carry on its business as now conducted and is duly licensed
or qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on ABC.
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(b) Albion Federal is a federal savings association organized,
validly existing and in good standing under the laws of the United States.
Except as set forth in ABC DISCLOSURE SCHEDULE 3.01(b), Albion Federal is the
only ABC Subsidiary. The deposits of Albion Federal are insured by the FDIC
through the SAIF to the fullest extent permitted by law, and all premiums and
assessments required to be paid in connection therewith have been paid when
due by Albion Federal. Each other ABC Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization.
(c) Albion Federal is a member in good standing of the FHLB of New
York and owns the requisite amount of stock therein.
(d) Except as disclosed in ABC DISCLOSURE SCHEDULE 3.01(d), the
respective minute books of ABC and each ABC Subsidiary accurately records, in
all material respects, all material corporate actions of their respective
shareholders and boards of directors (including committees) through the date
of this Agreement.
(e) Prior to the date of this Agreement, ABC has made available to
Niagara Bancorp true and correct copies of the certificate of incorporation
and bylaws of ABC and Albion Federal.
Section 3.02 Capitalization.
(a) The authorized capital stock of ABC consists of 3,000,000 shares
of common stock, $0.01 par value ("ABC Common Stock"), of which 753,058 shares
are outstanding, validly issued, fully paid and nonassessable and free of
preemptive rights, and 500,000 shares of preferred stock, $0.01 par value
("ABC Preferred Stock"), of which no shares are outstanding. There are 39,105
shares of ABC Common Stock held by ABC as treasury stock. Neither ABC nor any
ABC Subsidiary has or is bound by any Right of any character relating to the
purchase, sale or issuance or voting of, or right to receive dividends or
other distributions on any shares of ABC Common Stock, or any other security
of ABC or any securities representing the right to vote, purchase or otherwise
receive any shares of ABC Common Stock or any other security of ABC, other
than shares issuable under the ABC Stock Option Plan and other than as set
forth in reasonable detail in the ABC DISCLOSURE SCHEDULE 3.02(a). ABC
DISCLOSURE SCHEDULE 3.02(a) sets forth the name of each holder of options to
purchase ABC Common Stock, the number of shares each such individual may
acquire pursuant to the exercise of such options, the vesting dates, and the
exercise price relating to the options held.
(b) Except as provided in ABC DISCLOSURE SCHEDULE 3.02(b), ABC owns
all of the capital stock of Albion Federal, free and clear of any lien or
encumbrance. Except for the ABC Subsidiaries, ABC does not possess, directly
or indirectly, any material equity interest in any corporation, except for
equity interests held in the investment portfolios of ABC Subsidiaries, equity
interests held by ABC Subsidiaries in a fiduciary capacity, and equity
interests held in connection with the lending activities of ABC Subsidiaries,
including stock in the FHLB of New York.
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(c) To ABC's knowledge, no Person or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act), is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares of
ABC Common Stock, except as disclosed in the ABC DISCLOSURE SCHEDULE 3.02(c).
Section 3.03 Authority; No Violation.
(a) ABC has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by ABC and the completion by ABC and
Albion Federal of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of ABC and Albion Federal and,
except for approval of the shareholders of ABC and Albion Federal, no other
corporate proceedings on the part of ABC are necessary to complete the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by ABC, and the Bank Merger has been duly and validly
approved by the Board of Directors of Albion Federal, and subject to approval
by the shareholders of ABC and receipt of the required approvals of Regulatory
Authorities described in Section 4.03 hereof, constitutes the valid and
binding obligations of ABC and Albion Federal, enforceable against ABC and
Albion Federal in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally, and as to
Albion Federal, the conservatorship or receivership provisions of the FDIA,
and subject, as to enforceability, to general principles of equity.
(b) (A) The execution and delivery of this Agreement by ABC, (B)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 4.03 hereof and ABC's and Niagara Bancorp's compliance with any
conditions contained therein, the consummation of the transactions
contemplated hereby, and (C) compliance by ABC and Albion Federal with any of
the terms or provisions hereof will not (i) conflict with or result in a
breach of any provision of the certificate of incorporation or bylaws of ABC
or any ABC Subsidiary or the charter and bylaws of Albion Federal; (ii)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to ABC or any ABC Subsidiary or any of their
respective properties or assets; or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default), under, result
in the termination of, accelerate the performance required by, or result in a
right of termination or acceleration or the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets of
ABC or Albion Federal under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other investment or obligation to which ABC or Albion Federal is a party, or
by which they or any of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the aggregate,
will not have a Material Adverse Effect on ABC and the ABC Subsidiaries taken
as a whole.
Section 3.04 Consents. Except for the consents, waivers, approvals,
filings and registrations from or with the Regulatory Authorities referred to
in Section 4.03 hereof and compliance with any
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conditions contained therein, and the approval of this Agreement by the
requisite vote of the shareholders of ABC and Albion Federal, no consents,
waivers or approvals of, or filings or registrations with, any governmental
authority are necessary, and, to ABC's knowledge, no consents, waivers or
approvals of, or filings or registrations with, any other third parties are
necessary, in connection with (a) the execution and delivery of this Agreement
by ABC, and (b) the completion by ABC and Albion Federal of the transactions
contemplated hereby. ABC has no reason to believe that (i) any required
consents or approvals will not be received, or that (ii) any public body or
authority, the consent or approval of which is not required or any filing
which is not required, will object to the completion of the transactions
contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) ABC has previously made available to Niagara Bancorp the ABC
Regulatory Reports. The ABC Regulatory Reports have been, or will be, prepared
in all material respects in accordance with applicable regulatory accounting
principles and practices throughout the periods covered by such statements,
and fairly present, or will fairly present in all material respects, the
consolidated financial position, results of operations and changes in
shareholders' equity of ABC as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles
applied on a consistent basis.
(b) ABC has previously made available to Niagara Bancorp the ABC
Financials. The ABC Financials have been, or will be, prepared in accordance
with GAAP, and (including the related notes where applicable) fairly present,
or will fairly present, in each case in all material respects (subject in the
case of the unaudited interim statements to normal year-end adjustments), the
consolidated financial position, results of operations and cash flows of ABC
and the ABC Subsidiaries as of and for the respective periods ending on the
dates thereof, in accordance with GAAP applied on a consistent basis during
the periods involved, except as indicated in the notes thereto, or in the case
of unaudited statements, as permitted by Form 10-Q.
(c) At the date of each balance sheet included in the ABC Financials
or the ABC Regulatory Reports, ABC did not have, or will not have any
liabilities, obligations or loss contingencies of any nature (whether
absolute, accrued, contingent or otherwise) of a type required to be reflected
in such ABC Financials or ABC Regulatory Reports or in the footnotes thereto
which are not fully reflected or reserved against therein or fully disclosed
in a footnote thereto, except for liabilities, obligations and loss
contingencies which are not material individually or in the aggregate or which
are incurred in the ordinary course of business, consistent with past
practice, and except for liabilities, obligations and loss contingencies which
are within the subject matter of a specific representation and warranty herein
and subject, in the case of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
Section 3.06 Taxes. ABC and the ABC Subsidiaries are members of the same
affiliated group within the meaning of IRC Section 1504(a). ABC has duly filed
all federal, state and material local tax returns required to be filed by or
with respect to ABC and all ABC Subsidiaries on or prior
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to the Closing Date (all such returns being accurate and correct in all
material respects) and has duly paid or will pay, or made or will make,
provisions for the payment of all material federal, state and local taxes
which have been incurred by or are due or claimed to be due from ABC and any
ABC Subsidiary by any taxing authority or pursuant to any written tax sharing
agreement on or prior to the Closing Date other than taxes or other charges
which (i) are not delinquent, (ii) are being contested in good faith, or (iii)
have not yet been fully determined. As of the date of this Agreement, there
is no audit examination, deficiency assessment, tax investigation or refund
litigation with respect to any taxes of ABC or any of its Subsidiaries, and no
claim has been made by any authority in a jurisdiction where ABC or any of its
Subsidiaries do not file tax returns that ABC or any such Subsidiary is
subject to taxation in that jurisdiction. Except as set forth in ABC's
DISCLOSURE SCHEDULE 3.06, ABC and its Subsidiaries have not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. ABC and each
of its Subsidiaries has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and ABC
and each of its Subsidiaries has timely complied with all applicable
information reporting requirements under Part III, Subchapter A of Chapter 61
of the IRC and similar applicable state and local information reporting
requirements.
Section 3.07. No Material Adverse Effect. ABC and the ABC Subsidiaries,
taken as a whole, have not suffered any Material Adverse Effect since December
31, 1998.
Section 3.08. Contracts.
(a) Except as set forth in ABC DISCLOSURE SCHEDULE 3.08(a), neither
ABC nor any ABC Subsidiary is a party to or subject to: (i) any employment,
consulting or severance contract or material arrangement with any past or
present officer, director or employee of ABC or any ABC Subsidiary, except for
"at will" arrangements; (ii) any plan, material arrangement or contract
providing for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar material arrangements for or with any past
or present officers, directors or employees of ABC or any ABC Subsidiary;
(iii) any collective bargaining agreement with any labor union relating to
employees of ABC or any ABC Subsidiary; (iv) any agreement which by its terms
limits the payment of dividends by ABC or Albion Federal; (v) any instrument
evidencing or related to material indebtedness for borrowed money whether
directly or indirectly, by way of purchase money obligation, conditional sale,
lease purchase, guaranty or otherwise, in respect of which ABC or any ABC
Subsidiary is an obligor to any person, which instrument evidences or relates
to indebtedness other than deposits, repurchase agreements, bankers'
acceptances, advances from the FHLB of New York, and "treasury tax and loan"
accounts established in the ordinary course of business and transactions in
"federal funds" or which contains financial covenants or other restrictions
(other than those relating to the payment of principal and interest when due)
which would be applicable on or after the Closing Date to Niagara Bancorp or
any Niagara Bancorp Subsidiary; or (vi) any contract (other than this
Agreement) limiting the freedom, in any material respect, of ABC or Albion
Federal to engage in any type of banking or bank-related business which ABC or
Albion Federal is permitted to engage in under applicable law as of the date
of this Agreement.
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(b) True and correct copies of agreements, plans, contracts,
arrangements and instruments referred to in Section 3.08(a), have been made
available to Niagara Bancorp on or before the date hereof, are listed on ABC
DISCLOSURE SCHEDULE 3.08(a) and are in full force and effect on the date
hereof and neither ABC nor any ABC Subsidiary (nor, to the knowledge of ABC,
any other party to any such contract, plan, arrangement or instrument) has
materially breached any provision of, or is in default in any respect under
any term of, any such contract, plan, arrangement or instrument. Except as set
forth in the ABC DISCLOSURE SCHEDULE 3.08(b), no party to any material
contract, plan, arrangement or instrument will have the right to terminate any
or all of the provisions of any such contract, plan, arrangement or instrument
as a result of the execution of, and the transactions contemplated by, this
Agreement. Except as set forth in ABC DISCLOSURE SCHEDULE 3.08(b), none of the
employees (including officers) of ABC or any ABC Subsidiary, possess the right
to terminate their employment and receive or be paid (or cause ABC or any ABC
Subsidiary to accrue on their behalf) benefits solely as a result of the
execution of this Agreement or the consummation of the transactions
contemplated thereby. Except as set forth in ABC DISCLOSURE SCHEDULE 3.08(b),
no plan, contract, employment agreement, termination agreement, or similar
agreement or arrangement to which ABC or any ABC Subsidiary is a party or
under which ABC or any ABC Subsidiary may be liable contains provisions which
permit an employee or independent contractor to terminate it without cause and
continue to accrue future benefits thereunder. Except as set forth in ABC
DISCLOSURE SCHEDULE 3.08(b), no such agreement, plan, contract, or arrangement
(x) provides for acceleration in the vesting of benefits or payments due
thereunder upon the occurrence of a change in ownership or control of ABC or
any ABC Subsidiary or upon the occurrence of a subsequent event; or (y)
requires ABC or any ABC Subsidiary to provide a benefit in the form of ABC
Common Stock or determined by reference to the value of ABC Common Stock. No
such agreement, plan or arrangement with respect to officers or directors of
ABC or to its employees, provides for benefits which may cause an "excess
parachute payment" or the disallowance of a federal income tax deduction under
IRC Section 280G.
Section 3.09 Ownership of Property; Insurance Coverage.
(a) Except as disclosed in ABC DISCLOSURE SCHEDULE 3.09, ABC and the
ABC Subsidiaries have good and, as to real property, marketable title to all
material assets and properties owned by ABC or any ABC Subsidiary in the
conduct of their businesses, whether such assets and properties are real or
personal, tangible or intangible, including assets and property reflected in
the balance sheets contained in the ABC Regulatory Reports and in the ABC
Financials or acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of in the ordinary course of
business, since the date of such balance sheets), subject to no material
encumbrances, liens, mortgages, security interests or pledges, except (i)
those items which secure liabilities for public or statutory obligations or
any discount with, borrowing from or other obligations to FHLB of New York,
inter-bank credit facilities, or any transaction by an ABC Subsidiary acting
in a fiduciary capacity, and (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith. ABC and the ABC
Subsidiaries, as lessee, have the right under valid and subsisting leases of
real and personal properties used by ABC and its Subsidiaries in the conduct
of their businesses to occupy or use all such properties as presently occupied
and used
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by each of them. Except as disclosed in ABC DISCLOSURE SCHEDULE 3.09, such
existing leases and commitments to lease constitute or will constitute
operating leases for both tax and financial accounting purposes and the lease
expense and minimum rental commitments with respect to such leases and lease
commitments are as disclosed in the notes to the ABC Financials.
(b) With respect to all material agreements pursuant to which ABC or
any ABC Subsidiary has purchased securities subject to an agreement to resell,
if any, ABC or such ABC Subsidiary, as the case may be, has a lien or security
interest (which to ABC's knowledge is a valid, perfected first lien) in the
securities or other collateral securing the repurchase agreement, and the
value of such collateral equals or exceeds the amount of the debt secured
thereby.
(c) ABC and each ABC Subsidiary currently maintains insurance
considered by ABC to be reasonable for their respective operations, in
accordance with good business practice. ABC has not received notice from any
insurance carrier that (i) such insurance will be canceled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect
to such policies of insurance will be substantially increased. There are
presently no material claims pending under such policies of insurance and no
notices have been given by ABC under such policies. All such insurance is
valid and enforceable and in full force and effect, and within the last three
years ABC has received each type of insurance coverage for which it has
applied and during such periods has not been denied indemnification for any
material claims submitted under any of its insurance policies. ABC DISCLOSURE
SCHEDULE 3.09 identifies all policies of insurance maintained by ABC and each
ABC Subsidiary.
Section 3.10 Legal Proceedings. Except as disclosed in ABC DISCLOSURE
SCHEDULE 3.10, neither ABC nor any ABC Subsidiary is a party to any, and there
are no pending or, to the best of ABC's knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether asserted or
unasserted), actions or governmental investigations or inquiries of any nature
(i) against ABC or any ABC Subsidiary, (ii) to which ABC or any ABC
Subsidiary's assets are or may be subject, (iii) challenging the validity or
propriety of any of the transactions contemplated by this Agreement, or (iv)
which could adversely affect the ability of ABC to perform under this
Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, would not be reasonably expected to have a
Material Adverse Effect on ABC and the ABC Subsidiaries, taken as a whole.
Section 3.11 Compliance With Applicable Law.
(a) ABC and ABC Subsidiaries hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under, and have complied in all material respects with, applicable
laws, statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their
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respective businesses nor otherwise have a Material Adverse Effect on ABC and
the ABC Subsidiaries, taken as a whole.
(b) Except as disclosed in ABC DISCLOSURE SCHEDULE 3.11, neither ABC
nor any ABC Subsidiary has received any notification or communication from any
Regulatory Authority (i) asserting that ABC or any ABC Subsidiary is not in
material compliance with any of the statutes, regulations or ordinances which
such Regulatory Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material to ABC or
any ABC Subsidiary; (iii) requiring or threatening to require ABC or any ABC
Subsidiary, or indicating that ABC or any ABC Subsidiary may be required, to
enter into a cease and desist order, agreement or memorandum of understanding
or any other agreement with any federal or state governmental agency or
authority which is charged with the supervision or regulation of banks or
engages in the insurance of bank deposits restricting or limiting, or
purporting to restrict or limit, in any material respect the operations of ABC
or any ABC Subsidiary, including without limitation any restriction on the
payment of dividends; or (iv) directing, restricting or limiting, or
purporting to direct, restrict or limit, in any manner the operations of ABC
or any ABC Subsidiary, including without limitation any restriction on the
payment of dividends (any such notice, communication, memorandum, agreement or
order described in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither ABC nor any ABC Subsidiary has consented to or entered
into any currently effective Regulatory Agreement, except as set forth in ABC
DISCLOSURE SCHEDULE 3.11. The most recent regulatory rating given to Albion
Federal as to compliance with the Community Reinvestment Act ("CRA") is
satisfactory or better.
Section 3.12 ERISA.
(a) ABC's DISCLOSURE SCHEDULE 3.12 contains a complete and accurate
list of all pension, retirement, stock option, stock purchase, stock
ownership, savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, group insurance, severance and other benefit
plans, contracts, agreements and arrangements, including, but not limited to,
"employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), incentive and
welfare policies, contracts, plans and arrangements and all trust agreements
related thereto with respect to any present or former directors, officers or
other employees of ABC or any of its Subsidiaries (hereinafter collectively
referred to as the "ABC Employee Plans"). If such plan, contract, agreement
or arrangement is funded through a trust or third party funding vehicle, such
as an insurance contract, a copy of the trust or other funding arrangement
(including all amendments thereto) and the latest financial statements
thereof.
All of the ABC Employee Plans comply in all material respects with all
applicable requirements of ERISA, the IRC and other applicable laws; there has
occurred no "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the IRC) which is likely to result in the imposition of any
penalties or taxes under Section 502(i) of ERISA or Section 4975 of the IRC
upon ABC or any of its Subsidiaries.
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No liability under Title IV of ERISA has been incurred by ABC or any of
its Subsidiaries with respect to any ABC Employee Plan which is subject to
Title IV of ERISA, or with respect to any "single-employer plan" (as defined
in Section 4001(a) of ERISA) ("ABC Pension Plan") currently or formerly
maintained by ABC or any entity which is considered one employer with ABC
under Section 4001(b)(1) of ERISA or Section 414 of the IRC (an "ERISA
Affiliate") since the effective date of ERISA that has not been satisfied in
full, and no condition exists that presents a material risk to ABC or any
ERISA Affiliate of incurring a liability under such Title. No ABC Pension
Plan had an "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, as of the last day of the end of the most
recent plan year ending prior to the date hereof; the fair market value of the
assets of each ABC Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such ABC
Pension Plan as of the end of the most recent plan year with respect to the
respective ABC Pension Plan ending prior to the date hereof, calculated on the
basis of the actuarial assumptions used in the most recent actuarial valuation
for such ABC Pension Plan as of the date hereof; there is not currently
pending with the PBGC any filing with respect to any reportable event under
Section 4043 of ERISA nor has any reportable event occurred as to which a
filing is required and has not been made (other than as might be required with
respect to this Agreement and the transactions contemplated thereby). Neither
ABC nor any ERISA Affiliate has provided, or is required to provide, security
to any ABC Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the IRC. Neither ABC nor any ERISA Affiliate
has contributed to any "multiemployer plan," as defined in Section 3(37) of
ERISA, on or after September 26, 1980. Except as set forth in ABC DISCLOSURE
SCHEDULE 3.12(a), neither ABC, nor any ERISA Affiliate, nor any ABC Employee
Plan, including any ABC Pension Plan, nor any trust created thereunder, nor
any trustee or administrator thereof has engaged in a transaction in
connection with which ABC, any ERISA Affiliate, and any ABC Employee Plan,
including any ABC Pension Plan any such trust or any trustee or administrator
thereof, could be subject to either a civil liability or penalty pursuant to
Section 409, 502(i) or 502(l) of ERISA or a tax imposed pursuant to Chapter 43
of the IRC.
(b) Each ABC Employee Plan that is an "employee pension benefit plan"
(as defined in Section 3(2) of ERISA) and which is intended to be qualified
under Section 401(a) of the IRC (an "ABC Qualified Plan") has received a
favorable determination letter from the IRS, and ABC and its Subsidiaries are
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. There is no pending or, to ABC's knowledge,
threatened litigation, administrative action or proceeding relating to any ABC
Employee Plan. There has been no announcement or commitment by ABC or any of
its Subsidiaries to create an additional ABC Employee Plan, or to amend any
ABC Employee Plan, except for amendments required by applicable law which do
not materially increase the cost of such ABC Employee Plan; and, except as
specifically identified in ABC's DISCLOSURE SCHEDULES, ABC and its
Subsidiaries do not have any obligations for post-retirement or
post-employment benefits under any ABC Employee Plan that cannot be amended or
terminated upon 60 days' notice or less without incurring any liability
thereunder, except for coverage required by Part 6 of Title I of ERISA or
Section 4980B of the IRC, or similar state laws, the cost of which is borne by
the insured individuals. With respect to each ABC Employee Plan, ABC has
supplied to Niagara Bancorp a true and correct copy of (A) the
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annual report on the applicable form of the Form 5500 series filed with the
IRS for the most recent three plan years, if required to be filed, (B) such
ABC Employee Plan, including amendments thereto, (C) each trust agreement,
insurance contract or other funding arrangement relating to such ABC Employee
Plan, including amendments thereto, (D) the most recent summary plan
description and summary of material modifications thereto for such ABC
Employee Plan, if the ABC Employee Plan is subject to Title I of ERISA, (E)
the most recent actuarial report or valuation if such ABC Employee Plan is an
ABC Pension Plan and any subsequent changes to the actuarial assumptions
contained therein and (F) the most recent determination letter issued by the
IRS if such Employee Plan is a Qualified Plan.
(c) No compensation payable by ABC and any ABC Subsidiary to any of
their employees under any ABC Employee Plan (including by reason of the
transactions contemplated hereby) will be subject to disallowance under
Section 162(m) of the IRC.
Section 3.13 Brokers, Finders and Financial Advisors. Except for ABC's
engagement of RP Financial, LC. ("RP") in connection with transactions
contemplated by this Agreement, neither ABC nor any ABC Subsidiary, nor any of
their respective officers, directors, employees or agents, has employed any
broker, finder or financial advisor in connection with the transactions
contemplated by this Agreement, or, except for its commitments disclosed in
ABC DISCLOSURE SCHEDULE 3.13, incurred any liability or commitment for any
fees or commissions to any such person in connection with the transactions
contemplated by this Agreement, which has not been reflected in the ABC
Financials.
Section 3.14. Environmental Matters.
(a) With respect to ABC and each of the ABC Subsidiaries, and except
as set forth in ABC DISCLOSURE SCHEDULE 3.14:
(i) Each of ABC and its Subsidiaries, the Participation
Facilities, and, to ABC's knowledge, the Loan Properties are, and have been,
in substantial compliance with, and are not liable under, any Environmental
Laws;
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
ABC's knowledge, threatened, before any court, governmental agency or board or
other forum against it or any of the ABC Subsidiaries or any Participation
Facility (x) for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence of or
release (as defined herein) into the environment of any Hazardous Material (as
defined herein), whether or not occurring at or on a site owned, leased or
operated by it or any of the ABC Subsidiaries or any Participation Facility;
(iii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
ABC's knowledge threatened, before any court, governmental agency or board or
other forum relating to or against any Loan Property (or ABC or
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any of the ABC Subsidiaries in respect of such Loan Property) (x) relating to
alleged noncompliance (including by any predecessor) with, or liability under,
any Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a
site owned, leased or operated by a Loan Property;
(iv) To ABC's knowledge, the properties currently owned or
operated by ABC or any of the ABC Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties,
and buildings thereon) are not contaminated with and do not otherwise contain
any Hazardous Material other than as permitted under applicable Environmental
Law;
(v) Neither ABC nor any of the ABC Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or
request for information from any federal, state, local or foreign governmental
entity or any third party indicating that it may be in violation of, or liable
under, any Environmental Law;
(vi) To ABC's knowledge, there are no underground storage tanks
on, in or under any properties owned or operated by ABC or any of the ABC
Subsidiaries or any Participation Facility, and no underground storage tanks
have been closed or removed from any properties owned or operated by ABC or
any of the ABC Subsidiaries or any Participation Facility; and
(vii) To ABC's knowledge, during the period of (s) ABC's or any
of the ABC Subsidiaries' ownership or operation of any of their respective
current properties or (t) ABC's or any of the ABC Subsidiaries' participation
in the management of any Participation Facility, there has been no
contamination by or release of Hazardous Materials in, on, under or affecting
such properties. To ABC's knowledge, prior to the period of (x) ABC's or any
of the ABC Subsidiaries' ownership or operation of any of their respective
current properties or (y) ABC's or any of the ABC Subsidiaries' participation
in the management of any Participation Facility, there was no contamination by
or release of Hazardous Material in, on, under or affecting such properties.
(b) "Loan Property" means any property in which the applicable party
(or a Subsidiary of it) holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property. "Participation Facility" means any facility in
which the applicable party (or a Subsidiary of it) participates in the
management (including all property held as trustee or in any other fiduciary
capacity) and, where required by the context, includes the owner or operator
of such property, but only with respect to such property.
Section 3.15. Loan Portfolio.
(a) With respect to each loan owned by ABC or any of the ABC
Subsidiaries in whole or in part (each, a "Loan"), to the best knowledge of
ABC:
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(i) the note and the related security documents are each legal,
valid and binding obligations of the maker or obligor thereof, enforceable
against such maker or obligor in accordance with their terms;
(ii) neither ABC nor any of the ABC Subsidiaries, nor any prior
holder of a Loan, has modified the note or any of the related security
documents in any material respect or satisfied, canceled or subordinated the
note or any of the related security documents except as otherwise disclosed by
documents in the applicable Loan file;
(iii) ABC or any ABC Subsidiary is the sole holder of legal and
beneficial title to each Loan (or ABC's applicable participation interest, as
applicable), except as otherwise referenced on the books and records of ABC;
(iv) the note and the related security documents, copies of
which are included in the Loan files, are true and correct copies of the
documents they purport to be and have not been suspended, amended, modified,
canceled or otherwise changed except as otherwise disclosed by documents in
the applicable Loan file;
(v) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property that serves as security for a Loan,
except as otherwise referenced on the books and records of ABC and its
Subsidiaries;
(vi) there is no litigation or proceeding pending or threatened
relating to the property that serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan, except as otherwise disclosed
by documents in the applicable Loan file; and
(vii) with respect to a Loan held in the form of a
participation, the participation documentation is legal, valid, binding and
enforceable, except as otherwise disclosed by documents in the applicable Loan
file.
(b) The allowance for possible losses reflected in ABC's audited
statement of condition at December 31, 1998 was, and the allowance for
possible losses shown on the balance sheets in ABC's Securities Documents for
periods ending after December 31, 1998 have been and will be, adequate, as of
the dates thereof, under GAAP.
(c) ABC's DISCLOSURE SCHEDULE 3.15 sets forth by category the amounts
of all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of ABC and the ABC
Subsidiaries that have been classified (whether regulatory or internal) as
"Special Mention," "Substandard," "Doubtful," "Loss" or words of similar
import as of June 30, 1999. The other real estate owned ("OREO") included in
any non-performing assets of ABC or any of the ABC Subsidiaries is carried net
of reserves at the lower of cost or fair value, less estimated selling costs,
based on current independent appraisals or evaluations or current
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management appraisals or evaluations; provided, however, that "current" shall
mean within the past 12 months.
Section 3.16. Information to be Supplied. The information to be provided
by ABC for inclusion in the Proxy Statement will not, at the time the Proxy
Statement is mailed to ABC shareholders, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein not misleading. The information supplied, or to be
supplied, by ABC for inclusion in the Applications will, at the time such
documents are filed with any Regulatory Authority, be accurate in all material
aspects.
Section 3.17. Securities Documents. ABC has made available to Niagara
Bancorp copies of its (i) annual reports on Form 10-K for the years ended
December 31, 1998, 1997 and 1996, (ii) quarterly reports on Form 10-Q for the
quarters ended March 31, 1999 and June 30, 1999, and (iii) proxy materials
used or for use in connection with its meetings of shareholders held in 1999,
1998 and 1997. Such reports and such proxy materials complied, at the time
filed with the SEC, in all material respects, with the Securities Laws.
Section 3.18. Related Party Transactions. Except as disclosed in ABC
DISCLOSURE SCHEDULE 3.18, or as described in ABC's Proxy Statement distributed
in connection with the 1999 annual meeting of shareholders (which has
previously been provided to Niagara Bancorp), neither ABC nor any ABC
Subsidiary is a party to any transaction (including any loan or other credit
accommodation) with any Affiliate of ABC or any ABC Affiliate. Except as
disclosed in ABC DISCLOSURE SCHEDULE 3.18, all such transactions (a) were made
in the ordinary course of business, (b) were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other Persons, and (c) did not involve
more than the normal risk of collectability or present other unfavorable
features. Except as set forth on ABC DISCLOSURE SCHEDULE 3.18, no loan or
credit accommodation to any Affiliate of ABC or any ABC Subsidiary is
presently in default or, during the three year period prior to the date of
this Agreement, has been in default or has been restructured, modified or
extended. Neither ABC nor any ABC Subsidiary has been notified that principal
and interest with respect to any such loan or other credit accommodation will
not be paid when due or that the loan grade classification accorded such loan
or credit accommodation by ABC is inappropriate.
Section 3.19. Schedule of Termination Benefits. ABC DISCLOSURE SCHEDULE
3.19 includes a schedule of all termination benefits and related payments that
would be payable to the individuals identified thereon, excluding any options
to acquire ABC Common Stock granted to such individuals, under any and all
employment agreements, special termination agreements, supplemental executive
retirement plans, deferred bonus plans, deferred compensation plans, salary
continuation plans, or any compensation arrangement, or other pension benefit
or welfare benefit plan maintained by ABC or any ABC Subsidiary for the
benefit of officers or directors of ABC or any ABC Subsidiary (the "Benefits
Schedule"), assuming their employment or service is terminated as of December
31, 1999 and the Closing Date occurs prior to such termination. No other
individuals are entitled to benefits under any such plans.
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Section 3.20. Deposits. None of the deposits of ABC or any ABC
Subsidiary is a "brokered" deposit as defined in 12 U.S. Code Section
1831f(g).
Section 3.21. Antitakeover Provisions Inapplicable. Except as set forth
on ABC DISCLOSURE SCHEDULE 3.21, the transactions contemplated by this
Agreement are not subject to any applicable state takeover law.
Section 3.22. Fairness Opinion. ABC has received a written opinion from
RP to the effect that, subject to the terms, conditions and qualifications set
forth therein, as of the date thereof, the Merger Consideration to be received
by the stockholders of ABC pursuant to this Agreement is fair to such
stockholders from a financial point of view. Such opinion has not been
amended or rescinded as of the date of this Agreement.
Section 3.23. Year 2000. (a)Each of ABC and each ABC Subsidiary has
adopted a plan (in each case, a "Year 2000 Plan") requiring testing,
information-gathering and other procedures to conform to the deadlines and
material requirements and guidelines applicable to it as a provider of
services using Information Technology and imposed by any Bank Regulator or the
Federal Financial Institutions Examination Council ("FFIEC"), to cause such
Information Technology to be Year 2000 Compliant (such deadlines, material
requirements and guidelines, as they may be in effect from time to time, being
referred to in this Agreement as the "Year 2000 Regulatory Requirements").
(b) Each of ABC and each ABC Subsidiary has taken appropriate actions
and has committed the resources reasonably necessary or otherwise appropriate
to comply with its Year 2000 Plan in a timely manner. Such actions (including
the testing and information-gathering procedures) have not produced any
preliminary findings or other results which would indicate that the
Information Technology will not be Year 2000 Compliant or that it will not be
in compliance with the Year 2000 Regulatory Requirements; and it has not
received any written notice or preliminary oral notice from a Regulatory
Authority to one of its officers or senior executive employees with respect to
any adverse action against it relating to Year 2000 Compliance.
(c) Each of ABC and Albion Federal has taken appropriate actions to
assure that Albion Federal has, and will continue to have at all relevant
points in time, adequate funds to meet anticipated loan and deposit customer
demand in connection with the Year 2000 date change and related circumstances.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LOCKPORT SAVINGS AND NIAGARA BANCORP
Niagara Bancorp and Lockport Savings represent and warrant to ABC and
Albion Federal that the statements contained in this Article IV are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date
were substituted for the date of this Agreement throughout this Article IV),
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except as set forth in the Niagara Bancorp Disclosure Schedules delivered by
Niagara Bancorp to ABC on the date hereof. Niagara Bancorp and Lockport
Savings have made a good faith effort to ensure that the disclosure on each
schedule of the Niagara Bancorp Disclosure Schedules corresponds to the
section referenced herein. However, for purposes of the Niagara Bancorp
Disclosure Schedules, any item disclosed on any schedule therein is deemed to
be fully disclosed with respect to all schedules under which such item may be
relevant.
Section 4.01. Organization.
(a) Niagara Bancorp is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and is duly
registered as a bank holding company under the BHCA. Niagara Bancorp has full
corporate power and authority to carry on its business as now conducted and is
duly licensed or qualified to do business in the states of the United States
and foreign jurisdictions where its ownership or leasing of property or the
conduct of its business requires such qualification, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect on
Niagara Bancorp.
(b) Lockport Savings is a stock savings bank duly organized, validly
existing and in good standing under the laws of the State of New York. The
deposits of Lockport Savings are insured by the FDIC through the BIF to the
fullest extent permitted by law, and all premiums and assessments required to
be paid in connection therewith have been paid when due by Lockport Savings.
Each other Niagara Bancorp Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization.
(c) Lockport Savings is a member in good standing of the FHLB of New
York and owns the requisite amount of stock therein.
(d) Prior to the date of this Agreement, Niagara Bancorp has
delivered to ABC true and correct copies of the certificate of incorporation
and bylaws of Niagara Bancorp.
(e) Niagara Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with its principal executive offices in Lockport, New York. Niagara Merger
Subsidiary is a wholly-owned subsidiary of Niagara Bancorp.
Section 4.02 Authority; No Violation.
(a) Niagara Bancorp and Niagara Merger Subsidiary have full corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Niagara Bancorp and Niagara Merger Subsidiary and the completion
by Niagara Bancorp and Niagara Merger Subsidiary of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Niagara Bancorp and Niagara Merger Subsidiary and, no other
corporate proceedings on the part of Niagara Bancorp or Niagara Merger
Subsidiary are necessary to complete the transactions
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contemplated hereby. This Agreement has been duly and validly executed and
delivered by Niagara Bancorp and Niagara Merger Subsidiary and, subject to
receipt of the required approvals of Regulatory Authorities described in
Section 4.03 hereof, constitutes the valid and binding obligation of Niagara
Bancorp and Niagara Merger Subsidiary, enforceable against Niagara Bancorp and
Niagara Merger Subsidiary in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally.
(b) (A) The execution and delivery of this Agreement by Niagara Bancorp
and Niagara Merger Subsidiary, (B) subject to receipt of approvals from the
Regulatory Authorities referred to in Section 4.03 hereof and ABC's and
Niagara Bancorp's and Niagara Merger Subsidiary's compliance with any
conditions contained therein, the consummation of the transactions
contemplated hereby, and (C) compliance by Niagara Bancorp and Niagara Merger
Subsidiary with any of the terms or provisions hereof will not (i) conflict
with or result in a breach of any provision of the certificate of
incorporation or bylaws of Niagara Bancorp or any Niagara Bancorp Subsidiary
or the charter and bylaws of Lockport Savings; (ii) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Niagara Bancorp or any Niagara Bancorp Subsidiary or any of
their respective properties or assets; or (iii) violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default), under,
result in the termination of, accelerate the performance required by, or
result in a right of termination or acceleration or the creation of any lien,
security interest, charge or other encumbrance upon any of the properties or
assets of Niagara Bancorp, Niagara Merger Subsidiary or Lockport Savings
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other investment or
obligation to which Niagara Bancorp, Niagara Merger Subsidiary or Lockport
Savings is a party, or by which they or any of their respective properties or
assets may be bound or affected, except for such violations, conflicts,
breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Niagara Bancorp.
Section 4.03. Consents. Except for consents, approvals, filings and
registrations from or with the Superintendent, FDIC, FRB, SEC, OTS and state
"blue sky" authorities, and compliance with any conditions contained therein,
and the approval of this Agreement by the shareholders of ABC, the filing of a
certificate of merger with the Office of the Delaware Secretary of State
pursuant to the DGCL, and the certificate of merger with the Secretary of
State of the State of Delaware, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no
consents or approvals of any third parties are necessary, or will be, in
connection with (a) the execution and delivery of this Agreement by Niagara
Bancorp and Niagara Merger Subsidiary, and (b) the completion by Niagara
Bancorp and Niagara Merger Subsidiary of the transactions contemplated hereby.
Niagara Bancorp has no reason to believe that (i) any required consents or
approvals will not be received or will be received with conditions,
limitations or restrictions unacceptable to it or which would adversely impact
Niagara Bancorp's ability to complete the transactions contemplated by this
Agreement or that (ii) any public body or authority, the consent or approval
of which is not required or any filing which is not required, will object to
the completion of the transactions contemplated by this Agreement.
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Section 4.04. Financial Statements.
(a) Niagara Bancorp has made available to ABC the Niagara Bancorp
Financials. The Niagara Bancorp Financials have been, or will be, prepared in
accordance with GAAP and practices applied on a consistent basis throughout
the periods covered by such statements, and (including the related notes where
applicable) fairly present, or will fairly present in each case in all
material respects (subject in the case of the unaudited interim statements to
normal year-end adjustments), the consolidated financial position, results of
operations and cash flows of Niagara Bancorp and the Niagara Bancorp
Subsidiaries as of and for the respective periods ending on the dates thereof,
in accordance with GAAP applied on a consistent basis during the periods
involved, except as indicated in the notes thereto, or in the case of
unaudited statements, as permitted by Form 10-Q.
Section 4.05. Compliance With Applicable Law.
(a) Niagara Bancorp and the Niagara Bancorp Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of their businesses under, and have complied in all material respects
with, applicable laws, statutes, orders, rules or regulations of any federal,
state or local governmental authority relating to them, other than where such
failure to hold or such noncompliance will neither result in a limitation in
any material respect on the conduct of their businesses nor otherwise have a
Material Adverse Effect on Niagara Bancorp and its Subsidiaries taken as a
whole.
(b) Except as set forth in Niagara Bancorp DISCLOSURE SCHEDULE
4.05(b), neither Niagara Bancorp nor any Niagara Bancorp Subsidiary has
received any notification or communication from any Regulatory Authority (i)
asserting that Niagara Bancorp or any Niagara Bancorp Subsidiary is not in
compliance with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material to Niagara
Bancorp or any Niagara Bancorp Subsidiary; (iii) requiring or threatening to
require Niagara Bancorp or any Niagara Bancorp Subsidiary, or indicating that
Niagara Bancorp or any Niagara Bancorp Subsidiary may be required, to enter
into a cease and desist order, agreement or memorandum of understanding or any
other agreement restricting or limiting, or purporting to restrict or limit,
in any manner the operations of Niagara Bancorp or any Niagara Bancorp
Subsidiary, including without limitation any restriction on the payment of
dividends; or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of Niagara Bancorp or
any Niagara Bancorp Subsidiary, including without limitation any restriction
on the payment of dividends (any such notice, communication, memorandum,
agreement or order described in this sentence is hereinafter referred to as a
"Regulatory Agreement"). Neither Niagara Bancorp nor any Niagara Bancorp
Subsidiary is a party to, nor has consented to any Regulatory Agreement. The
most recent regulatory rating given to Lockport Savings as to compliance with
the CRA is satisfactory or better.
Section 4.06. Information to be Supplied. The information to be supplied
by Niagara Bancorp for inclusion in the Proxy Statement will not, at the time
the Proxy Statement is mailed to ABC
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shareholders, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein not
misleading. The information supplied, or to be supplied, by Niagara Bancorp
for inclusion in the Applications will, at the time such documents are filed
with any Regulatory Authority, be accurate in all material aspects.
Section 4.07. Year 2000. (a)Each of Niagara Bancorp and each Niagara
Bancorp Subsidiary has adopted a plan (in each case, a "Year 2000 Plan")
requiring testing, information-gathering and other procedures to conform to
the deadlines and material requirements and guidelines applicable to it as a
provider of services using Information Technology and imposed by any Bank
Regulator or the FFIEC, to cause such Information Technology to be Year 2000
compliant (such deadlines, material requirements and guidelines, as they may
be in effect from time to time, being referred to in this Agreement as the
"Year 2000 Regulatory Requirements").
(b) Each of Niagara Bancorp and each Niagara Bancorp Subsidiary has
taken appropriate actions and has committed the resources reasonably necessary
or otherwise appropriate to comply with its Year 2000 Plan in a timely manner.
Such actions (including the testing and information-gathering procedures) have
not produced any preliminary findings or other results which would indicate
that the Information Technology will not be Year 2000 compliant or that it
will not be in compliance with the Year 2000 Regulatory Requirements; and it
has not received any written notice or preliminary oral notice from a
Regulatory Authority to one of its officers or senior executive employees with
respect to any adverse action against it relating to Year 2000 compliance.
(c) Each of Niagara Bancorp and Lockport Savings has taken
appropriate actions to assure that the Lockport Savings has, and will continue
to have at all relevant points in time, adequate funds to meet anticipated
loan and deposit customer demand in connection with the Year 2000 date change
and related circumstances.
Section 4.08. Financing. As of the date hereof Niagara Bancorp has, and
at the Merger Effective Date, Niagara Bancorp will have funds which are
sufficient and available to meet its obligations under this Agreement and to
consummate in a timely manner the transactions contemplated hereby and
thereby, and Niagara Bancorp and Lockport Savings will not fail to meet their
capital requirements as a result thereof.
Section 4.09. Regulatory Approvals. Niagara Bancorp and Lockport
Savings are not aware of any reason that they cannot obtain any of the
approvals of regulatory authorities necessary to consummate the Merger and
neither Niagara Bancorp nor Lockport Savings has received any advice or
information from any regulatory authority indicating that such approvals will
be denied or are doubtful.
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ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01. Conduct of ABC's Business.
(a) From the date of this Agreement to the Closing Date, ABC and each
ABC Subsidiary will conduct their business and engage in transactions,
including extensions of credit, only in the ordinary course and consistent
with past practice and policies, except as otherwise required or contemplated
by this Agreement or with the written consent of Niagara Bancorp. ABC, Albion
Federal, and each of the ABC Subsidiaries will use its reasonable good faith
efforts, to (i) preserve their business organizations intact, (ii) maintain
good relationships with employees, and (iii) preserve for themselves the good
will of their customers and others with whom business relationships exist.
From the date hereof to the Closing Date, except as otherwise consented to or
approved by Niagara Bancorp in writing (which approval will not be
unreasonably delayed or withheld) or as contemplated or required by this
Agreement, ABC will not, and ABC will not permit any ABC Subsidiary to:
(i) amend or change any provision of its certificate of
incorporation, charter, or bylaws;
(ii) except as set forth in ABC DISCLOSURE SCHEDULE 5.01(a)(ii),
change the number of authorized or issued shares of its capital stock or issue
or grant any Right or agreement of any character relating to its authorized or
issued capital stock or any securities convertible into shares of such stock,
or split, combine or reclassify any shares of capital stock, or declare, set
aside or pay any dividend or other distribution in respect of capital stock,
other than the quarterly cash dividend of $0.03 per share payable by ABC
(with payment and record dates consistent with past practice) (it being the
intention of the parties that the holders of ABC Common Stock shall not fail
to receive a dividend if the Merger Effective Date occurs within fifteen days
prior to a record date that would have been established consistent with past
practice), or redeem or otherwise acquire any shares of capital stock, except
that ABC may issue shares of ABC Common Stock upon the valid exercise, in
accordance with the information set forth in ABC DISCLOSURE SCHEDULE 3.02, of
presently outstanding options to acquire ABC Common Stock under the ABC Stock
Option Plan;
(iii) grant or agree to pay any bonus, severance or termination to, or
enter into or amend any employment agreement, severance agreement,
supplemental executive agreement, or similar agreement or arrangement with any
of its directors, officers or employees, or increase in any manner the
compensation or fringe benefits of any employee, officer or director, except
as may be required pursuant to legally binding commitments existing on the
date hereof and set forth on ABC DISCLOSURE SCHEDULES 3.08 and 3.12;
(iv) enter into or, except as may be required by law, modify any
pension, retirement, stock option, stock purchase, stock appreciation right,
stock grant, savings, profit sharing, deferred compensation, supplemental
retirement, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto,
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in respect of any of its directors, officers or employees; or make any
contributions to any defined contribution or defined benefit plan not in the
ordinary course of business consistent with past practice; or materially amend
any ABC Employee Plan except to the extent such modifications or amendments do
not result in an increase in cost;
(v) except as otherwise provided in Section 5.06 of this Agreement,
merge or consolidate ABC or any ABC Subsidiary with any other corporation;
sell or lease all or any substantial portion of the assets or business of ABC
or any ABC Subsidiary; make any acquisition of all or any substantial portion
of the business or assets of any other person, firm, association, corporation
or business organization other than in connection with foreclosures,
settlements in lieu of foreclosure, troubled loan or debt restructuring, or
the collection of any loan or credit arrangement between ABC, or any ABC
Subsidiary, and any other person; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit the revocation or
surrender by any ABC Subsidiary of its certificate of authority to maintain,
or file an application for the relocation of, any existing branch office, or
file an application for a certificate of authority to establish a new branch
office;
(vi) sell or otherwise dispose of the capital stock of ABC or sell or
otherwise dispose of any asset of ABC or of any ABC Subsidiary other than in
the ordinary course of business consistent with past practice; subject any
asset of ABC or of any ABC Subsidiary to a lien, pledge, security interest or
other encumbrance (other than in connection with deposits, repurchase
agreements, bankers acceptances, FHLB of New York advances, "treasury tax and
loan" accounts established in the ordinary course of business and transactions
in "federal funds" and the satisfaction of legal requirements in the exercise
of trust powers) other than in the ordinary course of business consistent with
past practice; incur any indebtedness for borrowed money (or guarantee any
indebtedness for borrowed money), except in the ordinary course of business
consistent with past practice;
(vii) take any action which would result in any of the representations
and warranties of ABC set forth in this Agreement becoming untrue as of any
date after the date hereof (except as to any representation or warranty which
specifically relates to an earlier date) or in any of the conditions set forth
in Article VI hereof not being satisfied, except in each case as may be
required by applicable law;
(viii) change any method, practice or principle of accounting, except
as may be required from time to time by GAAP (without regard to any optional
early adoption date) or any Regulatory Authority responsible for regulating
ABC;
(ix) waive, release, grant or transfer any material rights of value
or modify or change in any material respect any existing material agreement or
indebtedness to which ABC or any ABC Subsidiary is a party, other than in the
ordinary course of business, consistent with past practice;
(x) purchase any security for its investment portfolio not rated "A"
or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc;
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(xi) make any new loan or other credit facility commitment (including
without limitation, lines of credit and letters of credit) to any borrower or
group of affiliated borrowers in excess of $50,000 in the aggregate, or
increase, compromise, extend, renew or modify any existing loan or commitment
outstanding in excess of $50,000, except for loans secured by one-to-four
family residential real property (on the basis of and consistent with existing
lending policies) and any commitment disclosed on the ABC DISCLOSURE SCHEDULE
5.01(a)(xi).
(xii) except as set forth on the ABC DISCLOSURE SCHEDULE 5.01(a)(xii),
enter into, renew, extend or modify any other transaction with any Affiliate;
(xiii) enter into any futures contract, option, interest rate caps,
interest rate floors, interest rate exchange agreement or other agreement or
take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in market
rates of interest;
(xiv) except for the execution of, and as otherwise provided in, this
Agreement, take any action that would give rise to a right of payment to any
individual under any employment agreement, or take any action that would give
rise to a right of payment to any individual under any ABC Employee Plan;
(xv) make any change in policies with regard to the extension of
credit, the establishment of reserves with respect to the possible loss
thereon or the charge off of losses incurred thereon investment,
asset/liability management or other material banking policies in any material
respect except as may be required by changes in applicable law or regulations
or in GAAP or by applicable regulatory authorities;
(xvi) except as set forth in ABC DISCLOSURE SCHEDULE 5.01(a)(xvi),
make any capital expenditures in excess of $25,000 individually or $50,000 in
the aggregate, other than pursuant to binding commitments existing on the date
hereof and other than expenditures necessary to maintain existing assets in
good repair;
(xvii) purchase or otherwise acquire, or sell or otherwise dispose of,
any assets or incur any liabilities other than in the ordinary course of
business consistent with past practices and policies;
(xviii) sell any OREO or loan (other than loans secured by one- to
four-family real estate);
(xix) incur any non-deposit liability in excess of $250,000 other than
in the ordinary course of business consistent with past practice; or
(xx) agree to do any of the foregoing.
For purposes of this Section 5.01, unless provided for in a business
plan, budget or similar document delivered to Niagara Bancorp prior to the
date of this Agreement, it shall not be considered
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in the ordinary course of business for ABC or any ABC Subsidiary to do any of
the following: (i) except as set forth in ABC DISCLOSURE SCHEDULE 5.01, make
any sale, assignment, transfer, pledge, hypothecation or other disposition of
any assets having a book or market value, whichever is greater, in the
aggregate in excess of $100,000, other than pledges of assets to secure
government deposits, to exercise trust powers, sales of assets received in
satisfaction of debts previously contracted in the normal course of business,
issuance of loans, sales of previously purchased government guaranteed loans,
or transactions in the investment securities portfolio by ABC or a ABC
Subsidiary or repurchase agreements made, in each case, in the ordinary course
of business; or (ii) undertake or enter any lease, contract or other
commitment for its account, other than in the normal course of providing
credit to customers as part of its banking business, involving a payment by
ABC or any ABC Subsidiary of more than $10,000 annually, or containing a
material financial commitment and extending beyond 12 months from the date
hereof.
Section 5.02. Access; Confidentiality.
(a) Each of ABC and the ABC Subsidiaries shall permit Niagara Bancorp
and its representatives reasonable access to its properties, and shall
disclose and make available to them all books, papers and records relating to
the assets, properties, operations, obligations and liabilities of ABC and its
subsidiaries, including, but not limited to, all books of account (including
the general ledger), tax records, minute books of meetings of boards of
directors (and any committees thereof) (other than minutes of any confidential
discussion of this Agreement and the transactions contemplated hereby), and
stockholders, organizational documents, bylaws, material contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files, plans affecting employees, and any other business activities
or prospects in which Niagara Bancorp may have a reasonable interest
(provided that ABC shall not be required to provide access to any information
that would violate its, or any ABC Subsidiary's, attorney-client privilege).
ABC and Albion Federal shall make their respective officers, employees and
agents and authorized representatives (including counsel and independent
public accountants) available to confer with Niagara Bancorp and its
representatives. Albion Federal shall send to the Senior Vice
President/Retail Banking of Lockport Savings copies of current rate sheets for
all deposit and loan products on a timely basis. The parties will hold all
such information delivered in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement, dated June
28, 1999, among ABC and Niagara Bancorp (the "Confidentiality
Agreement").
(b) Niagara Bancorp agrees to conduct such investigations and
discussions hereunder in a manner so as not to interfere unreasonably with
normal operations and customer and employee relationships of the other party.
(c) In addition to the access permitted by subparagraph (a) above,
from the date of this Agreement through the Closing Date, ABC and each ABC
Subsidiary shall permit employees of Niagara Bancorp reasonable access to
information relating to problem loans, loan restructurings and loan work-outs
of ABC and Albion Federal.
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(d) If the transactions contemplated by this Agreement shall not be
consummated, ABC and Niagara Bancorp will each destroy or return all documents
and records obtained from the other party or its representatives, during the
course of its investigation and will cause all information with respect to the
other party obtained pursuant to this Agreement or preliminarily thereto to be
kept confidential, except to the extent such information becomes public
through no fault of the party to whom the information was provided or any of
its representatives or agents and except to the extent disclosure of any such
information is legally required. ABC and Niagara Bancorp shall each give
prompt written notice to the other party of any contemplated disclosure where
such disclosure is so legally required.
Section 5.03. Regulatory Matters and Consents.
(a) Niagara Bancorp and Lockport Savings will prepare all
Applications and make all filings for, and use their best efforts to obtain as
promptly as practicable after the date hereof, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement. Niagara Bancorp shall file the Applications within forty-five days
of the date of this Agreement, or as soon thereafter as is practicable.
(b) ABC will furnish Niagara Bancorp with all information concerning
ABC and ABC Subsidiaries as may be necessary or advisable in connection with
any Application or filing made by or on behalf of Niagara Bancorp to any
Regulatory Authority in connection with the transactions contemplated by this
Agreement.
(c) Niagara Bancorp and ABC will promptly furnish each other with
copies of all material written communications to, or received by them from any
Regulatory Authority in respect of the transactions contemplated hereby,
except information which is filed by either party which is designated as
confidential.
(d) The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Regulatory Authorities. Niagara
Bancorp will furnish ABC with (i) copies of all Applications prior to filing
with any Regulatory Authority and provide ABC a reasonable opportunity to
provide changes to such Applications, (ii) copies of all Applications filed by
Niagara Bancorp and (iii) copies of all documents filed by Niagara Bancorp
under the Exchange Act.
(e) ABC and Niagara Bancorp will cooperate with each other in the
foregoing matters and will furnish the responsible party with all information
concerning it and its subsidiaries as may be necessary or advisable in
connection with any Application or filing (including the Proxy Statement and
any report filed with the SEC) made by or on behalf of Niagara Bancorp or ABC
to any Regulatory Authority in connection with the transactions contemplated
by this Agreement, and
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such information will be accurate and complete in all material respects. In
connection therewith, each party will provide certificates and other documents
reasonably requested by the other.
Section 5.04. Taking of Necessary Action.
(a) Niagara Bancorp and ABC shall each use its best efforts in good
faith, and each of them shall cause its Subsidiaries to use their best efforts
in good faith, to (i) furnish such information as may be required in
connection with the preparation of the documents referred to in Section 5.03
of this Agreement, and (ii) take or cause to be taken all action necessary or
desirable on its part using its best efforts so as to permit completion of the
Merger and the transactions contemplated by this Agreement, including, without
limitation, (A) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required or desirable for consummation of the
transactions contemplated hereby (including assignment of leases without any
change in terms), provided that neither ABC nor any ABC Subsidiary shall agree
to make any payments or modifications to agreements in connection therewith
without the prior written consent of Niagara Bancorp, and (B) requesting the
delivery of appropriate opinions, consents and letters from its counsel and
independent auditors. No party hereto shall take, or cause, or to the best of
its ability permit to be taken, any action that would substantially impair the
prospects of completing the Company Merger pursuant to this Agreement;
provided that nothing herein contained shall preclude Niagara Bancorp or ABC
from exercising its rights under this Agreement.
(b) ABC shall prepare, subject to the review and consent of Niagara
Bancorp with respect to matters relating to Niagara Bancorp and the
transactions contemplated by this Agreement, a Proxy Statement to be filed by
ABC with the SEC and to be mailed to the shareholders of ABC in connection
with the meeting of its shareholders and transactions contemplated hereby,
which Proxy Statement shall conform to all applicable legal requirements. The
parties shall cooperate with each other with respect to the preparation of the
Proxy Statement. ABC shall, as promptly as practicable following the
preparation thereof, file the Proxy Statement with the SEC and ABC shall use
all reasonable efforts to have the Proxy Statement mailed to stockholders as
promptly as practicable after such filing. ABC will promptly advise Niagara
Bancorp of the time when the Proxy Statement has been filed and mailed, or of
any comments from the SEC or any request by the SEC for additional
information.
Section 5.05. Certain Agreements.
(a) Niagara Bancorp shall maintain in effect for three years from the
Effective Time, if available, the current directors' and officers' liability
insurance policy maintained by ABC (provided that Niagara Bancorp may
substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less favorable) with respect to
matters occurring prior to the Closing Date; provided, however, that in no
event shall Niagara Bancorp be required to expend pursuant to this Section
5.05 more than the amount equal to 150% of the current annual amount expended
by ABC to maintain or procure insurance coverage
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pursuant hereto. In connection with the foregoing, ABC and Albion Federal
each agrees to provide such insurer or substitute insurer with such
representations as such insurer may request with respect to the reporting of
any prior claims.
(b) From and after the Merger Effective Date, Niagara Bancorp agrees
to indemnify, defend and hold harmless each present and former director and
officer of ABC and its Subsidiaries determined as of the Closing Date (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees and expenses), liabilities, judgments or
amounts paid in settlement (with the approval of Niagara Bancorp, which
approval shall not be unreasonably withheld) or in connection with any claim,
action, suit, proceeding or investigation arising out of matters existing or
occurring at or prior to the Merger Effective Date (a "Claim") in which an
Indemnified Party is, or is threatened to be made, a party or a witness based
in whole or in part on, or arising in whole or in part out of, the fact that
such person is or was a director or officer of ABC or any of its subsidiaries,
regardless of whether such Claim is asserted or claimed prior to, at or after
the Closing Date, to the fullest extent to which directors and officers of ABC
are entitled under the DGCL, ABC's certificate of incorporation and bylaws, or
other applicable law as in effect on the date hereof (and Niagara Bancorp
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the extent permissible to a Delaware
corporation under the DGCL and ABC's certificate of incorporation and bylaws
as in effect on the date hereof; provided, that the person to whom expenses
are advanced provides an undertaking to repay such expenses if it is
ultimately determined that such person is not entitled to indemnification).
All rights to indemnification in respect of a Claim asserted or made within
the period described in the preceding sentence shall continue until the final
disposition of such Claim. No indemnification shall be required under this
Section 5.05 if prohibited by applicable law.
(c) Any Indemnified Party wishing to claim indemnification under
Section 5.05(b), upon learning of any Claim, shall promptly notify Niagara
Bancorp, but the failure to so notify shall not relieve Niagara Bancorp of any
liability it may have to such Indemnified Party except to the extent that such
failure materially prejudices Niagara Bancorp. In the event of any Claim, (1)
Niagara Bancorp shall have the right to assume the defense thereof (with
counsel reasonably satisfactory to the Indemnified Party) and shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that, if Niagara Bancorp elects
not to assume such defense or counsel for the Indemnified Parties advises that
there are issues which raise conflicts of interest between Niagara Bancorp and
the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and Niagara Bancorp shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, provided further that Niagara Bancorp shall in all
cases be obligated pursuant to this paragraph to pay for only one firm of
counsel for all Indemnified Parties, (2) the Indemnified Parties will
cooperate in the defense of any such Claim and (3) Niagara Bancorp shall not
be liable for any settlement effected without its prior written consent (which
consent shall not unreasonably be withheld).
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(d) In the event Niagara Bancorp or any of is successors or assigns
(1) consolidates with or merges into any other Person and shall not continue
or survive such consolidation or merger, or (2) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in
each such case, to the extent necessary, proper provision shall be made so
that the successors and assigns of Niagara Bancorp assume the obligations set
forth in this Section 5.05.
(e) The provisions of this Section 5.05 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
Section 5.06. No Other Bids and Related Matters. From and after the date
hereof until the termination of this Agreement, neither ABC, Albion Federal
or any ABC Subsidiary, nor any of their respective officers, directors,
employees, representatives, agents or affiliates (including, without
limitation, any investment banker, attorney or accountant retained by ABC or
any of its Subsidiaries), will, directly or indirectly, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information or
assistance), or facilitate knowingly, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal, or authorize or permit any of its officers, directors,
or employees or any of its subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by any of its
subsidiaries to take any such action, and ABC shall notify Niagara Bancorp
orally (within one business day) and in writing (as promptly as practicable)
of all of the relevant details relating to all inquiries and proposals which
it or any of its Subsidiaries or any such officer, director employee,
investment banker, financial advisor, attorney, accountant or other
representative may receive relating to any of such matters and of such inquiry
or proposal promptly, provided, however, that nothing contained in this
Section 5.06 shall prohibit the Board of Directors of ABC from (i) furnishing
information to, or entering into discussions or negotiations with any person
or entity that makes an unsolicited written, bona fide proposal, to acquire
ABC or Albion Federal pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or other similar transaction,
if, and only to the extent that, (A) the Board of Directors of ABC, after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for the Board of
Directors of ABC to comply with its fiduciary duties to stockholders under
applicable law (such proposal that satisfies (A) is referred to herein as a
"Superior Proposal") and (B) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity, ABC
provides reasonable notice to Niagara Bancorp to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity, (ii) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer or (iii) failing to
make or withdrawing or modifying its recommendation and entering into a
Superior Proposal if there exists a Superior Proposal and the Board of
Directors of ABC, after consultation with and based upon the advice of
independent legal counsel, determined in good faith that such action is
necessary for such Board of Directors to comply with its fiduciary duties to
stockholders under applicable law. For purposes of this Agreement,
"Acquisition Proposal" shall mean any of the following (other than the
transactions contemplated
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hereunder) involving ABC or any of its subsidiaries: (i) any merger,
consolidation, share exchange, business combination, or other similar
transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 20% or more of the assets of ABC or Albion Federal, taken
as a whole, in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of ABC or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Section 5.07. Duty to Advise; Duty to Update ABC's Disclosure Schedules.
ABC shall promptly advise Niagara Bancorp of any change or event having a
Material Adverse Effect on it or on any ABC Subsidiary or which it believes
would or would be reasonably likely to cause or constitute a material breach
of any of its representations, warranties or covenants set forth herein. ABC
shall update ABC's DISCLOSURE SCHEDULES as promptly as practicable after the
occurrence of an event or fact which, if such event or fact had occurred prior
to the date of this Agreement, would have been disclosed in the ABC DISCLOSURE
SCHEDULES. The delivery of such updated Schedule shall not relieve ABC from
any breach or violation of this Agreement and shall not have any effect for
the purposes of determining the satisfaction of the condition set forth in
Sections 6.02(c) hereof.
Section 5.08. Conduct of Niagara Bancorp's Business. From the date of
this Agreement to the Closing Date, Niagara Bancorp will use its best efforts
to (x) preserve its business organizations intact, (y) maintain good
relationships with employees, and (z) preserve for itself the goodwill of
customers of Lockport Savings. From the date of this Agreement to the Closing
Date, neither Niagara Bancorp nor Lockport Savings will (i) amend its
certificate of incorporation, charter or bylaws in any manner inconsistent
with the prompt and timely consummation of the transactions contemplated by
this Agreement; (ii) take any action which would result in any of the
representations and warranties of Niagara Bancorp or Lockport Savings set
forth in this Agreement becoming untrue as of any date after the date hereof
or in any of the conditions set forth in Article VI hereof not being
satisfied, except in each case as may be required by applicable law; (iii)
take any action which would or is reasonably likely to adversely effect or
materially delay the receipt of the necessary approvals from the Regulatory
Authorities; (iv) take action which would or is reasonably likely to
materially and adversely affect Niagara Bancorp's ability to perform its
covenants and agreements under this Agreement; (v) take any action that would
result in any of the conditions to the Company Merger not being satisfied; or
(vi) agree to do any of the foregoing.
Section 5.09. Board and Committee Minutes. ABC and Albion Federal shall
each provide to Niagara Bancorp, within thirty (30) days after any meeting of
their respective Board of Directors, or any committee thereof, or any senior
management committee, a copy of the minutes of such meeting, except that with
respect to any meeting held within thirty (30) days of the Closing Date, such
minutes shall be provided to each party prior to the Closing Date.
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Section 5.10. Undertakings by ABC and Niagara Bancorp.
(a) From and after the date of this Agreement:
(i) Voting by Directors. As promptly as practicable following
execution of this Agreement, ABC's Directors shall each enter into the
agreement set forth as Exhibit B to this Agreement;
(ii) Proxy Solicitor. ABC shall retain a proxy solicitor in
connection with the solicitation of shareholder approval of this Agreement;
(iii) Timely Review. If requested by Niagara Bancorp at Niagara
Bancorp's sole expense, ABC shall cause its independent certified public
accountants to perform a review of its unaudited consolidated financial
statements as of the end of any calendar quarter, in accordance with Statement
of Auditing Standards No. 36, and to issue their report on such financial
statements as soon as is practicable thereafter;
(iv) Outside Service Bureau Contracts. If requested to do so by
Niagara Bancorp, ABC shall use its best efforts to obtain an extension of any
contract with an outside service bureau or other vendor of services to ABC, on
terms and conditions mutually acceptable to ABC and Niagara Bancorp;
(v) Board Meetings. ABC and Albion Federal shall permit a
representative of Niagara Bancorp to attend any meeting of ABC and/or Albion
Federal's Board of Directors or the Executive Committees thereof (provided
that neither ABC nor Albion Federal shall be required to permit the Niagara
Bancorp representative to remain present during any confidential discussion of
the Agreement and the transactions contemplated thereby).
(vi) List of Nonperforming Assets. ABC shall provide Niagara
Bancorp, within ten (10) days of the end of each calendar month, a written
list of nonperforming assets (the term "nonperforming assets," for purposes of
this subsection, means (i) loans that are "troubled debt restructuring" as
defined in Statement of Financial Accounting Standards No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring," (ii) loans on
nonaccrual, (iii) real estate owned, (iv) all loans ninety (90) days or more
past due as of the end of such month and (iv) and impaired loans; and
(vii) Reserves and Merger-Related Costs. On or before the
Effective Date, and at the request of Niagara Bancorp, ABC shall establish
such additional accruals and reserves as may be necessary to conform the
accounting reserve practices and methods (including credit loss practices and
methods) of ABC to those of Niagara Bancorp (as such practices and methods are
to be applied to ABC from and after the Closing Date) and Niagara Bancorp's
plans with respect to the conduct of the business of ABC following the Merger
and otherwise to reflect Merger-related expenses and costs incurred by ABC,
provided, however, that ABC shall not be required to take such
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action unless Niagara Bancorp agrees in writing that all conditions to closing
set forth in Section 6.02 have been satisfied or waived (except for the
expiration of any applicable waiting periods); prior to the delivery by
Niagara Bancorp of the writing referred to in the preceding clause, ABC shall
provide Niagara Bancorp a written statement, certified without personal
liability by the chief executive officer of ABC and dated the date of such
writing, that the representation made in Section 3.15 hereof is true as of
such date or, alternatively, setting forth in detail the circumstances that
prevent such representation from being true as of such date; and no accrual or
reserve made by ABC or any ABC Subsidiary pursuant to this subsection, or any
litigation or regulatory proceeding arising out of any such accrual or
reserve, shall constitute or be deemed to be a breach or violation of any
representation, warranty, covenant, condition or other provision of this
Agreement or to constitute a termination event within the meaning of Section
7.01(b) hereof. No action shall be required to be taken by ABC pursuant to
this Section 5.10(vii) if, in the opinion of ABC's independent auditors, such
action would contravene GAAP.
(viii) Shareholders Meeting. ABC shall submit this Agreement to
its shareholders for approval at a meeting to be held as soon as practicable,
and, subject to the next sentence, its Boards of Director shall recommend
approval of this Agreement to the ABC shareholders. The Board of Directors of
ABC may fail to make such a recommendation, or withdraw, modify or change any
such recommendation only in connection with a Superior Proposal, as set forth
in Section 5.06 of this Agreement, and only if such Board of Directors, after
having consulted with and considered the written advice of outside counsel to
such Board, has determined that the making of such recommendation, or the
failure so to withdraw, modify or change its recommendation, would constitute
a breach of the fiduciary duties of such directors under Delaware law. ABC
shall take all steps necessary in order to hold a special meeting of
stockholders for the purpose of approving this Agreement within four months of
the date of this Agreement, or as soon thereafter as is practicable. ABC
shall promptly inform Niagara Bancorp of any shareholder who makes a written
demand upon ABC for an appraisal of his shares of ABC Common Stock in
connection with the Company Merger.
(b) From and after the date of this Agreement, Niagara Bancorp and
ABC shall each:
(i) Filings and Approvals. Cooperate with the other in the
preparation and filing, as soon as practicable, of (A) the Applications, (B)
the Proxy Statement, (C) all other documents necessary to obtain any other
approvals and consents required to effect the completion of the Merger, and
the transactions contemplated by this Agreement, (D) all other documents
contemplated by this Agreement;
(ii) Public Announcements. Cooperate and cause their respective
officers, directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of, any press release
related to this Agreement and the transactions contemplated hereby, and any
other public disclosures related thereto, including without limitation
communications to shareholders, internal announcements and customer
disclosures, but nothing contained herein shall prohibit either
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party from making any disclosure which its counsel deems necessary, provided
that the disclosing party notifies the other party reasonably in advance of
the timing and contents of such disclosure;
(iv) Maintenance of Insurance. Maintain, and cause their
respective Subsidiaries to maintain, insurance in such amounts as are
reasonable to cover such risks as are customary in relation to the character
and location of its properties and the nature of its business;
(v) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with GAAP applied on a basis consistent with those principles used
in preparing the financial statements heretofore delivered;
(vi) Delivery of Securities Documents. Deliver to the other,
copies of all Securities Documents simultaneously with the filing thereof; and
(vii) Taxes. File all federal, state, and local tax returns
required to be filed by them or their respective Subsidiaries on or before the
date such returns are due (including any extensions) and pay all taxes shown
to be due on such returns on or before the date such payment is due.
(c) For planning purposes, ABC shall, within 30 days from the date
hereof, provide Niagara Bancorp with its estimated budget of
transaction-related expenses reasonably anticipated to be payable by ABC in
connection with its transaction based on facts and circumstances currently
known, including the fee and expenses of counsel, accountants, investment
bankers and other professionals. ABC shall promptly notify ABC if or when it
determines that it will expect to exceed its budget; provided, however, that
it is understood that ABC exceeding such budget, in and of itself, shall not
constitute a breach of this Agreement. ABC has previously disclosed to
Niagara Bancorp the method by which the fees of its investment bankers and
counsel in connection with this transaction are to be determined. Promptly,
but in any event within 30 days, after the execution of this Agreement, ABC
shall ask all of its attorneys and other professionals to render current and
correct invoices for all unbilled time and disbursements. ABC shall accrue
and/or pay all of such amounts as soon as possible. ABC shall request that
its professionals render monthly invoices within 30 days after the end of each
month. ABC shall notify Niagara Bancorp monthly of all out-of-pocket expenses
which ABC has incurred in connection with this Agreement.
Section 5.11. Employee and Termination Benefits; Directors and
Management.
(a) Employee Benefits. Except as otherwise provided in Section
5.11(d) of this Agreement, as of or after the Merger Effective Date, and at
Niagara Bancorp's election and subject to the requirements of the IRC, the ABC
Employee Plans may continue to be maintained separately, or consolidated, or
terminated. In the event of a consolidation of any or all of such plans or in
the event of termination of any ABC Employee Plan, ABC employees who continue
employment with Niagara Bancorp or any Niagara Bancorp Subsidiary ("Continuing
Employees") shall receive credit for service with ABC (for purposes of
eligibility and vesting determination but not for benefit
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accrual purposes) under any existing Niagara Bancorp benefit plan, or new
Niagara Bancorp benefit plan in which such employees would be eligible to
enroll. In the event of any termination or consolidation of any ABC health
plan with any Niagara Bancorp health plan, Niagara Bancorp and/or Lockport
Savings shall make available to Continuing Employees employer-provided health
coverage on the same basis as it provides such coverage to Niagara Bancorp or
Lockport Savings employees. In the event of any termination of or
consolidation of any ABC health plan with any Niagara Bancorp health plan, all
Continuing Employees who were covered under the terminated or consolidated
plan shall have immediate coverage of any pre-existing condition. In the
event of a termination or consolidation of any ABC health plan, terminated ABC
employees and qualified beneficiaries will have the right to continue coverage
under group health plans of Niagara Bancorp and/or Niagara Bancorp
subsidiaries in accordance with IRC Section 4980B(f).
(b) After the Merger Effective Date, any former employees of ABC or
any ABC Subsidiary whose employment is terminated, other than for cause, shall
be provided with severance benefits in accordance with ABC's severance policy,
as described on ABC DISCLOSURE SCHEDULE 5.11(b), payable within seven days of
termination. Terminated employees of Albion Federal who are qualified for
positions available at Lockport Savings will be given preference in terms of
applying for such positions.
(c) Niagara Bancorp shall establish an Albion Federal Advisory Board
of Directors to consist of those persons who currently serve on the ABC Board,
and such persons shall commence service on the Advisory Board of Directors
immediately following the Merger Effective Date. The Advisory Board shall be
maintained for at least two years following the Merger Effective Date. James
H. Keeler shall serve as Chairman of the Advisory Board. The Advisory Board
shall meet no less than quarterly and each board member shall receive a per
meeting fee of $250.
(d) The ABC Employee Stock Ownership Plan (the "ABC ESOP") shall be
terminated as of, or prior to, the Merger Effective Date (all shares held by
the ESOP shall be converted into the right to receive the Merger
Consideration), all outstanding ABC ESOP indebtedness shall be repaid, and the
balance shall be allocated and distributed to ABC employees (subject to the
receipt of a determination letter from the IRS), as provided for in the
ABC ESOP and unless otherwise required by applicable law.
(e) Niagara Bancorp shall honor the employment agreement set forth in
ABC DISCLOSURE SCHEDULE 3.08(a) and shall make the payment required thereunder
as set forth in ABC DISCLOSURE SCHEDULE 5.11(e), payable within fourteen days
of termination.
Section 5.12. Duty to Advise; Duty to Update Niagara Bancorp's Disclosure
Schedules. Niagara Bancorp shall promptly advise ABC of any change or event
having a Material Adverse Effect on it or on any Niagara Bancorp Subsidiary or
which it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants set
forth herein. Niagara Bancorp shall update Niagara Bancorp's DISCLOSURE
SCHEDULES as promptly as practicable after the occurrence of an event or fact
which, if such event or fact had
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occurred prior to the date of this Agreement, would have been disclosed in the
Niagara Bancorp DISCLOSURE SCHEDULE. The delivery of such updated Schedules
shall not relieve Niagara Bancorp from any breach or violation of this
Agreement and shall not have any effect for the purposes of determining the
satisfaction of the condition set forth in Sections 6.01(c) hereof.
Section 5.13. Bank and Related Merger Transactions.
(a) As soon as practicable following the Merger Effective Date,
Niagara Bancorp shall, and it shall cause ABC (as the Surviving Corporation in
the Company Merger) to, effect a merger of ABC, as the surviving company in
the merger of ABC and Niagara Merger Subsidiary, into Niagara Bancorp, with
Niagara Bancorp being the surviving corporation (the "Subsequent Merger") by
executing a merger agreement and filing a certificate of merger with the
Delaware Office of the Secretary of State pursuant to the DGCL. The
Subsequent Merger shall become effective at the time (the "Subsequent
Effective Time") specified in the certificate of merger filed with the
Delaware Office of the Secretary of State pursuant to the DGCL. As a result
of the Subsequent Merger, the separate corporate existence of ABC shall cease
and Niagara Bancorp shall be the surviving corporation and continue its
corporate existence under the laws of the State of Delaware.
(b) As soon as practicable after consummation of the Subsequent
Merger, Niagara Bancorp and ABC shall take all actions necessary and
appropriate, including causing the entering into of an appropriate merger
agreement in the form attached to this Agreement as Exhibit A (the "Bank
Merger Agreement"), to cause Albion Federal to merge with and into Lockport
Savings, with Lockport Savings as the surviving institution, as Niagara
Bancorp deems advisable, in each case in accordance with applicable laws and
regulations and the terms of the applicable Bank Merger Agreement.
ARTICLE VI
CONDITIONS
Section 6.01. Conditions to ABC's Obligations under this Agreement. The
obligations of ABC hereunder shall be subject to satisfaction at or prior to
the Closing Date of each of the following conditions, unless waived by ABC
pursuant to Section 8.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, Niagara Bancorp and Niagara Merger Subsidiary to authorize the
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated by this Agreement, shall have been duly and
validly taken by Niagara Bancorp and Niagara Merger Subsidiary; and ABC shall
have received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of Niagara Bancorp and
Niagara Merger Subsidiary required by this Agreement to be performed by
Niagara Bancorp and Niagara Merger
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Subsidiary at or prior to the Closing Date shall have been duly performed and
complied with in all material respects;
(c) Representations and Warranties. Each of the representations and
warranties of Niagara Bancorp and Niagara Merger Subsidiary set forth in this
Agreement shall be true and correct in all material respects, in each case as
of the date of this Agreement, and as of the Closing Date as though made on
and as of the Closing Date (except as to any representation or warranty which
specifically relates to an earlier date); provided, however, that in
interpreting Sections 6.01(c) and 7.01(b)(i) of this Agreement, no
representation or warranty of Niagara Bancorp or Niagara Merger Subsidiary
shall be deemed untrue or incorrect, and neither Niagara Bancorp nor Niagara
Merger Subsidiary shall be deemed to have breached a representation or
warranty, as a consequence of any fact, event or circumstances unless such
fact, event or circumstance, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or
warranty of Niagara Bancorp or Niagara Merger Subsidiary contained in this
Agreement has had or is reasonably likely to have a Material Adverse Effect on
Niagara Bancorp and Lockport Savings, taken as a whole, from that disclosed by
Niagara Bancorp on the date of this Agreement.
(d) Approvals of Regulatory Authorities. Niagara Bancorp shall have
received all required approvals of Regulatory Authorities of the Merger; and
all notice and waiting periods required thereunder shall have expired or been
terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) Officer's Certificate. Niagara Bancorp shall have delivered to
ABC a certificate, dated the Closing Date and signed, without personal
liability, by its chairman of the board or president, to the effect that the
conditions set forth in subsections (a) through (f) and (i) of this Section
6.01 have been satisfied, to the best knowledge of the officer executing the
same;
(g) Opinion of Niagara Bancorp's Counsel. ABC shall have received an
opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., counsel to Niagara
Bancorp, dated the Closing Date, in form and substance reasonably satisfactory
to ABC and its counsel to the effect set forth on Exhibit 6.1 attached hereto;
and
(h) Approval of ABC's Shareholders. This Agreement shall have been
approved by the shareholders of ABC by such vote as is required under
applicable Delaware law, ABC's certificate of incorporation and bylaws, and
under Nasdaq requirements applicable to it.
(i) Funds Deposited with the Exchange Agent. Niagara Bancorp shall
have deposited or caused to be deposited, in trust with the Exchange Agent, an
amount of cash equal to the aggregate Merger Consideration that the ABC
stockholders shall be entitled to receive on the Merger Effective Date
pursuant to Section 2.02 of this Agreement.
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Section 6.02. Conditions to Niagara Bancorp's Obligations under this
Agreement. The obligations of Niagara Bancorp hereunder shall be subject to
satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by Niagara Bancorp pursuant to Section 8.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, ABC to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated by this
Agreement, shall have been duly and validly taken by ABC; and Niagara Bancorp
shall have received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of ABC and each ABC
Subsidiary required by this Agreement to be performed at or prior to the
Closing Date shall have been duly performed and complied with in all material
respects;
(c) Representations and Warranties. Each of the representations and
warranties of ABC and each ABC Subsidiary set forth in this Agreement shall be
true and correct in all material respects, in each case as of the date of this
Agreement, and as of the Closing Date as though made on and as of the Closing
Date (except as to any representation or warranty which specifically relates
to an earlier date); provided, however, that in interpreting Sections 6.02(c)
and 7.01(b)(i) of this Agreement, no representation or warranty of ABC or any
ABC Subsidiary shall be deemed untrue or incorrect, and neither ABC nor any
ABC Subsidiary shall be deemed to have breached a representation or warranty,
as a consequence of any fact, event or circumstances unless such fact, event
or circumstances, individually or taken together with all other facts, events
or circumstances inconsistent with any representation or warranty of ABC or
any ABC Subsidiary contained in this Agreement has had or is reasonably likely
to have a Material Adverse Effect on ABC and Albion Federal, taken as a whole,
from that disclosed by ABC on the date of this Agreement.
(d) Approvals of Regulatory Authorities. Niagara Bancorp shall have
received all required approvals of Regulatory Authorities of the Merger
(without the imposition of any conditions that are in Niagara Bancorp's
reasonable judgement unduly burdensome, excluding standard conditions that are
normally imposed by the Regulatory Authorities in bank merger transactions);
and all notice and waiting periods required thereunder shall have expired or
been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1998, there shall
not have occurred any Material Adverse Effect with respect to ABC;
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(g) Officer's Certificate. ABC shall have delivered to Niagara
Bancorp a certificate, dated the Closing Date and signed, without personal
liability, by its chairman of the board or president, to the effect that the
conditions set forth in subsections (a) through (f) of this Section 6.02 have
been satisfied, to the best knowledge of the officer executing the same;
(h) Opinions of ABC's Counsel. Niagara Bancorp shall have received an
opinion of Breyer & Associates PC, counsel to ABC, dated the Closing Date, in
form and substance reasonably satisfactory to Niagara Bancorp and its counsel
to the effect set forth on Exhibit 6.3 attached hereto; and
(i) Tax Opinion. Niagara Bancorp shall have received an opinion of
Luse Lehman Gorman Pomerenk & Schick, P.C., its counsel, substantially to the
effect set forth on Exhibit 6.2 attached hereto.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated on or at any
time prior to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By either Niagara Bancorp or ABC acting individually:
(i) if there shall have been a material breach of any
representation, warranty, covenant or other obligation of the other party
(subject to the standard set forth in Sections 6.01(c) and 6.02(c)), and the
breach cannot be, or shall not have been, remedied within 30 days after
receipt by such other party of notice in writing specifying the nature of such
breach and requesting that it be remedied;
(ii) if the Closing Date shall not have occurred on or before
May 31, 2000, unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
its obligations set forth in this Agreement required to be performed or
observed by such party on or before the Closing Date;
(iii) if either party has been informed in writing by a
Regulatory Authority whose approval or consent has been requested that such
approval or consent is unlikely to be granted, unless the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein required to be
performed or observed by such party on or before the Closing Date;
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(iv) if the approval of the shareholders of ABC required for the
consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of shareholders or
at any adjournment or postponement thereof; or
(c) By Niagara Bancorp if (i) as provided in Section 5.10(a)(viii),
the Board of Directors of ABC withdraws its recommendation of this Agreement,
fails to make such recommendation or modifies or qualifies its recommendation
in a manner adverse to Niagara Bancorp, or (ii) in reliance on Section 5.06
of this Agreement, ABC (or Albion Federal) enters into an agreement to be
acquired by, or merge or combine with, a third party in connection with a
Superior Proposal.
Section 7.02. Effect of Termination. (a) Except as otherwise provided in
this Agreement, if this Agreement is terminated pursuant to Section 7.01
hereof, this Agreement shall forthwith become void (other than Section 5.02(d)
and Section 8.01 hereof, which shall remain in full force and effect), and
there shall be no further liability on the part of Niagara Bancorp or ABC to
the other, except that no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
(b) As a condition of Niagara Bancorp's willingness, and in order to
induce Niagara Bancorp to enter into this Agreement and to reimburse Niagara
Bancorp for incurring the costs and expenses related to entering into this
Agreement and consummating the transactions contemplated by this Agreement,
ABC will make a cash payment to Niagara Bancorp of $619,000 (the "Expense
Fee"), if Niagara Bancorp has terminated this Agreement pursuant to Section
7.01(c). Any payment required under this Section 7.02(b) shall be paid by
ABC to Niagara Bancorp (by wire transfer of immediately available funds to an
account designated by Niagara Bancorp) within five business days after written
demand by Niagara Bancorp.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Expenses. (a) Except as provided herein, each party hereto
shall bear and pay all costs and expenses incurred by it in connection with
the transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel; provided, however, that the
parties shall mutually agree upon the printing of the Proxy Statement, which
printing expense shall be borne equally by the parties hereto.
(b) In the event of any termination of this Agreement pursuant to
Section 7.01(b)(i) hereof because of a breach of this Agreement by one of the
parties, and in addition to any other damages and remedies that may be
available to the non-breaching party, the non-breaching party shall be
entitled to payment of, and the breaching party shall pay to the non-breaching
party, all out-of-pocket costs and expenses, including, without limitation,
reasonable legal, accounting and investment banking fees and expenses,
incurred by the non-breaching party in connection with entering into this
Agreement and carrying out of any and all acts contemplated hereunder;
provided,
45
<PAGE>
however, that this clause shall not be construed to relieve or release a
breaching party from any additional liabilities or damages arising out of its
willful breach of any provision of this Agreement.
Section 8.02. Non-Survival of Representations and Warranties. All
representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants, other than those covenants set
forth in Sections 5.05 and 5.11(a), (b) and (c), (d) and (e), which will
survive the Merger, shall terminate on the Closing Date.
Section 8.03. Amendment, Extension and Waiver. Subject to applicable law,
at any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for
the performance of any of the obligations or other acts of either party
hereto, (c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained in Articles V
and VI hereof or otherwise. This Agreement may not be amended except by an
instrument in writing authorized by the respective Boards of Directors and
signed, by duly authorized officers, on behalf of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed by a duly
authorized officer on behalf of such party, but such waiver or failure to
insist on strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
Section 8.04. Entire Agreement. This Agreement, including the documents
and other writings referred to herein or delivered pursuant hereto, contains
the entire agreement and understanding of the parties with respect to its
subject matter. This Agreement supersedes all prior arrangements and
understandings between the parties, both written or oral with respect to its
subject matter. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors; provided, however,
that nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto and their respective successors,
any rights, remedies, obligations or liabilities other than pursuant to
Sections 2.02(a)(i), 2.03 and 5.05.
Section 8.05. No Assignment. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.
Section 8.06. Notices. All notices or other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed
by prepaid registered or certified mail (return receipt requested), or sent by
telecopy, addressed as follows:
46
<PAGE>
(a) If to Niagara Bancorp, Inc. to:
Niagara Bancorp
6950 South Transit Road
P.O. Box 514
Lockport, New York 14095-0514
Attention: William E. Swan
President and Chief Executive Officer
with a copy to: Luse Lehman Gorman Pomerenk & Schick, PC
5335 Wisconsin Avenue, NW
Washington, D.C. 20015
Attention: John J. Gorman, Esq.
Eric Luse, Esq.
(b) If to ABC, to:
Albion Banc Corp.
48 North Main Street
Albion, New York 14411
Attn:James H. Keeler
Chairman of the Board of Directors
with a copy to:
Breyer & Associates PC
1100 New York Avenue, N.W.
Suite 700 East
Washington, DC 20005
Attn:John F. Breyer, Jr., Esq.
Section 8.07. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 8.08. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 8.09. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law.
47
<PAGE>
Section 8.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal law (including the law of
conflicts of law) of the State of Delaware.
Section 8.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
this Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions thereof in any court of
the United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled at law or in equity.
48
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
NIAGARA BANCORP, INC.
By:/s/ William E. Swan
-------------------------------------
William E. Swan
President and Chief Executive Officer
NIAGARA MERGER SUBSIDIARY, INC.
By:/s/ William E. Swan
-------------------------------------
William E. Swan
President and Chief Executive Officer
LOCKPORT SAVINGS BANK
By: /s/ William E. Swan
-------------------------------------
William E. Swan
President and Chief Executive Officer
ALBION BANC CORP.
By:/s/ James H. Keeler
-------------------------------------
James H. Keeler
Chairman of the Board of Directors
ALBION FEDERAL SAVINGS AND LOAN ASSOCIATION
By:/s/ James H. Keeler
-------------------------------------
James H. Keeler
Chairman of the Board of Directors
49
<PAGE>
APPENDIX B -- OPINION OF RP FINANCIAL LC
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
December 17, 1999
Board of Directors
Albion Banc Corp.
48 North Main Street
Albion, New York 14411
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you with
its opinion as to the fairness from a financial point of view to the
shareholders of Albion Banc Corp., Albion, New York ("ABC"), of the Agreement
and Plan of Merger (the "Agreement") dated August 30, 1999, by and among ABC
and Niagara Bancorp, Inc. (the "Niagara Bancorp"), whereby the Niagara Bancorp
will acquire for cash all of the shares of ABC Common Stock and ABC will merge
with and into the Niagara Bancorp (the "Merger"). The Agreement, inclusive of
exhibits, is incorporated herein by reference. Unless otherwise defined, all
capitalized terms incorporated herein have the meanings ascribed to them in
the Agreement.
Summary Description of Consideration
- ------------------------------------
At the Merger Effective Date, each outstanding share of ABC Common Stock
issued and outstanding at the Merger Effective Date shall cease to exist and
shall be converted into the right to receive $15.75 in cash (the "Merger
Consideration"). In addition, each option granted by ABC to purchase shares
of ABC Common Stock issued and outstanding to either the 1993 Stock Option
Plan (the "ABC Stock Option Plans"), whether or not such option is exercisable
on the Merger Effective Date, shall, by reason of the Merger, cease to be
outstanding and be converted into the right to receive in cash an amount equal
to (i) the difference between (A) $15.75 and (B) the exercise price of each
such option multiplied by (ii) the number of shares of ABC Common Stock
subject to the option. As of the December 10, 1999 record date, there were
753,058 outstanding shares of ABC common stock and 47,117 granted options. RP
Financial Background and Experience RP Financial, as part of its financial
institution valuation and consulting practice, is regularly engaged in the
valuation of insured financial institution securities in connection with
mergers and acquisitions, initial and secondary stock offerings,
mutual-to-stock conversions of thrift institutions, and business valuations
for other purposes. As specialists in the securities of insured financial
institutions, RP Financial has experience in, and knowledge of, the markets
for the securities of such institutions, including institutions operating in
New York and in the Northeastern U.S.
- ------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209
<PAGE>
Board of Directors
December 17, 1999
Page 2
Materials Reviewed
- ------------------
In rendering this opinion, RP Financial reviewed the following material:
(1) the Agreement, dated August 30, 1999, including exhibits; (2) the
following information for ABC -- (a) audited financial statements for the
fiscal years ended December 31, 1993 through 1998, and (b) shareholder,
regulatory and internal financial and other reports through September 30, 1999
- -- all with regard to balance sheet and off-balance sheet composition,
profitability, interest rates, volumes, maturities, market values, trends,
credit risk, interest rate risk, liquidity risk and operations; (3)
discussions with ABC's management regarding past and current business,
operations, financial condition, and future prospects; (4) an analysis of the
pro forma impact of alternative strategies as an independent institution; (5)
competitive, economic and demographic characteristics in the local market
area; (6) the potential impact of regulatory and legislative changes on
savings institutions; (7) the financial terms of other recently completed and
pending acquisitions of savings institutions in New York, regionally and
nationally with similar characteristics; (8) the indications of interest
received by other interested parties; and (9) the Niagara Bancorp's financial
condition as of September 30, 1999 regarding the perceived ability to complete
the merger from a cash and capital perspective.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
ABC furnished by ABC to RP Financial for review for purposes of its opinion,
as well as publicly-available information regarding other financial
institutions and economic and demographic data. ABC did not restrict RP
Financial as to the material it was permitted to review. RP Financial did not
perform or obtain any independent appraisals or evaluations of the assets and
liabilities and potential and/or contingent liabilities of ABC.
RP Financial expresses no opinion on matters of a legal, regulatory, tax
or accounting nature or the ability of the merger as set forth in the
Agreement to be consummated. In rendering its opinion, RP Financial assumed
that, in the course of obtaining the necessary regulatory and governmental
approvals for the proposed merger, no restriction will be imposed on the
Niagara Bancorp that would have a material adverse effect on the ability of
the merger to be consummated as set forth in the Agreement.
Opinion
- -------
It is understood that this letter is directed to the Board of Directors
of ABC in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of ABC as to any action that such
shareholder should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and
other circumstances existing on the date hereof.
<PAGE>
Board of Directors
December 17, 1999
Page 3
It is understood that this opinion may be included in its entirety in any
communication by ABC or its Board of Directors to the stockholders of ABC. It
is also understood that this opinion may be included in its entirety in any
regulatory filing by ABC or the Niagara Bancorp, and that RP Financial
consents to the summary of this opinion in the proxy materials of ABC, and any
amendments thereto. Except as described above, this opinion may not be
summarized, excerpted from or otherwise publicly referred to without RP
Financial's prior written consent.
Based upon and subject to the foregoing, and other such matters we
consider relevant, it is RP Financial's opinion that, as of the date hereof,
the Merger Consideration to be received by the holders of ABC Common Stock, as
described in the Agreement, is fair to such shareholders from a financial
point of view.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP Financial, LC.
<PAGE>
APPENDIX C -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
<PAGE>
APPENDIX C
Section 262 of the Delaware General Corporation Law
262 APPRAISAL RIGHTS. -(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this
title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock which, at the
record date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement of merger
or consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 stockholders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation;
b. Shares of stock of any other corporation which at the effective date
of the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations described in
the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of fractional
shares described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of
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incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof, that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be sent
by certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation.
Any stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting
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<PAGE>
corporation. If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly verified list.
The Register in Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by registered or
certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the
day of the hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
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(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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<PAGE>
APPENDIX D -- ALBION BANC CORP. FINANCIAL INFORMATION
<PAGE>
ALBION
[LOGO] BANC
CORPORATION
1998
----
ANNUAL
REPORT
<PAGE>
Business of the Corporation
Albion Banc Corp. ("Corporation"), a Delaware corporation, was
incorporated on March 23, 1993 for the purpose of becoming the holding company
for Albion Federal Savings and Loan Association ("Albion Federal" or the
"Association") upon Albion Federal's conversion from a federal mutual to a
federal stock savings and loan association ("Conversion"). The Corporation
and Albion Federal shall be referred to collectively as the "Company". The
Conversion was completed on July 23, 1993. At December 31, 1998, the
Corporation had total assets of $76.5 million, total deposits of $59.1 million
and stockholders' equity of $6.4 million. The Corporation has not engaged in
any significant activity other than holding the stock of Albion Federal.
Accordingly, the information set forth in this report, including financial
statements and related data, relates primarily to Albion Federal.
Albion Federal was organized in 1934 as a federally chartered mutual
savings and loan association and has been a member of the Federal Home Loan
Bank ("FHLB") System since 1935. The Association is regulated by the Office
of Thrift Supervision ("OTS") and its deposits are insured up to applicable
limits under the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC").
TABLE OF CONTENTS
Page
----
Letter to Shareholders................................... 1
Selected Consolidated Financial Data..................... 2
Management's Discussion and Analysis..................... 4
Independent Accountant's Report.......................... 17
Consolidated Financial Statements........................ 18
Notes to Consolidated Financial Statements............... 22
Common Stock Information................................. 39
Directors and Officers................................... 40
Corporate Information/Offices............................ 41
<PAGE>
Dear Shareholders:
It is my pleasure as President and CEO of Albion Banc Corp. to present the
Annual Report of your Company's affairs for the year 1998. 1998 was a year
when the Holding Company and its subsidiaries, Albion Federal Savings and Loan
Association and New Frontier of Albion Corp., were able to leverage into
profitability their investment in delivery systems, services and people.
I think it would be fitting, therefore, to begin by stating that the Company
reported a $362,471 after tax profit for the year 1998, compared to a net
profit of $351,201 for the year 1997. This translates into earnings per share
of $.47 on a diluted basis. A contributing factor in our earnings improvement
was the continued growth in our Brockport branch. During 1998, deposits at
the branch grew by $3.8 million to a total of $22.7 million. This represents
a 20% increase at the branch from the end of 1997. This provided the
liquidity to support operations and fund our lending activities. The added
significance to this growth is that it was achieved through the acquisition of
lower cost transaction accounts. Transaction accounts now comprise 45% of the
branch's total deposits. As an institution, deposits grew $4.2 million, or
7.7%, to a total of $59.1 million.
Assets grew as a result of lending activity funded by our deposit growth.
During the year 1998, Albion Federal Savings and Loan Association originated
$17.1 million in first mortgage loans and $2.6 million in consumer loans. The
result was an increase in loans of $5.9 million, or an 11.2% increase from
December 31, 1997. The effect of the lending activity was an increase of 6.7%
in our total assets from year-end 1997 to $76.5 million at December 31, 1998.
I want to mention that we were also successful in controlling nonperforming
assets in 1998. At the end of 1997, we had $276,300 or .47% in nonperforming
assets. I am pleased to report that at the end of 1998, we had reduced that
amount to $262,000 or .44% of total loans.
There were also some very notable events relating to our stock. 1998 marked
the first year that we paid a cash dividend on a quarterly basis. In December
1997, the Company announced a three for one split of its common stock in order
to maintain the Company's listing on the Nasdaq Small Cap Market. The split
was effective February 5, 1998.
Although we are pleased with our 1998 results, as stewards of your investment,
we are continually striving to maximize your confidence in the Company through
enhancement of profits and franchise value. On behalf of the Directors,
Officers and employees of Albion Banc Corp., I would like to express our
gratitude for your continuing support of our endeavors.
Yours Very Truly,
/s/Jeffrey S. Rheinwald
Jeffrey S. Rheinwald
President
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL CONDITION, OPERATING AND OTHER DATA
Albion Banc Corp. (the "Company"), a Delaware corporation, is the
holding company for Albion Federal Savings and Loan Association (the
"Association") which is headquartered in Albion, New York. The Company is
engaged primarily in the business of directing, planning and coordinating the
business activities of the Association. This information is qualified in its
entirety by reference to the detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Report.
At December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
FINANCIAL CONDITION DATA: (In thousands)
Total assets................... $76,470 $71,719 $64,585 $56,992 $55,334
Loans, net .................... 58,929 53,017 47,839 44,049 47,010
Mortgage-backed securities .... 7,765 9,867 8,075 4,138 3,085
Cash and due from banks,
interest-bearing deposits and
investment securities ........ 6,551 5,391 5,299 5,677 3,240
Deposits ...................... 59,120 54,910 48,492 46,559 37,782
Federal Home Loan Bank
advances ..................... 9,000 9,000 9,000 3,000 10,295
Shareholders' equity .......... 6,423 6,155 5,864 6,089 5,898
Year Ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
OPERATING DATA: (In thousands)
Interest income ................ $5,347 $5,184 $4,446 $4,398 $3,852
Interest expense ............... 3,007 2,880 2,377 2,482 1,799
------- ------- -------- ------- ------
Net interest income ............ 2,340 2,304 2,069 1,916 2,053
Provision for loan losses ...... 65 35 140 36 132
------- ------- -------- ------- ------
Net interest income after
provision for loan losses .... 2,275 2,269 1,929 1,880 1,921
Noninterest income ............. 368 390 260 197 146
Noninterest expense ............ 2,073 2,081 2,231 1,817 1,550
------- ------- -------- ------- ------
Income ( loss) before income
taxes......................... 570 578 (42) 260 517
Provision (benefit) for income
taxes......................... 208 227 (38) 79 165
------- ------- -------- ------- ------
Net income (loss)............... $ 362 $ 351 $ (4) $ 181 $ 352
======= ====== ======== ======= ======
2
<PAGE>
At December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
OTHER DATA:
Number of:
Real estate loans serviced.... 1,090 1,019 998 931 1,015
Deposit accounts ............. 10,155 9,315 7,320 6,509 4,938
Offices ...................... 2 2 2 2 2
Per share:
Book value.................... $8.53 $8.20 $7.82 $7.79 $7.54
Dividends paid ............... .14 .16 .10 .10 .10
Basic earnings (loss)......... .49 .48 (.01) .24 .47
Diluted earnings (loss)....... .47 .46 (.01) .24 .47
Year Ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
KEY OPERATING RATIOS:
Return on average assets (net
income divided by average
assets)....................... .5% .5% .0% .3% .7%
Return on average equity (net
income divided by average
equity )...................... 5.8% 5.8% (.1)% 3.0% 6.1%
Average equity to average
assets ....................... 8.5% 8.7% 10.1% 10.2% 10.8%
Interest rate spread (difference
between average yield on
interest-earning assets and
average cost of interest-
bearing liabilities) ......... 2.9% 3.2% 3.2% 2.9% 3.6%
Net interest margin (net interest
income as a percentage of average
interest-earning assets) ..... 3.4% 3.6% 3.7% 3.4% 4.0%
Noninterest expense to average
assets ....................... 2.8% 3.0% 3.7% 3.3% 2.9%
Average interest-earning assets
to average interest-bearing
liabilities .................. 110.2% 108.7% 110.6% 111.1% 112.5%
Allowance for loan losses to total
loans at end of period ....... .5% .5% .6% .6% .5%
Ratio of nonperforming assets to
total assets ................. .3% .4% .6% .6% .4%
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition
of the Company. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements, the accompanying Notes
to Consolidated Financial Statements and the other sections contained in this
Report.
Operating Strategy
The primary goal of management is to increase the Company's profitability
and enhance its capital, while minimizing risk. The operating results of the
Company depend primarily on its net interest income, which is the difference
between interest income on interest-earning assets, primarily loans,
investments, and mortgage-backed securities, and interest expense on
interest-bearing liabilities, primarily deposits and borrowings. The
Company's net income also is affected by the establishment of provisions for
loan losses and the level of its other income, including fees on loans sold,
deposit service charges, the results of foreclosed real estate activities,
gains or losses from the sale of loans, as well as its other expenses and
income tax provisions. The Company's results of operations are also
significantly affected by local economic and competitive conditions, primarily
in the Company's market area of Orleans, western Monroe and Genesee counties
of New York state. Changes in market interest rates, government legislation
and policies concerning monetary and fiscal affairs, housing and financial
institutions and the attendant actions of the regulatory authorities all have
an impact on the Company's operations. It is management's strategy to
strengthen the Company's presence within its primary market area.
Financial Condition
General. Total assets increased by $4.8 million, or 6.6%, from $71.7
million at December 31, 1997 to $76.5 million at December 31, 1998. This
increase was due primarily to increases of $5.9 million in net loans and $1.8
million in Federal funds sold. The increase in loans and Federal funds sold
was funded primarily by a $4.2 million increase in deposits.
Cash and Cash Equivalents. Cash and due from banks increased by
$341,455, or 22.2%, from $1,539,966 at December 31, 1997 to $1,881,421 at
December 31, 1998. Federal funds sold increased from $2,850,000 at December
31, 1997 to $4,670,000 at December 31, 1998.
Investment Securities Available For Sale. The Company's investment
securities available for sale decreased $91,084, or 2.3%, from $4.0 million at
December 31, 1997 to $3.9 million at December 31, 1998. This decrease was the
result of normal amortization and paydowns of securities in the portfolio
offset by the purchase of a $1.5 million government agency security.
Investment Securities Held to Maturity. Investment securities held to
maturity decreased by $3.0 million or 44.1%, from $6.8 million at December 31,
1997 to $3.8 million at December 31, 1998. This decrease was the result of
normal maturities and calls of securities in the held to maturity portfolio
which totaled $3.0 million.
4
<PAGE>
Net Loans. The balance of net loans increased $5.9 million, or 11.2%,
from $53.0 million at December 31, 1997 to $58.9 million at December 31, 1998.
The increase in net loans was the result of increased one-to-four family
mortgage loan originations and consumer loan originations, primarily home
equity loans. This resulted from an increase in demand for this type of
lending, due to favorable interest rates, the active refinance market and a
strong emphasis on promoting home equity products.
Premises and Equipment. Premises and equipment decreased $177,997, or
7.6%, from $2.35 million at December 31, 1997 to $2.17 million at December 31,
1998. This decrease is attributable to the normal depreciation and
amortization of premises and equipment.
Deposits and Borrowings. Deposits increased $4.2 million, or 7.7%, from
$54.9 million at December 31, 1997 to $59.1 million at December 31, 1998.
This was attributable primarily to growth at the Association's branch in
Brockport, NY. This increase in deposits was used primarily to fund loan
demand. Advances from the Federal Home Loan Bank of New York (FHLB-NY) and
other borrowings declined from $9.2 million at December 31, 1997 to $9.1
million at December 31, 1998.
Shareholders' Equity. Shareholders' equity increased $268,644, or 4.4%,
from $6.15 million at December 31, 1997 to $6.42 million at December 31, 1998.
This increase is due primarily to earnings for the year and the resulting
increase in equity, offset by cash dividends on common stock of $100,490. The
Company's equity as a percentage of total assets at December 31, 1998 was 8.4%
and exceeds all regulatory requirements.
Results of Operations
Fiscal Year Ended December 31, 1998 Compared to December 31, 1997
Net Income. The Company reported net income of $362,471 for the year
ended December 31, 1998 as compared to net income of $351,201 for the year
ended December 31, 1997. This increase was primarily the result of increased
net interest income and decreased noninterest expenses.
Net Interest Income. Net interest income increased by $36,337, or 1.6%,
from $2.30 million for the year ended December 31, 1997 to $2.34 million for
the year ended December 31, 1998. Total interest income increased $162,900,
or 3.1%, during the period. Interest and fees on loans increased $360,385, or
8.6%, during this period due to a higher average outstanding balance in the
portfolio. Interest and dividends on investments decreased $197,485, or
19.6%, from $1,006,631 during the year ended December 31, 1997 to $809,146
during the year ended December 31, 1998. This decrease can be attributed to a
decrease in the average outstanding balance in the portfolio and lower yields.
Total interest expense increased $126,563, or 4.4%, primarily due to an
increase in the average balance outstanding of deposits. The average
outstanding balance of deposits increased $3.2 million, or 6.4%, from $50.2
million for the year ended December 31, 1997 to $53.4 million for the year
ended December 31, 1998. This increase in the average outstanding balance was
offset by a decrease in the weighted average rate paid on deposits. The
weighted average rate paid on deposits decreased from 4.57% for the year ended
December 31, 1997 to 4.52% for the year ended December 31, 1998, as a result
of lower interest rates being offered on certificates of deposit. Interest on
advances from the FHLB-NY increased $17,039 or 3.1%, primarily due to an
increase in the average balance outstanding from $9.2 million in 1997 to $9.4
million in 1998.
5
<PAGE>
Provision for Loan Losses. The Company's provision for loan losses for
the year ended December 31, 1998 was $65,023, a $29,609 increase compared to
the same period in 1997. Management charges earnings for an amount necessary
to maintain the allowance for possible loan losses at a level considered
adequate to absorb estimated losses in the loan portfolio. The level of the
allowance is based on management's evaluation of individual loans, past loan
loss experience, the assessment of prevailing and anticipated economic
conditions and other relevant factors. The allowance for loan losses of the
Company at December 31, 1998 was $267,000, or .45% of total loans, compared to
$276,300, or .52% of total loans at December 31, 1997. The increase in the
provision between the periods was due primarily to the deterioration in credit
quality of three one-to-four family properties that totaled $96,903.
Noninterest Income. Noninterest income for the year ended December 31,
1998 was $368,035 compared with $389,589 for the year ended December 31, 1997.
However, included in December 31, 1997 was $59,203 of income related to
profits on the sale of real estate owned. Other noninterest income increased
from $330,386 at December 31, 1997 to $351,237 at December 31, 1998. This
increase was due primarily to increased fee income from transaction accounts
and fee income from New Frontier of Albion Corp.
Noninterest Expense. Noninterest expense decreased $7,831, or 0.4%, from
$2.08 million for the year ended December 31, 1997, to $2.07 million for the
year ended December 31, 1998. This decrease in noninterest expense resulted
primarily from decreased other operating expenses of $52,185 or 14.2%. In
1997, other operating expenses included a nonrecurring charge of $41,642 for
expenses related to the conversion to our in-house data processing system.
Also decreased were FDIC premiums of $12,680, or 27.2%, due to reduced
premiums being charged. These decreases were partially offset by an increase
in compensation and employee benefits of $15,804, or 1.6%, from $985,588 for
the year ended 1997 to $1.0 million for the year ended 1998, primarily due to
inflationary increases in salaries and benefits. Occupancy expenses increased
$32,297, or 8.3%, from $390,136 for the year ended December 31, 1997 to
$422,433 for the year ended December 31, 1998 primarily due to the operation
of the Association's in-house data processing system and related supplies.
Data processing fees increased $12,873, or 6.8% from $188,350 for the year
ended December 31, 1997 to $201,223 for the year ended December 31, 1998,
primarily due to increases in telecommunication costs and supplies.
Income Taxes. The provision for income taxes decreased to $208,000 for
the year ended December 31, 1998 from $226,265 for the year ended December 31,
1997 primarily as a result of increased mortgage tax credits due to the
increased mortgage loan originations. The effective tax rate for 1998 was
36.5%.
Fiscal Year Ended December 31, 1997 Compared to December 31, 1996
Net Income. The Company reported net income of $351,201 for the year
ended December 31, 1997 as compared to a net loss of $4,352 for the year ended
December 31, 1996. This increase was primarily the result of increased net
interest income and noninterest income, and decreased noninterest expenses.
Net Interest Income. Net interest income increased by $235,543, or
11.4%, from $2.1 million for the year ended December 31, 1996 to $2.3 million
for the year ended December 31, 1997. Total interest income increased
$738,258, or 16.6%, during the period. Interest and dividends on investments
increased $461,768, or 84.7%, from $544,863 during the year ended December 31,
1996 to $1.0 million during the year ended December 31, 1997. This increase
can be attributed to an increase in the average outstanding balance in the
portfolio and higher yields. Interest and fees on loans increased $276,490,
or 7.1%, during this period due to a higher average outstanding balance and
higher yields.
6
<PAGE>
Total interest expense increased $502,715, or 21.1%, primarily due to an
increase in the average balance outstanding of deposits and FHLB-NY advances.
The average outstanding balance of deposits increased $4.2 million, or 9.2%,
from $46.0 million for the year ended December 31, 1996 to $50.2 million for
the year ended December 31, 1997. This increase in the average outstanding
balance was offset by a decrease in the weighted average rate paid on
deposits. The weighted average rate paid on deposits decreased from 4.63% for
the year ended December 31, 1996 to 4.57% for the year ended December 31,
1997, as a result of lower interest rates being offered on certificates of
deposit. Interest on advances from the FHLB-NY increased $334,664 or 134.7%,
primarily due to an increase in the average balance outstanding from $4.4
million in 1996 to $9.2 million in 1997 and an increase in the weighted
average rate paid from 5.69% in 1996 to 6.23% in 1997.
Provision for Loan Losses. The Association's provision for loan losses
for the year ended December 31, 1997 was $35,414, a $104,825 decrease compared
to the same period in 1996. Management charges earnings for an amount
necessary to maintain the allowance for possible loan losses at a level
considered adequate to absorb potential losses in the loan portfolio. The
level of the allowance is based on management's evaluation of individual
loans, past loan loss experience, the assessment of prevailing conditions and
anticipated economic conditions and other relevant factors. The allowance for
possible loan losses of the Association at December 31, 1997 was $276,300, or
.52% of total loans, compared to $305,900, or .64% of total loans at December
31, 1996. The decrease in the provision between the periods was due primarily
to improvement in the overall credit quality of Association's loan portfolio
and the resumed payments on three participation mortgage loan pools that had
been delinquent.
Noninterest Income. Noninterest income for the year ended December 31,
1997 was $389,589 compared with $260,131 for the year ended December 31, 1996.
This increase was attributable primarily to increased fee income from
depository transaction accounts, fee income from New Frontier of Albion Corp.
and the sale of real estate owned, which resulted in a net gain of $59,203.
Noninterest Expense. Noninterest expense decreased $150,041, or 6.7%,
from $2.2 million for the year ended December 31, 1996, to $2.1 million for
the year ended December 31, 1997. This decrease in noninterest expense
resulted primarily from a reduction in FDIC premiums of $69,988, or 60.0%, due
to reduced premiums being charged as a result of the prior year
recapitalization of the SAIF and the one-time charge of $274,921 associated
with that recapitalization in the prior year. Data processing fees decreased
$12,803, or 6.4%, as a result of the conversion from a service bureau to our
in-house data processing system. These decreases were partially offset by an
increase in compensation and employee benefits of $86,843, or 9.7%, from
$898,745 for the year ended 1996 to $985,588 for the year ended 1997,
primarily due to inflationary increases in salaries and benefits. Occupancy
expenses increased $82,250, or 26.7%, from $307,886 for the year ended
December 31, 1996 to $390,136 for the year ended December 31, 1997 primarily
due to the operation of the Association's in-house data processing system and
related supplies. Other operating expenses increased $37,222, or 11.3%, from
$330,165 to $367,387 during the year ended December 31, 1997. This increase
was primarily the result of a one-time charge of $41,642 related to the
Company's data processing conversion.
Income Taxes. The provision (benefit) for income taxes increased to
$226,265 for the year ended December 31, 1997 from $(38,049) for the year
ended December 31, 1996 primarily as a result of the increase in income for
the year as compared to the loss for 1996. The effective tax rate for 1997
was 39.2%.
7
<PAGE>
Yields Earned and Rates Paid
The earnings of the Company depend largely on the spread between the
yield on interest-earning assets (primarily loans, mortgage-backed securities
and investments) and the cost of interest-bearing liabilities (primarily
deposit accounts and borrowings), as well as the relative size of the
Association's interest-earning assets and interest-bearing liability
portfolios.
The following tables set forth, for the periods indicated, information
relating to average balances of consolidated assets and liabilities. These
tables reflect the average yields on assets and the average costs of
liabilities for the periods indicated (derived by dividing income or expense
by the average balance of assets or liabilities, respectively), as well as the
"net interest margin" (which reflects the effect of the net earning balance)
for the periods shown.
(Tables begin on next page)
8
<PAGE>
<TABLE>
Year Ended December 31,
-----------------------------------------------------------
1998 1997
--------------------------- ---------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans ..................... $48,396 $3,794 7.84% $42,717 $3,532 8.27%
Consumer loans......................... 7,866 744 9.46 6,956 646 9.29
------- ------ ---- ------- ------ ----
Total loans.......................... 56,262 4,538 8.07 49,673 4,178 8.41
Mortgage-backed securities............. 9,007 574 6.37 8,614 637 7.39
Investment securities.................. 222 13 5.86 2,502 146 5.84
Other interest-earning assets.......... 4,013 222 5.53 4,009 223 5.56
------- ------ ---- ------- ------ ----
Total interest-earning assets........ 69,504 5,347 7.69 64,798 5,184 8.00
------- ------ ---- ------- ------ ----
Noninterest-earning assets:
Office properties and equipment, net... 2,262 2,223
Foreclosed real estate, net............ -- --
Other noninterest-earning assets....... 2,268 1,990
------- -------
Total assets ........................ $74,034 $69,011
======= =======
Interest-bearing liabilities:
Passbook accounts...................... $14,839 $ 450 3.03% $13,724 $ 421 3.07%
NOW accounts........................... 4,045 70 1.73 3,258 57 1.75
Money market accounts.................. 2,241 68 3.03 2,622 80 3.05
Certificates of deposit................ 32,336 1,826 5.65 30,632 1,739 5.68
------- ------ ---- ------- ------ ----
Total deposits....................... 53,461 2,414 4.52 50,236 2,297 4.57
Other interest-bearing liabilities..... 9,588 593 6.18 9,358 583 6.23
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities... 63,049 3,007 4.77 59,594 2,880 4.83
------- ------ ---- ------- ------ ----
Noninterest-bearing liabilities:
Noninterest-bearing deposits........... 3,557 767
Other liabilities...................... 1,139 2,641
------- -------
Total liabilities.................... 67,745 62,659
Shareholders' equity................... 6,289 6,009
------- -------
Total liabilities and
shareholders' equity............... $74,034 $69,011
======= =======
Net interest income..................... $2,341 $2,304
====== ======
Interest rate spread.................... 2.92% 3.17%
Contribution of interest-free funds..... .45% .39%
---- ----
Net interest margin on interest-
earning assets........................ 3.37% 3.56%
Ratio of average interest-earning
assets to average interest-bearing
liabilities............................ 110.24% 108.73%
</TABLE>
9
<PAGE>
Year Ended December 31,
---------------------------
1996
---------------------------
Interest
Average and Yield/
Balance Dividends Cost
------- --------- -----
(Dollars in thousands)
Interest-earning assets:
Real estate loans ...................... $41,867 $3,416 8.16%
Consumer loans.......................... 5,276 485 9.20
------- ------ -----
Total loans........................... 47,143 3,901 8.27
Mortgage-backed securities.............. 4,137 282 6.82
Investment securities .................. 3,089 183 5.92
Other interest-earning deposits ........ 1,339 80 5.97
------- ------ -----
Total interest-earning assets......... 55,708 4,446 7.98
------- ------ -----
Noninterest-earning assets:
Office properties and equipment, net.... 2,170
Foreclosed real estate, net............. 129
Other noninterest-earning assets ....... 1,328
-------
Total assets ......................... $59,335
=======
Interest-bearing liabilities:
Passbook accounts....................... $12,512 $ 383 3.06%
NOW accounts ........................... 2,667 47 1.76
Money market accounts................... 2,349 72 3.07
Certificates of deposit................. 28,484 1,627 5.71
------- ------ -----
Total deposits........................ 46,012 2,129 4.72
Other interest-bearing liabilities...... 4,362 248 5.69
------- ------ -----
Total interest-bearing liabilities.... 50,374 2,377 4.72
------- ------ -----
Noninterest-bearing liabilities:
Noninterest-bearing deposits............ 796
Other liabilities....................... 2,189
-------
Total liabilities..................... 53,359
Shareholders' equity.................... 5,976
-------
Total liabilities and
shareholders' equity................ $59,335
=======
Net interest income...................... $2,069
======
Interest rate spread..................... 3.26%
Contribution of interest-free funds...... .45%
----
Net interest margin on interest-
earning assets.......................... 3.71%
Ratio of average interest-earning
assets to average interest-bearing
liabilities............................. 110.59%
10
<PAGE>
Yields Earned and Rates Paid
The following table sets forth for the periods and at the dates
indicated, the average yields earned on the Company's assets, the average
interest rates paid on the Company's liabilities, together with the net yield
on interest-earning assets.
Years Ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
Average yield on loan
portfolio .......................... 8.1% 8.4% 8.3%
Average yield on mortgage-backed
securities ......................... 6.4% 7.4% 6.8%
Average yield on investment
portfolio .......................... 5.9% 5.8% 5.9%
Average yield on all
interest-earning assets ............ 7.7% 8.0% 8.0%
Average cost of deposits ............. 4.5% 4.6% 4.6%
Average cost of Federal Home
Loan Bank advances and
other borrowings ................... 6.2% 6.2% 5.7%
Average cost of all
interest-bearing liabilities ....... 4.8% 4.8% 4.7%
Interest rate spread (spread between
average yield on all interest-
earning assets and average cost of
all interest-bearing liabilities) .. 2.9% 3.2% 3.3%
Net interest margin (net interest
income as a percentage of
average interest-earning assets) ... 3.4% 3.6% 3.7%
11
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, mortgage-backed securities and
investment securities, sale of fixed rate mortgage loans and FHLB-NY advances.
While maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The primary investing activity of the Company is the origination of
mortgage loans. During the three years ended December 31, 1998, 1997 and
1996, the Company's origination of mortgage loans were $17.1 million, $9.0
million and $9.5 million, respectively. The volume in mortgage loan
originations during 1998, 1997 and 1996 was primarily the result of an
increase in the demand for this type of lending, due to favorable interest
rates and the active refinance market. Purchases of mortgage-backed
securities totaled $1.5 million, $3.0 million and $5.0 million for the years
ending December 31, 1998, 1997 and 1996, respectively. Other investing
activities included the purchase of investment securities, which totaled $0
during the year ended December 31, 1998, $2.6 million during the year ended
December 31, 1997 and $2.1 million for the year ended December 31, 1996.
These activities were funded primarily by deposits, principal repayments on
loans and mortgage-backed securities and maturities of investment securities.
The net cash provided by financing activities for the year ended December
31, 1998 totaled $4.1 million. This resulted primarily from a net increase
in deposits of $4.2 million.
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit
withdrawals, satisfy financial commitments and take advantage of investment
opportunities. The Company's sources of funds include deposits, principal and
interest payments from loans and mortgage-backed securities, sale of fixed
rate loans, earnings on investments and FHLB-NY borrowings. During 1998, 1997
and 1996, the Company used its sources of funds primarily to fund loan
commitments, purchase mortgage-backed securities, pay maturing savings
certificates and deposit withdrawals. At December 31, 1998, the Company had
approved loan commitments totaling $1.2 million, including $.7 million of
undisbursed loans in process.
At December 31, 1998, certificates of deposit amounted to $34.3 million,
or 58.0%, of the Company's total deposits, including $26.5 million that are
scheduled to mature by December 31, 1999. Historically, the Company has been
able to retain a significant share of its deposits as they mature. Also, the
opening of Albion Federal's Brockport branch has enhanced the Company's
ability to attract deposits. Deposits at that location totaled $22.7 million
at December 31, 1998. Management of the Company believes it has adequate
resources to meet all liquidity needs, fund all loan commitments by savings
deposits, FHLB-NY advances and sale of mortgage loans and that it can adjust
the offering rates of savings certificates to retain deposits in changing
interest rate environments.
The OTS requires a savings institution to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least
4.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. The Association's average liquidity ratios were 23%,
12% and 9% during the years ended December 31, 1998, 1997 and 1996,
respectively. The Association's actual liquidity ratio at December 31, 1998
was 24%. The Association consistently maintains liquidity levels in excess of
regulatory requirements, and believes this is an appropriate strategy for
proper asset and liability management. The Company does not utilize any
off-balance sheet derivative instruments.
The Association is required to maintain specific amounts of capital
pursuant to the OTS regulations. As of December 31, 1997, the Association was
in compliance with all the regulatory capital requirements that were effective
as of such date, with tangible, core and risk-based capital ratios of 7.6%,
7.6% and 15.7%,
12
<PAGE>
respectively. These ratios exceed the minimum capital ratios as required by
federal regulations.
Market Risk
One of the Company's principal financial objectives is to achieve
long-term profitability while managing its exposure to fluctuation in interest
rates. The principal element in achieving this objective has been to increase
the interest rate sensitivity of the Company's assets by originating loans
with interest rates subject to periodic repricing to market conditions and
purchasing adjustable rate mortgage-backed securities. Management has also
offered higher yields on deposits with extended maturities and has lengthened
the average life of its FHLB advances to assist in matching the rate
sensitivity of its liabilities.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Company's
assets mature or reprice more quickly or to a greater extent than its
liabilities, the institution's net portfolio value and net interest income
would tend to increase during periods of rising interest rates but decrease
during periods of declining interest rates. If the Company's assets mature or
reprice more slowly or to a lesser extent than its liabilities, the Company's
net portfolio value and net interest income would tend to decrease during
periods of rising interest rates but increase during periods of falling
interest rates.
The Company's Board of Directors has formulated an Interest Rate Risk
Management policy designed to promote long-term profitability while managing
interest rate risk. The Board of Directors has established and
Asset/Liability Committee that consists primarily of the management team of
the institution. This Committee meets periodically and reports to the Board
of Directors on a monthly basis concerning asset/liability policies,
strategies and the Company's current interest rate risk position. The
Committee's first priority is to structure and price the institution's assets
and liabilities to maintain an acceptable interest rate spread while reducing
the net effects of change in interest rates.
Management's principal strategy in managing the Company's interest rate
risk has been to manage the Company's portfolio of investment securities and
mortgage-backed securities so that they mature on a basis that approximates as
closely as possible the estimated maturities of the Company's liabilities. In
addition, the Company maintains short and intermediate term assets in the
portfolio while selling longer-term assets in excess of the level needed to
meet growth targets. The Company does not engage in off-balance sheet hedging
activities and has had no trading activity.
In addition to shortening the average repricing of its assets, the
Company has sought to lengthen the average maturity of its liabilities by
adopting a tiered pricing program for its certificates of deposit, which
provides higher rates of interest on its longer term certificates in order to
encourage depositors to invest in certificates with longer maturities and by
taking down longer maturity FHLB advances.
13
<PAGE>
The Company measures its interest rate risk (IRR) in terms of the
Company's Net Portfolio Value (NPV) sensitivity to changes in interest rates.
NPV is the difference between incoming and outgoing discounted cash flows from
assets, liabilities and off balance sheet contracts. The Company measures the
change to the NPV as a result of a hypothetical 200 basis point (bp) change in
market interest rates.
Management reviews the IRR measurements on a quarterly basis. In addition
to monitoring selected measures on NPV, management also monitors effects on
net interest income resulting from increases or decreases in rates. This
measure is used in conjunction with NPV measures to identify excessive
interest rate risk. The following table presents the Company's NPV at December
31, 1998, as calculated by the OTS.
At December 31, 1998
- -------------------------------------------------------------------------
Change in Net Portfolio Value
Interest Rates (Dollars in thousands) NPV as % of PV of Assets
- -------------- -------------------------------- ------------------------
(Basis Points) $ Amount $ Change % Change NPV Ratio BP Change
- -------------- -------- -------- -------- --------- ---------
+400 bp 3,878 -3,558 - 48 5.37% - 421
+300 bp 4,999 -2,437 - 33 6.78% - 280
+200 bp 6,060 -1,376 - 19 8.05% - 153
+100 bp 6,932 - 504 - 7 9.05% - 53
0 7,436 9.58%
-100 bp 7,606 170 + 2 9.71% + 13
-200 bp 7,701 265 + 4 9.75% + 17
-300 bp 7,978 542 + 7 10.00% + 42
-400 bp 8,177 741 + 10 11.15% + 57
In the above table, the first column on the left presents the basis point
(BP) increments of yield curve shifts. The second column presents the overall
dollar amount of NPV at each basis point increment. The third and fourth
columns present the Company's actual position in dollar change and percentage
change in NPV at each basis point increment. The remaining columns present the
Company's percentage change and basis point change in its NPV as a percentage
of portfolio value (PV) of assets. The model is a static simulation assessing
cash flows from the Company's current balance sheet position. No management
reaction to rate changes is projected. The model measures the economic value
of assets and liabilities taking into consideration effective duration,
imbedded options of mortgage assets, and annual and lifetime caps on rate
adjustments.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently to changes in market interest rates. 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.
The Company's Board of Directors is responsible for reviewing the
Company's assets and liability policies. The Board meets monthly to review
interest rate risk and trends, as well as liquidity and capital ratios and
requirements. The Company's management is responsible for administering the
policies and determinations of the Board of Directors with respect to the
Company's asset and liability goals and strategies.
14
<PAGE>
Year 2000
The year 2000 problem (Y2K), which is common to most companies, concerns
the inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the year 2000
approaches. The Y2K issue affects the entire banking industry because of it's
reliance on computers and other equipment that use computer chips and may have
significant effects on banking customers, bank regulators and the general
economy.
In 1997, management of the Company established a Y2K Plan to prevent or
mitigate adverse effects of the Y2K issue on the Company and its customers.
Goals of the Y2K Plan include: identifying risks, testing data processing and
other systems and equipment used by the Company, informing customers of Y2K
issues and risks, establishing a contingency plan for operating if Y2K issues
cause important systems or equipment to fail, implementing changes necessary
to achieve Y2K compliance and verifying that these changes are effective. The
Board of Directors reviews progress under the plan each quarter.
Management designed the Y2K Plan to comply with the requirements for Y2K
efforts established by the OTS, the primary federal regulator of the Company.
The OTS has performed Y2K examinations of the Company's Y2K Plan and the
Company's progress in implementing the plan. Federal regulations prevent the
Company from disclosing the results of Y2K examinations by banking regulators.
The examinations do not represent approval or certification of a Company's Y2K
plans or efforts.
The Company continues to implement the Y2K Plan. The Company has met its
Y2K goals to date and believes that it will continue to meet the goals of the
Y2K Plan. As of December 31, 1998, the Company had completed an assessment of
its systems to identify the systems that could be affected by the Y2K issue,
had implemented its customer awareness program, had begun development of the
Y2K contingency plan and was in the process of testing and implementing
necessary changes in hardware and software. The Y2K contingency plan calls
for the Company to manually process bank transactions and to use other data
processing methods in the event that Y2K effort of the Company and its data
service providers are not successful. Delays in processing banking
transactions would result if the Company were required to use manual
processing or other methods instead of its normal computer processes. These
delays could disrupt the normal business activities of the Company and its
customers. The Company must assure that the computer systems it uses to
process transactions are Y2K ready in order to avoid these disruptions.
All of the Company's applications used in operations are purchased from
outside vendors. These vendors are responsible for maintenance of their
systems and modifications to become year 2000 compliant. In June 1997, the
Company converted its data processing to an in-house client-server system,
which is reported to be year 2000 compliant. The supplier of the software has
performed extensive testing and has assured the Company that it is year 2000
compliant. At the time of the data processing conversion, the majority of the
Company's computer hardware was upgraded to meet the new system requirements
and meet year 2000 compliance. The Company and the supplier are in the
process of testing hardware and software and will continue to do so into the
year 2000. The Company's plan includes obtaining certification from third
parties and testing all of the impacted applications.
At this time, the Company believes that the cost of resolving Y2K issues
will not be material to the Company's business, operations, liquidity, capital
resources or financial condition, based on information developed to date and
communications from data processing suppliers. The Company estimates that its
total cash outlays in connection with Y2K compliance will be approximately
$20,000, excluding costs of Company employees involved in Y2K compliance
activities. As of December 31, 1998, the Company had expensed approximately
$8,000 towards Y2K compliance. To the extent that costs are incurred related
to the year 2000 problem, they will be expensed.
15
<PAGE>
Although the Company has completed an assessment of Y2K effects on its
current commercial lending and other customers, the actual effects on
individual, corporate and governmental customers of the Company and on
governmental authorities that regulate the Company and its subsidiaries and
any resulting consequences to the Company, cannot be determined with any
assurance. The Company's belief that it and its primary suppliers of data
processing services will achieve Y2K compliance, are based on a number of
assumptions and on statements made by third parties and are subject to
uncertainty. The Company also is not able to predict the effects, if any, on
the Company, financial markets or society in general of the public's reaction
to Y2K. Because of this uncertainty and reliance upon assumptions and
statements of third parties, the Company cannot be assured that the results of
its Y2K Plan will be achieved. Management believes, however, that the Company
will be able to accomplish its Y2K goals and that the Company will be able to
continue providing financial services to its customers into the year 2000 and
beyond.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts and for hedging activities. The
Company does not currently hold derivative financial instruments covered by
this Statement and therefore, does not believe it will have a material impact
on the Company upon odoption.
Effect of Inflation and Changing Prices
The Consolidated Financial Statements and related financial data
presented herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering the changes in relative purchasing power of money
over time due to inflation. The primary impact of inflation on operations of
the Company is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have
a more significant impact on a financial institution's performance than do
general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
During the current interest rate environment, management believes that the
liquidity and the maturity structure of the Company's assets and liabilities
are critical to the maintenance of acceptable profitability.
16
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1999
To the Board of Directors and Shareholders of
Albion Banc Corp.
In our opinion, the accompanying consolidated statement of financial condition
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Albion Banc Corp. and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/PricewaterhouseCoopers LLP
17
<PAGE>
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
- ------------------------------------------------------------------------------
December 31,
1998 1997
Assets
Cash and due from banks, including interest-bearing
accounts of $60,455 and $18,600, respectively $1,881,421 $1,539,966
Federal funds sold 4,670,000 2,850,000
Investment securities available for sale 3,943,816 4,034,900
Investment securities held to maturity (fair value of
$3,869,466 and $6,883,000, respectively) 3,821,624 6,833,577
Loans held for sale 122,912 550,340
Loans receivable, net of allowance for loan losses of
$267,000 and $276,300, respectively 58,806,027 52,467,012
Federal Home Loan Bank stock, at cost 528,800 500,000
Premises and equipment, net 2,172,967 2,350,964
Other assets 522,686 592,490
----------- -----------
Total assets $76,470,253 $71,719,249
=========== ===========
Liabilities and Shareholders' Equity
Deposits $59,120,090 $54,910,181
Advances from Federal Home Loan Bank and other
borrowings 9,118,734 9,200,526
Advances from borrowers for taxes and insurance 933,248 891,392
Other liabilities 874,705 562,318
----------- -----------
Total liabilities 70,046,777 65,564,417
----------- -----------
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred stock, $.01 par value - 500,000
shares authorized, none outstanding
Common stock, $.0033 par value - 3,000,000 shares
authorized, 792,163 and 789,258 issued 2,649 2,631
Capital surplus 2,410,463 2,383,434
Retained earnings, substantially restricted 4,248,716 3,986,735
Unearned employee stock ownership plan (ESOP) shares (35,290) (44,638)
Accumulated other comprehensive income 18,533 48,265
Treasury stock, 39,105 shares, at cost (221,595) (221,595)
----------- -----------
Total shareholders' equity 6,423,476 6,154,832
----------- -----------
Total liabilities and shareholders' equity $76,470,253 $71,719,249
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
Years Ended December 31,
1998 1997 1996
Interest income:
Interest and fees on loans $4,538,145 $4,177,760 $3,901,270
Interest and dividends on investment
securities and federal funds sold 809,146 1,006,631 544,863
---------- ---------- ----------
Total interest income 5,347,291 5,184,391 4,446,133
---------- ---------- ----------
Interest expense:
Interest on deposits 2,413,807 2,297,157 2,129,106
Interest on borrowed funds 592,979 583,066 248,402
---------- ---------- ----------
Total interest expense 3,006,786 2,880,223 2,377,508
---------- ---------- ----------
Net interest income 2,340,505 2,304,168 2,068,625
Provision for loan losses 65,023 35,414 140,239
---------- ---------- ----------
Net interest income after
provision for loan losses 2,275,482 2,268,754 1,928,386
---------- ---------- ----------
Noninterest income:
Gain on sale of mortgage loans,
investment securities available for
sale and foreclosed real estate 16,798 59,203 38,031
Other noninterest income 351,237 330,386 222,100
---------- ---------- ----------
Total noninterest income 368,035 389,589 260,131
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 1,001,392 985,588 898,745
Occupancy expenses 422,433 390,136 307,886
Deposit insurance premiums 33,952 46,632 391,541
Professional fees 98,844 102,784 101,428
Data processing fees 201,223 188,350 201,153
Other operating expenses 315,202 367,387 330,165
---------- ---------- ----------
Total noninterest expense 2,073,046 2,080,877 2,230,918
---------- ---------- ----------
Income (loss) before income taxes 570,471 577,466 (42,401)
Provision (benefit) for income taxes 208,000 226,265 (38,049)
---------- ---------- ----------
Net income (loss) $ 362,471 $ 351,201 $ (4,352)
========== ========== ==========
Basic earnings (loss) per common share $ .49 $ .48 $ (.01)
========== ========== ==========
Diluted earnings (loss) per common share $ .47 $ .46 $ (.01)
========== ========== ==========
19
<PAGE>
<TABLE>
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Accumulated
Unearned other com-
Common Capital Retained ESOP prehensive Treasury
stock surplus earnings shares income stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $2,607 $2,305,975 $3,833,811 $(97,617) $44,344 $ -- $6,089,120
Comprehensive income:
Net loss (4,352) (4,352)
Other comprehensive income,
net of tax:
Unrealized gains on
investment securities 11,271 11,271
----------
6,919
Exercise of stock options 24 23,696 23,720
Cash dividends paid ($.10
per share) (80,000) (80,000)
ESOP shares committed to be
released 18,514 26,909 45,423
Purchase of treasury stock (221,595) (221,595)
------ ---------- ---------- -------- ------- --------- ----------
Balance at December 31,
1996 2,631 2,348,185 3,749,459 (70,708) 55,615 (221,595) 5,863,587
Comprehensive income:
Net income 351,201 351,201
Other comprehensive income,
net of tax:
Unrealized losses on
investment securities (7,350) (7,350)
----------
343,851
Cash dividends paid ($.16
per share) (113,925) (113,925)
ESOP shares committed to be
released 35,249 26,070 61,319
------ ---------- ---------- -------- ------- --------- ----------
Balance at December 31,
1997 2,631 2,383,434 3,986,735 (44,638) 48,265 (221,595) 6,154,832
Comprehensive income:
Net income 362,471 362,471
Other comprehensive income,
net of tax:
Unrealized losses on
investment securities (29,732) (29,732)
----------
Exercise of stock options 18 9,663 9,681
Cash dividends paid ($.14
per share) (100,490) (100,490)
ESOP shares committed to
be released 17,366 9,348 26,714
------ ---------- ---------- -------- ------- --------- ----------
Balance at December 31,
1998 $2,649 $2,410,463 $4,248,716 $(35,290) $18,533 $(221,595) $6,423,476
====== ========== ========== ======== ======= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
20
<PAGE>
ALBION BANC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
Years Ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $362,471 $351,201 $(4,352)
Depreciation, amortization and accretion 321,435 183,938 142,208
Provision for loan losses 65,023 35,414 140,239
Provision for losses on foreclosed real
estate 41,000
Provision (benefit) for deferred
income taxes 49,600 133,700 (12,800)
Gain on sale of mortgage loans,
investment securities and foreclosed
real estate (16,798) (59,203) (38,031)
ESOP expense 26,714 61,319 45,423
Originations of loans held for sale (945,721) (392,566) (1,116,740)
Proceeds from sale of loans held
for sale 1,390,516 506,641 464,990
Changes in operating assets and
liabilities -
Decrease (increase) in other assets (17,239) 32,142 (168,005)
Increase in other liabilities 281,962 305,894 54,749
---------- ---------- ----------
Net cash provided by (used in)
operating activities 1,517,963 1,158,480 (451,319)
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of foreclosed
real estate 87,043 254,586 159,537
Proceeds from maturities and calls of
investment securities available
for sale 1,512,183 881,521 1,203,432
Proceeds from maturities and calls
of investment securities held to
maturity 2,950,231 5,116,163 2,206,792
Purchases of investment securities
available for sale (1,493,899) (1,001,757) (1,011,009)
Purchases of investment securities
held to maturity (4,621,649) (6,193,497)
Net increase in loans receivable (6,404,038) (5,321,291) (3,632,264)
(Purchase) redemption of Federal
Home Loan Bank stock (28,800) (50,000) 25,000
Expenditures for capital assets (58,391) (448,876) (64,278)
---------- ---------- ----------
Net cash used in investing activities (3,435,671) (5,191,303) (7,306,287)
---------- ---------- ----------
Cash flows from financing activities:
Net increase in savings, NOW, money
market and noninterest-bearing
deposits 2,738,619 1,453,774 4,067,121
Net increase (decrease) in time deposits 1,471,289 4,964,388 (2,134,531)
Proceeds from Federal Home Loan Bank and
other borrowings 5,000,000 5,000,000 9,500,000
Payments on advances from Federal
Home Loan Bank and other borrowings (5,081,792) (5,075,149) (3,523,107)
Proceeds from exercise of stock options 9,681 23,720
Dividends paid (100,490) (113,925) (80,000)
Net increase (decrease) in advances
from borrowers for taxes and insurance 41,856 67,772 (145,091)
Purchase of treasury stock (221,595)
---------- ---------- ----------
Net cash provided by financing activities 4,079,163 6,296,860 7,486,517
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 2,161,455 2,264,037 (271,089)
Cash and cash equivalents at beginning
of year 4,389,966 2,125,929 2,397,018
---------- ---------- ----------
Cash and cash equivalents at end of
year $6,551,421 $4,389,966 $2,125,929
========== ========== ==========
Cash paid during the year for:
Interest $3,031,309 $2,902,589 $2,307,861
Income taxes $5,000 $150,273 $46,000
21
<PAGE>
ALBION BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS
Albion Banc Corp. (the "Holding Company" or the "Company") is the holding
company for Albion Federal Savings and Loan Association (the
"Association"), which is headquartered in Albion, New York. Through the
Association, the Company is engaged primarily in the business of retail
banking in Western New York. Additionally, the Association offers
nontraditional deposit products, such as annuities and mutual funds,
through a subsidiary, New Frontier of Albion Corp. ("New Frontier").
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
the Association and New Frontier. All significant intercompany accounts
and transactions have been eliminated. The accounting principles of the
Company conform with generally accepted accounting principles and
prevailing practices within the banking industry. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company defines cash and
cash equivalents as cash and due from banks and federal funds sold.
INVESTMENT SECURITIES
Investments in debt securities are classified as held to maturity and
stated at amortized cost when management has the positive intent and
ability to hold such securities to maturity. Investments in other debt
securities having readily determinable fair values are classified as
available for sale and are stated at estimated fair value. The fair values
of investment securities are estimated utilizing independent pricing
services and are based on available market data. Unrealized gains or
losses related to securities available for sale are reflected in a
separate component of other comprehensive income, net of applicable income
taxes.
Interest income includes interest earned on securities and the respective
amortization of premium or accretion of discount. Amortization or
accretion is computed using the straight-line method which approximates
the interest method. Sales of securities and related gains are determined
using the specific identification method.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
LOANS RECEIVABLE
Loans receivable are stated at their principal amount outstanding, net of
deferred loan origination and commitment fees and certain direct costs,
which are recognized over the contractual life of the loan as an
adjustment of the loan's yield. Interest income on loans is recognized on
an accrual basis, calculated using the level yield interest method.
22
<PAGE>
The allowance for loan losses is maintained at a level which, in the
opinion of management, is considered adequate to absorb potential losses
inherent in the existing loan portfolio. The level of the allowance is
based on management's evaluation of individual loans, past loan loss
experience, the assessment of prevailing and anticipated economic
conditions, the estimated value of collateral and other relevant factors.
The allowance for loan losses is established through charges to earnings
in the form of a provision for loan loss. When a loan or portion of a loan
is determined to be uncollectible, the portion deemed uncollectible is
charged against the allowance and subsequent recoveries, if any, are
credited to the allowance.
A loan is considered impaired, based on current information and events,
when it is probable that the Company will not be able to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement (generally within 90 days).
Accordingly, the Company measures all nonaccrual and restructured
commercial real estate and commercial loans individually, based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral dependent loans are
measured for impairment based on the fair value of the collateral. This
accounting policy does not apply to large groups of small balance,
homogeneous loans such as consumer installment and residential real estate
loans, that are collectively evaluated for impairment based upon
historical statistics. Loans continue to be classified as impaired unless
they are brought fully current and the collection of scheduled interest
and principal is considered probable.
Loans, including impaired loans, are placed on a nonaccrual status in
accordance with policies established by management. Loans, other than
consumer loans, are generally transferred to nonaccrual status when
principal or interest payments become 90 days past due. Any accrued but
uncollected interest previously recorded on such loans is reversed in the
current period. Past due consumer loans are generally fully reserved or
charged-off when they reach a 120 day delinquency status. Loans are
returned to accrual status when management determines that the
circumstances have improved to the extent that both principal and interest
are collectible and there has been a sustained period of repayment
performance in accordance with the contractual terms of interest and
principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding.
When the future collectibility of the recorded loan balance is expected,
interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged off, recognition of interest on
a cash basis is limited to that which would have been recognized on the
recorded loan balance at the contractual interest rate. Cash interest
receipts in excess of that amount are recorded as recoveries to the
allowance for loan losses until prior charge-offs have been fully
recovered.
PREMISES AND EQUIPMENT
Land is carried at cost. Company premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on the straight-
line basis over the estimated useful lives of the related assets,
generally ranging from three to forty years.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
approach which requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year in
which the temporary differences are expected to reverse and gives
immediate effect to changes in income tax rates upon enactment. Deferred
tax assets are recognized, net of any valuation allowances, for deductible
temporary differences and net operating loss and tax credit carryforwards.
23
<PAGE>
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is determined by dividing income (loss)
available to common shareholders by the weighted average number of common
shares outstanding during the period. Shares issued during the period and
shares reacquired during the period are weighted for the portion of the
period that they were outstanding. Employee Stock Ownership Plan ("ESOP")
shares not committed to be released are not considered outstanding for
purposes of the calculation. Diluted earnings (loss) per share is
determined by dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding, adjusted for the
number of additional common shares that would have been outstanding if the
dilutive potential common shares outstanding during the period had been
issued.
STOCK SPLIT
On December 17, 1997, the Company's Board of Directors voted a
three-for-one stock split of its common stock, effected in the form of a
stock dividend to holders of record on January 16, 1998. The stock split
was completed on February 5, 1998. Common stock issued, treasury stock
held and per share data have been restated to reflect the split.
2. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities
available for sale are as follows:
December 31, 1998
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
Mortgage-backed securities $3,912,927 $47,184 $(16,295) $3,943,816
========== ======= ======== ==========
December 31, 1997
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
Mortgage-backed securities $3,954,539 $84,422 $(4,061) $4,034,900
========== ======= ======== ==========
The amortized cost and estimated fair value of investment securities held
to maturity are as follows:
December 31, 1998
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
Mortgage-backed securities $3,821,624 $47,842 $ $3,869,466
========== ======= ======== ==========
December 31, 1997
---------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
Mortgage-backed securities $5,832,311 $50,389 $5,882,700
U.S. government agency
securities 1,001,266 $(966) 1,000,300
---------- ------- -------- ----------
Total $6,833,577 $50,389 $(966) $6,883,000
========== ======= ======== ==========
24
<PAGE>
3. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31,
1998 1997
Real estate loans:
Secured by one to four family residences $48,396,513 $42,473,738
Secured by other properties 1,792,947 2,203,839
Construction loans 1,588,951 413,200
----------- -----------
51,778,411 45,090,777
----------- -----------
Other loans:
Automobile loans 93,438 100,607
Home improvement loans 7,413,971 7,152,228
Other 434,444 688,245
----------- -----------
7,941,853 7,941,080
----------- -----------
Undisbursed portion of loans (721,492) (327,480)
Net deferred loan origination costs 74,255 38,935
Allowance for loan losses (267,000) (276,300)
----------- -----------
(914,237) (564,845)
----------- -----------
$58,806,027 $52,467,012
=========== ===========
The balance of nonaccrual loans at December 31, 1998 and 1997 was $262,243
and $276,300, respectively. The recorded investment in impaired loans for
which there was a related valuation allowance for possible impairment
included in the allowance for credit losses, and the amount of such
impairment allowance were $164,177 and $45,894, respectively, at December
31, 1998 and $162,855 and $32,829, respectively, at December 31, 1997. The
average balance of impaired loans in 1998, 1997 and 1996 was $232,900,
$211,700 and $52,100, respectively. There was no interest income
recognized on the impaired loans in 1998, 1997 or 1996 as they were on a
non-accrual basis.
At December 31, 1998, there was approximately $11,000,000 of one to four
family residential real estate loans pledged as collateral for advances
from the Federal Home Loan Bank of New York.
The Company does not have reportable operating segments as defined by
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information." A summary of
revenues by loan products consists of the following:
Year ended December 31,
1998 1997 1996
Real estate loans $3,794,547 $3,531,567 $3,415,988
Other loans 743,598 646,193 485,282
---------- ---------- ----------
$4,538,145 $4,177,760 $3,901,270
========== ========== ==========
As discussed in Note 14, the Company's customers are located primarily in
Western Monroe County and Orleans County in New York State. There are no
transactions with a single customer that in the aggregate result in
revenues that exceed ten percent of consolidated total revenues.
25
<PAGE>
4. ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses is as follows:
December 31,
1998 1997 1996
Balance at beginning of period $276,300 $305,900 $244,100
Provision expense 65,023 35,414 140,239
Net charge-offs (74,323) (65,014) (78,439)
-------- -------- --------
Balance at end of period $267,000 $276,300 $305,900
======== ======== ========
5. LOAN SERVICING
Loans serviced for others, amounting to approximately $9,836,000 and
$10,463,700 at December 31, 1998 and 1997, respectively, are not included
in the statement of financial condition. Custodial escrow balances
maintained in connection with loans serviced for others were approximately
$181,100 and $189,600 at December 31, 1998 and 1997, respectively.
6. PREMISES AND EQUIPMENT
Premises and equipment, net of accumulated depreciation and amortization,
consist of the following:
December 31,
1998 1997
Land $ 350,642 $ 350,642
Premises 1,740,135 1,740,135
Furniture, fixtures and equipment 1,412,878 1,354,487
---------- ----------
3,503,655 3,445,264
Accumulated depreciation (1,330,688) (1,094,300)
---------- ----------
$2,172,967 $2,350,964
========== ==========
Depreciation expense on premises and equipment was: $236,388, $193,400,
and $158,900 for the years ended December 31, 1998, 1997 and 1996,
respectively.
26
<PAGE>
7. DEPOSITS
Deposits were comprised of the following:
December 31,
----------------------------------------
1998 1997
----------------------------------------
Per Per
Amount cent Amount cent
Noninterest bearing deposits $ 3,254,052 5.5 % $ 2,395,245 4.4%
Savings deposits 14,838,088 25.1 13,974,443 25.5
Negotiable order of withdrawal
deposits 4,679,530 7.9 3,498,122 6.4
Money market deposits 2,054,672 3.5 2,219,913 4.0
----------- ----- ----------- -----
24,826,342 42.0 22,087,723 40.3
----------- ----- ----------- -----
Certificates of deposit:
4.00% and less 10,915
4.01% - 6.00% 31,511,709 53.3 29,446,514 53.6
6.01% - 8.00% 2,780,039 4.7 3,353,533 6.1
8.01% and greater 2,000 11,496
----------- ----- ----------- -----
34,293,748 58.0 32,822,458 59.7
----------- ----- ----------- -----
$59,120,090 100.0% $54,910,181 100.0%
=========== ===== =========== =====
The weighted average interest rates paid on total deposits were 4.5%, 4.6%
and 4.4% at December 31, 1998, 1997, and 1996, respectively.
At December 31, 1998, certificates of deposit have scheduled maturity
dates as follows:
<TABLE>
1999 2000 2001 2002 2003 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% or less $ - $ - $ - $ - $ - $ - $ -
4.01% - 6.00% 24,505,917 4,322,633 1,306,336 599,327 772,566 4,930 31,511,709
6.01% - 8.00% 1,970,097 429,950 8,275 194,327 144,403 32,987 2,780,039
8.01% and greater 2,000 2,000
----------- ---------- ---------- -------- -------- ------- -----------
Total $26,478,014 $4,752,583 $1,314,611 $793,654 $916,969 $37,917 $34,293,748
=========== ========== ========== ======== ======== ======= ===========
</TABLE>
At December 31, 1998, certificates of deposit in amounts of $100,000 or
more have the following scheduled time remaining until maturity:
Three months or less $ 403,813
Over three through six months 805,062
Over six through twelve months 863,172
Over twelve months 675,032
----------
$2,747,079
==========
27
<PAGE>
Interest expense on deposits is as follows:
Years Ended December 31,
1998 1997 1996
Savings deposits $ 449,792 $ 421,071 $ 382,701
Negotiable order of
withdrawal deposits 69,684 56,650 47,091
Money market deposits 67,905 80,148 72,388
Certificates of deposit 1,826,426 1,739,288 1,626,926
---------- ---------- ----------
$2,413,807 $2,297,157 $2,129,106
========== ========== ==========
8. ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER BORROWINGS
At December 31, 1998 and 1997, the Company had advances, secured by
residential real estate loans, from the Federal Home Loan Bank of New York
of $9,000,000. The borrowings outstanding at December 31, 1998 had fixed
and variable rates of interest ranging from 5.15% to 6.60%, with a
weighted average interest rate of 5.96%, and mature at various dates
through 2003. The borrowings outstanding at December 31, 1997 had fixed
and variable rates of interest ranging from 5.88% to 6.60%, with a
weighted average interest rate of 6.19%. Required remaining principal
repayments at December 31, 1998 are as follows: $1,000,000 in 1999 and
2000, $2,000,000 in 2001 and 2002 and $3,000,000 in 2003.
At December 31, 1998 and 1997, the Company had $118,734 and $200,526,
respectively, outstanding on a loan used for construction of a branch
office. The loan has a fixed rate of interest of 8.50% and requires
monthly payments of principal and interest through 2001. At December 31,
1998, remaining principal payments of $88,400, $42,200 and $40,900 are
required in 1999, 2000 and 2001, respectively.
9. EARNINGS (LOSS) PER SHARE
The full year calculations of earnings (loss) per share for 1998, 1997 and
1996 reflect an average of the quarterly calculations during those years.
During 1996, only one of four quarters experienced a loss even though
there was a net loss for the year. Therefore, the dilutive effect of the
incremental shares included in the quarterly EPS calculations for the
quarters with income are excluded from the year-to-date calculation.
28
<PAGE>
Year Ended December 31, 1998
-------------------------------
Per-share
Income Shares amount
Basic EPS $362,471 739,867 $ .49
======== ======= ======
Effect of Dilutive Securities:
Options 28,749
-------- -------
Diluted EPS $362,471 768,616 $ .47
======== ======= ======
Year Ended December 31, 1997
-------------------------------
Per-share
Income Shares amount
Basic EPS $351,201 733,047 $ .48
======== ======= ======
Effect of Dilutive Securities:
Options 23,498
-------- -------
Diluted EPS $351,201 756,545 $ .46
======== ======= ======
Year Ended December 31, 1996
-------------------------------
Per-share
Income Shares amount
Basic and Diluted EPS $(4,352) 738,284 $ (.01)
======== ======= ======
10. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the
first quarter of 1998. SFAS No. 130 establishes standards for reporting
and displaying comprehensive income and its components. Adoption of SFAS
No. 130 had no impact on the Company's results of operations nor its
financial position. Financial Statements presented for periods prior to
1998 were required to be reclassified to reflect application of the
provisions of SFAS No. 130.
The following tables display the components of other comprehensive income:
Year ended December 31,
1998 1997 1996
Unrealized (losses) gains
on investment securities:
Before tax amount $(49,472) $(14,834) $18,765
Income taxes 19,740 7,484 (7,494)
-------- -------- -------
Net $(29,732) $ (7,350) $11,271
======== ======== =======
11. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution plan covering substantially all
employees which provides for a salary deferral arrangement, pursuant to
Section 401(k) of the Internal Revenue Code, as contributions to a savings
plan. The plan provides for an annual contribution by the Company of 5% of
an
29
<PAGE>
employee's base salary. In addition, the Company contributes to the
plan one-half of every dollar contributed by an employee up to an
additional 4% of an employee's base salary. The amounts charged to expense
related to this plan were approximately $43,600, $46,000, and $33,500 for
the years ended December 31, 1998, 1997 and 1996, respectively.
The Company has an internally leveraged employee stock ownership plan that
covers all employees who have completed at least 1,000 hours of service in
a twelve-month period and have attained the age of 21. The Company makes
annual contributions to the ESOP equal to the ESOP's debt service less
dividends received by the ESOP. The ESOP shares are pledged as collateral
for its debt. As the debt is repaid, shares are released from collateral
and allocated to active participants in proportion to their compensation
relative to total compensation of all active participants.
The Company accounts for its ESOP in accordance with Statement of Position
93-6, "Employer's Accounting for Employee Stock Ownership Plans."
Accordingly, the debt of the ESOP is eliminated in consolidation and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated statement of financial position. As shares are released from
collateral, the Company reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings
per share computations. Dividends on allocated ESOP shares are recorded as
a reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt and accrued interest. ESOP compensation
expense was approximately $26,700, $52,000, and $45,400 during 1998, 1997
and 1996, respectively.
A summary of ESOP shares is as follows:
December 31,
1998 1997
Shares released for allocation and allocated $43,900 $ 41,118
Unreleased shares 10,534 13,629
------- --------
Total ESOP shares $54,434 $ 54,747
======= ========
Fair value of unreleased shares $97,440 $181,720
======= ========
Under the 1993 Stock Option and Incentive Plan (Stock Option Plan), 78,210
shares of common stock were reserved for the benefit of certain officers,
employees and directors. The Stock Option Plan is administered by a
committee of the Board of Directors. Management intends that options
granted under the Stock Option Plan constitute both incentive and
non-incentive stock options. Options granted to non-employee directors
will constitute non-incentive stock options.
With respect to incentive stock options, the option exercise price may be
no less than the fair market value of the Company's common stock on the
date of grant. All options are immediately exercisable and expire no later
than ten years from the date of grant. The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the Stock Option
Plan. Accordingly, no compensation expense was recognized in 1996 for
stock option awards since the exercise price of stock options granted was
not less than the fair market value of the common stock at date of grant.
Had the Company recognized compensation expense in accordance with SFAS
No.123, "Accounting for Stock Based Compensation," net loss and loss per
basic and diluted common share would have been $26,729 and $0.04,
respectively,for the year ended December 31, 1996. To calculate those pro
forma amounts, the Company utilized the Black-Scholes option pricing model
and the following assumptions: a risk-free interest rate of 6.38%; an
30
<PAGE>
expected option life of six years; expected volatility of 31.33%; and an
expected dividend yield of 1.77%. No options were granted in 1998 and
1997.
A summary of the status of the Company's stock option plan as of December
31, 1998, 1997 and 1996 and changes during the years ended on those dates
is as follows:
1998 1997 1996
------------------ ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares price Shares price Shares price
Outstanding at
beginning of year 50,022 $4.00 50,022 $4.00 46,533 $3.33
Granted 10,605 $5.79
Exercised (2,905) $3.33 (7,116) $3.33
Forfeited - - -
------ ------ ------
Outstanding and
exercisable at
end of year 47,117 $3.89 50,022 $4.00 50,022 $4.00
====== ====== ======
Fair value of
options granted
during the year $ 2.11
======
At December 31, 1998, there are 36,512 options outstanding with an
exercise price of $3.33 and a remaining contractual life of five years,
and 10,605 options outstanding with an exercise price of $5.79 and a
remaining contractual life of eight years. Additionally, at December 31,
1998 there are 21,072 shares available for future grant.
12. INCOME TAXES
The Company, the Association, and New Frontier file a consolidated federal
return. The Company and the Association file a combined state return,
while New Frontier files a separate state return. All returns are filed on
a calendar year basis.
For tax years beginning after January 1, 1996, the Company is only
permitted to take deductions for bad debts for federal tax purposes on the
basis of actual loan charge-off activity (specific charge-offs). This
legislation also requires that the Company recapture into taxable income
that portion of existing tax bad debt reserves created in years beginning
after December 31, 1987.
Under prior federal law, tax bad debt reserves created prior to January 1,
1988 were subject to recapture into taxable income should the Company fail
to meet certain qualifying asset and definitional tests. New federal
legislation eliminated these thrift related recapture rules. However,
under current law pre-1988 reserves remain subject to recapture should the
Company make certain non-dividend distributions or cease to maintain a
Company charter. Management has no intention of taking any such actions.
At December 31, 1998, the Company's total pre-1988 tax bad debt reserve
was approximately $828,000. This reserve reflects the cumulative effect of
federal tax deductions by the Company for which no federal income tax
provision has been made.
Provided the Company continues to satisfy certain definitional tests and
other conditions for New York State income tax purposes, the Company is
permitted to continue to take special reserve method bad debt deductions.
The deductible annual addition to the state reserve may be computed using
a specific
31
<PAGE>
formula based on the Company's loss history ("Experience Method") or a
statutory percentage equal to 32% of the Company's New York State taxable
income. The Company used specific charge-off method in 1996 and the
percentage method in 1997 and 1998.
The components of the provision (benefit) for income taxes are as follows:
December 31,
1998 1997 1996
Current:
Federal $154,900 $ 88,740 $(25,499)
State 3,500 3,825 250
-------- -------- --------
158,400 92,565 (25,249)
Deferred 49,600 133,700 (12,800)
-------- -------- --------
$208,000 $226,265 $(38,049)
======== ======== ========
A summary of deferred income taxes is as follows:
December 31,
1998 1997
Deferred income tax assets:
Allowance for loan losses $ 90,800 $ 97,400
Other 24,000 23,300
--------- ---------
$ 114,800 $ 120,700
========= =========
Deferred income tax liabilities:
Depreciation $(162,000) $(135,300)
Unrealized gain on investment
securities (12,300) (32,100)
Deferred loan origination fees
and costs (29,700) (15,600)
Other (24,800) (19,000)
--------- ---------
(228,800) (202,000)
--------- ---------
Net deferred income tax liability $(114,000) $ (81,300)
========= =========
32
<PAGE>
The provision for income taxes is different from that which would be
obtained by applying the statutory federal income tax rate to income
before taxes. The items causing this difference are as follows:
<TABLE>
Years Ended December 31,
---------------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
<S> <C> <C> <C> <C> <C> <C>
Expected tax at federal statutory rate $193,960 34.0 % $196,338 34.0 % $(14,416) (34.0)%
Increases(decreases) resulting from:
State franchise taxes, less
applicable federal income tax benefit 13,860 2.4 23,034 4.0 (18,975) (44.7)
Tax exempt interest on investments in
state and political subdivision
securities (1,349) (.2) (4,866) (11.5)
Other, net 180 .1 8,242 1.4 208 .5
-------- ------ -------- ------ --------- -------
Provision (benefit) for income taxes $208,000 36.5 % $226,265 39.2 % $(38,049) (89.7)%
======== ====== ======== ====== ========= =======
</TABLE>
13. RELATED PARTY TRANSACTIONS
Certain executive officers, directors, principal shareholders and
companies in which such individuals have 10% or more ownership (related
parties) are engaged in transactions with the Company in the ordinary
course of business. It is the Company's policy that all related party
transactions are conducted at "arm's length" and all loans and commitments
included in such transactions are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time
for comparable transactions with other customers. A summary of the changes
in outstanding loans to such related parties is as follows:
Years Ended
December 31,
1998 1997
Balance of loans outstanding at
beginning of year $477,239 $371,650
New originations and increases
in existing loans 240,446 209,575
Principal repayments (170,753) (103,986)
-------- --------
Balance of loans outstanding at
end of year $546,932 $477,239
======== ========
At December 31, 1998 and 1997, there were approximately $239,000 and
$985,900, respectively, in deposits from such related parties.
33
<PAGE>
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Company is party to financial instruments with off-balance sheet risk
in the normal course of business in order to meet the financing needs of
its customers. These financial instruments include commitments to extend
credit which involve, to varying degrees, elements of credit, interest
rate or liquidity risk in excess of the amount recognized in the statement
of financial condition. The Company's exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amounts of
those instruments. The Company has experienced minimal credit losses to
date on its financial instruments with off-balance sheet risk and
management does not anticipate any significant losses on its commitments
to extend credit outstanding at December 31, 1998. The Company does not
utilize off-balance sheet derivative instruments.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
Company controls the credit risk of off-balance sheet instruments through
credit approvals, limits and monitoring procedures, and management
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained is based on management's credit evaluation
of the customer.
Commitments to extend credit, which generally have a sixty-day expiration
date or other termination clauses, are legally binding agreements to lend
to a customer (as long as there is no violation of any condition
established in the contract). At December 31, 1998, the Company's total
commitments to extend credit, all of which were fixed rate, were
$1,186,100. All outstanding loan commitments are scheduled to be disbursed
within sixty days. Since a portion of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future liquidity requirements.
The Company has identified certain credit risk concentrations in relation
to its on- and off-balance sheet financial instruments. Credit risk is
defined as the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract. A credit
risk concentration results when the Company has a significant credit
exposure to an individual or a group engaged in similar activities or
affected similarly by economic conditions.
The Company's customers are located primarily in Western Monroe County and
Orleans County in New York State. As Note 3 to these financial statements
indicates, the majority of the Company's loan portfolio relates to loans
secured by first mortgages on real estate.
15. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation and investigations of a routine
nature which are being defended and handled in the ordinary course of
business. These matters are not considered significant to the Company's
financial condition or results of operations.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount represents an
estimate of fair value.
34
<PAGE>
LOAN RECEIVABLES
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. The
estimated fair value of financial commitments was not significant.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and certain
money-market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
BORROWINGS
Rates currently available to the bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
The estimated fair values of the Company's financial instruments are as
follows:
December 31,
---------------------------------------------
1998 1997
---------------------- --------------------
Carrying Fair Carrying Fair
amount value amount value
Financial assets:
Cash and cash equivalents $6,551,421 $6,551,421 $4,389,966 $4,389,966
Investment securities 7,765,440 7,813,282 10,868,477 10,917,900
Loans held for sale and
loans receivable, net of
allowance for possible
loan losses 58,928,939 59,502,000 53,017,352 53,798,000
Federal Home Loan Bank stock 528,800 528,800 500,000 500,000
Financial liabilities:
Deposits 59,120,090 59,336,000 54,910,181 54,987,000
Advances from the Federal
Home Loan Bank and other
borrowings 9,118,734 9,116,000 9,200,526 9,142,000
17. REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision (OTS). Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on
the Company's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Association
must meet specific guidelines that involve quantitative measures of the
Association's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I and
tangible capital (as defined) to adjusted total assets (as defined).
Management believes, as of December 31, 1998, that the Association meets
all capital adequacy requirements to which it is subject.
35
<PAGE>
As of December 31, 1998, the most recent notification from the OTS
categorized the Association as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Association must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Association's category.
The Association's actual capital amounts (in thousands) and ratios are
also presented in the table.
<TABLE>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
amount Ratio > Amount > Ratio > Amount > Ratio
- - - -
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital (to risk-
weighted assets) $6,010 15.7% $3,059 8.0% $3,823 10.0 %
Tier I capital (to risk-
weighted assets) 5,757 15.1 1,529 4.0 2,300 6.0
Tier I capital (to adjusted
total assets) 5,757 7.6 3,018 4.0 3,772 5.0
Tangible capital (to
adjusted total assets) 5,757 7.6 1,132 1.5 N/A N/A
As of December 31, 1997:
Total capital (to risk-
weighted assets) $5,591 15.7% $2,857 8.0% $3,571 10.0%
Tier I capital (to risk-
weighted assets) 5,352 15.0 1,428 4.0 2,143 6.0
Tier I capital (to
adjusted total assets) 5,352 7.5 2,139 3.0 3,566 5.0
Tangible capital (to
adjusted total assets) 5,352 7.5 1,070 1.5 N/A N/A
</TABLE>
The Association's capital exceeds all of the fully phased-in capital
requirements imposed by the Financial Institution Reform, Recovery and
Enforcement Act of 1989. OTS regulations provide that an association that
exceeds all fully phased-in capital requirements before and after a
proposed capital distribution can, after prior notice but without the
approval by the OTS, make capital distributions during the calendar year
of 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 excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year, or (ii) 75% of its
net income during the most recent four-quarter period. Any additional
capital distributions require prior regulatory approval.
At the time of conversion from a mutual savings and loan association to a
federally chartered stock savings and loan association during 1993, the
Association established a liquidation account in an amount of $3,077,944
for the benefit of eligible account holders who continue to maintain their
accounts at the Association subsequent to the conversion. The liquidation
account is reduced annually to the extent the eligible account holders
have reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account.
Subsequent to the conversion, the Association may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause shareholders' equity to be reduced below the balance
of the liquidation account or if such declaration and payments would
otherwise violate regulatory requirements.
The Holding Company is subject to the restrictions of Delaware law, which
generally limits dividends to the amount of a corporation's surplus or, in
the case where no such surplus exists, the amount of a corporation's net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. Additionally, the Association is subject to OTS
regulations which limit its ability to upstream
36
<PAGE>
dividends to the Holding Company. As a Tier I savings association, the
Association may make capital distributions during a calendar year up to
100% of its net income to date during the calendar year plus one half of
its surplus capital ratio at the beginning of the calendar year.
On July 19, 1995, the Association entered into a Supervisory Agreement
with the OTS, which required the Company to develop policies and
procedures primarily relating to its internal operations. On August 25,
1997, the OTS terminated the Agreement having determined that the Company
had complied with its terms and conditions.
18. PARENT COMPANY FINANCIAL INFORMATION
The following condensed statement of financial condition and condensed
statements of operations and of cash flows for the Holding Company should
be read in conjunction with the consolidated financial statements and
notes thereto.
Condensed Statement of Condition
December 31,
1998 1997
Assets
Cash $ 26,685 $ 100,208
Federal funds sold 570,000 600,000
Investment in subsidiary 5,620,995 5,242,219
Loan to ESOP 41,712 52,140
Other assets 13,448 3,115
---------- ----------
Total assets $6,272,840 $5,997,682
========== ==========
Liabilities and Shareholders' Equity
Accrued liabilities $ 4,330 $ 833
Shareholders' equity:
Common stock 2,649 2,631
Capital surplus 2,238,740 2,229,078
Retained earnings 4,248,716 3,986,735
Treasury stock (221,595) (221,595)
---------- ----------
Total liabilities and
shareholders' equity $6,272,840 $5,997,682
========== ==========
37
<PAGE>
Condensed Statement of Condition
Years Ended December 31,
1998 1997 1996
Equity in undistributed
earnings (loss) of subsidiary $373,263 $343,342 $(24,363)
Interest and fees on loans 4,432 6,648 8,286
Interest and dividends on
federal funds sold 31,409 31,231 38,501
Other operating expenses (46,633) (30,020) (26,776)
-------- -------- -------
Net income (loss) $362,471 $351,201 $(4,352)
======== ======== =======
Condensed Statement of Cash Flows
Years Ended December 31,
1998 1997 1996
Cash flows from operating
activities:
Net income (loss) $362,471 $351,201 $(4,352)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities -
Accretion of bond discount (31,058) (38,483)
Equity in (income) loss of
subsidiary (373,263) (343,342) 24,363
Other (12,350) 684 (2,649)
-------- -------- --------
Net cash used in
operating activities (23,142) (22,515) (21,121)
-------- -------- --------
Cash flows from investing
activities:
Proceeds from repayment of
ESOP loan 10,428 26,070 34,673
Proceeds from maturities of
investment securities held
to maturity 1,215,000 1,500,000
Purchases of investment
securities held to maturity (599,275) (1,274,969)
Net decrease in loans receivable 120,182
-------- -------- --------
Net cash provided by
investing activities 10,428 641,795 379,886
-------- -------- --------
Cash flows from financing
activities:
Proceeds from exercise of
stock options 9,681 23,720
Dividends paid (100,490) (113,925) (80,000)
Purchase of treasury stock (221,595)
-------- -------- --------
Net cash used in
financing activities (90,809) (113,925) (277,875)
-------- -------- --------
Net (decrease) increase in cash
and cash equivalents (103,523) 505,355 80,890
Cash and cash equivalents at
beginning of year 700,208 194,853 113,963
-------- -------- --------
Cash and cash equivalents at
end of year $596,685 $700,208 $194,853
======== ======== ========
38
<PAGE>
COMMON STOCK INFORMATION
The common stock of Albion Banc Corp. is traded on the Nasdaq Small Cap
Market under the symbol "ALBC". The Company's common stock closed at $10.00 on
March 1, 1999, on which date, there were approximately 565 stockholders of
record. Under Federal regulations, the dollar amount of dividends a federal
savings association may pay is dependent upon the association's capital
surplus position and recent net income. Generally, if an association
satisfies its regulatory capital requirements, it may make dividend payments
up to the limits prescribed in the OTS regulations. However, institutions
that have converted to the stock form of ownership may not declare or pay a
dividend on, or repurchase any of, its common stock if the effect thereof
would cause the regulatory capital of the institution to be reduced below the
amount required for the liquidation account which was established in
accordance with OTS regulations and the Association's Plan of Conversion.
Albion Federal is subject to these requirements and regulations. There are
also certain dividend limitations applicable to the Corporation under Delaware
law.
The following table sets forth market price and dividend information for
the Corporation's Common Stock for the years 1998 and 1997.
Fiscal 1998 High Low Close Dividends Paid
----------- ---- --- ----- --------------
First Quarter $14.58 $ 9.75 $10.25 $.05
Second Quarter $11.00 $ 8.00 $ 8.47 .03
Third Quarter $ 9.75 $ 7.75 $ 8.00 .03
Fourth Quarter $11.00 $ 7.63 $ 9.13 .03
Fiscal 1997 High Low Close Dividends Paid
----------- ---- --- ----- --------------
First Quarter $ 6.33 $ 5.50 $ 6.17 $.11
Second Quarter $ 7.67 $ 6.00 $ 7.67 --
Third Quarter $ 8.58 $ 7.33 $ 8.58 .05
Fourth Quarter $13.58 $ 8.83 $13.33 --
39
<PAGE>
DIRECTORS AND OFFICERS
ALBION BANC CORP. ALBION FEDERAL SAVINGS
AND LOAN ASSOCIATION
DIRECTORS: DIRECTORS:
James H. Keeler James H. Keeler
Chairman of the Board of the Corporation Chairman of the Board of the
and President, Chief Executive Officer Association and President, Chief
and majority shareholder of Keeler Executive Officer and majority
Construction Co., Inc. shareholder of Keeler Construction
Co., Inc.
Richard A. Pilon Richard A. Pilon
Vice Chairman of the Board of the Vice Chairman of the Board of the
Corporation President, Treasurer and Association, President, Treasurer
a majority stockholder of Dale's and a majority stockholder of
Plaza, Inc. and Secretary and Treasurer Dale's Plaza,Inc. and Secretary
of Dale & Son Supermarket, Inc. (DBA and Treasurer of Dale & Son Super-
Jubilee Foods). market, Inc. (DBA Jubilee Foods).
Dolores L. Giarrizzo Dolores L. Giarrizzo
Retired, prior to that, associated with Retired, prior to that, associated
Agway, Inc. with Agway, Inc.
Robert R. Brown II Robert R. Brown II
Self-employed and Vice President of Self-employed and Vice President
Orchard Dale Fruit Farms, Inc. of Orchard Dale Fruit Farms, Inc.
Harold M. Kludt Harold M. Kludt
Partner and part owner Kludt Bros., Inc. Partner and part owner Kludt
Bros., Inc.
Chriss M. Andrews Chriss M. Andrews
Owner and President of Barclay & Fowler Owner and President of Barclay
Oil Corp. & Fowler Oil Corp.
Greg Speer Greg Speer
Owner and Chief Executive Officer of Owner and Chief Executive
Speer Equipment. Officer of Speer Equipment.
OFFICERS: OFFICERS:
Jeffrey S. Rheinwald Jeffrey S. Rheinwald
President and Chief Executive Officer President and Chief Executive
Officer
John S. Kettle John S. Kettle
Senior Vice President and Treasurer Senior Vice President and
Treasurer
Mark F. Reed Mark F. Reed
Vice President and Chief Financial Officer Vice President and Chief
Financial Officer
40
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS TRANSFER AGENT
48 North Main Street American Stock Transfer & Trust Co.
Albion, New York 14411 6201 15th Avenue
Brooklyn, New York 11219
INDEPENDENT ACCOUNTANTS COMMON STOCK
PricewaterhouseCoopers LLP Traded Over the Counter
Buffalo, New York Small Cap Market
Nasdaq Symbol: ALBC
GENERAL COUNSEL
Saperston and Day
Rochester, New York
SPECIAL COUNSEL
Breyer and Associates PC
Washington, D.C.
-----------------------
ANNUAL MEETING
The Annual Meeting of Shareholders will be held Wednesday, April 21, 1999
at 10:00 a.m., Eastern Time, at Tillman's Village Inn, Corner of Routes 98 and
104, Albion, New York.
41
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ------------
Commission file number 33-60230
--------
Albion Banc Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1435160
- -------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
48 North Main Street, Albion, New York 14411-0396
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(716) 589-5501
- ---------------------------------------------------
(Registrants telephone number, including area code)
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 10,1999
- --------------------------- ----------------------------------
Common Stock, $.01 par value 792,163 shares
<PAGE>
ALBION BANC CORP.
-----------------
INDEX
-----
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Financial Condition
September 30, 1999 (unaudited)and December 31, 1998 1
Consolidated Statement of Income (unaudited)
Three months ended September 30, 1999 and 1998 2
Consolidated Statement of Income (unaudited)
Nine months ended September 30, 1999 and 1998 3
Consolidated Statement of Comprehensive Income (unaudited) 4
Three and nine months ended September 30, 1999 and 1998
Consolidated Statement of Cash Flows (unaudited) 5
Nine months ended September 30, 1999 and 1998
Notes to Consolidated Financial Information 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
Part II. Other Information 16
Signatures 17
<PAGE>
ALBION BANC CORP.
- -----------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
- ---------------------------------------------
September 30, December 31,
1999 1998
---- ----
Assets (unaudited)
Cash and due from banks $ 2,467,689 $ 1,881,421
Federal funds sold 2,600,000 4,670,000
Investment securities:
Available for sale 2,545,890 3,943,816
Held to maturity (fair value of
$4,696,887 and $3,869,466, respectively) 4,767,426 3,821,624
Loans held for sale 122,114 122,912
Loans receivable, net of allowance for loan
losses of $290,000 and $267,000, respectively 63,035,405 58,806,027
Federal Home Loan Bank (FHLB)stock, at cost 563,800 528,800
Premises and equipment, net 2,007,761 2,172,967
Other assets 513,990 522,686
----------- -----------
Total Assets $78,624,075 $76,470,253
----------- -----------
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 3,584,240 $ 3,254,054
Interest-bearing 56,793,434 55,866,036
----------- -----------
Total deposits 60,377,674 59,120,090
FHLB advances and other borrowings 9,089,780 9,118,734
Advances from borrowers for taxes & insurance 547,969 933,248
Other liabilities 2,089,103 874,705
----------- -----------
Total Liabilities $72,104,526 $70,046,777
Shareholders' Equity:
Preferred stock, $.01 par value
500,000 shares authorized, none outstanding
Common stock, $.01 par value
3,000,000 shares authorized,
792,163 shares issued, respectively 7,922 7,922
Capital surplus 2,420,744 2,405,190
Retained earnings 4,343,715 4,248,716
Unearned ESOP shares (28,373) (35,290)
Accumulated other comprehensive income (2,894) 18,533
Treasury stock, 39,105 shares, at cost (221,595) (221,595)
----------- -----------
Total Shareholders' Equity 6,519,549 6,423,476
----------- -----------
Total Liabilities and Shareholders'
Equity $78,624,075 $76,470,253
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
ALBION BANC CORP.
- -----------------
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- --------------------------------------------
Three Months Ended
September 30,
1999 1998
---- ----
Interest income:
Interest and fees on loans $1,198,045 $1,159,461
Interest on investment securities
and federal funds sold 186,691 185,556
---------- ----------
Total interest income 1,384,736 1,345,017
Interest expense:
Interest on deposits 614,246 595,836
Interest on borrowed funds 137,149 156,511
---------- ----------
Total interest expense 751,395 752,347
---------- ----------
Net interest income 633,341 592,670
Provision for loan losses 21,000 21,000
Net interest income after
provision for loan losses 612,341 571,670
---------- ----------
Noninterest income:
Gain on sale of loans and real estate owned 0 1,398
Other noninterest income 102,353 82,864
---------- ----------
Total noninterest income 102,353 84,262
Noninterest expense:
Salaries and employee benefits 239,140 251,884
Occupancy expenses 104,659 99,381
Deposit insurance premiums 8,804 8,530
Professional fees 128,995 23,891
Data processing fees 80,509 47,764
Other operating expenses 96,598 70,372
---------- ----------
Total noninterest expense 658,705 501,822
Income before income tax expense 55,989 154,110
Income tax expense 21,095 60,000
---------- ----------
Net income $ 34,894 $ 94,110
---------- ----------
Basic earnings per common share $0.05 $0.13
Diluted earnings per common share $0.04 $0.12
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
ALBION BANC CORP
- ----------------
CONSOLIDATED STATEMENT OF INCOME (unaudited)
- --------------------------------------------
Nine Months Ended
September 30,
1999 1998
---- ----
Interest income:
Interest and fees on loans $3,537,241 $3,384,763
Interest on investment securities
and federal funds sold 532,475 623,646
---------- ----------
Total interest income 4,069,716 4,008,409
Interest expense:
Interest on deposits 1,843,942 1,805,423
Interest on borrowed funds 407,656 449,470
---------- ----------
Total interest expense 2,251,598 2,254,893
---------- ----------
Net interest income 1,818,118 1,753,516
Provision for loan losses 63,276 43,000
---------- ----------
Net interest income after
provision for loan losses 1,754,842 1,710,516
---------- ----------
Noninterest income:
Gain on sale of loans and real estate owned 0 16,798
Other noninterest income 276,737 262,190
---------- ----------
Total noninterest income 276,737 278,988
Noninterest expense:
Salaries and employee benefits 754,060 704,882
Occupancy expenses 309,001 312,475
Deposit insurance premiums 26,102 25,720
Professional fees 192,004 81,718
Data processing fees 210,622 146,193
Other operating expenses 279,265 251,421
---------- ----------
Total noninterest expense 1,771,054 1,522,409
Income before income tax expense 260,525 467,095
Income tax expense 97,750 180,750
---------- ----------
Net income 162,775 286,345
---------- ----------
Basic earnings per common share $0.22 $0.39
Diluted earnings per common share $0.21 $0.37
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ALBION BANC CORP.
- -----------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
-----------
Three Months Ended
September 30,
1999 1998
---- ----
Net income $ 34,894 $ 94,110
Other comprehensive loss, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising
during period (3,366) 0
Less: reclassification adjustments for losses
included in net income 0 0
-------- --------
Other comprehensive loss (3,366) 0
-------- --------
Comprehensive income $ 31,528 $ 94,110
-------- --------
Nine Months Ended
September 30,
1999 1998
---- ----
Net income $162,775 $286,345
Other comprehensive loss, net of tax:
Unrealized gains on securities:
Unrealized holding losses arising
during period (21,427) (14,609)
Less: reclassification adjustments for losses
included in net income 0 0
-------- --------
Other comprehensive loss (21,427) (14,609)
-------- --------
Comprehensive income $141,348 $271,736
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ALBION BANC CORP.
- -----------------
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended
- ------------------------------------------------ September 30,
1999 1998
---- ----
Cash flows from operating activities:
Net Income $ 162,775 $ 286,345
Depreciation, amortization and accretion 227,444 246,745
Provision for loan losses 63,276 43,000
Net gain on sale of mortgage loans 0 (16,798)
ESOP expense 22,501 25,368
Originations of loans held for sale 0 (945,721)
Proceeds from sale of loans held for sale 0 1,390,516
Changes in operating assets and liabilities-
Increase in other assets (26,640) (11,683)
Increase in other liabilities 1,228,682 257,898
---------- ---------
Net cash provided by operating activities $1,678,038 $1,275,670
---------- ---------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 1,015,987 2,627,622
Proceeds from maturities and calls of investment
securities available for sale 1,342,831 1,149,416
Purchases of investment securities held to maturity (1,994,375) (1,493,899
Purchases of investment securities
available for sale 0 0
Net increase in loans receivable (4,292,654) (4,968,908)
Purchase of FHLB stock (35,000) (28,800)
Proceeds from the sale of foreclosed real estate 36,134 0
Net purchase of fixed assets (10,268) (57,504)
---------- ---------
Net cash used in investing activities (3,937,345) (2,772,073)
---------- ---------
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts
and money market accounts 1,774,574 (711,943)
Net (decrease) increase in time deposits (516,990) 1,989,473
Proceeds from FHLB and other borrowings 0 1,000,000
Payment on FHLB advances and other borrowings (28,954) (1,023,590)
Net increase in advances from borrowers for
taxes and insurance (385,279) (413,857)
Proceeds from exercise of stock options 0 7,649
Dividends paid (67,776) (85,137)
---------- ---------
Net cash provided by financing activities 775,575 762,595
---------- ---------
Net decrease in cash and cash equivalents (1,483,732) (733,808)
Cash and cash equivalents at beginning of period 6,551,421 4,389,966
---------- ---------
Cash and cash equivalents at end of period $5,067,689 $3,656,158
---------- ---------
Cash paid during the period for:
Interest $2,267,997 $2,267,083
Income taxes 150,000 5,000
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ALBION BANC CORP.
- -----------------
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
- -------------------------------------------
SEPTEMBER 30, 1999
- ------------------
NOTE 1 - BASIS OF PRESENTATION:
- ------------------------------
The unaudited interim financial information includes the accounts of Albion
Banc Corp. (the "Company", Albion Federal Savings and Loan Association (the
"Association") and New Frontier of Albion Corp. ("New Frontier"). The
financial information has been prepared in accordance with the Summary of
Significant Accounting Policies as outlined in the Company's Annual Report for
the year ended December 31, 1998, and in the opinion of management, contains
all adjustments necessary to present fairly the Company's financial position
as of September 30, 1999 and December 31, 1998, and its results of operations
and comprehensive income for the three month and nine month period ended
September 30, 1999 and 1998. All adjustments made to the unaudited interim
financial information were of a recurring nature.
NOTE 2 - MERGER AGREEMENT:
- -------------------------
On August 30, 1999, the Boards of Directors of Albion Banc Corp. and Niagara
Bancorp unanimously approved a merger agreement under which Niagara Bancorp,
Inc. will acquire all of the outstanding shares of Albion Banc Corp. Under
the terms of the agreement, Niagara Bancorp Inc. has agreed to pay $15.75 per
share in cash for each outstanding share of Albion Banc Corp. common stock.
The transaction will be accounted for under the purchase method and is subject
to approval by Albion Banc Corp. shareholders and various regulatory agencies.
It is anticipated that the transaction will close by the end of the first
quarter of 2000.
NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
- -------------------------------------------------
The amortized cost and estimated market value of investment securities
available for sale are as follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Mortgage-backed securities $2,550,713 $2,545,890 $3,912,927 $3,943,816
---------- ---------- ---------- ----------
NOTE 4 - INVESTMENT SECURITIES HELD TO MATURITY:
- -----------------------------------------------
The amortized cost and estimated market value of investment securities held to
maturity are as follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Mortgage-backed securities $3,765,413 $3,713,757 $3,821,624 $3,869,466
U.S. Government Agencies 1,002,013 983,130 0 0
---------- ---------- ---------- ----------
$4,767,426 $4,696,887 $3,821,624 $3,869,466
---------- ---------- ---------- ----------
6
<PAGE>
NOTE 5 - LOANS RECEIVABLE:
- -------------------------
Loans consist of the following:
September 30, December 31,
1999 1998
---- ----
Real estate loans:
Secured by one-to-four family residences $52,628,987 $48,043,606
Secured by other properties 1,691,769 1,792,947
Construction loans 1,294,600 1,588,951
----------- -----------
55,615,356 51,425,504
Other loans:
Automobile loans 69,138 93,438
Home improvement loans 7,825,142 7,413,971
Other 724,447 787,351
----------- -----------
8,618,727 8,294,760
Less:
Undisbursed portion of loans (1,000,232) (721,492)
Net deferred loan origination costs 91,554 74,255
Allowance for loan losses (290,000) (267,000)
----------- -----------
(1,198,678) (914,237)
----------- -----------
$63,035,405 $58,806,027
----------- -----------
NOTE 6 - ALLOWANCE FOR LOAN LOSSES:
- ----------------------------------
An analysis of changes in the allowance for loan losses is as follows:
Nine-months ended
September 30,
1999 1998
---- ----
Balance at beginning of period $267,000 $276,300
Provision expense 63,276 43,000
Net charge-offs 40,276 43,463
-------- --------
Balance at end of period $290,000 $275,837
-------- --------
NOTE 7 - EARNINGS PER SHARE:
Earnings per share was calculated as follows:
Three-months ended
September 30, 1999
-----------------------------
Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $ 34,894 744,276 $ .05
Effect of Dilutive Securities:
Options 33,402
-------- -------
Diluted EPS $ 34,894 777,678 $ .04
-------- ------- ------
7
<PAGE>
Three-months ended
September 30, 1998
-----------------------------
Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $ 94,110 740,216 $ .13
Effect of Dilutive Securities:
Options 26,529
-------- -------
Diluted EPS $ 94,110 766,745 $ .12
-------- ------- ------
Nine-months ended
September 30, 1999
-----------------------------
Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $162,775 743,619 $ .22
Effect of Dilutive Securities:
Options 30,939
-------- -------
Diluted EPS $162,775 774,558 $ .21
-------- ------- ------
Nine-months ended
September 30, 1998
-----------------------------
Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $286,345 739,342 $ .39
Effect of Dilutive Securities:
Options 29,750
-------- -------
Diluted EPS $286,345 769,092 $ .37
-------- ------- ------
NOTE 8 - COMPREHENSIVE INCOME:
The Company has chosen to disclose comprehensive income in a separate
statement, in which the components of comprehensive income are displayed net
of income taxes. The following table sets forth the related tax effects
allocated to each element of comprehensive for the three months and six months
ended September 30, 1999 and 1998:
8
<PAGE>
Three months ended September 30, 1999
-------------------------------------
Before-tax Tax Net-of-Tax
Amount Benefit Amount
------ ------- ------
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (5,610) $ 2,244 $ (3,366)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
--------- -------- --------
Net unrealized loss (5,610) 2,244 (3,366)
--------- -------- --------
Other comprehensive loss $ (5,610) $ 2,244 $ (3,366)
--------- -------- --------
Three months ended September 30, 1998
-------------------------------------
Before-tax Tax Net-of-Tax
Amount Expense Amount
------ ------- ------
Unrealized gains on
securities:
Unrealized holding gains
arising during period $ 0 $ 0 $ 0
Less: reclassification
adjustment for gains
realized in net income 0 0 0
--------- -------- --------
Net unrealized gains 0 0 0
--------- -------- --------
Other comprehensive income $ 0 $ 0 $ 0
--------- -------- --------
Nine months ended September 30, 1999
-------------------------------------
Before-tax Tax Net-of-Tax
Amount Benefit Amount
------ ------- ------
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (35,712) $ 14,285 $(21,427)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
--------- -------- --------
Net unrealized loss (35,712) 14,285 (21,427)
--------- -------- --------
Other comprehensive loss $ (35,712) $ 14,285 $(21,427)
--------- -------- --------
9
<PAGE>
Nine months ended September 30, 1998
------------------------------------
Before-tax Tax Net-of-Tax
Amount Benefit Amount
------ ------- ------
Unrealized losses on
securities:
Unrealized holding losses
arising during period $ (24,268) $ 9,659 $(14,609)
Less: reclassification
adjustment for losses
realized in net income 0 0 0
--------- -------- --------
Net unrealized loss (24,268) 9,659 (14,609)
--------- -------- --------
Other comprehensive loss $ (24,268) $ 9,659 $(14,609)
--------- -------- --------
The following table sets forth the components of accumulated other
comprehensive income for the nine months ended September 30, 1999 and 1998:
Nine Months Ended
September 30,
1999 1998
---- ----
Beginning balance $18,533 $48,265
Unrealized (losses) gains on securities, net (21,427) (14,609)
------- -------
Ending balance $(2,894) $33,656
------- -------
10
<PAGE>
ALBION BANC CORP.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1999
Merger Agreement
- ----------------
On August 30, 1999, the Boards of Directors of Albion Banc Corp. and Niagara
Bancorp unanimously approved a merger agreement under which Niagara Bancorp,
Inc. will acquire all of the outstanding shares of Albion Banc Corp. Under
the terms of the agreement, Niagara Bancorp Inc. has agreed to pay $15.75 per
share in cash for each outstanding share of Albion Banc Corp. common stock.
The transaction will be accounted for under the purchase method and is subject
to approval by Albion Banc Corp. shareholders and various regulatory agencies.
It is anticipated that the transaction will close by the end of the first
quarter of 2000.
Financial Condition
- -------------------
Total assets of Albion Banc Corp. were $78.6 million as of September 30, 1999,
an increase of $2.2 million or 2.8% over total assets as of December 31, 1998.
Deposits, the Company's primary source of funds, increased $1.3 million or
2.1% to $60.4 million at September 30, 1999. Borrowings from the Federal Home
Loan Bank of New York were $9.0 million at September 30, 1999, unchanged from
the $9.0 million at December 31, 1998.
Investment securities available for sale, primarily mortgage-backed
securities, decreased from $3.9 million at December 31, 1998 to $2.5 million
at September 30, 1999. This decrease can be attributed to the normal
principal paydowns of this type of security during the first three quarters.
Investment securities held to maturity, comprised of mortgage-backed
securities and U.S. agency securities increased from $3.8 million at December
31, 1998 to $4.7 million at September 30, 1999. This increase can be
attributed to the purchases of a U.S. Agency security of $1.0 million and a
mortgage-backed security of $1.0 million, offset by the normal principal
paydowns of mortgage-backed securities during the first three quarters.
Net loans receivable as of September 30, 1999 were $63.0 million, an increase
of $4.2 million over net loans receivable at December 31, 1998. The majority
of this increase occurred in real estate loans, primarily one-to-four family
properties. Real estate loans secured by one-to-four family properties
increased by $4.6 million while real estate loans secured by other properties,
including construction loans as of September 30, 1998, decreased by $.4
million during the period.
Deposits increased $1.3 million from $59.1 million at December 31, 1998 to
$60.4 million at September 30, 1999. Noninterest-bearing deposits increased
$330,186 or 10.1% and interest-bearing deposits increased $.9 million or 1.7%.
The Company's shareholders' equity increased $96,073 or 1.5%, from $6,423,476
at December 31, 1998 to $6,519,549 at September 30, 1999. This increase is
due primarily to earnings in the first three quarters and the resulting
increase in equity, offset by cash dividends on common stock of $67,776. The
Company's equity as a percentage of total assets at September 30, 1999 was
8.3% and exceeded all regulatory requirements.
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
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its operations and to provide for customers' credit needs. The Company's
principal sources of funds are customer deposits, advances from the Federal
Home Loan Bank of New York and principal and interest payments on loans,
mortgage-backed securities and investments. Under current federal
regulations, Albion Federal is required to maintain specified liquid assets in
an amount equal to at least 4% of its net withdrawable liabilities plus
short-term borrowings. The Company has generally maintained liquidity levels
well above those required by regulation. At September 30, 1999, the
Association's liquidity ratio was 20.5%, exceeding the minimum required.
Federal funds sold at September 30, 1998 amounted to $2,600,000. These funds
are available immediately to meet upcoming obligations. During the period,
the Company did not sell any investments prior to maturity and did not
transfer any securities between its available for sale and held to maturity
categories.
Comparison of Operating Results for the Nine Months Ended September 30, 1999
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and 1998.
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Net Income. Net income of $162,775 for the nine months ended September 30,
1999 represents a decrease of $123,570, or 43.2% from the $286,345 earned in
the comparable period ended September 30, 1998.
Net Interest Income. Net interest income increased to $1,818,118 for the nine
months ended September 30, 1999, up 3.7% from $1,753,516 earned during the
nine month period ended September 30, 1998. This increase is due primarily to
growth in the balance sheet, primarily real estate loans. The Company's net
interest margin declined during the period, from 3.35% at September 30, 1998
to 3.28% at September 30, 1999, however the increase in loan volume offset the
decline. Total interest income increased $61,307 or 1.5% during the period
while total interest expense decreased $3,295 or .15%.
Provision for Loan Losses. The provision for loan losses, the charge to
earnings for potential credit losses associated with lending activities, was
$63,276 for the nine months ended September 30, 1999, an increase of $23,276
from the comparable period in 1998. Management charges earnings for an amount
necessary to maintain the allowance for loan losses at a level considered
adequate to absorb potential losses in the loan portfolio. The level of the
allowance is based on management's evaluation of individual loans, past loan
loss experience, the assessment of economic conditions and other relevant
factors. The allowance for loan losses of the Association at September 30,
1999 was $290,000 or .46% of total loans, compared to $267,000, or .45% of
total loans at December 31, 1998. The level of nonperforming assets increased
from $262,243 at December 31, 1998 to 426,973 at September 30, 1999. Also,
the ratio of allowance for loan losses to nonaccrual loans was 67.9% at
September 30, 1999 as compared to 101.8% at December 31, 1998. The increase
in the provision during the period was due primarily to the deterioration in
credit quality of three one-to-four family properties. Although the
Association believes its allowance for loan losses is at a level which it
considers to be adequate to provide for losses, there can be no assurances
such losses will not exceed the estimated amounts.
Noninterest Income. Noninterest income for the nine month period ended
September 30, 1999 was $276,737 compared with $278,988 during the same period
in the prior year. However, included in the September 30, 1998 amount was
$16,798 of nonrecurring loan recovery income related to profits on the sale of
real estate owned. Recurring noninterest income increased from $262,190 at
September 30, 1997 to $276,737 at September 30, 1999. This increase was
attributable to increased fee income from depository transaction accounts and
fee income from New Frontier of Albion Corp.
Noninterest Expense. Noninterest expense for the nine month period ended
September 30, 1999 was $1,771,055 an increase of $248,646 or 16.3% from the
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$1,522,409 recorded for the same period in the prior year. This increase is a
result of increases in the following: salaries and employee benefits expense
of $49,179 or 7.0%; professional fees of $110,286 or 135.0%; data processing
fees of $64,429 or 44.1% and other operating expenses of $27,844 or 11.1%.
These increases were primarily the result of inflationary increases in
salaries and employee benefits, expenses related to the merger agreement with
Niagara Bancorp, software maintenance fees, telephone banking and debit card
expenses and real estate owned expenses.
Income Taxes. The provision for income taxes decreased to $97,750 for the
nine months ended September 30, 1999 from $180,750 for the nine months ended
September 30, 1998, primarily as a result of decreased taxable income.
Comparison of Operating Results for the Three Months Ended September 30, 1999
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and 1998.
- --------
Net Income. Net income of $34,894 for the three months ended September 30,
1999 represents a decrease of $59,216 or 62.9% from the $94,110 earned in the
comparable period ended September 30, 1998.
Net Interest Income. Net interest income increased to $633,341 for the three
months ended September 30, 1999, up 6.86% from $592,670 earned during the
three month period ended September 30, 1998. This increase is primarily due
to growth in the balance sheet, primarily loans. The Company's net interest
margin declined during the period, from 3.35% at September 30, 1998 to 3.28%
at September 30, 1999, however the increase in loan volume offset the decline.
Total interest income increased $39,719 or 2.95% during the period while total
interest expense decreased $952 or .13%.
Provision for Loan Losses. The provision for loan losses, the charge to
earnings for potential credit losses associated with lending activities, was
$21,000 for the three months ended September 30, 1999, the same as the
comparable period in 1998.
Noninterest Income. Noninterest income for the three month period ended
September 30, 1999 was $102,353 compared with $84,262 during the same period
in the prior year. This increase was attributable primarily to increased fee
income from depository transaction accounts.
Noninterest Expense. Noninterest expense for the three month period ended
September 30, 1999 was $658,705 an increase of $156,883, or 31.3% from the
$501,822 recorded for the same period in the prior year. This increase is a
result of increased professional fees of $105,104 or 439.9%; data processing
fees of $32,745 or 68.6%; and other operating expenses of $26,226 or 37.3%.
These increases were partially offset by decreases in salaries and employee
benefits of $12,744 or 5.1%. These increases in noninterest expenses were
primarily related to the merger agreement with Niagara Bancorp, software
maintenance fees, telephone banking and debit card expenses and real estate
owned expenses.
Income Taxes. The provision for income taxes decreased to $21,095 for the
three months ended September 30, 1999 from $60,000 for the three months ended
September 30, 1998, primarily as a result of decreased taxable income.
Year 2000 Issues.
The year 2000 problem("Y2K"), which is common to most companies, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the year 2000
approaches. The Y2K issue affects the entire banking industry because of it's
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reliance on computers and other equipment that use computer chips and may have
significant effects on banking customers, bank regulators and the general
economy.
In 1997, management of the Company established a Y2K Plan to prevent or
mitigate adverse effects of the Y2K issue on the Company and its customers.
Goals of the Y2K Plan include; identifying risks, testing data processing and
other systems and equipment used by the Company, informing customers of Y2K
issues and risks, establishing a contingency plan for operating if Y2K issues
cause important systems or equipment to fail, implementing changes necessary
to achieve Y2K compliance and verifying that these changes are effective. The
Board of Directors reviews progress under the plan each monthly.
Management designed the Y2K Plan to comply with the requirements for Y2K
efforts established by the Office of Thrift Supervision, the primary federal
regulator of the Company. The Office of Thrift Supervision has performed Y2K
examinations of the Company's Y2K Plan and the Company's progress in
implementing the plan. Federal regulations prevent the Company from
disclosing the results of Y2K examinations by banking regulators. The
examinations do not represent approval or certification of a Company's Y2K
plans or efforts.
The Company has completed it's Y2K plan and is substantially Y2K ready. The
Company's mission critical systems have been tested and are deemed to be Y2K
ready. As of September 30, 1999, the Company had completed an assessment of
its systems to identify the systems that could be affected by the Y2K issue,
had implemented its customer awareness program, had developed and tested a Y2K
contingency plan and had completed the process of testing and implementing
necessary changes in hardware and software. The Y2K contingency plan calls
for the Company to utilize a backup electrical generator in the event that
normal electrical power is not available in the short term and to manually
process bank transactions and to use other data processing methods in the
event that normal electrical power is not restored within a week. Delays in
processing banking transactions would result if the Company were required to
use manual processing or other methods instead of its normal computer
processes. These delays could disrupt the normal business activities of the
Company and its customers. It is anticipated that the Company's deposit
customers will have increased demands for cash in the latter part of 1999 and
correspondingly, the Company will maintain higher liquidity levels.
All of the Company's applications used in operations are purchased from
outside vendors. These vendors are responsible for maintenance of their
systems and modifications to become year 2000 compliant. In June 1997, the
Company converted its data processing to an in-house client-server system,
which is year 2000 compliant. The supplier of the software and the Company
have performed extensive testing and assure that it is year 2000 compliant.
At the time of the data processing conversion, the majority of the Company's
computer hardware was upgraded to meet the new system requirements and meet
year 2000 compliance.
At this time, the Company believes that the remaining cost of resolving Y2K
issues will not be material to the Company's business, operations, liquidity,
capital resources or financial condition, based on information developed to
date and communications from data processing suppliers. The Company estimates
that its total cash outlays in connection with Y2K compliance will be
approximately $20,000, excluding costs of Company employees involved in Y2K
compliance activities. As of September 30, 1999, the Company had expensed
approximately $20,000 towards Y2K compliance. To the extent that costs are
incurred related to the year 2000 problem, they will be expensed.
Although the Company has completed an assessment of Y2K effects on its current
commercial lending and other customers, the actual effects on individual,
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corporate and governmental customers of the Company and on governmental
authorities that regulate the Company and its subsidiaries and any resulting
consequences to the Company, cannot be determined with any assurance. The
Company's belief that it and its primary suppliers of data processing services
will achieve Y2K compliance, are based on a number of assumptions and on
statements made by third parties and are subject to uncertainty. The Company
also is not able to predict the effects, if any, on the Company, financial
markets or society in general of the public's reaction to Y2K. Because of
this uncertainty and reliance upon assumptions and statements of third
parties, the Company cannot be assured that the results of its Y2K Plan will
be achieved. Management believes, however, that the Company will be able to
accomplish its Y2K goals and that the Company will be able to continue
providing financial services to its customers into the year 2000 and beyond.
New Accounting Pronouncement. In June 1998, the Financial Accounting
Standards Board issued (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments
embedded in other contracts and for hedging activities. The Company does not
currently hold derivative financial instruments covered by this Statement and
therefore, does not believe it will have a material impact on the Company upon
adoption.
15
PART II - OTHER INFORMATION
Item 1. Legal proceedings
Periodically, there have been various claims and lawsuits
involving the Company, mainly as a defendant, such as claims to
enforce liens, condemnation proceedings on properties in which the
Company holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the
Company's business. The Company is not a party to any pending
legal proceedings that it believes would have a material adverse
effect on the financial condition or operation of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on September 10, 1999 reporting that
Albion Banc Corp. had entered into an Agreement and Plan of Merger
with Niagara Bancorp under Item 5, Other Events.
Exhibit 27 - Financial Data Schedule
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned therunto duly authorized.
Albion Banc Corp.
(Registrant)
Dated: November 10, 1999 \s\Jeffrey S. Rheinwald
-----------------------
Jeffrey S. Rheinwald
President and C.E.O.
Dated: November 10, 1999 \s\John S. Kettle
-----------------------
John S. Kettle
Senior VP and Treasurer
Dated: November 10, 1999 \s\Mark F. Reed
-----------------------
Mark F. Reed
Vice President and C.F.O.
17
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REVOCABLE PROXY
ALBION BANC CORP.
SPECIAL MEETING OF STOCKHOLDERS
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January 19, 2000
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The undersigned hereby appoints James H. Keeler and Richard A. Pilon as
the official Proxy Committee of the board of directors with full powers of
substitution, as attorneys and proxies for the undersigned, to vote all shares
of common stock of Albion Banc Corp. which the undersigned is entitled to vote
at a special meeting of stockholders, to be held at the Tillman's Village Inn
located at Routes 98 and 104, Albion, New York, on Wednesday, January 19,
2000, at 4:00 p.m., local time, and at any and all adjournments thereof, as
follows:
FOR AGAINST ABSTAIN
1. To approve the Agreement and Plan [ ] [ ] [ ]
of Merger dated August 30, 1999
between Niagara Bancorp, Inc.,
Niagara Merger Subsidiary, Inc.,
Lockport Savings Bank, Albion Banc
Corp. and Albion Federal Savings
and Loan Association
2. In their discretion, upon such other
matters as may properly come before
the meeting.
The board of directors recommends a vote "FOR" the above proposal and
adoption of the merger agreement.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. THIS PROXY CARD WILL ALSO
BE USED TO PROVIDE VOTING INSTRUCTIONS TO THE TRUSTEE FOR ANY SHARES OF COMMON
STOCK OF ALBION BANC CORP. THE COMPANY ALLOCATED TO PARTICIPANTS UNDER THE
ALBION FEDERAL EMPLOYEE STOCK OWNERSHIP PLAN. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the special
meeting or at any adjournment thereof and after notification to the Secretary
of Albion Banc Corp. at the Meeting of the stockholder's decision to terminate
this proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from Albion Banc Corp. prior to the
execution of this proxy of notice of the special meeting, and proxy statement
dated December 17, 1999.
Dated: ,
---------------- -----
- ------------------------------ -------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------------ -------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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<PAGE>
