UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1996 Commission File No. 0-19843
ALBANK Financial Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
14-1746910
(I.R.S. Employer Identification Number)
10 North Pearl Street, Albany, NY 12207
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 445-2100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section l3 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of March 21, 1997, the aggregate market value of the shares of common stock
of the Registrant outstanding was $431,682,436 excluding 440,548 shares held
by affiliates of the Registrant.* This figure is based on the closing price
for a share of the Registrant's common stock on March 21, 1997, which was
$34.875 as reported in the Wall Street Journal on March 24, 1997. The number
of shares of the Registrant's common stock outstanding as of March 21, 1997,
was 12,818,539.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 21, 1997, and the Annual Report to Stockholders
for the year ended December 31, 1996, are incorporated herein by reference--
Parts I, II, III and IV.
*Solely for purposes of this calculation, all executive officers and directors
of the Registrant are considered to be affiliates. Also included are certain
shares held by various employee benefit plans where the trustees are required
to vote a portion of unallocated shares at the direction of executive officers
and directors.
PART I
ITEM 1 Business
General
ALBANK Financial Corporation ("Registrant", "Company" or "ALBANK") was formed
as a savings and loan holding company under Delaware Law. The information and
consolidated financial statements in this report of ALBANK include the
accounts of ALBANK Financial Corporation, its wholly owned subsidiary, ALBANK,
FSB, and the wholly owned subsidiaries of ALBANK, FSB. To date, the principal
operations of the Company have been those of ALBANK, FSB and subsidiaries (the
"Bank"). The executive offices of ALBANK are located at the main office of the
Bank at 10 North Pearl Street, Albany, New York 12207.
On April 1, 1992, ALBANK Financial Corporation completed its public offering
for 15,697,500 shares of common stock (the "Common Stock") at $10.00 per
share, realizing net proceeds of $150.8 million after expenses and
concurrently acquired the Bank as part of its conversion from a mutual to a
stock form savings bank. ALBANK used $75.4 million of the net proceeds to
acquire all of the issued and outstanding stock of the Bank. The remaining net
proceeds were used by the Company for general corporate purposes which, to
date, have included the repurchase of shares of ALBANK's Common Stock.
ALBANK's business currently consists primarily of the business of the Bank.
The Bank was organized as the second mutual savings bank in New York State on
March 24, 1820, and is currently the oldest operating savings bank in the
state. On June 30, 1982, the Bank converted to a federally chartered mutual
savings bank, retaining the leeway investment authority and broader investment
powers available to a New York State chartered mutual savings bank. The Bank's
principal business has been and continues to be attracting retail deposits
from the general public and investing those deposits, together with funds
generated from operations and borrowings, in various loan products and
securities. With regard to loans, the Bank originates and purchases primarily
one- to four-family adjustable rate mortgage loans ("ARMs"). The Bank also
engages in the provision of Savings Bank Life Insurance ("SBLI"),
additionally, the Bank's brokerage and insurance subsidiary, ALVEST Financial
Services, Inc., offers a wide range of financial products and services. The
Bank's results of operations are dependent primarily on net interest income,
provisions for loan losses, the levels of noninterest income earned and
noninterest expense incurred and the effect of income taxes. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of the regulatory authorities.
ALBANK is a legal entity separate and distinct from the Bank. The principal
sources of the Company's revenues are interest derived from its investments
and dividends the Company receives from the Bank. The right of the Company to
participate as a shareholder in any distribution of assets of any subsidiary
upon its liquidation or reorganization or otherwise is subject to the prior
claims of creditors of any such subsidiary.
As of December 31, 1996, a total of 1,027 full time employees and 242 part
time employees were employed by ALBANK and the Bank. Employee relations are
considered to be good.
Acquisition activity during the past three years follows:
On October 21, 1994, the Bank completed a transaction with the Federal Deposit
Insurance Corporation ("FDIC"), as receiver for Ludlow Savings Bank, Ludlow,
Massachusetts, in which it assumed approximately $216 million in deposits in
the nine Massachusetts banking offices of the closed bank (the "Ludlow
acquisition"). The Bank is operating the nine banking offices as its Ludlow
division.
On June 3, 1995, the Bank completed the purchase of $18 million in deposits
from The Dime Savings Bank of New York's Galleria Mall office in Poughkeepsie,
New York. The Bank is servicing these accounts at its existing office in the
Galleria Mall.
On January 3, 1996, the Bank acquired all of the outstanding common stock of
Marble Financial Corporation of Rutland, Vermont (the "Marble acquisition")
for $18.00 per share in cash or approximately $61 million in total
consideration. On the date of closing, Marble Financial and its banking
subsidiary Marble Bank had consolidated assets and deposits of approximately
$396 million and $327 million, respectively. The transaction, which was
accounted for under the purchase method of accounting, generated accounting
goodwill of $20.1 million which is being amortized over 15 years.
On September 27, 1996, the Bank assumed the deposit liabilities and purchased
loans owned and serviced by six banking offices formerly operated by the Green
Mountain Bank of Rutland, Vermont, a wholly owned subsidiary of Arrow
Financial Corporation (the "Green Mountain acquisition"). The acquisition
included approximately $108 million in deposits and loans. This acquisition,
which was accounted for under the purchase method of accounting, generated
goodwill of approximately $8.2 million which is being amortized over 15 years.
The Rutland banking office of Green Mountain was consolidated with the
existing Rutland banking office acquired from Marble Bank. The remaining Green
Mountain banking offices together with the seven former Marble Bank banking
offices are currently operating as the Bank's Marble division.
On January 24, 1997, the Bank entered into a purchase agreement with KeyBank
National Association (New York) relating to deposit liabilities of
approximately $530 million and 35 New York State banking offices currently
operated by KeyBank (the "KeyBank Transaction"). The offices are located in
northern New York, the greater Hudson Valley, and the Binghamton area. The
Company intends to establish as a new subsidiary a New York chartered
commercial bank, ALBANK Commercial, which will act under the agreement to pay
a deposit premium of approximately 7% based on average KeyBank deposit
balances just prior to closing and will have the option to purchase
approximately $53 million in small business, consumer and mortgage loans. The
KeyBank Transaction, the establishment of ALBANK Commercial and the related
registration of the Company as a bank holding company are subject to approval
by bank regulatory authorities. Following receipt of those approvals, the two
companies anticipate closing the transaction in mid-1997.
At year-end 1996, the Bank operated through 71 banking offices, 50 of which
are located in 17 upstate New York counties, nine of which are located in the
metropolitan area of Springfield, Massachusetts and 12 of which are located
primarily in central Vermont.
The Company regularly engages in discussions with other depository
institutions with respect to possible acquisition transactions.
Bank Subsidiaries
The Bank's principal operating subsidiary is ALVEST Financial Services, Inc.
This wholly owned company offers brokerage, investment and insurance products
and services. The Bank owns 100% of the voting common stock of ASBANY Funding
Corporation, a real estate investment trust which invests primarily in
residential real estate mortgage loans originated by the Bank. A third wholly-
owned subsidiary of the Bank is ASBANY Corp.. ASBANY Corp.'s assets consist
primarily of its investments in two subsidiaries--Page-ASBANY Corp. and CDC-
ASBANY Corp. Page-ASBANY Corp. owns certain office premises and equipment
located in the State of Massachusetts. CDC-ASBANY Corp. owns limited
partnership interests in real estate development projects which generate low-
income housing and historic preservation income tax benefits which accrue to
the Company. A third subsidiary of ASBANY Corp., Gables CVF, Inc., was
incorporated in the State of Nebraska, has no assets, and is inactive.
Market Area
ALBANK has been, and intends to continue to be, a community-oriented financial
institution offering a variety of financial services to meet the needs of the
communities it serves. Originally operating in the Capital District, ALBANK
now serves communities that extend south through most of the lower Hudson
Valley, north along the Hudson River and Lake Champlain to the Canadian
Border, and west through the Mohawk Valley to Syracuse. ALBANK's market also
extends eastward to include communities in and surrounding the greater
metropolitan area of Springfield, Massachusetts and since the 1996 Marble and
Green Mountain acquisitions, ALBANK's market has been expanded to include
communities throughout the central region of the state of Vermont.
The population level overall has remained relatively stable in ALBANK's market
area. Major business and government institutions include the New York State
Government, major educational institutions, Albany International and General
Electric in the Capital District; IBM in the lower Hudson Valley; major paper
and paper products manufacturers in our northern region; the New York State
Government, the insurance industry and manufacturing in our western region;
major educational institutions and the insurance industry in western
Massachusetts; and a variety of small to medium sized businesses in central
Vermont.
The economy of the Northeast, in general, has felt the impact of corporate
restructurings and downsizing in recent years. In New York State, for
instance, both IBM and General Electric have reduced the number of local
positions, and the New York State Government has restructured and downsized.
Following a nationwide pattern, however, many "replacement jobs" are being
created among smaller companies. Furthermore, ALBANK's strategy of controlled
growth into contiguous markets through acquisition has diversified its
customer deposit base and loan portfolio, and helped to protect ALBANK from
overconcentration in any one market area.
Competition
ALBANK faces strong competition in its market areas, both in attracting
deposits and making real estate and other loans. ALBANK's most direct
competition for deposits historically has come from other savings
associations, commercial banks and credit unions which are located, or have
branches, in those areas. ALBANK also faces additional competition for
deposits from national brokerage houses, money market funds and other
corporate and government securities funds. Factors affecting the acquisition
of deposits include pricing, office location and hours of operation, the
variety of deposit accounts offered, and the quality of customer service
provided. Competition for loans has been especially keen during the past five
years. Commercial banks, thrift institutions, traditional mortgage bankers,
mortgage bankers owned by national nonfinancial conglomerates, and mortgage
brokers affiliated with local, but nationally franchised, real estate brokers
are all active and aggressive competitors.
The Bank competes in this environment by providing a full range of financial
services based on a tradition of financial strength and integrity dating from
its inception. It competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of services it
provides to its borrowers. At December 31, 1996, as a result of acquisitions
of deposits from institutions insured by the Bank Insurance Fund ("BIF"),
approximately 34% of the Bank's deposits were insured through the BIF, while
the remaining 66% were insured through the Savings Association Insurance Fund
("SAIF"). In 1995 and 1996, the FDIC periodically reduced the rates of deposit
insurance premium assessments on BIF-insured deposits but did not make
commensurate reductions in the rates applicable to SAIF-insured deposits
(except with respect to a small group of institutions--not including the Bank-
- -during the last quarter of 1996). This assessment disparity provided
commercial banks--most of the deposits of which are BIF-insured rather than
SAIF-insured--with certain competitive advantages over savings associations.
As a result of legislation enacted in 1996, this premium disparity will be
substantially reduced in 1997 (See "Regulation and Supervision--Deposit
Insurance and Other Assessments").
Regulation and Supervision
General. The Bank, as a federally chartered savings bank, is a member of the
Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the FDIC, principally under the SAIF. The Bank is subject
to comprehensive regulation, examination and supervision by the Office of
Thrift Supervision ("OTS") as its primary federal regulator and by the FDIC as
the administrator of the deposit insurance funds. The Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition
and must obtain regulatory approvals prior to entering into certain
transactions, including mergers with, or acquisitions of, other financial
institutions. The Bank also is a member of the Federal Home Loan Bank of New
York (the "FHLB-NY") and is subject to certain limited regulation by the
Federal Reserve Board.
Virtually every aspect of the Bank's business is subject to numerous
requirements and restrictions with respect to such matters as, for example,
the nature and amount of loans and investments that may be made, the issuance
of securities, investment portfolio policy and other accounting regulations
and policies, transactions with affiliates and insiders, reserves against
deposits, the maintenance of a certain proportion of liquid assets, the
establishment of branches, mergers, non-banking activities and other
operations. This supervision and regulation establish a comprehensive
framework of activities in which the Bank can engage and is intended primarily
for the protection of the insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.
Federal legislation and regulation have significantly affected the operations
of federally insured savings associations and other federally regulated
financial institutions in the past several years and have increased
competition among savings associations, commercial banks and other financial
institutions.
In particular, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") included numerous provisions that affected the operation of
all federally insured depository institutions. Among other things, FDICIA
required annual on-site regulatory examinations of insured depository
institutions, required that federal banking regulators intervene promptly when
a depository institution experiences financial difficulties, mandated the
establishment of a risk-based deposit insurance assessment system and required
imposition of numerous additional operational standards and restrictions.
FDICIA also included consumer-oriented incentives and consumer protections.
The federal banking agencies and, under certain circumstances, the FDIC as
insurer have substantial enforcement authority with respect to institutions
they regulate. This enforcement authority includes, among other things, the
ability to assess substantial civil money penalties, to terminate or suspend
insurance of the institution's accounts, to initiate injunctive actions and to
issue prohibition, removal or cease-and-desist orders. In general, these
enforcement actions may be initiated for violations of laws and regulations
and engaging in unsafe or unsound practices. In addition, banking regulators
are provided with great flexibility to take enforcement action against an
institution that fails to comply with applicable capital requirements.
Capital Requirements. Under current OTS capital regulations, savings
associations are required to comply with each of three separate capital
adequacy standards: a "leverage" ratio (also called a "core capital"
requirement) of 3.0% of adjusted total assets, a "tangible capital"
requirement of 1.5% of adjusted total assets, and a total "risk-based" capital
requirement of 8.0% of risk-weighted assets of which 4.00% must be "core". In
addition, in order to qualify as a "well-capitalized" institution under the
OTS's "prompt corrective action" requirement referred to below, a savings
association must have, among other requirements, a leverage ratio of at least
5.0% of adjusted total assets, a ratio of "Tier 1" (or "core") capital to
risk-weighted assets of at least 6.0% and a ratio of total capital to risk-
weighted assets of at least 10.0%. As of December 31, 1996, the Bank's
leverage ratio, tangible capital ratio, Tier 1 risk-based ratio and total
risk-based capital ratio were 7.00%, 7.00%, 10.80% and 11.88%, respectively.
FDICIA required the federal banking agencies to revise risk-based capital
standards to ensure that they take account of interest-rate risk ("IRR"). The
OTS adopted a rule in 1994 that established a methodology for measuring IRR
pursuant to which savings associations have been calculating and reporting to
the OTS since that time. The OTS has not required savings associations to make
an automatic deduction from their capital for IRR, pending the decision of the
other federal banking agencies to require such a deduction. In 1995, the other
federal banking agencies issued an IRR rule that requires them to review IRR
when assessing an institution's capital adequacy. In 1996, the OTS issued an
IRR policy statement that sets forth the key elements of sound interest rate
risk management and prudent practices for each of these elements, but does not
establish a standardized measure of, or require an explicit capital charge
for, IRR.
In addition, in 1995 the OTS and the other federal banking agencies revised
their risk-based capital standards to take account of concentration of credit
risk and the risk of nontraditional activities. The OTS rule authorizes the
OTS to take account of such risks, as well as such other factors as a record
of operational losses, management deficiencies and poor record of supervisory
compliance, in setting individual minimum capital requirements for a thrift
institution. The Bank does not believe that this regulation will materially
affect its capital requirements.
Under law and regulation specifically applicable to savings associations, the
OTS may impose a number of sanctions on savings associations that are not in
compliance with the OTS capital requirements. Among other things, the OTS
might impose restrictions on asset growth and issue a capital directive that
may require, among other things, an increase in regulatory capital; reduction
of rates paid on savings accounts; cessation of or limitations on deposit-
taking, lending, purchasing loans, making specified investments, or issuing
new accounts; limits on operational expenditures; an increase in liquidity;
and/or such other restrictions or corrective actions as the OTS may deem
necessary or appropriate. In addition, an insured financial institution must
provide its federal regulators with prior notice before it adds any new
director or senior executive officer if the institution is not meeting its
capital requirements or is otherwise determined to be in a troubled condition.
An institution not meeting its capital requirements is prohibited from making
capital distributions without regulatory approval, could be required to file
an appropriate capital plan, and may not accept, renew or roll over brokered
deposits. Furthermore, deposits of employee benefit plans in such an
institution are not eligible for "pass-through" deposit insurance. FDIC
regulations permit only well-capitalized depository institutions to accept,
renew or roll over brokered deposits without restriction.
Restrictions on Dividends and Other Capital Distributions. OTS regulations
limit the ability of a savings association to pay dividends and make other
capital distributions according to the association's level of capital and
income, with the greatest flexibility afforded to an institution that meets or
exceeds its capital requirements.
A savings association that exceeds its capital requirements both before and
after a proposed distribution (a "Tier 1 Association") and has not been
advised by the OTS that it is in need of more than normal supervision could,
after prior notice to the OTS, make capital distributions during a calendar
year up to the higher of (i) 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the association's excess capital over its capital requirement)
at the beginning of the calendar year, or (ii) 75% of its net income to date
over the most recent four-quarter period. In addition, a Tier 1 Association
may make capital distributions in excess of the foregoing limits if it gives
the OTS 30 days' notice of the proposed distribution and the OTS does not
object. Bank management believes that the Bank at December 31, 1996, met the
requirements to qualify as a Tier 1 Association. In March 1997, the Bank
submitted a notice to the OTS with respect to a capital distribution in
connection with the capitalization of ALBANK Commercial and the consummation
of the KeyBank Transaction.
An institution not qualifying as a Tier 1 Association is subject to more
stringent restrictions on its capital distributions. The OTS may also prohibit
a capital distribution that would otherwise be permitted if the OTS determines
that the distribution would constitute an unsafe or unsound practice. An
institution is also prohibited from making a capital distribution if,
following such distribution, the institution would be "undercapitalized" under
the prompt corrective action provisions discussed below. In addition, a
savings association, such as the Bank, that has converted from mutual to stock
form may not declare or pay a dividend on or repurchase any of its capital
stock if the effect of such action would be to reduce the regulatory capital
of the association below the amount required for the liquidation account
established for the benefit of certain of its depositors in connection with
such conversion.
Prompt Corrective Regulatory Action. FDICIA established five capital zones
("well- capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized") in which
insured depository institutions would be placed and authorized (and, in
certain circumstances, required) the appropriate federal banking agency to
take "prompt corrective action" to resolve an institution's problems, with the
nature and extent of such action dependent primarily on the zone in which the
institution is placed.
In general, an insured depository institution may not make a capital
contribution (including a payment of a dividend) or pay any management fee to
its holding company if the institution would thereafter be undercapitalized.
The severity of the other actions required to be taken by the appropriate
federal banking agency increases as an institution's capital position
deteriorates. Among other things, these actions could include, under certain
circumstances, requiring recapitalization of or a capital restoration plan by
a depository institution; restricting transactions between such an institution
and its affiliates; restricting interest rates, asset growth, activities or
investments in subsidiaries; ordering a new election for directors; dismissing
directors or senior executive officers; and/or requiring the employment of
additional qualified senior executive officers. If the agency determines that
an institution is in an unsafe and unsound condition or if the institution is
deemed by the agency to be engaging in an unsafe and unsound practice by
virtue of having received a less-than-satisfactory rating for asset quality,
management, earnings or liquidity in its most recent examination, the agency
may, if the institution is "well-capitalized", reclassify it to "adequately
capitalized", if the institution is "adequately capitalized" require it to
comply with restrictions applicable to "undercapitalized" institutions and if
the institution is "undercapitalized", require it to comply with restrictions
applicable to "significantly undercapitalized" institutions.
Each company having control of a capital deficient depository institution must
(i) guarantee that the institution will comply with a required capital
restoration plan until the institution has been adequately capitalized on
average during each of four consecutive calendar quarters, and (ii) provide
appropriate assurances of performance. The aggregate guarantee liability of
all companies having control of a depository institution will be the lesser of
5% of the institution's total assets when it becomes undercapitalized or the
amount that is necessary to bring the institution into compliance with the
capital standards as of the time the institution fails to comply with the
capital restoration plan.
FDICIA also significantly expanded the grounds for the appointment of a
conservator or receiver for an insured depository institution, including
grounds based upon the institution's compliance with the prompt corrective
action provisions.
Liquidity Requirements. OTS regulations currently require savings associations
to maintain an average daily balance of liquid assets (including, among other
things, cash, certain time deposits, bankers' acceptances, and specified U.S.
government, state or federal agency obligations) equal to at least 5% of the
average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month (the "long-term liquidity
ratio"). This liquidity requirement may be changed from time to time by the
OTS to an amount within a range of 4% to 10% of such accounts and borrowings.
OTS regulations also require each savings association to maintain an average
daily balance of short-term liquid assets (generally those having maturities
of 12 months or less) equal to at least 1% of the average daily balance of its
net withdrawable accounts plus short-term borrowings during the preceding
calendar month (the "short-term liquidity ratio"). Monetary penalties may be
imposed for failure to meet these liquidity ratio requirements. At December
31, 1996, the long-term and short-term liquidity ratios of the Bank were 23.7%
and 8.0%, respectively.
Deposit Insurance and Other Assessments. As of December 31, 1996,
approximately $1.987 billion of the Bank's deposit accounts were insured up to
applicable limits by the FDIC through the SAIF and approximately $1.026
billion in deposits were insured by the FDIC through the BIF. Under FDICIA,
the FDIC has established a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. Depository
institutions are placed into one of nine confidential risk assessment
categories using a two-step process based first on capital ratios and then on
other factors derived from reviews by the institution's primary federal and,
if applicable, state regulator and other information deemed by the FDIC to be
relevant. The disclosure of the confidential supervisory subgroup to which an
institution is assigned is prohibited by FDIC regulation. Until mid-1995, the
range of deposit insurance premiums paid with respect to BIF-insured deposits
was the same as that for SAIF-insured deposits. However, as a result of a
series of actions taken by the FDIC, from mid-1995 through 1996, BIF premiums
were substantially lower than SAIF premiums. Indeed, beginning in 1996,
institutions with the most favorable capital and risk categories paid only the
statutory minimum of $2,000 annually with respect to BIF-insured deposits (the
assessment range was $0 to $0.27 per $100 of deposits), while SAIF-insured
deposits were subject to an assessment that ranged from $0.23 to $0.31 per
$100 of deposits. As a result of the recapitalization of the SAIF (discussed
below) that occurred effective October 1, 1996, the FDIC reduced the premiums
on SAIF deposits to a range of $0 to $0.27 per $100 of deposits (the same as
for BIF-insured deposits), except that SAIF-member savings associations (such
as the Bank) were subject from October 1, 1996, through December 31, 1996, to
a premium range of $0.18 to $0.27 per $100 of SAIF deposits. Effective in the
first quarter of 1997, all deposits, SAIF or BIF, are subject to the same
range of $0 to $0.27 per $100, with no statutory minimum.
In September 1996, Congress passed and the President signed the Deposit
Insurance Funds Act of 1996 (the "Funds Act"), which, among other things,
required the FDIC to impose a one-time special assessment on SAIF-insured
deposits in an amount that would recapitalize the SAIF at its required reserve
ratio of 1.25%. Certain institutions, including the Bank, were permitted to
reduce the amount of deposits to which the assessment was applied by 20%. The
Bank paid a special assessment in the amount of $10.4 million.
The Funds Act also provided that beginning in 1997, both BIF deposits and SAIF
deposits will be assessed by the Financing Corporation ("FICO") for interest
payments due on bonds issued by FICO for purposes of recapitalizing the
Federal Savings and Loan Insurance Corporation in the late 1980s. The Funds
Act provides that through the earlier of December 31, 1999, or the date as of
which the last savings association ceases to exist, BIF deposits will be
assessed for FICO at a rate that is one-fifth the rate applicable to SAIF
deposits. For 1997, the annual FICO assessment (payable quarterly) on SAIF
deposits is $0.065 per $100 of deposits and for BIF deposits is $0.013 per
$100 of deposits.
Prior to the Funds Act, institutions were generally prohibited from changing
from BIF membership to SAIF membership or vice versa. Since October 1, 1996,
institutions have been permitted to change insurance funds but must pay exit
and entrance fees to the respective funds. However, a SAIF member may acquire
deposits from a BIF member or vice versa in a merger or assumption of deposits
without changing funds, so long as the acquired deposits continue to be
treated as deposits insured by the fund of the selling institution and
assessments go to that fund.
Savings associations are required by OTS regulation to pay assessments to the
OTS to fund its operations. The general assessment is computed on the basis of
a savings association's total assets, including consolidated subsidiaries. A
premium assessment is charged for associations designated as troubled
institutions. The Bank's general assessment for the year ended December 31,
1996, totaled $477,000.
Certain Loss Valuation Policies. Adequate valuation allowances, consistent
with generally accepted accounting principles, are required to be established
for classified assets, and the federal banking agencies have issued an
interagency policy statement relating specifically to allowances for loan and
lease losses. This statement reaffirms that an institution's board of
directors and management are responsible for establishing and maintaining an
adequate level of allowances, and contains general guidance on calculating the
allowances. At a minimum, the allowance should be no less than the sum of (i)
estimated credit losses for the remaining effective lives of loans and leases
classified as "substandard" and "doubtful"; (ii) estimated credit losses for
the upcoming 12 months for components of the loan and lease portfolio that are
not classified; and (iii) estimated credit losses resulting from the transfer
risk of international loans. The Bank believes that its methodologies for
establishing a general valuation allowance are in accordance with the policy
statement (See "Statistical Data--IV. Summary of Loan Loss Experience").
Qualified Thrift Lender Test; Certain Operational Matters. Savings
associations are required to maintain 65% of their "portfolio assets" (total
assets minus goodwill, intangibles, property used to conduct business and
liquid assets up to 20% of assets) in "qualified thrift investments". Until
September 1996, qualified thrift investments consisted primarily of loans and
other investments related to residential real estate, together with lesser
amounts of certain other assets. Effective in the last quarter of 1996,
qualified thrift investments include credit card loans, education loans and
small business loans, and a lesser amount of other consumer loans. Savings
associations that fail the "qualified thrift lender" (QTL) test are subject to
substantial restrictions on their activities and to certain other penalties.
As a savings bank chartered under state law prior to October 15, 1982, the
Bank is exempt from many of such restrictions and penalties. Failure by the
Bank to maintain QTL status could, however, affect the ability of ALBANK to
enter into certain activities (See "Supervision and Regulation--Savings and
Loan Holding Company and Related Regulation; Control-Related Provisions"). As
of December 31, 1996, the Bank complied with the QTL requirements (with 83.69%
of its assets in qualified thrift investments).
Federal savings associations are also subject to comprehensive regulation
governing their investments and activities. Among other things, a federal
association may invest in (i) mortgage loans in an unlimited amount, (ii) non-
residential real estate loans up to 400% of capital, (iii) commercial loans up
to 10% of assets (effective in the last quarter of 1996, up to 20% of assets
so long as the last 10% are small business loans), and (iv) consumer loans,
commercial paper and corporate debt securities in the aggregate up to 35% of
assets. In addition, a federal savings association may invest up to 3% of its
assets in service corporations and an unlimited percentage of its assets in
operating subsidiaries (which may engage only in activities permissible for
the association). Other than investment in service corporations and operating
subsidiaries, and stock of government sponsored enterprises such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), federal savings associations generally are not
permitted to make equity investments.
Until its conversion to a federally chartered savings bank in 1982, the Bank
was a New York state chartered savings bank with investment powers conferred
by New York law. Federal law and OTS regulations authorize the Bank to make
investments or engage in activities to the degree the Bank was authorized to
do so as a state chartered savings bank under New York law at the time of its
conversion from a state to a federal charter and to the degree permissible for
the Bank in its capacity as a federal savings bank prior to October 15, 1982,
in each case to the extent authorized by the OTS and subject to the authority
of the FDIC to limit activities incompatible with deposit insurance. These
powers are in addition to powers that the Bank currently possesses as a
federally chartered savings bank.
The Bank's grandfathered powers include the authority to invest in various
types of investment securities, including corporate bonds and stock, and in
real estate for development, in each case subject to certain limitations. In
addition, the Bank has grandfathered authority to make so-called "leeway
investments", which include any investment not otherwise authorized under New
York law at the time of the Bank's charter conversion (other than investments
in the common stock of commercial banks or life insurance companies), so long
as any single investment does not exceed 1% of the Bank's assets and all such
investments do not exceed 5% of its assets.
Numerous laws and regulations also set forth special restrictions and
procedural requirements with respect to the Bank's extensions of credit,
credit practices, the disclosure of credit and savings account terms and
discrimination in credit transactions. For example, under the Community
Reinvestment Act ("CRA") and implementing OTS regulations, a savings
association such as the Bank has an obligation to help meet the credit needs
of its local communities, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of the Bank. Following the most
recent OTS compliance examination of the Bank completed on June 19, 1995, the
Bank was rated "outstanding" on the four-category CRA rating system of
"outstanding," "satisfactory," "needs to improve" and "substantial non-
compliance".
In May 1995, the OTS, in conjunction with other federal banking agencies,
issued revisions to the rules governing CRA compliance. The new rules, which
become effective in stages through July 1, 1997, are intended to give
financial institutions guidance regarding their CRA obligations and to
simplify CRA evaluations by establishing performance-based criteria. The rules
establish a methodology for evaluating an institution's CRA compliance in
three broad areas, lending, investment and service, with the actual criteria
applied being dependent on the type of institution (retail or wholesale) and
the nature of its service area.
Safety and Soundness Standards. FDICIA and subsequent legislation require each
federal banking agency to prescribe by regulation or guideline, for all
insured depository institutions, standards relating to, among other things,
internal controls and audit systems, credit underwriting and loan
documentation, interest rate exposure, asset growth, compensation of directors
and officers, and such other operational and managerial standards as the
agency deems appropriate. In July 1995, the federal banking agencies adopted
guidelines addressing these areas of operation. In addition, each such agency
is required to adopt such standards relating to asset quality and earnings as
the agency deems appropriate. In August 1996, the federal banking agencies
adopted standards addressing the foregoing matters. The Bank does not believe
that the adoption of these standards should materially affect its operations.
FDICIA also required each appropriate federal banking agency to adopt uniform
regulations prescribing standards for extensions of credit (i) secured by real
estate, or (ii) made for the purpose of financing the construction of
improvements on real estate. The federal banking agencies require each
institution to establish and maintain written internal real estate lending
standards consistent with safe and sound banking practices, taking into
account the size of the institution and the nature and scope of its real
estate lending activities. Subject to certain exceptions, the policy of a
savings association must also be consistent with OTS guidelines, which include
loan-to-value ratios for the following types of real estate loans: raw land
(65%); land development (75%); non-residential construction (80%); improved
property (85%); and one- to four-family residential construction (85%). One-
to four-family mortgage and home equity loans do not have maximum loan-to-
value ratio limits, but those with a loan-to-value ratio at origination of 90%
or greater are expected to be backed by private mortgage insurance or readily
marketable collateral. Institutions are also permitted to make a limited
amount of loans that do not conform to the loan-to-value limitations.
Savings and Loan Holding Company and Related Regulation; Control-Related
Provisions. The Company is a unitary, non-diversified savings and loan holding
company. As such, the Company is registered with the OTS and is subject to OTS
regulation, examination, supervision and reporting requirements. (See also
"Supervision and Regulation--Regulation of Banks and Bank Holding Companies").
Federal law prohibits a savings and loan holding company (such as the
Company), directly or indirectly, or through one or more subsidiaries, from
(i) acquiring control of, or acquiring by merger, consolidation or purchase of
assets, another savings association or savings and loan holding company,
without the prior approval of the OTS; (ii) acquiring or retaining, with
certain exceptions, more than 5% of the voting stock of a non-subsidiary
savings association or a non-subsidiary savings and loan holding company; or
(iii) acquiring or retaining control of a depository institution, the deposits
of which are not insured by the SAIF or the BIF. In evaluating applications by
holding companies to acquire savings associations, the OTS must consider the
financial and managerial resources and future prospects of the holding company
and association involved, the effect of the acquisition on the risk of the
SAIF and the BIF and the convenience and needs of the community to be served.
OTS approval (or, in certain cases, non-disapproval) must be obtained prior to
any person acquiring control of the Bank or the Company. Control is
conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the Bank or the Company or controls
in any manner the election of a majority of the Directors of the Bank or the
Company. Control is rebuttably presumed to exist if, among other things, a
person acquires more than 10% of any class of voting stock (or 25% of any
class of stock) of the Bank or the Company and is subject to any of certain
specified "control factors" as defined in OTS regulations. A person also may
be determined to have rebuttable control of the Bank or the Company in certain
circumstances if such person holds any combination of voting stock and
revocable or irrevocable proxies representing more than 25% of any class of
voting stock of the Bank or the Company (See "Regulation and Supervision--
Regulation of Banks and Bank Holding Companies").
A unitary savings and loan holding company that controls only one savings
association generally would not be restricted under existing laws in the types
of business activities in which it may engage, so long as its subsidiary
savings association continues to be a QTL. Upon any acquisition by the Company
of another savings association, however, the Company would become a multiple
savings and loan holding company (if the acquired institution is held as a
separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage.
Other Regulatory Bodies. The Federal Home Loan Bank System, which consists of
12 Federal Home Loan Banks (the "FHLBanks"), provides a central credit
facility primarily for the use of member institutions. The Federal Housing
Finance Board oversees the FHLBanks. The Bank is a member of the FHLB-NY and,
as such, is required to acquire and hold shares of capital stock in the FHLB-
NY in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year (assuming for such purposes that at least 30% of its assets were
home mortgage loans), or 5% of its advances (borrowings) from the FHLB-NY,
whichever is greater. The Bank is in compliance with this requirement, with an
investment in FHLB-NY stock at December 31, 1996, of $16.9 million. FHLB-NY
advances must be secured by specified types of collateral, and long-term
advances may be obtained only for the purpose of enabling a member to purchase
or fund new or existing residential housing finance assets.
The Bank recorded dividend income of $1.1 million on its FHLB-NY stock in the
year ended December 31, 1996. Since 1989, each of the FHLBanks has been
required to transfer a certain amount of its reserves and undivided profits to
the Resolution Funding Corporation ("REFCORP"), the government entity
established to raise funds to resolve failed savings association cases, to
fund the principal and a portion of the interest on REFCORP bonds and certain
other obligations. In addition, each of the FHLBanks has been required to
transfer a percentage of its annual net earnings to an Affordable Housing
Program.
Federal Reserve Board regulations require depository institutions, including
the Bank, to maintain noninterest-earning reserves against certain of their
transaction accounts and deposits. For the calculation period including
December 31, 1996, the Bank was in compliance with its requirement to maintain
$28.2 million in noninterest-earning reserves. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve Board may also be used
to satisfy long-term liquidity requirements imposed by the OTS.
Legislative and Regulatory Proposals. Any changes in the extensive regulatory
structure, whether by the OTS, the FDIC, or Congress, could have a material
effect on the Company. The Company cannot predict what, if any, future actions
may be taken by legislative or regulatory authorities or what impact such
actions may have on the Company.
The Funds Act provided for the merger of the BIF and the SAIF on January 1,
1999, but only if no depository institution was a savings association by that
date. Thus the merger of the two deposit insurance funds is conditioned upon
the conversion of savings associations to bank charters, but the Funds Act
does not provide for the manner of such conversion. Pending legislation would
require each federal savings association, such as the Bank, to convert to a
national bank or state depository institution charter by June 30, 1998. The
converted institutions would be subject to regulation by the appropriate
federal and state banking agency for the type of charter that the institution
adopted, and the OTS would be abolished. After conversion, a former savings
association would have two years (subject to two one-year extensions) to
discontinue any activities and investments impermissible under its new
charters. A parent holding company of former savings association would be
regulated as a bank holding company by the Federal Reserve Board, and would be
subject to the activities restrictions applicable to bank holding companies
unless such parent holding company were able to take advantage of a very
narrow "grandfather" for current powers. The Company is unable to predict
when, if, and in what form this legislation may ultimately be adopted.
Tax legislation enacted in 1996 repealed the reserve method of accounting for
bad debts by most thrift institutions such as the Bank and requires such
thrift institutions to recapture their post-1987 additions to their bad debt
reserves ratably over a six-year period. Because the Bank met certain lending
requirements, this recapture did not begin in 1996; if the Bank continues to
meet such lending requirements for 1997, the recapture will not begin until
1998. The enactment of such tax recapture legislation should not have a
material effect on either the financial condition or the results of operations
of the Company.
Regulation of Banks and Bank Holding Companies. In March 1997, ALBANK
submitted an application to the Banking Board of the State of New York and the
New York Superintendent of Banks (the "Superintendent") for permission to
organize ALBANK Commercial and to acquire the branches in the KeyBank
Transaction. ALBANK also submitted an application to the FDIC in respect of
the deposit insurance of ALBANK Commercial and will submit an application to
the Federal Reserve Board to become a bank holding company by acquiring 100%
of the stock of ALBANK Commercial. These applications are pending.
As a bank holding company, ALBANK will be subject to the regulation and
supervision of the Federal Reserve Board under the Bank Holding Company Act of
1956 (the "BHC Act"). As a New York chartered commercial bank, ALBANK
Commercial will be regulated by the New York State Banking Department and the
Superintendent under New York Banking Law. As a state-chartered bank that is
not a member of the Federal Reserve System (a "state non-member bank"), ALBANK
Commercial will have the FDIC as its primary federal regulator. ALBANK
Commercial will be a member of the BIF. Upon its registration as a bank
holding company, the Company will no longer be subject to the supervision of
the OTS as a savings and loan holding company.
The BHC Act generally limits activities of a bank holding company to the
ownership and management of banks and companies engaged in activities that the
Federal Reserve Board has determined to be so closely related to banking as to
be a proper incident thereto. The activities of the Company conducted directly
or through non-bank subsidiaries will generally be limited to furnishing
services to its subsidiaries and activities that qualify under the "closely
related" and "proper incident" tests. Notice to or application to the Federal
Reserve Board will be required for new activities and acquisitions of most
non-banking subsidiaries. Operating a savings association has been determined
by the Federal Reserve Board to be a permissible non-banking activity,
provided the savings association engages only in activities that are
permissible for bank holding companies under the "closely related" and "proper
incident" tests. As a result, the Bank will not be able to take advantage of
certain grandfathered powers and will be required to discontinue its SBLI. It
is contemplated that, following the Company's registration as a bank holding
company, the Bank will transfer ALVEST Financial Services, Inc., its
subsidiary that engages in insurance and securities brokerage, to ALBANK
Commercial. Upon such transfer, certain of ALVEST's activities may be limited.
Under Federal Reserve Board Policy, a bank holding company is expected to act
as a source of financial strength to its subsidiary banks and to commit
resources to support such banks in circumstances where it might not do so
absent such policy. In addition, any loans by a bank holding company to its
subsidiary banks would be subordinate in right of payment to deposits and to
certain other indebtedness of its banks. Under the Federal Deposit Insurance
Act, a depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default.
"Default" is defined generally as the appointment of a conservator or
receiver, and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies (on a consolidated basis with their bank subsidiaries), and
the FDIC has adopted similar guidelines for state non-member banks. These
guidelines are similar but not identical to the OTS standards applicable to
savings associations such as the Bank. For holding companies and state non-
member banks, the minimum ratio of qualifying total capital to risk-weighted
assets (including certain off-balance sheet items) is 8%, with "Tier 1
capital" (principally common equity, retained earnings and certain types of
preferred stock) comprising at least half that amount. In addition, the
Federal Reserve Board has established a minimum leverage ratio (Tier 1 capital
to average total assets) to supplement its risk-based ratio, and the FDIC has
adopted substantially similar requirements. The applicable capital guidelines
provide for a minimum leverage ratio of 3% for bank holding companies and
banks that meet certain specified criteria, including those having the highest
regulatory rating. All other banking organizations will be required to
maintain a leverage ratio of at least 4% to 5%. The Federal Reserve Board
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.
The New York Banking Law and regulations delimit the powers of the New York
banks, which include the powers, among others, subject to certain
restrictions, to lend money, including on real and personal security, to
discount commercial paper, to receive deposits and to invest in certain
securities. Legislation pending in the New York legislature would, if enacted,
authorize the Superintendent to permit New York banks to exercise any power
permissible for national banks. In addition, as a state non-member bank,
ALBANK Commercial will be subject to numerous requirements and restrictions
under New York and federal law with respect to its business and operations,
generally of the type applicable to the Bank and discussed under "Supervision
and Regulation--General."
ALBANK Commercial will be subject to dividend limitations under the New York
Banking Law, including a requirement that prior regulatory approval be
obtained for dividends in any year that would exceed ALBANK Commercial's net
profits for such year combined with retained net profits for the prior two
years.
The Federal Deposit Insurance Act provides that a state bank, including a
state non-member bank such as ALBANK Commercial, generally may not engage as
principal in any activity that is not permissible for a national bank. State
non-member banks are subject to the prompt corrective action and safety and
soundness provisions discussed above under "Supervision and Regulation--Prompt
Corrective Regulatory Action" and "-- Safety and Soundness Standards," as well
as other regulations applicable to all insured depository institutions
discussed above, in each case as implemented by the FDIC.
A bank holding company (which the Company will be following the consummation
of the KeyBank Transaction) is not permitted to acquire the ownership or
control of more than 5% of any class of voting shares or substantially all of
the assets of any company--including a bank, a bank holding company, a savings
and loan association or a savings and loan holding company--or merge or
consolidate with another company, without the prior approval (or in some
cases, non-objection) of the Federal Reserve Board. After the Company becomes
a bank holding company, the OTS will no longer regulate acquisitions by the
Company (although it will continue to regulate acquisitions by the Bank). The
FDIC (under the Bank Merger Act) and the Superintendent (under the New York
Banking Law) will regulate acquisitions by ALBANK Commercial.
Under applicable federal law, bank holding companies are permitted to acquire
banks located in states other than their home states without regard to whether
the transaction is permissible under state law. In addition, commencing June
1, 1997, state and national banks with different home states will be permitted
to merge across state lines, with approval of the appropriate federal banking
agency, unless the relevant state passes legislation by May 31, 1997,
expressly prohibiting interstate mergers. States may enact laws permitting
interstate bank merger transactions prior to June 1, 1997 (opt-in statutes). A
bank may also establish and operate a de novo branch in a state in which the
bank does not maintain a branch if that state expressly permits de novo
branching. By contrast, federal savings associations such as the Bank are
permitted to branch nationwide by acquisition or de novo without regard to
state law so long as the institution and the branches meet the QTL test.
Statistical Information and Analysis
Reference is made to the "Five Year Selected Financial Data" section on page
13 and the "Management's Discussion and Analysis" section on pages 14 through
24 of the Company's December 31, 1996, Annual Report to Stockholders (the
"Annual Report") for a presentation and discussion of certain statistical data
relating to ALBANK. The information with respect to such data should not be
construed to imply any conclusions on the part of the management of ALBANK
that the results, causes or trends indicated therein will continue in the
future. The nature and effects of governmental monetary policy, supervision,
regulation, future legislation, inflation and other economic conditions and
many other factors which affect interest rates, investments, loans, deposits
and other aspects of ALBANK's operations are extremely complex and could make
historical operations, earnings, assets, and liabilities not indicative of
what may occur in the future.
Statistical Data
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
The information set forth on pages 15 and 16 of the Annual Report is
incorporated herein by reference.
II. Investment Portfolio
Securities
The investment policy of the Company, which is established by senior
management and approved by the Board of Directors, is based upon its
asset/liability management goals and is designed primarily to provide a
portfolio of high quality, diversified investments while seeking to optimize
net interest income within acceptable limits of safety and liquidity.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115 on January 1, 1994, and reclassified as securities available for sale
investment securities with a book value of $87.8 million and a market value of
$89.4 million. In 1995, the Financial Accounting Standards Board ("FASB")
allowed entities to assess the appropriateness of the classifications of all
securities held at that time. As a result, on December 29, 1995, the Company
transferred investment securities with a book value of $492.3 million and a
market value of $491.9 million to securities available for sale.
The Bank invests in various types of liquid assets that are permissible
investments for federally chartered savings associations, including U.S.
Treasury and state and municipal government obligations, securities of various
federal agencies, federal funds and repurchase agreements. Subject to various
restrictions applicable to all federally chartered savings associations, the
Bank also invests in investment grade corporate debt securities, asset-backed
securities (which are securities collateralized by automobile loans, credit
card receivables and marine vehicle loans which have been originated by other
financial institutions), mortgage-backed securities, collateralized mortgage
obligations and real estate mortgage investment conduit securities. The Bank,
which until 1982 was a New York State chartered savings bank, also has
grandfathered leeway authority to invest in certain equity and other
securities.
The Bank's investment goal has been to invest available funds in securities
that generally do not exceed an average life of five years or that meet
specific requirements of the Bank's asset/liability goals.
The following table sets forth certain information regarding the amortized
cost and market value of the Company's investment securities and securities
available for sale portfolios at the dates indicated.
At December 31,
1996 1995 1994
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
(in thousands)
Investment securities
U.S. Government obligations $ 1,744 1,747 1,592 1,627 105,060 100,993
U.S. Government agency obligations 25,140 25,269 20,393 20,567 445 449
Other tax-exempt bonds 1,263 1,298 1,699 1,747 3,099 3,086
Mortgage-backed securities 25,082 26,533 31,030 32,987 157,785 150,564
Corporate bonds 219 219 -- -- 373,245 357,803
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities 34,587 34,360 55,446 55,346 88,673 85,044
Asset-backed securities 21,532 21,625 43,540 43,548 72,098 69,663
Other bonds 40 40 40 40 842 920
Total investment securities $109,607 111,091 153,740 155,862 801,247 768,522
Securities available for sale
U.S. Government obligations $ 75,910 76,262 120,980 122,486 62,345 62,334
U.S. Government agency obligations 6,032 6,014 -- -- 19,942 19,938
Mortgage-backed securities 200,870 200,042 122,952 122,442 -- --
Corporate bonds 282,867 283,860 352,727 356,479 32,523 32,443
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities 19,443 19,051 25,322 25,094 8,661 8,189
Asset-backed securities 23,093 23,156 24,043 24,201 43,248 42,208
Equity securities 6,832 9,558 4,766 6,082 1,561 1,912
Total securities available for sale $615,047 617,943 650,790 656,784 168,280 167,024
At December 31, 1996, the aggregate securities of any single issuer (other
than the U.S. Government or its agencies) did not exceed 10% of the Company's
stockholders' equity.
The following table sets forth certain information regarding the amortized
cost, annual weighted average yields (which have not been calculated on a
tax-equivalent basis), average life in years, estimated market values and
maturities of the Company's investment securities and securities available for
sale at December 31, 1996.
<CAPTION
Within After One Year After Five Years
One Year Through Five Years Through Ten Years
Annualized Annualized Annualized
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
(dollars in thousands)
Investment securities:
U.S. Government obligations $ 350 6.49% $ 1,394 6.05% $ -- --%
U.S. Government agency obligations 4 7.38 25,136 7.02 -- --
Other tax-exempt bonds 200 5.44 514 5.65 299 5.66
Mortgage-backed Securities -- -- 1,181 7.28 6,077 7.59
Corporate bonds -- -- 219 5.50 -- --
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> 1,780 6.34 4,152 7.37 3,969 5.41
Asset-backed securities<F1> 5,098 4.76 16,434 5.08 -- --
Other bonds -- -- 5 6.63 35 5.39
Total investment securities $ 7,432 5.24% $ 49,035 6.36% $ 10,380 6.69%
Securities available for sale:<F2>
U.S. Government obligations $ 50,550 6.02% $ 24,962 6.13% $ -- --%
U.S. Government agency obligations -- -- -- -- 6,032 7.27
Mortgage-backed securities 7,771 7.09 64,819 5.60 49,723 7.17
Corporate bonds 132,694 5.65 149,673 6.46 300 6.44
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> -- -- 7,329 6.34 -- --
Asset-backed securities<F1> 45 6.67 23,048 6.04 -- --
Total securities available for sale $ 191,060 5.81% $ 269,831 6.18% $ 56,055 7.18%
After
Ten Years Total Securities
Annualized Annualized
Weighted Average Estimated Weighted
Amortized Average Life Amortized Market Average
Cost Yield in Years Cost Value Yield
(dollars in thousands)
Investment securities:
U.S. Government obligations $ -- --% 1.57 $ 1,744 1,747 6.14%
U.S. Government agency obligations -- -- 4.26 25,140 25,269 7.02
Other tax-exempt bonds 250 6.00 6.50 1,263 1,298 5.69
Mortgage-backed securities 17,824 9.13 10.71 25,082 26,533 8.67
Corporate bonds -- -- 3.36 219 219 5.50
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> 24,686 5.65 10.37 34,587 34,360 5.86
Asset-backed securities<F1> -- -- 2.05 21,532 21,625 5.00
Other bonds -- -- 7.67 40 40 5.55
Total investment securities $ 42,760 7.10% 7.21 $ 109,607 111,091 6.60%
Securities available for sale:<F2>
U.S. Government obligations $ 398 10.82% 0.87 $ 75,910 76,262 6.08%
U.S. Government agency obligations -- -- 6.77 6,032 6,014 7.27
Mortgage-backed securities 78,557 7.06 9.21 200,870 200,042 6.62
Corporate bonds 200 7.37 1.35 282,867 283,860 6.08
Collateralized mortgage obligation
and real estate mortgage
investment conduit securities<F1> 12,114 6.23 9.26 19,443 19,051 6.27
Asset-backed securities<F1> -- -- 3.61 23,093 23,156 6.04
Total securities available for sale $ 91,269 6.97% 4.28 $ 608,215 608,385 6.27%
<FN>
<F1>Maturities of securities in these categories reflect their stated
maturities, that is, the last possible date for repayment of principal,
rather than their expected average lives, which are generally projected
to be shorter.
<F2>Does not include equity securities.
III. Lending Activities
Lending Activities
One- to Four-Family and Home Equity Loans. The Bank offers both fixed and
adjustable rate first mortgage loans secured by one- to four-family dwellings,
including townhouses and condominium units, throughout its lending area. Loan
originations are generated through the Bank's network of 70 full service
branches generally from existing or past customers, a team of bank loan
consultants, members of the local community, mortgage brokers and mortgage
bankers located in the Bank's primary market area. During 1996, the
origination of loans through mortgage brokers/bankers under contract with the
Bank was limited to ARMs. As of December 31, 1996, approximately 91% of the
Bank's residential mortgage loan portfolio related to properties located in
New York State (primarily upstate), and the states of Massachusetts and
Vermont. Substantially all of the residential mortgage originations during the
twelve months ended December 31, 1996, were for owner-occupied residences. At
December 31, 1996, $1.7 billion, or 68% of the Bank's total loan portfolio,
consisted of one- to four-family residential mortgage loans, of which 78% were
ARMs. Adjustable rate products are typically generated for the Bank's own
portfolio, while fixed rate loans acquired are either sold with servicing
retained by the Bank or booked for its own portfolio. Total fixed rate loans
generated in 1996 amounted to $100.7 million; $78.1 million were acquired for
the Bank's own portfolio and $22.6 million were sold with servicing retained.
Generally, ARM loans pose credit risks different from the risks inherent in
fixed rate loans, primarily because if interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default,
while the marketability of the underlying property may be adversely affected
by higher interest rates. Moreover, ARM borrowers from the Bank prior to 1992
have been generally qualified based on the initial interest rates to be paid,
even when such rates were lower than the fully-indexed rate or rates that are
anticipated to follow the initial "teaser" rate. While initial "teaser" rates
are still being offered, during 1992, the Bank began qualifying borrowers at
the maximum second year fully-indexed rate. During 1993, the Bank began
qualifying borrowers for all ARM loans at a 7% rate, which was in excess of
the maximum second year fully-indexed rate, in order to better assess
underwriting risks. During 1994, this underwriting criterion was modified to
qualify borrowers at the maximum second year fully-indexed rate or 7%,
whichever was higher.
Fixed rate mortgages are available throughout the Bank's lending area on one-
to four-family residential properties, and generally are underwritten
according to the secondary market guidelines of FHLMC and FNMA. State of New
York Mortgage Agency and Vermont Housing Finance Authority fixed rate mortgage
loans are also available in New York and Vermont, respectively. A qualifying
borrower must be a first-time home buyer unless the property is located in a
federally designated target area.
The Bank originates two types of home equity loans--revolving credit line and
single disbursement--which may be secured by a first or second mortgage on a
one- to four-family primary residence, and which are available throughout the
Bank's lending area. The Bank limits the loan-to-value ratio for these loans
(including the first mortgage) to a maximum of 75%.
Commercial Real Estate Loans (including Multi-Family Loans). The Bank
originates commercial real estate loans secured by mortgages on income-
producing property in its lending area, but does not originate, or plan to
originate, such loans out-of-market, the Bank's market is defined as the
states of New York, western Massachusetts and Vermont. The Bank's underwriting
guidelines require these properties to produce sufficient income to satisfy
operating expenses and principal and interest payments on the loan, and to
provide a reasonable return to the owners on their investment. Generally, the
Bank's commercial real estate loans are collateralized by office buildings,
shopping centers and office/warehouse buildings. For such loans, the Bank
limits the loan-to-value ratio to a maximum of 75% and requires borrowers to
have demonstrated background experience which would indicate a high
probability of success in managing the property. On income-producing
properties, the Bank requires a minimum occupancy rate of 80% and a minimum
debt service coverage ratio of 1:1 for construction loans and 1.3:1 for
permanent loans.
The following table sets forth the composition of the Company's mortgage and
other loan portfolios in dollar amounts and in percentages at the dates
indicated.
At December 31,
1996 1995 1994
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
(dollars in thousands)
Mortgage loans:
One- to four-family $ 1,730,059 67.56% $ 1,362,277 70.04% $ 1,234,250 69.00%
Home equity 169,214 6.61 147,136 7.56 152,869 8.55
Commercial real estate 135,284 5.28 81,448 4.19 77,593 4.34
Multi-family 31,792 1.24 28,313 1.45 31,574 1.76
Construction 13,338 0.52 11,577 0.60 10,975 0.61
Total mortgage loans 2,079,687 81.21 1,630,751 83.84 1,507,261 84.26
Other loans:
Commercial 247,783 9.68 115,698 5.95 88,150 4.93
Consumer:
Student 94,478 3.69 93,816 4.82 89,246 4.99
Personal, secured and unsecured 84,308 3.29 52,627 2.71 52,667 2.94
Home improvement 23,593 0.92 22,800 1.17 22,230 1.24
Credit cards 14,754 0.58 17,233 0.89 16,920 0.95
Overdraft and other 16,222 0.63 12,065 0.62 12,362 0.69
Total consumer loans 233,355 9.11 198,541 10.21 193,425 10.81
Total other loans 481,138 18.79 314,239 16.16 281,575 15.74
Total mortgage and other loans 2,560,825 100.00% 1,944,990 100.00% 1,788,836 100.00%
Net discounts, premiums and
deferred loan fees and costs 5,539 1,611 (436)
Loans receivable 2,566,364 1,946,601 1,788,400
Allowance for loan losses (24,114) (15,949) (15,510)
Loans receivable, net $ 2,542,250 $ 1,930,652 $ 1,772,890
At December 31,
1993 1992
Percent Percent
of of
Amount Total Amount Total
(dollars in thousands)
Mortgage loans:
One- to four-family $ 1,057,274 68.56% $ 1,038,021 69.46%
Home equity 143,378 9.30 146,227 9.79
Commercial real estate 60,994 3.96 84,313 5.64
Multi-family 35,075 2.27 24,986 1.67
Construction 13,436 0.87 5,524 0.37
Total mortgage loans 1,310,157 84.96 1,299,071 86.93
Other loans:
Commercial 62,052 4.02 34,153 2.29
Consumer:
Student 80,314 5.21 72,485 4.85
Personal, secured and unsecured 41,242 2.68 36,031 2.41
Home improvement 18,184 1.18 19,836 1.33
Credit cards 18,864 1.22 22,186 1.48
Overdraft and other 11,272 0.73 10,603 0.71
Total consumer loans 169,876 11.02 161,141 10.78
Total other loans 231,928 15.04 195,294 13.07
Total mortgage and other loans 1,542,085 100.00% 1,494,365 100.00%
Net discounts, premiums and
deferred loan fees and costs (1,621) (1,747)
Loans receivable 1,540,464 1,492,618
Allowance for loan losses (12,984) (11,885)
Loans receivable, net $ 1,527,480 $ 1,480,733
The Bank originates multi-family mortgage loans secured by properties located
in its market area, but does not originate, or plan to originate, such loans
out-of-market. These mortgage loans are generally written for five-year terms
with interest rates tied to either the three-year or the five-year U.S.
Treasury Constant Maturity Index or they may float based on the prime rate of
interest. Amortization periods generally average from fifteen to twenty years
(maximum conforming amortization term is twenty-five years) and vary depending
on property type and other considerations. The Bank currently limits the loan-
to-value ratio for these loans to a maximum of 75% and generally requires the
execution of personal guarantees extending for the full term of the loan.
Commercial real estate lending, though not a significant part of the Bank's
lending activities in recent years, has shown marginal growth with outstanding
balances equaling $135.3 million at year-end 1996 compared with $81.4 million
at December 31, 1995. The Bank's multi-family mortgage portfolio increased
$3.5 million (12%) over the previous year. The increased balances in these
loan categories are primarily a result of the Vermont acquisitions. As of
December 31, 1996, multi-family mortgage loans comprised just over 1% of the
Bank's total loan portfolio and the average loan balance approximated
$171,000.
At December 31, 1996, the Bank had approximately $9.8 million, or 7%, of its
commercial real estate portfolio and $5.7 million, or 18%, of its multi-family
mortgage loan portfolio, in out-of-market loans. Most of the multi-family out-
of-market loans were purchased from mortgage bankers in the 1970's with the
last such purchase occurring in 1979. A majority of the out-of-market
commercial real estate loan balances outstanding have been the direct result
of the Company's recent merger and acquisition activity.
Construction Loans. The Bank originates loans to finance the construction of
one- to four-family homes in its lending area, but does not originate, or plan
to originate, such loans out-of-market. On occasion, the Bank has also
financed construction of multi-family residences and commercial real estate in
its lending area. The Bank does not currently provide land acquisition and
development financing or construction loans for speculation. With rare
exception, construction loans are made to a builder or to a buyer under a
purchase contract. Construction loans must ordinarily be combined with a
permanent mortgage from the Bank, and the maximum loan-to-value ratio the Bank
generally allows is 80%. At December 31, 1996, $13.3 million, or less than 1%
of the Bank's total loan portfolio, consisted of construction loans.
Other Loans. The Bank's other lending activities include commercial and
consumer lending. The Bank expects to devote additional resources to the
expansion of these operations in order to further diversify its lending base
and further supplement its mortgage activities.
The Bank's Commercial Loan Department concentrates its efforts on companies
that have the capacity to borrow $100,000 or more, although smaller loans are
considered. Loan pricing and terms are set according to the individual needs
and characteristics of each borrower. At December 31, 1996, the Commercial
Loan Department had loans outstanding, unused lines of credit and commitments
aggregating $347.5 million. Actual commercial loans outstanding totaled $247.8
million, or 10% of total loans at December 31, 1996, compared with $115.7
million, or 6% of total loans at December 31, 1995. The increase year-to-year
was primarily the result of the Marble and Green Mountain acquisitions.
The Bank offers a variety of consumer loan products to the communities it
serves. These loans include student loans, personal loans (both secured, as
with automobiles, and unsecured, as with overdraft lines of credit on personal
checking accounts), home improvement loans and credit card loans. At December
31, 1996, consumer loans totaled $233.4 million, or just over 9% of the Bank's
total loan portfolio.
Purchased Loans and Loan Participations. During the year ended December 31,
1996, total loan purchases amounted to $229.3 million. Additionally, the Bank
acquired $386.7 million in loans in conjunction with its two Vermont
acquisitions. The Bank's involvement was generally limited to the purchase of
one- to four-family whole loan residential mortgages. Loans were acquired on a
flow-through basis with underwriting of each loan retained by the Bank. There
were no bulk purchases of residential mortgage loans.
Mortgage loans acquired from mortgage bankers operating in the Bank's local
markets are underwritten and approved using the same guidelines as those
applicable to the Bank's own originations. When available funds have exceeded
the supply of local mortgage product, the Bank has, from time to time,
supplemented its home mortgage originations through purchases of ARMs. Most of
the purchases have been from licensed mortgage companies that originate loans
for sale to the Bank throughout upstate New York and selected areas in the
states of Ohio, Kentucky and Connecticut. Purchased loans are secured by one-
to four-family owner-occupied properties, and have been acquired on a
servicing released basis (that is, the loans are serviced by the Bank, not the
originator/seller).
From time to time, on a selective basis, the Bank also purchases a
participation interest in commercial real estate, multi-family and commercial
loans; at December 31, 1996, these loan participations represented less than
1% of the Bank's loan portfolio.
The following table sets forth the Bank's loan originations and loan
purchases, sales, principal repayments, transfers of loans to real estate
owned ("REO") and reclassification activity for the years indicated.
Years ended December 31,
1996 1995 1994
(in thousands)
Mortgage loans:
At beginning of year $ 1,630,751 1,507,261 1,310,157
Mortgage loans originated:
One- to four-family<F1> 251,369 191,204 241,616
Commercial real estate<F2> 25,354 12,052 31,015
Construction 28,978 27,560 33,025
Total mortgage loans originated 305,701 230,816 305,656
Mortgage loans purchased:
One- to four-family 416,914<F3> 125,894 145,082
Commercial real estate 55,677<F4> -- --
Total mortgage loans originated and purchased 778,292 356,710 450,738
Transfer of mortgage loans to REO, net of writedowns (5,346) (5,710) (8,017)
Reclassification of mortgage loans to other loans -- -- (1,029)
Reclassification of other loans to mortgage loans 1,352 -- --
Principal repayments (291,337) (209,933) (229,476)
Sale of loans (34,025) (17,577) (15,112)
Mortgage loans, at end of year $ 2,079,687 1,630,751 1,507,261
Other loans:
At beginning of year $ 314,239 281,575 231,928
Commercial loans originated 24,114 28,137 34,816
Consumer loans originated 79,267 74,351 70,151
Total other loans originated 103,381 102,488 104,967
Other loans purchased 143,418<F5> -- 1,080
Total other loans originated and purchased 246,799 102,488 106,047
Transfer of other loans to REO (595) -- (9)
Reclassification of mortgage loans to other loans -- -- 1,029
Reclassification of other loans to mortgage loans (1,352) -- --
Reclassification of investment securities to
commercial loans -- -- 175
Principal repayments (77,953) (56,022) (57,595)
Sale of loans -- (13,802) --
Other loans, at end of year $ 481,138 314,239 281,575
<FN>
<F1>Includes home equity loans.
<F2>Includes multi-family loans.
<F3>Includes $187,573 in loans acquired from Marble and Green Mountain Banks.
<F4>Includes $55,677 in loans acquired from Marble Bank.
<F5>Includes $143,418 in loans acquired from Marble and Green Mountain Banks.
Loan Maturity Repricing. The following table shows the maturity or period to
repricing of the Bank's loan portfolio at December 31, 1996. Loans that have
adjustable rates are shown as being due in the period during which the
interest rates are next subject to change. The table does not include
anticipated prepayments or scheduled principal amortization.
At December 31, 1996
One- to
Four- Home Commercial
Family Equity Real Estate<F1> Construction
(in thousands)
Amount due:
Within one year $ 1,085,203 127,564 80,759 13,338
After one year:
One to three years 154,613 12,496 59,582 --
Three to five years 222,931 8,830 12,582 --
Five to ten years 97,442 13,671 9,973 --
Ten to twenty years 101,375 6,524 4,180 --
Over twenty years 68,495 129 -- --
Total due after one year 644,856 41,650 86,317 --
Total amount due $ 1,730,059 169,214 167,076 13,338
At December 31, 1996
Total
Loans
Commercial Consumer Receivable
(in thousands)
Amount due:
Within one year 170,691 148,935 1,626,490
After one year:
One to three years 31,439 67,788 325,918
Three to five years 27,188 11,724 283,255
Five to ten years 18,465 4,908 144,459
Ten to twenty years -- -- 112,079
Over twenty years -- -- 68,624
Total due after one year 77,092 84,420 934,335
Total amount due 247,783 233,355 2,560,825
Net discounts, premiums and
deferred loan fees and costs 5,539
Allowance for loan losses (24,114)
Loans receivable, net $ 2,542,250
<F1>Includes multi-family loans.
The following table sets forth at December 31, 1996, the dollar amount of all
loans due after December 31, 1997, and whether such loans have fixed interest
rates or adjustable interest rates (excludes $1.626 billion of loans that
mature or reprice within one year).
Due after December 31, 1997
Fixed Adjustable Total
(in thousands)
Mortgage loans:
One- to four-family $ 353,325 291,531 644,856
Home equity 41,650 -- 41,650
Commercial real estate<F1> 57,130 29,187 86,317
Other loans:
Commercial loans 77,092 -- 77,092
Consumer loans 84,420 -- 84,420
Total mortgage loans and other loans $ 613,617 320,718 934,335
<FN>
<F1> Includes multi-family loans.
Delinquencies and Criticized Assets
Delinquencies of 60 days or more on all loan types are reviewed monthly by the
Bank's Board of Directors. Additionally, the Asset Review Committee, regular
members of which include the Bank's Chief Executive Officer, Chief Financial
Officer, Senior Credit Officer, Internal Auditor and the officers in charge of
the Commercial Lending and Retail Lending Divisions, reviews on a quarterly
basis all criticized and classified loans. Each report of the Asset Review
Committee is reviewed by the Board of Directors.
At December 31, 1996, 1995 and 1994, delinquencies in the Bank's loan
portfolio were as follows:
At December 31, 1996 At December 31, 1995
60-89 90 Days or More 60-89 90 Days or More
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
(dollars in thousands) (dollars in thousands)
One- to four-family 221 $ 11,550 228 $ 13,639 200 $ 8,220 255 $ 14,528
Home equity 45 1,238 53 1,948 35 1,007 31 1,119
Commercial real estate<F1> 4 248 14 4,157 2 448 11 1,666
Construction 2 108 2 94 -- -- -- --
Total mortgage loans 272 13,144 297 19,838 237 9,675 297 17,313
Commercial loans 10 470 35 2,478 5 1,393 1 4
Consumer loans 519 1,763 894 2,899 569 2,122 1,266 4,646
Total loans 801 $ 15,377 1,226 $ 25,215 811 $ 13,190 1,564 $ 21,963
Delinquent loans to total loans 0.60% 0.98% 0.68% 1.13%
<FN>
<F1>Includes multi-family loans.
At December 31, 1994
60-89 90 Days or More
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
(dollars in thousands)
One- to four-family 127 $ 6,153 201 $ 11,112
Home equity 25 708 25 1,125
Commercial real estate<F1> 2 998 8 1,718
Total mortgage loans 154 7,859 234 13,955
Commercial loans 1 55 -- --
Consumer loans 548 2,005 1,180 4,544
Total loans 703 $ 9,919 1,414 $ 18,499
Delinquent loans to total loans 0.55% 1.03%
<FN>
<F1>Includes multi-family loans.
Loans are placed on a nonaccrual status for the recording of interest when
considered doubtful of collection by management. With respect to residential
mortgage loans, this ordinarily occurs when a mortgage loan becomes 120 days
delinquent. Credit card and other retail consumer loans are evaluated for
collectibility on a monthly basis, at which time (and prior to their being 150
days delinquent) all accounts (including related accrued interest) deemed
uncollectible are charged off. Delinquent interest on FHA and VA mortgage
loans, and student loans continues to accrue since these loans are backed by a
government agency guarantee and substantially all interest and principal is
ultimately expected to be received. Once management reaches a decision to
place a loan on nonaccrual status, all previously accrued interest on such a
loan is generally reversed against interest income.
During the years ended December 31, 1996, 1995 and 1994, the amount of
interest income on nonaccrual loans that would have been recorded at the
original rates on such loans, had they been current, totaled $1.7 million,
$1.0 million and $0.9 million, respectively. Interest income actually recorded
in these periods with respect to such loans was $320,000, $295,000 and
$290,000, respectively.
The Bank periodically reviews its loan portfolio and classifies loans it
considers to be of lesser quality as "substandard", "doubtful", or "loss". A
loan is considered "substandard" if the borrower's current paying capacity
and/or net worth is impaired or weakened, or the underlying collateral, if
any, has been devalued, such that the continuation of sufficient future cash
flow for full repayment of principal and interest on the asset is
questionable. The notion of substandard also includes the distinct possibility
that the Bank will sustain some loss if the deficiencies are not corrected.
Loans classified as "doubtful" have all the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make collection in full highly questionable in light of existing
facts, conditions and values. Loans classified as "loss" are charged off.
Management designates a loan which does not currently have the deficiencies
necessary to warrant classification, but does exhibit some potential
weaknesses, as a "special mention" loan.
On December 31, 1996, criticized loans (including special mention loans) of
the Bank totaled $84.2 million, or approximately 3% of total loans. These
loans were comprised of $4.6 million in the doubtful category, $56.4 million
in the substandard category and $23.2 million in the special mention category.
Of the Bank's criticized loans at December 31, 1996, 34% were residential
mortgage loans, 34% were commercial loans, 30% were commercial mortgage loans
and 2% were consumer loans. This compared with an aggregate of $40.2 million
of criticized loans, or approximately 2% of total loans, as of December 31,
1995, of which $1.3 million were in the doubtful category, $34.6 million were
in the substandard category and $4.3 million were in the special mention
category. As of that date, 59% of the Bank's criticized loans were residential
mortgages, 16% were commercial loans, 22% were commercial mortgage loans and
3% were consumer loans. The increase in criticized loans in 1996, and the
change in the proportion of criticized loans represented by different loan
categories were primarily the result of the Marble and Green Mountain
acquisitions.
In December 1996, the Bank completed a sale of a group of one- to four-family
nonperforming mortgage loans with a book value of $10.3 million. Based upon
the book value of the loans sold and the consideration received by the Bank, a
chargeoff reducing the allowance for loan losses by $4.1 million was taken.
Accordingly, at December 31, 1996, nonperforming loans, criticized loans and
the allowance for loan losses reflect the impact of the sale.
Nonperforming Loans and Assets
The following table sets forth information regarding nonaccrual loans and
accruing loans delinquent more than 90 days (collectively, "nonperforming
loans") and REO owned by the Bank (together with nonperforming loans,
"nonperforming assets") at the dates indicated.
Years ended December 31,
1996 1995 1994 1993 1992
(dollars in thousands)
Nonaccrual mortgage loans $ 15,298 12,571 10,231 14,337 13,250
Accruing mortgage loans delinquent
more than 90 days 7,367 5,567 5,104 4,933 7,284
Total nonperforming mortgage loans 22,665 18,138 15,335 19,270 20,534
Nonaccrual other loans 3,933 372 424 152 319
Accruing other loans delinquent
more than 90 days 3,218 4,646 4,544 3,492 3,025
Total nonperforming other loans 7,151 5,018 4,968 3,644 3,344
Total nonperforming loans 29,816 23,156 20,303 22,914 23,878
Total REO 4,012 3,899 3,822 4,418 4,606
Total nonperforming assets $ 33,828 27,055 24,125 27,332 28,484
Total nonperforming loans to
loans receivable 1.16% 1.19% 1.14% 1.49% 1.60%
Total nonperforming assets to
total assets 0.96 0.91 0.81 0.99 1.15
Over the last five years, the Bank's nonperforming loans and assets have been
maintained at average levels that were below industry group averages. At
December 31, 1996, 69% of the Bank's REO consisted of residential (one- to
four-family) properties and 31% resulted from foreclosures on commercial
properties, compared with 96% and 4%, respectively, at December 31, 1995.
Commercial properties located in the market area of the Bank's Marble division
are the primary reason for the increased commercial REO at year-end 1996
compared with 1995 with the change occurring principally as a result of the
Marble and Green Mountain acquisitions.
IV. Summary of Loan Loss Experience
The Bank maintains a total valuation allowance for losses on loans
representing allowances with respect to categories of loans which the Bank
believes represent risk of loss and an unallocated allowance for future losses
generally. The allowance for loan losses is established and maintained through
a provision for loan losses at a level deemed appropriate by management to
provide adequately for known and inherent risks in the portfolio. The
determination of the amount of the allowance for loan losses includes
estimates that are susceptible to significant modifications due to changes in
appraised values of collateral and general economic conditions. In connection
with the determination of an adequate allowance for loan losses, management
periodically obtains independent appraisals for significant properties. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance for loan losses.
Management's evaluation of the risk inherent in its loan portfolio includes a
review of all loans on which full collectibility may not be reasonably assured
considering, among other matters, the estimated net realizable value of the
underlying collateral (if any), economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance. Other factors considered by management include
the size and risk exposure of each segment of the loan portfolio, present
indicators such as delinquency rates and the borrower's current financial
condition and the potential for losses in future periods. In evaluating the
adequacy of the allowance for loan losses, management recognizes the risk
associated with each type of loan and the current outstanding balance. The
primary risk element considered by management with respect to each consumer,
home-equity and one- to four-family real estate mortgage loan is any current
delinquency on the loan. The primary risk elements considered by management
with respect to commercial, commercial real estate and real estate
construction loans are the financial condition of the borrowers, the
sufficiency of collateral (including changes in the appraised value of
collateral) and the record of payment. In general, all properties securing
loans delinquent more than 90 days are physically inspected. A subjective
review of all substantial nonperforming loans, other problem loans and over-
all delinquent loans is also made prior to the end of each calendar quarter to
determine the adequacy of the allowance for loan losses. Additionally, current
year charge-offs, charge-off trends, new loan production and current balances
by particular loan categories are factored into the determination of reserve
levels. The Bank allocates the allowance for loan losses to various categories
of loans based on the preceding factors. The increased allocation of the
allowance for commercial and commercial real estate loans reflects the
addition of nonperforming loans in those categories resulting from the Vermont
acquisitions. The increased allowance allocated to consumer loans is
reflective of a measure of softening in the Bank's market area.
The following table sets forth the Bank's allowance for loan losses at the
dates indicated.
Years ended December 31,
1996 1995 1994 1993 1992
(dollars in thousands)
Balance at beginning of period $ 15,949 15,510 12,984 11,885 11,174
Allowance of acquired banks 11,310 -- 151 -- --
Provision for loan losses 5,775 4,500 4,500 4,200 4,100
Charge-offs:
Mortgage loans <F1> (7,013) (2,685) (1,980) (2,267) (2,019)
Other loans (2,635) (1,736) (1,031) (1,146) (1,580)
Recoveries:
Mortgage loans 223 83 647 -- 5
Other loans 505 277 239 312 205
Balance at end of period $ 24,114 15,949 15,510 12,984 11,885
Allocation of allowance for specfic loan
types at end of period:
Residential mortgage loans $ 7,360 7,233 5,724 5,745 3,111
Commercial real estate loans<F2> 2,623 1,502 1,455 1,599 2,172
Commercial loans 4,065 1,714 1,016 896 1,262
Consumer loans 5,000 3,523 2,263 2,225 2,535
Unallocated 5,066 1,977 5,052 2,519 2,805
Balance at end of period $ 24,114 15,949 15,510 12,984 11,885
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.38% 0.22% 0.13% 0.20% 0.23%
Ratio of allowance for loan losses
to loans receivable at end of period 0.94 0.82 0.87 0.84 0.80
Ratio of allowance for loan losses
to nonperforming loans at end of period 80.88 68.88 76.39 56.67 49.77
<FN>
<F1>Of the total loans charged-off in 1996, $4.1 million was
related to a sale of nonperforming loans consummated during
the fourth quarter of 1996.
<F2>Includes multi-family loans.
V. Deposits and Sources of Funds
The Bank's primary sources of funds are deposits and proceeds from principal
and interest payments on loans and on its investments in securities.
The Bank offers a variety of deposit accounts having a range of interest rates
and terms. The Bank's deposits principally consist of passbook and statement
savings accounts ("Savings accounts") and NOW accounts, Super NOW accounts,
money market accounts, interest-bearing and noninterest-bearing demand deposit
accounts (collectively, "Transaction accounts") and fixed-term certificate
accounts. The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates and competition. The Bank's
deposits are obtained primarily from the areas in which its branches are
located, and the Bank relies principally on customer service and long-standing
relationships with customers to attract and retain these deposits. The Bank
does not solicit or accept brokered deposits.
The following table sets forth the distribution of the Bank's deposit accounts
and the respective weighted average nominal interest rates at the dates
indicated. Average balances of certificates by maturity category are not
readily available. Management believes that the use of the year-end balances
does not significantly affect the analysis.
At December 31,
1996 1995
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
(dollars in thousands)
Saving accounts $ 824,151 27.35% 2.94% $ 826,875 32.32% 2.96%
Transaction accounts 605,053 20.08 1.80 422,555 16.52 1.48
Total 1,429,204 47.43 1,249,430 48.84
Certificate accounts:
Within one year 1,114,101 36.98 955,218 37.34
One year to three years 417,300 13.85 232,161 9.07
Over three years 52,524 1.74 121,479 4.75
Total 1,583,925 52.57 5.37 1,308,858 51.16 5.64
Total deposits $ 3,013,129 100.00% 3.99% $ 2,558,288 100.00% 4.09%
At December 31, 1994
Weighted
Percent Average
of Total Nominal
Amount Deposits Rate
(dollars in thousands)
Saving accounts $ 999,768 39.33% 2.96%
Transaction accounts 389,503 15.32 1.75
Total 1,389,271 54.65
Certificate accounts:
Within one year 760,167 29.91
One year to three years 281,668 11.08
Over three years 110,856 4.36
Total 1,152,691 45.35 4.78
Total deposits $ 2,541,962 100.00% 3.60%
The following table presents the deposit activity of the Bank for the
periods indicated.
Years ended December 31,
1996 1995 1994
(in thousands)
Deposits $ 30,701,725 21,560,120 18,811,368
Withdrawals 30,364,876 21,646,938 18,731,405
Deposits in excess (less than) withdrawals 336,849 (86,818) 79,963
Interest credited on deposits 117,992 103,144 80,285
Total increase in deposits $ 454,841<F1> 16,326<F2> 160,248<F3>
<FN>
<F1>The above increase includes approximately $327 million and $108 million
in deposits acquired in the Marble and Green Mountain acquisitions.
(See ITEM 1: "Business--General" of this Form 10-K.)
<F2>The above increase includes approximately $18 million in deposits
acquired from The Dime Savings Bank of New York, FSB.
(See ITEM 1: "Business--General" of this Form 10-K.)
<F3>The above increase includes approximately $216 million in deposits
acquired from Ludlow Savings Bank.
(See ITEM 1: "Business--General" of this Form 10-K.)
At December 31, 1996, the following maturities applied to
certificate accounts in amounts of $100,000 or more.
Amount
(in thousands)
Three months or less $ 48,376
Over three through six months 47,495
Over six through twelve months 33,930
Over twelve months 44,722
Total $ 174,523
VI. Return on Equity and Assets
Information regarding returns on equity and assets appears on page 13 of the
Annual Report under the caption "Five Year Selected Financial Data" and is
incorporated herein by reference.
VII. Short-Term Borrowings
Although deposits are the Bank's primary source of funds, the Bank's policy
has been to utilize borrowings where appropriate as an alternative or less
costly source of funds. The Bank obtains advances from the FHLB-NY which are
collateralized by certain of the Bank's mortgage loans. Such advances are made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities.
The Bank may enter into sales of securities under agreements to repurchase
("repurchase agreements") with nationally recognized primary securities
dealers. Repurchase agreements are accounted for as borrowings by the Bank and
are secured by designated securities. The proceeds of these transactions are
used to meet cash flow or asset/liability needs.
Other short-term borrowings are comprised of funds advanced to the Bank by its
SBLI department. These funds are advanced on an unsecured basis and are paid
interest equal to the federal funds rate.
The following table sets forth certain information regarding the Bank's short-
term borrowed funds at or for the periods ended on the dates indicated.
At or For the Years ended December 31,
1996 1995 1994
(dollars in thousand)
FHLB-NY advances:
Average balance outstanding $ 20,838 1,884 12,364
Maximum amount outstanding at any month-end during
the period 73,000 18,000 42,500
Balance outstanding at end of period 36,000 -- 13,300
Weighted average interest rate at end of period 7.17% --% 5.13%
Weighted average interest rate during the period<F1> 5.47 6.60 4.60
Repurchase agreements:
Average balance outstanding $ 3,563 -- 8,861
Maximum amount outstanding at any month-end during
the period 4,796 -- 47,791
Balance outstanding at end of period 4,796 -- --
Weighted average interest rate at end of period 4.00% --% --%
Weighted average interest rate during the period<F1> 4.16 -- 5.29
Other short-term borrowings:
Average balance outstanding $ 936 14 --
Maximum amount outstanding at any month-end during
the period 1,550 1,290 --
Balance outstanding at end of period 1,550 1,290 --
Weighted average interest rate at end of period 6.00% 4.75% --%
Weighted average interest rate during the period<F1> 5.30 5.48 --
Total short-term borrowings and repurchase agreements:
Average balance outstanding $ 25,337 1,898 21,225
Maximum amount outstanding at any month-end during
the period 77,971 18,000 62,500
Balance outstanding at end of period 42,346 1,290 13,300
Weighted average interest rate at end of period 6.77% 4.75% 5.13%
Weighted average interest rate during the period<F1> 5.28 6.59 4.89
<FN>
<F1>Computed on the basis of average daily balances.
Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers of the Company, all of whom held substantially identical positions
with the Bank, as of December 31, 1996.
Name Age Position Held with the Company
Herbert G. Chorbajian 58 Chairman of the Board,
President and Chief
Executive Officer
Richard J. Heller 50 Executive Vice President and
Chief Financial Officer
Barry G. Blenis 53 Executive Vice President,
Operations and Strategic Planning
Freling H. Smith 55 Senior Vice President,
Secretary and General Counsel
None of the individuals named in the above table was selected to his position
as an officer of the Registrant pursuant to any arrangement or understanding
with any other person nor are there any family relationships between them.
Each of the above officer has held the same or another executive position with
the Registrant for the past five years.
None of the individuals named above holds a directorship with a company
(except for the Registrant) registered pursuant to Section 12 of the
Securities Exchange Act of 1934, or subject to the requirements of Section 15
(d) of that Act, or with a company which is registered as an investment
company under the Investment Company Act of 1940.
Herbert G. Chorbajian has served as Chairman, President and Chief Executive
Officer since 1990.
Richard J. Heller joined the Bank in 1991 and since that time has served as
Executive Vice President and Chief Financial Officer.
Barry G. Blenis assumed his current position of Executive Vice President,
Operations and Strategic Planning in 1990.
Freling H. Smith became Senior Vice President, Secretary and General Counsel
to the Bank in 1991.
ITEM 2 Properties
The Bank conducts business through its home office in Albany, New York, 69
other full service branches and a merchant banking branch at an Albany area
shopping mall; 33 of the Bank's branch offices are owned and 38 are leased.
Reference is made to the inside front cover of the Annual Report for a
description and location of the Bank's branch offices. Three other office
locations (all of which are owned by the Bank) are also used to conduct
business; two are located in Albany, New York (a data processing center and an
operations center), and one is located in Plattsburgh, New York (a family
financial center).
ITEM 3 Legal Proceedings
The Bank is involved in a number of pending legal proceedings, most of which
represent routine matters occurring in the ordinary course of business. In the
aggregate, all of the Bank's pending legal proceedings involve amounts which
are believed by management not to be material to the financial condition of
the Bank.
ITEM 4 Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder
Matters
The information set forth inside the back cover under the captions "Stock
Listing" and "Stock Price" of the Annual Report is incorporated herein by
reference.
As of March 21, 1997, the Company had approximately 5,096 stockholders of
record, not including the number of persons or entities whose stock is held in
nominee or "street" name through various brokerage firms or other financial
institutions.
On February 27, 1996, the Board of Directors of the Company declared a 6-for-5
stock split effected as a 20% stock dividend. This stock dividend was paid
April 1, 1996, to shareholders of record on March 15, 1996. By maintaining the
quarterly per share cash dividend at $0.12 following the stock dividend, the
Board effectively increased the dividend by 20%, the second such increase in
as many years. On November 25, 1996, the Company announced that its Board
would increase the Company's quarterly cash dividend an additional 25% by
initiating payment a quarterly rate of $0.15 per share commencing with the
dividend to be paid on January 2, 1997. Declarations of subsequent dividends
by the Board will depend upon a number of factors, including, among other
things, investment opportunities available to the Company or the Bank, capital
requirements, regulatory limitations, the Bank's and the Company's financial
condition and results of operations, tax considerations and general economic
conditions.
Reference is also made to the "Liquidity and Capital Resources" section set
forth on page 14 of the Annual Report, which is incorporated herein by
reference. Additional reference is made to Part 1, Item 1. "Description of
Business--Regulation and Supervision--Capital Requirements" and "--
Restrictions on Dividends and Other Capital Distributions" in this Form 10-K
for a description of regulatory restrictions with regard to the future payment
of dividends by the Company.
ITEM 6 Selected Financial Data
The information set forth on page 13 under the caption "Five Year Selected
Financial Data" of the Annual Report is incorporated herein by reference.
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Total assets increased $536.0 million (18%) to $3.5 billion at December 31,
1996. The increase in total assets was primarily attributable to the Marble
and Green Mountain acquisitions, (the "Vermont acquisitions") which added
$531.0 million in assets and $462.0 in liabilities to the Company's balance
sheet. The increase in total liabilities was augmented by increases in short-
term borrowings and repurchase agreements of $41.1 million and advances of
long-term debt totaling $30.1 million.
As a result of funding the Vermont acquisitions as well as loan growth, the
Company's total cash and cash equivalents decreased $36.1 million (34%). An
increase in cash and due from banks of $14.9 million (28%) which was primarily
attributable to the Vermont acquisitions was more than offset by decreases in
federal funds sold of $1.0 million and securities purchased under agreement to
resell of $50.0 million.
Redirection of funds from maturing securities to loan products was the primary
reason for the overall net decrease of $38.8 million (6%) in securities
available for sale and $44.1 million (29%) in investment securities. These
reductions occurred in spite of the acquisition of securities available for
sale from the Marble acquisition totaling $97.8 million.
Loans receivable grew $619.8 million (32%) to $2.566 billion at December 31,
1996. Mortgage loans accounted for approximately three quarters of the
increase as the mortgage portfolio increased $448.9 million (28%) over 1995.
Mortgage loan balances added as a result of the Vermont acquisitions totaled
$243.3 million. The remaining increase is attributable to loans originated and
the purchase of individual mortgage loans for portfolio retention. Although
all categories of mortgage loans increased over 1995, over 80% of the increase
was in the one- to four- family category. Other loans increased $166.9 million
(53%) over 1995 as commercial loans of $108.5 million and consumer loans of
$34.9 million added as a result of the Vermont acquisitions combined with
additional net commercial loan advances of $24.1 million.
The allowance for loan losses increased $8.2 million (51%) over the prior
year. In addition to the provision for loan losses of $5.8 million, the
allowance for loan losses increased due to $11.3 million in balances acquired
as components of the Vermont acquisitions and recoveries of $0.7 million.
Offsetting these additions were charge-offs of $9.6 million including $4.1
million that resulted from the sale of a group of one- to four-family
nonperforming loans in December 1996 with a book value of $10.3 million.
Office premises and equipment increased $7.9 million (19%) over the previous
year. The increase primarily reflects the effect of the Vermont acquisitions
as well as upgrades in data processing equipment.
The net increase in other assets of $33.5 million (90%) was due primarily to
the goodwill generated by the Vermont acquisitions and the Company's
investment in real estate projects which generate low income housing and
historic preservation income tax credits. At December 31, 1996, the balance of
goodwill related to the Vermont acquisitions was $26.8 million; the balance of
the Company's investment in the real estate projects was $6.2 million.
Total deposits increased $454.8 million (18%) to $3.013 billion at December
31, 1996. The primary reason for the net increase was deposits acquired in the
Vermont acquisitions of $434.3 million combined with net deposit inflows.
Included in the net increase were certificate accounts which rose $275.1
million (21%), money market accounts which were up $103.5 million (66%), along
with commercial and retail demand deposits which increased $46.8 million
(63%).
Despite increased loan balances, escrow accounts declined $8.3 million (24%)
below year-end 1995. The relative decrease was caused mainly by regulations
which required the Bank to reduce escrow balances with depositors during 1996.
Short-term borrowed funds and repurchase agreements increased $41.1 million to
$42.3 million at December 31, 1996. The increase reflects the Bank's funding
of loan growth in excess of funds provided by other operating and financing
sources. Long-term debt rose $30.1 million during 1996. Substantially all of
this increase was used to finance the Marble acquisition in the first quarter
of 1996.
Other liabilities increased $23.1 million (53%) over the balance outstanding
at December 31, 1995. Approximately $10.4 million of the increase reflects the
Bank's expanded franchise, including increases in outstanding checks, wire
transfers in process, and accrued interest payable on deposits. The increased
number of branches operating at year-end 1996 compared to 1995 resulted
primarily from the Vermont acquisitions as well as two supermarket branch
openings in December 1996. Also contributing to the increase in other
liabilities were increases in accounts payable of $5.1 million related to the
Company's investment in real estate projects which generate low income housing
and historic preservation income tax credits, and $1.9 million related to the
Company's stock repurchase program.
Stockholders' equity decreased $4.1 million (1%) from the previous year-end.
Increases in total stockholders' equity included net income for the year ended
December 31, 1996, of $26.2 million, exercise of stock options of $1.0
million, tax benefits related to vested BRP stock and stock options of $0.9
million, and amortization of awards of ESOP and BRP stock of $1.3 million and
$0.9 million, respectively. Offsetting these increases were the cost of
treasury stock acquired for the year ended December 31, 1996, of $25.8
million, adjustment of securities available for sale to market value of $1.7
million, net of tax, and cash dividends declared of $6.8 million. The stock
dividend paid on April 1, 1996, resulted in shifts between treasury stock,
additional paid-in capital, and retained earnings. The reduction of retained
earnings of $64.0 million was offset by an increase in additional paid in
capital of $27.8 million, and a reduction in the contra-equity account for
treasury stock of $36.2 million. At December 31, 1996, the ratio of
stockholders' equity to total assets was 9.10%, down from 10.88% a year
earlier.
Book value per common share increased to $24.72 at December 31, 1996, from
$23.37 for the previous year. The increase is the net result of a $4.1 million
(1%) decrease in total stockholders' equity which was more than offset by the
reduced number of shares outstanding resulting from the Company's stock
repurchase program. During 1996, the Company repurchased a total of 926,517
shares of its common stock at a total cost of $25.8 million. At December 31,
1996, the Company held 2,786,737 shares of its common stock as treasury stock.
The additional goodwill generated by the Vermont acquisitions resulted in a
decrease in tangible book value per share to $21.35 per common share from
$22.05 per common share at December 31, 1995.
Nonperforming assets increased $6.8 million (25%) to $33.8 million at December
31, 1996, compared with $27.1 million at December 31, 1995. Of the increase,
$6.7 million was attributable to the increase in nonperforming loans.
Nonperforming mortgage loans increased $4.5 million (25%) while nonperforming
other loans increased $2.1 million (43%). The increase in both categories
reflects the addition of nonperforming loans acquired in the Vermont
acquisitions as well as a measure of economic softening in the Bank's market
area.
Results of Operations
The information set forth on pages 14 through 24 of the Annual Report is
incorporated herein by reference.
ITEM 8 Financial Statements and Supplementary Data
The information set forth on pages 25 through 49 of the Annual Report is
incorporated herein by reference.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required by the items in this part has been omitted since it
will be contained in the definitive proxy statement to be filed pursuant to
Regulation 14-A.
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1). Financial Statements
The following consolidated financial statements of the Company and its
subsidiary, together with the report thereon of KPMG Peat Marwick LLP, dated
January 31, 1997, set out at pages 26 through 49 of the Annual Report, are
incorporated herein by reference.
Independent Auditors' Report.
Consolidated Statements of Earnings for each of the years in the three-year
period ended December 31, 1996.
Consolidated Statements of Financial Condition as of December 31, 1996 and
1995.
Consolidated Statements of Changes in Stockholders' Equity for each of the
years in the three-year period ended December 31, 1996.
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1996.
Notes to Consolidated Financial Statements.
The remaining information appearing in the Annual Report is not deemed to be
filed as part of this Report, except as expressly provided herein.
(a)(2). Financial Statement Schedules
All schedules for the Registrant and its subsidiary are omitted because they
are not required or are not applicable or the required information is shown in
the Consolidated Financial Statements or Notes thereto.
(a)(3). Exhibits
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
Regulation S-K Exhibit
Reference Number Description
3 3.01 Certificate of Incorporation of ALBANK (incorporated herein by reference to Exhibit 3.1 to ALBANK's
Registration Statement on Form S-1, as amended, filed on December 23, 1991, Registration
No. 33-44721).
3.02 Bylaws of ALBANK, as amended (incorporated herein by reference to Exhibit 3.02 to ALBANK's Annual
Report on Form 10-K for the year ended December 31, 1993, filed on March 31, 1994).
10 10.01 Employment Agreement dated April 1, 1992, between ALBANK and Herbert G. Chorbajian (incorporated
herein by reference to Exhibit 10.1 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.02 Employment Agreement dated April 1, 1992, between ALBANK and Richard J. Heller (incorporated herein
by reference to Exhibit 10.2 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.03 Employment Agreement dated April 1, 1992, between ALBANK and Freling H. Smith (incorporated herein
by reference to Exhibit 10.3 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.04 Employment Agreement dated April 1, 1992, between ALBANK and Barry G. Blenis (incorporated herein
by reference to Exhibit 10.4 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.05 Employment Agreement dated April 1, 1992, between the Bank and Herbert G. Chorbajian (incorporated
herein by reference to Exhibit 10.5 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.06 Employment Agreement dated April 1, 1992, between the Bank and Richard J. Heller (incorporated
herein by reference to Exhibit 10.6 to ALBANK's Annual Report on Form 10-K for the year ended
June 30, 1992, filed on September 28, 1992).
10.07 Employment Agreement dated April 1, 1992, between the Bank and Freling H. Smith (incorporated herein
by reference to Exhibit 10.7 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.08 Employment Agreement dated April 1, 1992, between the Bank and Barry G. Blenis (incorporated herein
by reference to Exhibit 10.8 to ALBANK's Annual Report on Form 10-K for the year ended June 30,
1992, filed on September 28, 1992).
10.09 Employment Agreement dated April 1, 1992, between the Bank and Clifford M. Apgar (incorporated herein
by reference to Exhibit 10.9 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.10 Employment Agreement dated April 1, 1992, between the Bank and Frank J. Vaselewski (incorporated
herein by reference to Exhibit 10.10 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.11 ALBANK Financial Corporation 1992 Stock Incentive Plan for Key Employees, as Amended and Restated as
of December 18, 1995 (incorporated herein by reference to Exhibit 10.11 to ALBANK's Annual Report
on Form 10-K for the year ended December 31, 1995 filed on March 29, 1996).
10.12 ALBANK Financial Corporation 1992 Stock Incentive Plan for Outside Directors (incorporated herein by
reference to the Proxy Statement for the 1992 Annual Meeting of the Stockholders of ALBANK held on
October 26, 1992).
10.12.1 ALBANK Financial Corporation 1995 Stock Incentive Plan for Outside Directors (incorporated herein by
reference to Exhibit 10.12.1 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1995 filed on March 29, 1996).
10.13 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Senior Executive
Officers (incorporated herein by reference to Exhibit 10.13 to ALBANK's Annual Report on Form 10-K
for the year ended June 30, 1992, filed on September 28, 1992).
10.14 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Officers (incorporated
herein by reference to Exhibit 10.14 to ALBANK's Annual Report on Form 10-K for the year ended June
30, 1992, filed on September 28, 1992).
10.15 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Outside Directors
(incorporated herein by reference to the Proxy Statement for the 1992 Annual Meeting of the
Stockholders of ALBANK held on October 26, 1992).
10.16 Albany Savings Bank, FSB Incentive Savings and Employee Stock Ownership Plan, as amended (incorporated
herein by reference to Exhibit 10.16 to ALBANK's Annual Report on Form 10-K for the year ended
December 31, 1994, filed on March 31, 1995).
10.17 Agreement dated June 17, 1985, between the Bank and Herbert G. Chorbajian (Life Insurance Contract)
(incorporated herein by reference to Exhibit 10.10 to ALBANK's Registration Statement on Form S-1, as
amended, filed on December 23, 1991, Registration No. 33-44721).
10.18 Agreement dated June 17, 1985, between the Bank and Herbert G. Chorbajian (Pension and Benefit
Restoration Contract) (incorporated herein by reference to Exhibit 10.11 to ALBANK's Registration
Statement on Form S-1, as amended, filed on December 23, 1991, Registration No. 33-44721) as amended
by the agreement dated May 8, 1996.
10.19 Agreement dated June 17, 1985, between the Bank and Herbert G. Chorbajian (Incentive Savings Contract)
(incorporated herein by reference to Exhibit 10.12 to ALBANK's Registration Statement on Form S-1,
as amended, filed on December 23, 1991, Registration No. 33-44721).
10.20 ALBANK, FSB Management Incentive Plan for 1996.
10.21 Retirement Restoration Plan of Albany Savings Bank, FSB (incorporated herein by reference to Exhibit
10.21 to ALBANK's Registration Statement on Form S-1, as amended, filed on December 23, 1991,
Registration No. 33-44721).
10.22 Albany Savings Bank, FSB Supplemental Deferred Compensation Plan, as amended (incorporated herein by
reference to Exhibit 10.22 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1993, filed on March 31, 1994).
10.23 Albany Savings Bank, FSB Deferred Compensation Plan for Directors, as amended (incorporated herein by
reference to Exhibit 10.23 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1993, filed on March 31, 1994).
10.24 Directors Retirement Plan of Albany Savings Bank, FSB, as amended (incorporated herein by reference
to Exhibit 10.25 to Amendment No. 1 to ALBANK's Registration Statement on Form S-1, as amended,
filed on February 5, 1992, Registration No. 33-44721).
10.24.1 Amendment to Directors Retirement Plan of Albany Savings Bank, FSB, as amended (incorporated herein
by reference to Exhibit 10.24.1 to ALBANK's Annual Report on Form 10-K for the year ended December 31,
1994, filed on March 31, 1995).
10.25 Loan Agreement between ALBANK and The First National Bank of Boston, successor trustee to Nationar,
as Trustee of Albany Savings Bank, FSB Employee Stock Ownership Plan (incorporated herein by
reference to Exhibit 10.25 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.26 Pledge Agreement between ALBANK and The First National Bank of Boston, successor trustee to Nationar,
as Trustee of the Albany Savings Bank, FSB Employee Stock Ownership Plan (incorporated herein by
reference to Exhibit 10.26 to ALBANK's Annual Report on Form 10-K for the year ended June 30, 1992,
filed on September 28, 1992).
10.27 Trust Agreement "A" between the Bank and The First National Bank of Boston, successor trustee to
Nationar, for the Albany Savings Bank, FSB, Incentive Savings and Employee Stock Ownership Plan
(incorporated herein by reference to Exhibit 10.27 to ALBANK's Annual Report on Form 10-K for the year
ended June 30, 1992, filed on September 28, 1992).
10.27.1 First Instrument of Amendment to Trust Agreement "A" between the Bank and The First National Bank of
Boston, successor trustee to Nationar, for the Albany Savings Bank, FSB Incentive Savings and
Employee Stock Ownership Plan (incorporated herein by reference to Exhibit 10.27.1 to ALBANK's Annual
Report on Form 10-K for the year ended December 31, 1994, filed on March 31, 1995).
10.28 Trust Agreement "B" between the Bank and The First National Bank of Boston, successor trustee to
Nationar, for the Albany Savings Bank, FSB Incentive Savings and Employee Stock Ownership Plan
(incorporated herein by reference to Exhibit 10.28 to ALBANK's Annual Report on Form 10-K for the
year ended June 30, 1992, filed on September 28, 1992).
10.28.1 First Instrument of Amendment to Trust Agreement "B" between the Bank and The First National Bank of
Boston, successor trustee to Nationar, for the Albany Savings Bank, FSB Incentive Savings and Employee
Stock Ownership Plan (incorporated herein by reference to Exhibit 10.28.1 to ALBANK's Annual Report
on Form 10-K for the year ended December 31, 1994, filed on March 31, 1995).
11 11.01 Statement regarding Computation of Per Share Earnings.
13 13.01 Annual Report to Security Holders. Portions of ALBANK's December 31, 1996 Annual Report to
Stockholders have been incorporated by reference into this Form 10-K. The accountant's certificate
in such Annual Report attached as Exhibit 13.01 has been manually signed.
21 21.01 Subsidiary of the Registrant and Related Subsidiaries.
23 23.01 Consent of KPMG Peat Marwick LLP.
27 27.01 Financial Data Schedule.
99 99.01 Albany Savings Bank, FSB Recognition and Retention Plan and Trust Agreement for Other Employees
(incorporated herein by reference to Exhibit 28.1 to ALBANK's Annual Report on Form 10-K for the
year ended June 30, 1992, filed on September 28, 1992).
99.02 Albany Savings Bank, FSB Branch Management Incentive Plan (incorporated herein by reference to Exhibit
28.7 of ALBANK's Registration Statement on Form S-1, as amended, filed on December 23, 1991,
Registration No. 33-44721).
ALBANK agrees to file with the Securities and Exchange Commission a copy of
every instrument with respect to long-term debt of ALBANK and its subsidiary
when the total amount of securities authorized does not exceed 10% of the
total assets of ALBANK and its subsidiary on a consolidated basis, upon the
request of the Securities and Exchange Commission.
(b). Reports on Form 8-K
The Company did not file any Report on Form 8-K during the fourth quarter of
1996.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
ALBANK Financial Corporation
(Registrant)
/s/ Herbert G. Chorbajian
By: Herbert G. Chorbajian
Chairman of the Board,
President and Chief
Executive Officer
Dated: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Herbert G. Chorbajian Chairman of the Board, March 27, 1997
Herbert G. Chorbajian President and Chief
(principal executive officer) Executive Officer
/s/ Richard J. Heller Executive Vice President March 27, 1997
Richard J. Heller and Chief Financial Officer
(principal accounting officer)
(principal financial officer)
/s/ William J. Barr Director March 27, 1997
William J. Barr
/s/ Director March 27, 1997
Henry M. Elliot, Jr.
/s/ John E. Maloy, Sr. Director March 27, 1997
John E. Maloy, Sr.
/s/ Susan J. Stabile Director March 27, 1997
Susan J. Stabile, Esq.
/s/ Anthony P. Tartaglia, M.D. Director March 27, 1997
Anthony P. Tartaglia, M.D.
/s/ Karen R. Hitchcock, Ph.D. Director March 27, 1997
Karen R. Hitchcock, Ph.D.
/s/ Francis L. McKone Director March 27, 1997
Francis L. McKone