Exhibit 13.01
Front Cover:
ALBANK
1996 Annual Report
Inside Front Cover:
Branch Locations
NEW YORK
ALBANY
10 North Pearl Street
(Main Office)
Colonie Center
Crossgates Mall
(Merchant Operation)
Delaware Plaza
Empire State Plaza
Guilderland
Latham
Loudonville
Northway Mall
Pine Hills
Schoolhouse Road
Washington Avenue
GLENS FALLS
Bay Street
Queensbury (2 locations)
KINGSTON
Wall Street
Hudson Valley Mall
NEWBURGH
Meadow Hill
Broadway
PLATTSBURGH
Champlain Center North
Margaret Street
West End, Route 3
POUGHKEEPSIE
Poughkeepsie Galleria
Red Oaks Mill
SARATOGA
Saratoga Springs
Wilton Township
UTICA
Genesee Street
New Hartford
Whitesboro
Beacon
Champlain
Clay, Penn-Can Mall
Clifton Park (2 locations)
East Greenbush
Fishkill, Dutchess Mall
Herkimer
Johnstown
Malone
Niskayuna
North Greenbush
Oneida
Pleasant Valley
Schenectady
Spring Valley
Ticonderoga
Troy
Vails Gate
Wappingers Falls
West Haverstraw
MASSACHUSETTS
LUDLOW
Center Street
Downtown
SPRINGFIELD
Island Pond
Main Street
Page Boulevard
Belchertown
Chicopee
Indian Orchard
Wilbraham
VERMONT
RUTLAND
Merchants Row
Bondville
Castleton
Middlebury
Norwich
Poultney
Proctor
Shelburne
Springfield
West Pawlet
White River Junction
Woodstock
Inside Spine:
Design & Production: Tribich Design Associates, Inc., NYC Photography: Mark
McCarty, Cropseyville, NY Printing: Benchemark, Schenectady, NY Financial
Typography: Word Management Corporation, Albany, NY
Inside Back Cover:
Corporate Information
STOCK TRANSFER AGENT
Inquiries regarding stock transfer, lost certificates or changes in name
and/or address should be directed to the stock transfer agent and registrar
by writing to:
ChaseMellon Shareholder Services, LLC
P.O. Box 590
Ridgefield Park, NJ 07660
(800) 953-2705
DIVIDEND REINVESTMENT PLAN
Inquiries regarding the dividend reinvestment plan should be directed in
writing to:
ChaseMellon Shareholder Services, LLC
P.O. Box 750
Pittsburgh, PA 15230
(800) 953-2705
INVESTOR INFORMATION
Shareholders, investors and analysts interested in additional information
may contact:
Richard J. Heller
Executive Vice President and Chief Financial Officer
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774
STOCK LISTING
The Company's common stock trades on The NASDAQ Stock Market
under the symbol ALBK.
STOCK PRICE
The table below shows the reported closing prices of ALBANK common stock during the periods indicated in
calendar 1996 and 1995.
1996 Quarterly Stock Prices 1995 Quarterly Stock Prices <F1>
High Low Qtr. End High Low Qtr. End
First 28.88 22.92 <F1> 28.88 21.25 19.27 20.83
Second 30.63 26.38 26.38 21.98 21.05 21.77
Third 29.56 25.13 28.75 25.52 21.88 25.00
Fourth 32.81 27.38 31.38 25.20 24.06 25.00
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the shareholders of ALBANK Financial Corporation will
be held on May 21, 1997, at 9:30 AM at:
ALBANK Operations Center
833 Broadway
Albany, NY 12207-2415
ANNUAL REPORT ON FORM 10-K
A copy of ALBANK Financial Corporation's annual report on Form 10-K filed
with the Securities and Exchange Commission is available without charge by
writing to:
Freling H. Smith, Esq.
Senior Vice President, Secretary and General Counsel
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774
Outside Back Cover:
/Albank Logo/
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207
(518) 445-2100
Outside Spine:
ALBANK Financial Corporation 1996 Annual Report
About ALBANK
ALBANK Financial Corporation is a publicly owned company (NASDAQ: ALBK)
which was formed to be the holding company for ALBANK, FSB. Founded in 1820
as Albany Savings Bank, ALBANK, FSB is the oldest operating savings bank in
New York State. With headquarters in Albany, New York's capital city, the
Bank and its brokerage and insurance subsidiary, Alvest Financial Services,
Inc., offer a wide range of financial products and services through a
branch network of 71 offices in upstate New York, western Massachusetts and
Vermont. On January 30, 1997, ALBANK Financial announced its intention to
acquire 35 KeyBank branch offices. Pending the necessary bank regulatory
approvals, the transaction should close in mid-1997. The KeyBank offices
are located in the northern, greater Hudson Valley and Binghamton regions
of New York State.
Bar Graphs
1992 1993 1994 1995 1996
CORE NET INCOME (dollars in millions) 21,696 25,435 28,572 30,013 32,584
FULLY DILUTED CORE EARNINGS PER SHARE
(in dollars) 0.92<F1> 1.45 1.77 1.98 2.28
RETURN ON EQUITY BASED ON
CORE NET INCOME
(in percentages) 8.02 8.23 9.11 9.32 10.20
RETURN ON ASSETS BASED ON
CORE NET INCOME
(in percentages) 0.88 0.92 1.02 1.01 0.96
NET INTEREST MARGIN
(in percentages) 3.61 3.69 3.87 3.84 3.91
STOCKHOLDERS' EQUITY
(dollars in millions at year end) 309,909 313,283 316,789 323,182 319,125
<FN>
<F1> '92 = 9 mos.
Financial Highlights
(Dollars in thousands, except per share data)
December 31, 1996 1995
FOR THE YEAR ENDED
Net income $ 26,207 29,283
Net interest income 125,641 108,487
Primary earnings per share <F1> 1.84 1.94
Fully diluted earnings per share <F1> 1.83 1.93
Core net income <F2> 32,584 30,013
Primary earnings per share
based on core net income <F1> <F2> 2.29 1.99
Fully diluted earnings per share
based on core net income <F1> <F2> 2.28 1.98
AT YEAR END
Total assets $ 3,506,136 2,970,170
Loans receivable 2,566,364 1,946,601
Deposits 3,013,129 2,558,288
Stockholders' equity 319,125 323,182
Book value per share <F1> 24.72 23.37
Tangible book value per share <F1> 21.35 22.05
SIGNIFICANT RATIOS FOR THE YEAR
Return on average stockholders' equity ("ROE") 8.20% 9.09%
Return on average assets ("ROA") 0.77 0.99
ROE based on core net income <F2> 10.20 9.32
ROA based on core net income <F2> 0.96 1.01
Net interest spread 3.52 3.40
Net interest margin 3.91 3.84
Stockholders' equity to total assets (at year end) 9.10 10.88
Efficiency ratio 54.32 52.91
ASSET QUALITY RATIOS AT YEAR END
Nonperforming loans to loans receivable 1.16% 1.19%
Nonperforming assets to total assets 0.96 0.91
Allowance for loan losses to:
Loans receivable 0.94 0.82
Nonperforming loans 80.88 68.88
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
<F2> Core net income excludes the net after-tax effect of the 9/30/96 $6.4
million one-time special assessment to recapitalize the Savings Association
Insurance Fund and the 3/31/95 $0.7 million write-off of the capital investment
in Nationar.
To Our Shareholders
Nineteen ninety-six was without doubt the most successful year that ALBANK
Financial has enjoyed since its public debut. Our company achieved record
core net income for the fourth consecutive year, and total assets increased
18% to $3.5 billion. We saw robust growth in our loan portfolio as total
loans receivable grew 32% to $2.6 billion, and we successfully introduced
ALBANK to the residents of Vermont.
Performance Profile
ALBANK Financial Corporation's consolidated 1996 core earnings per share on
a fully diluted basis were $2.28 compared with $1.98 earned in 1995, an
increase of 15%. Core net income was $32.6 million, up 9% from the $30.0
million earned in 1995. Core earnings in 1996 exclude the one-time Savings
Association Insurance Fund ("SAIF") recapitalization assessment. The
Federal Deposit Insurance Corporation levied this charge against all SAIF-
insured institutions in the third quarter of 1996. ALBANK's after-tax share
amounted to $6.4 million. In return for paying the special assessment,
SAIF-insured institutions received a substantial reduction in their deposit
insurance premiums effective January 1 of this year. This premium
reduction, applied to our current deposit levels, would add approximately
$0.14 per share to ALBANK's earnings. Core earnings in 1995 exclude the
$0.7 million after-tax write-off of the Bank's investment in Nationar, a
special purpose commercial bank, which the New York State Banking
Superintendent took control of in February 1995.
Return on average shareholders' equity ("ROE") in 1996 based on core net
income was 10.20% compared with 9.32% in 1995; return on average assets for
the year was 0.96% compared with 1.01% in 1995.
Net income for 1996, including the one-time SAIF charge, was $26.2 million,
or $1.83 per share fully diluted; net income in 1995, including the
Nationar charge, totaled $29.3 million, or $1.93 per share.
Our 1996 net interest spread increased to 3.52% from 3.40% in 1995 while
the net interest margin was 3.91%, up from 1995's 3.84%. Shareholders'
equity was $319.1 million at year end versus $323.2 million at year-end
1995. During 1996, we invested an additional $25.8 million in our ongoing
stock repurchase program, acquiring 926,517 shares of our outstanding
common stock. Consolidated equity as a percentage of total assets at year
end was 9.10% compared with 10.88% at December 31, 1995. The lower 1996
percentage is one indication that our efforts to improve our capital
leverage are succeeding.
Along with what financial industry analysts refer to as "reported
earnings", analysts during the last year have started to pay particular
attention to what they call "cash earnings". Cash earnings consist of
reported earnings plus certain specific noncash expenses. In ALBANK's case,
cash earnings are core net income plus amortization of goodwill and costs
associated with our employee retention plans, both net of any income tax
benefit. Cash earnings are said to be another indicator of a bank's
fundamental performance and to provide a good basis for comparison among
competing institutions.
/picture of Herbert G. Chorbajian/
Herbert G. Chorbajian
Chairman of the Board,
President & Chief Executive Officer
/picture of four people/
Richard J. Heller
Executive Vice President
& Chief Financial Officer
Margaret F. Ludington
Senior Vice President,
Human Resources
Robert J. Gould
Vice President
& Controller
Freling H. Smith, Esq.
Senior Vice President,
Secretary & General Counsel
ALBANK Financial Corporation's consolidated 1996 cash earnings per share on
a fully diluted basis were $2.54 compared with $2.13 earned in 1995, an
increase of 19%. Cash earnings were $36.3 million, up 12% from the $32.3
million we earned in 1995. For 1996, return on average shareholders'
tangible equity (that is, equity less unamortized goodwill) based on cash
earnings was 12.95% compared with 10.65% in 1995 while return on average
tangible assets for the year was 1.09% compared with 1.10% in 1995.
At December 31, 1996, nonperforming assets totaled $33.8 million, or 0.96%
of total assets; comparable figures for 1995 were $27.1 million and 0.91%.
Nonperforming loans amounted to $29.8 million, or 1.16% of loans
receivable; the 1995 figure was $23.2 million, or 1.19% of loans
receivable. I should point out that the 1996 year-end percentage of
nonperforming assets is 0.19% lower than it was at September 30, 1996. The
drop in this percentage was for the most part the result of our sale of
$10.3 million in nonperforming assets in December. The increase in non-
performing assets during the first three quarters of 1996 was principally
attributable to the two Vermont acquisitions that we made during the
period. At year end, the Bank's loan loss reserve was equal to 81% of
nonperforming loans, up from 69% at December 31, 1995.
Strong Loan Growth
Last year we saw unprecedented growth in our loan portfolio, both in
absolute and relative terms. ALBANK's loan originations in 1996 totaled a
record $638.4 million, a 39% increase from 1995's production. Strong
originations and our two Vermont acquisitions led to significant gains in
nearly all segments of the loan portfolio. Mortgage loans, including home
equity loans and commercial real estate loans, rose to $2.1 billion at the
end of 1996, up 28% from year-end 1995. Commercial loans at year end totaled
$247.8 million, up 114% from the prior year. Consumer loans, led by a 60%
increase in personal and automobile loans, rose to $233.4 million at year
end, an overall increase of 18%. As a result of this across-the-board growth,
total loans receivable as a percentage of total deposits rose to 85.2% at
year-end 1996 compared with 76.1% at the end of 1995.
Market Expansion
On January 30, 1997, we announced that we had entered into an agreement
with KeyCorp to purchase 35 New York State banking offices currently
operated by KeyBank. The offices are located in northern New York, the
greater Hudson Valley, and the Binghamton area. They have approximately
$530 million in deposits for which we will pay a 7% premium. The purchase
is consistent with our strategic business plan which calls for controlled
growth through acquisitions and branch purchases in, or adjacent to, our
existing market area. The Key branches are a natural fit. They will fill in
some gaps which currently exist between Glens Falls and Plattsburgh in the
northern region of the state, increase our presence and market share in the
greater Hudson Valley, and give us a new presence in the Binghamton area
which is adjacent to and west of our current Hudson Valley market. The
transaction should increase earnings, improve our return on equity and
further enhance the value of our franchise. In order to retain the
municipal funds currently on deposit in the KeyBank offices, we will form a
new commercial bank which will acquire the 35 offices. Since ALBANK
Financial will then be the parent company of both ALBANK, FSB and the new
commercial bank, its legal classification will shift from that of a thrift
holding company to a bank holding company. Pending regulatory approval, we
should close the transaction this summer.
During 1996, we completed two acquisitions in the state of Vermont. In
January, ALBANK purchased Marble Financial Corporation of Rutland in a
transaction that involved $396 million in assets, $327 million in deposits
and seven branch offices. In September, we closed on the purchase of six
Vermont branch offices from Arrow Financial Corporation of Glens Falls, New
York. That transaction included $108 million in assets and deposits.
In December of last year, we opened two new full-service supermarket branch
offices in the Capital District. During this year, we will open at least
one more supermarket facility and one traditional retail branch office,
both in the Capital District. These will bring the number of ALBANK branch
offices to 73, not counting the planned KeyBank branch purchases.
Capital Management
Since going public, we have employed three tools to better utilize our
Company's capital. Those tools are acquisitions, stock repurchases and
dividend payouts. Our acquisitions have clearly leveraged capital since, in
every instance, we have increased our assets without having to issue any
additional equity. I have already mentioned the extent of our stock
repurchases in 1996. We have been repurchasing ALBANK's stock since June of
1992. Right now we are in our seventh buyback program in which we expect to
acquire up to 7.5% of our outstanding shares. From June 1992 to year-end
1996, we have invested $108.7 million in these repurchase programs,
acquiring a little more than 5.1 million shares of ALBANK common stock. Our
Company started paying cash dividends in 1994, with an annual split-
adjusted payout of $0.333 per share. We increased the dividend by 20% in
1995 and again in April of last year by the same amount through a six-for-
five stock split. Most recently, in November, we announced a 25% increase
in the quarterly dividend payable in January 1997. This increase brings the
current annual dividend rate up to $0.60 a share. These efforts to improve
the use of our capital and the steady increase in core net income have
combined to drive ALBANK's return on average shareholders' equity from
8.02% in 1992 to 10.20% in 1996. The trend is good and it's getting better;
during the fourth quarter of 1996 ALBANK's ROE rose to 11.24%.
The Board Room
We were saddened last December by the death of my predecessor, Gilbert O.
Robert. Gil became President and a Director of the Bank in 1975, Chairman
of the Board and Chief Executive Officer in 1983, and held those latter
positions until his retirement in 1990. He remained a Director at the time
of his death. As CEO, he led the Bank through a period of successful
restructuring brought on by federal deregulation. By the time of his
retirement, the Bank had achieved then unprecedented profit levels. His
family, friends and business associates are diminished by his passing.
/picture of four people/
Robert L. Meyer
Senior Vice President,
Retail Lending
Margaret J. Welch
Senior Vice President,
Branch Administration
Clifford M. Apgar
Executive Vice President,
Senior Credit Officer
Joseph P. Richardson
Senior Vice President,
Commercial Lending
/picture of four people/
Barry G. Blenis
Executive Vice President,
Operations & Strategic Planning
Frank J. Vaselewski
Senior Vice President,
Retail Banking
Mary Jean Laraway
Vice President,
Corporate Services
Edward C. Tremblay
Vice President & Auditor
John G. Underhill, a member of our Board of Directors for nearly twenty-
five years retired at the end of 1996. Mr. Underhill was the former
President of Sager Spuck Supply Company, a regional industrial supply
company headquartered in Albany. His experience and business acumen were
instrumental in guiding the Bank through its transition from a local to an
interstate financial institution.
We also added two new members to the Board of Directors in 1996. In
October, Dr. Karen R. Hitchcock joined the Board. Dr. Hitchcock is the
current President of the University at Albany, State University of New
York. In November, Francis L. McKone, President and Chief Executive Officer
of Albany International, was appointed a Director. Dr. Hitchcock and Mr.
McKone bring impeccable credentials and a wealth of ability with them to
our Board.
The Year Ahead
Although 1996 was ALBANK Financial's best year, we are looking forward to
1997 with heightened optimism. There are a number of events, some of which
have already transpired, others that we anticipate will occur in the coming
months, that color our outlook. Congress has finally eliminated much of the
disparity between deposit insurance premiums that banks and thrifts pay. We
have completed the integration of our Vermont acquisitions. Given the
growth in our loan portfolio that has resulted from shifting funds out of
lower yielding assets, our current interest rate forecast indicates our
interest spreads and margins should remain firm. Going forward, we hope to
continue to improve productivity as we realize additional gains from our
1995-96 investment in new information systems and technology ("IST"). The
planned productivity increases should reduce back-office costs without
weakening our commitment to top quality customer service. We also plan to use
the new IST platform as the launching pad for a number of new products and
services. We intend to introduce a debit card and cash management services,
to mention only two. After we complete the purchase of the KeyBank offices,
ALBANK will have a presence in 9 new counties and the third largest market
share of deposits in the 26 counties that will then comprise our New York
State market. When we look at all these factors and the earnings and growth
momentum we have already generated, we are quite confident that ALBANK's
performance in 1997 will once again set new standards.
/s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board, President
and Chief Executive Officer
February 14, 1997
Contents
13 Five Year Selected Financial Data
14 Management's Discussion and Analysis
25 Statement of Management's Responsibility
26 Independent Auditors' Report
27 Consolidated Statements of Earnings
28 Consolidated Statements of Financial Condition
29 Consolidated Statements of Changes in Stockholders' Equity
30 Consolidated Statements of Cash Flows
31 Notes to Consolidated Financial Statements
50 Directors and Officers
Five Year Selected Financial Data
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
(Dollars in thousands, except per share data) December 31, 1996 1995 1994 1993 1992
Selected Financial Condition Data at Year End
Total assets $ 3,506,136 2,970,170 2,963,843 2,773,223 2,482,851
Loans receivable 2,566,364 1,946,601 1,788,400 1,540,464 1,492,618
Securities available for sale 617,943 656,784 167,024 51,256 49,766
Investment securities 109,607 153,740 801,247 962,204 720,125
Deposits 3,013,129 2,558,288 2,541,962 2,381,714 2,098,891
Borrowed funds 72,407 1,290 15,300 4,200 7,600
Total stockholders' equity 319,125 323,182 316,789 313,283 309,909
Selected Operating Data for the Year
Interest income $ 248,526 212,502 186,804 183,986 190,699
Interest expense 122,885 104,015 82,092 86,416 104,541
Net interest income 125,641 108,487 104,712 97,570 86,158
Provision for loan losses 5,775 4,500 4,500 4,200 4,100
Net interest income after provision for loan losses 119,866 103,987 100,212 93,370 82,058
Net security transactions 8 (1,198) 14 130 278
Other noninterest income 12,146 10,646 10,077 9,905 9,336
Noninterest expense 90,303 65,804 61,833 59,718 55,236
Income before income taxes and cumulative net effect of
changes in accounting principles 41,717 47,631 48,470 43,687 36,436
Income tax expense 15,510 18,348 19,898 18,289 14,740
Income before cumulative net effect of changes
in accounting principles 26,207 29,283 28,572 25,398 21,696
Cumulative net effect of changes in accounting principles -- -- -- 37 --
Net income $ 26,207 29,283 28,572 25,435 21,696
Earnings per share:<F1>
Primary 1.84 1.94 1.77 1.46 0.93<F2>
Fully diluted 1.83 1.93 1.77 1.45 0.92<F2>
Other Selected Financial Data
Book value per share<F1> $ 24.72 23.37 21.27 19.48 17.48
Tangible book value per share<F1> 21.35 22.05 19.98 19.15 17.48
Loan originations (including individual loans purchased) 638,423 459,198 556,785 407,125 331,309
Return on average stockholders' equity ("ROE") 8.20% 9.09% 9.11% 8.23% 8.02%
Return on average assets ("ROA") 0.77 0.99 1.02 0.92 0.88
Stockholders' equity to total assets 9.10 10.88 10.69 11.30 12.48
Net interest spread 3.52 3.40 3.49 3.28 3.09
Net interest margin 3.91 3.84 3.87 3.69 3.61
Efficiency ratio 54.32 52.91 51.99 53.97 56.73
Nonperforming loans to loans receivable 1.16 1.19 1.14 1.49 1.60
Nonperforming assets to total assets 0.96 0.91 0.81 0.99 1.15
Allowance for loan losses to:
Loans receivable 0.94 0.82 0.87 0.84 0.80
Nonperforming loans 80.88 68.88 76.39 56.67 49.77
Core net income<F3> $ 32,584 30,013 28,572 25,435 21,696
Earnings per share based on core net income:<F1><F3>
Primary 2.29 1.99 1.77 1.46 0.93<F2>
Fully diluted 2.28 1.98 1.77 1.45 0.92<F2>
ROE based on core net income<F3> 10.20% 9.32% 9.11% 8.23% 8.02%
ROA based on core net income<F3> 0.96 1.01 1.02 0.92 0.88
Noninterest expense to average assets<F3> 2.36 2.22 2.20 2.17 2.24
Noninterest expense less other noninterest income
to average assets<F3> 2.00 1.86 1.84 1.81 1.86
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
<F2> 1992 earnings per share are calculated for the period April 1, 1992 (the date of conversion from mutual to stock form)
through December 31, 1992.
<F3> Core net income excludes the net after-tax effect of the September 30, 1996, $6.4 million special assessment to
recapitalize the Savings Association Insurance Fund (SAIF) and the March 31, 1995, $0.7 million write-off of the capital
investment in Nationar. Noninterest expense excludes the pre-tax SAIF special assessment amounting to $10.4 million.
Management's Discussion and Analysis
General
ALBANK Financial Corporation ("ALBANK" or the "Company") is the holding
company and owner of 100% of the common stock of ALBANK, FSB (the "Bank"),
a federally chartered stock savings bank. On April 1, 1992, the Bank
completed its conversion from a mutual to a stock form savings bank at
which time ALBANK issued 15,697,500 shares of common stock at $10.00 per
share, realizing net proceeds of $150.8 million after expenses. ALBANK used
$75.4 million of the net proceeds to acquire all of the issued and
outstanding stock of the Bank.
ALBANK's business currently consists primarily of the business of the Bank.
The Bank's principal business is attracting retail deposits from the
general public and investing those deposits, together with funds generated
from operations and borrowings, in various loan products and investment
securities. With regard to loans, the Bank originates and purchases
primarily one- to four-family adjustable rate mortgage loans. The Bank's
results of operations are dependent on net interest income, provisions for
loan losses, the levels of noninterest income earned and noninterest
expense incurred and the effect of income taxes. The Bank's results of
operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and principal and
interest payments on loans and investment securities. While maturities and
scheduled amortization of loans and securities are a predictable source of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as defined
by regulations issued by its primary regulator, the Office of Thrift
Supervision (the "OTS"). This requirement, which may vary at the direction
of the OTS depending on economic conditions and deposit flows, is based
upon a percentage of deposits and short-term borrowings. The required ratio
of liquid assets to deposits and short-term borrowings is currently 5%. At
December 31, 1996 and 1995, the Bank's liquidity ratios were 23.7% and
21.8%, respectively.
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. The level of
these assets is dependent on the Company's operating, financing and
investing activities during any given period. At December 31, 1996 and
1995, cash and cash equivalents totaled $68.9 million and $105.0 million,
respectively.
At the time of its conversion to stock form, the Bank was required to
establish a liquidation account in an amount equal to its regulatory net
worth as of December 31, 1991. The amount of this liquidation account
reduces to the extent that eligible depositors' accounts are reduced. In
the unlikely event of a complete liquidation (and only in such an event),
each eligible depositor would be entitled to receive a distribution from
the liquidation account before any liquidation distribution could be made
to common stockholders of the Company.
Stockholders' equity totaled $319.1 million at December 31, 1996,
representing a capital-to-assets ratio of 9.10%. At year-end 1996, book
value and tangible book value per common share amounted to $24.72 and
$21.35, respectively. At December 31, 1996, the Bank exceeded all of the
capital requirements of the OTS. The Bank's ratios at December 31, 1996,
were as follows: tangible capital, 7.00%; core capital, 7.00%; core risk-
based capital, 10.80%; and total risk-based capital, 11.88%. The regulatory
capital ratio minimum requirements are 1.5%, 3.0%, 4.0% and 8.0%,
respectively.
Among other things, OTS regulations provide that an institution that
exceeds all capital requirements before and after a proposed capital
distribution could, after prior notice to but without the approval of the
OTS, make capital distributions during the calendar year of an amount that
would reduce by one half its "excess capital ratio" plus its net income for
the current calendar year. Under such limitation, the Bank could declare
dividends to the holding company in 1997 of approximately $43 million plus
an amount equal to 1997 earnings.
As one method of enhancing shareholder value, the Company instituted a
stock repurchase program in June 1992. In May 1996, the Board authorized a
seventh repurchase of the Company's outstanding shares of common stock
under this program. Through December 31, 1996, the Company had repurchased
5,144,247 shares of stock and had remaining authorization to repurchase
another 341,695 shares.
On February 27, 1996, the Board of Directors of the Company declared a 6-
for-5 stock split effected as a 20% stock dividend. This stock dividend was
paid April 1, 1996, to shareholders of record on March 15, 1996. By
maintaining the quarterly per share cash dividend at $0.12 following the
stock dividend, the Board effectively increased the dividend by 20%, the
second such increase in as many years. On November 25, 1996, the Company
announced that its Board increased the Company's quarterly cash dividend an
additional 25% by initiating payment at a quarterly rate of $0.15 per share
commencing with the dividend to be paid on January 2, 1997.
The analyses of net interest income that are shown in the following two
tables are an integral part of the discussion of the results of operations
for 1996, 1995 and 1994 that follows:
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Average Balance Sheets, Interest Rates and Interest Differential
Years Ended December 31, 1996 1995 1994
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
Assets
Interest-earning assets:
Mortgage loans, net<F1> $1,923,787 155,914 8.10% $1,586,878 125,228 7.89% $1,352,972 98,630 7.29%
Other loans, net<F1> 418,506 38,621 9.23 301,892 28,905 9.57 247,853 21,576 8.71
Securities available
for sale 670,111 41,676 6.22 164,970 11,098 6.73 148,852 9,455 6.35
Investment securities 133,937 8,532 6.37 713,198 43,186 6.06 884,409 53,478 6.05
Federal funds sold 9,529 508 5.33 15,680 918 5.85 12,698 535 4.21
Securities purchased
under agreement
to resell 38,115 2,225 5.84 30,247 1,888 6.24 44,186 2,010 4.55
Stock in Federal Home
Loan Bank 16,754 1,050 6.27 15,554 1,279 8.22 14,189 1,120 7.89
Total interest-earning
assets 3,210,739 248,526 7.74 2,828,419 212,502 7.51 2,705,159 186,804 6.91
Noninterest-earning
assets 174,784 132,663 108,504
Total assets $3,385,523 $2,961,082 $2,813,663
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts<F2> $ 872,348 25,373 2.91% $ 909,019 26,544 2.92% $1,036,181 30,572 2.95%
Transaction accounts<F3> 463,864 11,898 2.56 336,647 6,925 2.06 320,767 6,288 1.96
Certificate accounts 1,521,036 82,735 5.44 1,280,662 70,341 5.49 1,020,737 44,027 4.31
Short-term borrowed
funds and repurchase
agreements 25,337 1,338 5.28 1,898 125 6.59 21,225 1,037 4.89
Long-term debt 28,305 1,541 5.44 1,463 80 5.47 3,090 168 5.44
Total interest-bearing
liabilities 2,910,890 122,885 4.22 2,529,689 104,015 4.11 2,402,000 82,092 3.42
Demand deposits 83,634 53,935 42,262
Noninterest-bearing
liabilities 71,405 55,478 55,788
Total liabilities 3,065,929 2,639,102 2,500,050
Stockholders' equity 319,594 321,980 313,613
Total liabilities and
stockholders' equity $3,385,523 $2,961,082 $2,813,663
Net interest income and
net interest spread $125,641 3.52% $108,487 3.40% $104,712 3.49%
Net interest-earning
assets and net
interest margin $ 299,849 3.91% $ 298,730 3.84% $ 303,159 3.87%
Interest-earning assets
to interest-bearing
liabilities 1.10x 1.12x 1.13x
Average balances are derived principally from average daily balances and include nonaccruing loans. Tax-exempt securities
income has not been calculated on a tax equivalent basis. Interest on securities available for sale includes dividends
received on equity securities.
<FN>
<F1> Net of unearned discounts, premiums and related deferred loan fees/costs, where applicable.
<F2> Includes passbook, statement and interest-bearing escrow accounts.
<F3> Includes NOW, Super NOW, money market and interest-bearing demand deposit accounts.
Analysis of Changes in Net Interest Income
Year Ended December 31, 1996 Year Ended December 31, 1995
Compared with Compared with
Year Ended December 31, 1995 Year Ended December 31, 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
(In thousands) Volume Rate Net Volume Rate Net
Interest Income
Mortgage loans, net $27,224 3,462 30,686 18,004 8,594 26,598
Other loans, net 10,796 (1,080) 9,716 5,026 2,303 7,329
Securities available for sale 31,478 (900) 30,578 1,063 580 1,643
Investment securities (36,790) 2,136 (34,654) (10,367) 75 (10,292)
Federal funds sold (334) (76) (410) 144 239 383
Securities purchased under agreement
to resell 465 (128) 337 (742) 620 (122)
Stock in Federal Home Loan Bank 93 (322) (229) 111 48 159
Total 32,932 3,092 36,024 13,239 12,459 25,698
Interest Expense
Savings accounts (1,067) (104) (1,171) (3,716) (312) (4,028)
Transaction accounts 3,008 1,965 4,973 319 318 637
Certificate accounts 13,081 (687) 12,394 12,690 13,624 26,314
Short-term borrowed funds and
repurchase agreements 1,243 (30) 1,213 (1,182) 270 (912)
Long-term debt 1,461 -- 1,461 (89) 1 (88)
Total 17,726 1,144 18,870 8,022 13,901 21,923
Change in net interest income $15,206 1,948 17,154 5,217 (1,442) 3,775
Information in the above table is provided in each category with respect to
(i) changes attributable to changes in volume (change in volume multiplied
by prior rate), (ii) changes attributable to changes in rate (change in
rate multiplied by prior volume) and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Results of Operations--1996 Compared With 1995
General
Net income for the year ended December 31, 1996, decreased $3.1 million
(11%) from 1995 and totaled $26.2 million for the year. Primary and fully
diluted per share earnings were $1.84 and $1.83 for 1996, each down 5%
compared with $1.94 and $1.93, respectively, in 1995. Return on average
equity was 8.20% for 1996 compared with 9.09% in 1995, while return on
average assets amounted to 0.77% and 0.99% for the respective years. Net
income for 1996 included a one-time Savings Association Insurance Fund
("SAIF") special assessment of $6.4 million after tax ($10.4 million before
tax) while 1995 net income included a $0.7 million after-tax ($1.2 million
before tax) writeoff of the Bank's investment in Nationar, a special
purpose commercial bank. Excluding these respective charges, core net
income totaled $32.6 million for the year ended December 31, 1996, an
increase of $2.6 million (9%) over 1995's core net income level of $30.0
million. Primary and fully diluted earnings per share based on core net
income were $2.29 and $2.28, respectively for 1996, both of which rose 15%
from the respective $1.99 and $1.98 per share earned in 1995. Return on
average equity based on core net income was 10.20% in 1996 and 9.32% in
1995; for return on average assets, the respective ratios were 0.96% and
1.01%. All of the per share earnings results above have been adjusted to
reflect the Company's April 1, 1996, 20% stock dividend.
Cash earnings, a relatively new concept now being used by financial
analysts to evaluate bank performance, is defined as core net income plus
amortization of goodwill and costs associated with the Bank's employees
benefit plans, both net of any related income tax benefits. On this basis,
the Company would have earned $36.3 million in 1996 an increase of 12%
compared with $32.3 million in 1995. On a cash basis, fully diluted
earnings per share were $2.54 compared with $2.13 in 1995. Return on
tangible equity (equity less goodwill) amounted to 12.95% compared with
10.65% in 1995, while return on tangible assets for the current year of
1.09% compared with 1.10% in 1995.
On January 3, 1996, the Bank acquired all of the outstanding common stock
of Marble Financial Corporation of Rutland, Vermont for $18.00 per share in
cash or approximately $61 million in total consideration. On the date of
closing, Marble and its banking subsidiary Marble Bank had consolidated
assets and deposits of $396.2 million and $326.6 million, respectively. An
additional Vermont acquisition was completed on September 27, 1996, when
the Company assumed the deposit liabilities and purchased loans owned and
serviced by six banking offices operated by the Green Mountain Bank of
Rutland, Vermont. This transaction included approximately $108 million in
loans and deposits. Both transactions were accounted for under the purchase
method of accounting and generated accounting goodwill of $20.1 million
with respect to the Marble acquisition and $8.2 million with respect to
Green Mountain. The banking offices from these Vermont acquisitions are
currently operating as the Bank's Marble Division.
On January 30, 1997, the Company entered into a purchase agreement with
KeyCorp. Under the terms of the agreement, the Company will assume deposit
liabilities of approximately $530 million and purchase 35 New York State
banking offices currently operated by KeyBank. The offices are located in
northern New York, the Hudson Valley, and the Binghamton area. The Company
will pay a deposit premium of approximately 7% based on average deposit
balances just prior to closing and has the option to purchase approximately
$53 million in small business, consumer, and mortgage loans. In order to
retain municipal funds currently on deposit in the KeyBank offices, the
Company intends to form a new commercial bank which will acquire the 35
offices. Since ALBANK Financial Corporation will then be the parent company
of both ALBANK, FSB and the new commercial bank, its legal classification
will shift from that of a thrift holding company to a bank holding company.
The agreement is subject to approval by bank regulatory authorities.
Pending those approvals, the two companies will move to close the sale in
mid-1997.
Interest Income
Interest income of $248.5 million for the year ended December 31, 1996, was
$36.0 million (17%) higher than the $212.5 million earned during 1995, as a
$382.3 million (14%) increase in average interest-earning assets to $3.211
billion combined with a 23 basis point (3%) rise in average rate earned to
7.74%. The increase in interest-bearing assets was primarily related to the
assets acquired from the Vermont acquisitions.
Interest income on mortgage loans totaled $155.9 million for the year, a
$30.7 million (25%) improvement from the prior year. The increase was
generally the result of increased average balances of $336.9 million (21%),
about two-thirds of which were related to the Vermont acquisitions, along
with an increase in the average rate earned of 21 basis points (3%).
Interest income on other loans increased $9.7 million (34%) to $38.6
million as an increase in the average amount invested of $116.6 million
(39%) was only partially offset by a decrease of 34 basis points (4%) in
the average rate earned. Commercial loans had the most significant impact
as an increase in the average balance of $96.8 million (101%), again about
two-thirds of which resulted from the Vermont acquisitions, more than
offset a 22 basis point (2%) decline in the average rate earned and
resulted in an increase in interest income of $8.5 million (96%) compared
with the prior year.
Interest income on securities available for sale amounted to $41.7 million,
an advance of $30.6 million (276%) over 1995. The higher earnings were a
net result of an increase in the average balance outstanding of $505.1
million (306%) and a 51 basis point (8%) reduction in the average rate
earned. The increased average amount invested was primarily the result of a
December 29, 1995, transfer of investment securities with a total market
value of $491.9 million to securities available for sale and, to a lesser
extent, the addition of securities from the Vermont acquisitions.
Earnings on investment securities amounted to $8.5 million, a decline of
$34.7 million (80%) from 1995 as a net result of a $579.3 million (81%)
reduction in the average amount invested and an increase of 31 basis points
(5%) in the average rate earned. Reductions in the average amount invested
were primarily the result of the previously mentioned transfer to
securities available for sale and a decision to redirect funds generated
from maturing investments into the loan portfolio.
A decline in the average amount invested and the average rate earned on
federal funds sold of $6.2 million (39%) and 52 basis points (9%),
respectively, combined to reduce the related interest income by $0.4
million (45%).
Interest income from securities purchased under agreement to resell rose
$0.3 million (18%) to $2.2 million as an increase in the average amount
invested of $7.9 million (26%) was partially offset by a decline in the
average rate earned of 40 basis points (6%).
A decline in the average rate earned of 195 basis points (24%) on stock in
the Federal Home Loan Bank was only partially offset by an increase in the
average amount invested of $1.2 million (8%) resulting in a $0.2 million
(18%) decline in interest income to $1.1 million.
Interest Expense
Interest expense for the year ended December 31, 1996, was $122.9 million,
an increase of $18.9 million (18%) over the $104.0 million paid in 1995.
The higher level of expense resulted from a $381.2 million (15%) increase
in average interest-bearing liabilities to $2.911 billion and a rise in the
average rate paid of 11 basis points (3%) to 4.22%. Almost 90% of the rise
in average interest-bearing liabilities was the result of deposits acquired
in the Vermont acquisitions.
Interest paid on savings accounts declined $1.2 million (4%) to total $25.4
million for 1996. Savings account average balances declined $36.7 million
(4%) while the average rate paid declined 1 basis point. The average
balance of savings accounts declined despite the addition of $30.8 million
in average balances that resulted from the Vermont acquisitions. The
decrease in savings balances resulted from the movement of savings balances
into higher yielding certificate accounts coupled with general deposit
outflow.
Interest paid on transaction accounts increased by $5.0 million (72%) as
the average balance increased $127.2 million (38%), four-fifths of which
was related to the Vermont acquisitions, while the average rate paid rose
50 basis points (24%).
Interest paid on certificate accounts for the year amounted to $82.7
million, an advance of $12.4 million (18%) over 1995. The balance in
certificate accounts averaged $1.521 billion for 1996, an increase of
$240.4 million (19%) over last year, while the average rate paid was 5.44%,
a 5 basis point (1%) decline compared with 1995. Over four-fifths of the
increase in the average balances of certificate accounts was directly
attributable to the Vermont acquisitions.
Interest paid on short-term borrowed funds and repurchase agreements
increased $1.2 million as the net effect of a $23.4 million increase in the
average balance, and a 131 basis point (20%) decrease in the average rate
paid.
Interest paid on long-term debt increased $1.5 million as a $26.8 million
increase in the average balance, which was the direct result of borrowings
to fund the Marble acquisition, more than offset a 3 basis point (1%)
decrease in the average rate paid.
Net Interest Income
Net interest income for the year ended December 31, 1996, totaled $125.6
million, $17.2 million (16%) greater than the prior year as an interest
income rise of $36.0 million (17%) to $248.5 million was somewhat offset by
an increase in interest expense of $18.9 million (18%) to $122.9 million.
The increase in net interest income was driven by an almost equal increase
in the levels of average interest-earning assets and interest-bearing
liabilities, which was primarily the result of the Vermont acquisitions,
coupled with improved interest spreads and margins. The net interest spread
for 1996 equaled 3.52%, an increase of 12 basis points (4%) over last year,
while the net interest margin advanced 7 basis points (2%) to total 3.91%
for 1996 compared with 3.84% in 1995.
Provision for Loan Losses
The provision for loan losses increased to $5.8 million for the year ended
December 31, 1996, up $1.3 million (28%) from the $4.5 million recorded in
1995. The allowance for loan losses at year-end 1996 was $24.1 million, an
increase of $8.2 million (51%) over the prior year. In addition to the
provision for loan losses, the allowance for loan losses increased due to
$11.3 million in balances acquired as components of the Vermont
acquisitions. Offsetting these additions were net charge-offs of $8.9
million which included a charge-off of $4.1 million resulting from the
December 1996 sale of a group of one- to four-family nonperforming loans
with a book value of $10.3 million.
The Bank utilizes the provision for loan losses to maintain an allowance
for loan losses that it deems appropriate to provide for known and inherent
risks in its loan portfolio. In determining the adequacy of its allowance
for loan losses, management takes into account the current status of the
Bank's loan portfolio and changes in appraised values of collateral as well
as general economic conditions. Although the Bank maintains its allowance
for loan losses at a level which it considers to be adequate to provide for
potential losses, there can be no absolute assurance that such losses will
not exceed the current estimated amounts. The allowance as a percentage of
loans receivable at year-end 1996 was 0.94% compared with 0.82% at the end
of 1995. The allowance as a percentage of nonperforming loans at December
31, 1996, was 81% compared with 69% a year earlier. Nonperforming loans at
December 31, 1996, were 1.16% of loans receivable while nonperforming
assets to total assets were 0.96%; comparable 1995 percentages were 1.19%
and 0.91%, respectively. Of the nonperforming loans outstanding at year-end
1996, approximately 55% were one- to four-family mortgages while federally
guaranteed loans comprised approximately 9% of nonperforming loans. The
increase in nonperforming assets between 1995 and 1996 was the combined
effect of nonperforming loans acquired from the Vermont acquisitions as
well as a measure of economic softening in the Bank's market area.
Noninterest Income
Noninterest income increased $2.7 million (29%) to $12.2 million for the
year ended December 31, 1996. Noninterest income for 1995 included a loss
of $1.2 million for the write-off of the Bank's investment in Nationar
stock and debentures. Excluding the Nationar loss, the increase in
noninterest income of $1.5 million (14%) was primarily the result of
service charges on deposits which rose $0.5 million (10%), driven by NOW
and business account activity; brokerage and insurance commissions were up
$0.4 million (26%) as stepped up cross-selling efforts by the Bank combined
with favorable market conditions for the financial products offered; and
increased servicing income on mortgage loans of $0.3 million (19%)
primarily due to loan servicing commitments resulting from the Vermont
acquisitions. These improvements in noninterest income were all positively
impacted by the Company's 1996 acquisition activity and the resultant
expansion of its branch network. Noninterest income also included increases
over 1995 of $0.3 million (42%) due to an increase in gains realized on the
origination of loans for sale and net increases in various other
noninterest income categories.
Noninterest Expense
Noninterest expense of $90.3 million for the year ended December 31, 1996,
included a one-time Federal Deposit Insurance Corporation ("FDIC") SAIF
special assessment of $10.4 million. Excluding the SAIF special assessment,
noninterest expense would have increased $14.1 million (21%) over the
previous year's total of $65.8 million. The increase was primarily the
result of costs associated with operating the Bank's expanded franchise
which includes branches added as a result of the Vermont acquisitions.
Compensation and employee benefits increased $6.7 million (21%) to equal
$38.5 million for 1996 compared with $31.8 million in 1995. Approximately
two-thirds of the 1996 increase was a result of salaries directly related
to the Vermont acquisitions while the remaining increase was split nearly
equally between salary merit increases and benefit costs related to the
Bank's expanded employee base.
Increases of $0.3 million (35%) in building depreciation, $0.3 million
(16%) in maintenance and repair expenses and $0.2 million (13%) in property
taxes contributed to the overall increase in occupancy expense of $0.9
million (11%) which totaled $9.2 million for 1996 compared with $8.3
million in 1995. These increases were due mainly to branches added to the
Bank's franchise during 1996.
Furniture, fixtures and equipment expense rose $1.2 million (31%) to $5.3
million in 1996. Approximately three-fifths of the 1996 increase was the
result of a full year's depreciation of the Bank's 1995 data processing
hardware and software upgrades while the operational costs of the Vermont
acquisitions accounted for most of the remaining increase.
Despite increased levels of total deposits, FDIC insurance expense declined
$0.8 million (16%) below 1995 to equal $4.3 million for the year ended
December 31, 1996. The reduction reflects a change in the Bank's deposit
mix as the percentage of Bank Insurance Fund ("BIF") insured deposits
increased as a result of deposits acquired in the Vermont acquisitions. At
December 31, 1996, approximately 34% of the Bank's deposits were BIF
insured with the remaining deposits insured by the SAIF. During 1996, the
BIF insurance rate was effectively zero while the SAIF insurance rate was
$0.23 per $100 for the first three quarters of 1996 and $0.18 per $100 for
the last quarter.
The FDIC special SAIF assessment in 1996 of $10.4 million represents a one-
time charge to the Bank to recapitalize the SAIF insurance fund. As a
result of the recapitalization, the Bank will receive a substantial
reduction in deposit insurance premiums on SAIF insured deposits beginning
in 1997. The Bank's SAIF insurance assessment rate was reduced to
approximately 6.5 basis points for its intital semi-annual assessment
period in 1997; simultaneously, the BIF insurance assessment rate has
increased from effectively zero to approximately 1.3 basis points.
Professional, legal and other fees increased $0.7 million (29%) to $3.2
million for the year ended December 31, 1996. Higher legal fees were the
most significant component of the increase.
Telephone, postage and printing expense of $4.4 million for 1996 increased
$0.3 million (8%) above 1995 levels, as higher 1996 postage and printing
costs associated with the operation of the expanded branch network were
somewhat offset by a reduction in telephone expense.
Goodwill amortization increased $1.5 million (96%) over 1995 levels as a
direct result of goodwill generated by the Vermont acquisitions.
Other noninterest expense of $12.0 million represented a $3.6 million (42%)
increase over 1995. Categories showing increases included advertising,
foreclosure and acquisition costs, real estate owned write-downs and
losses, appraisal fees, other losses, real estate owned expenses, and
computer processing and software charges; the operation of the Bank's
expanded branch network was a prominent factor in all of the aforementioned
increases.
Excluding the special SAIF assessment in 1996, the ratios of noninterest
expense to average assets were 2.36% and 2.22% for 1996 and 1995,
respectively. Another measure of cost containment is the efficiency ratio
which measures noninterest expense (excluding amortization of intangibles,
real estate owned related expense, and the FDIC special SAIF assessment) as
a percentage of net interest income plus noninterest income (exclusive of
net security transactions and real estate owned related income). The
efficiency ratio of 54.32% for 1996 compared with 52.91% in 1995.
Income Tax Expense
Income tax expense for the year ended December 31, 1996, was $15.5 million,
a decrease of $2.8 million (15%) from the previous year. The decrease was
the combined result of a lower amount of income before income taxes
combined with a slightly lower overall effective income tax rate for 1996
of 37.2% compared with 38.5% in 1995. A continuing trend of tax rate
reductions in New York State coupled with an expansion of operations into
the State of Vermont resulted in a lower effective state income tax rate.
Adjustments affecting the effective federal income tax rate are disclosed
in Footnote 14 to the consolidated financial statements.
Results of Operations--1995 Compared With 1994
General
Net income for 1995 totaled $29.3 million, an increase of $0.7 million (2%)
over 1994. Primary and fully diluted earnings per share for 1995 increased
over 9% from 1994 levels to $1.94 and $1.93, respectively. Return on
average equity was 9.09% and return on average assets was 0.99% in 1995
compared with 9.11% and 1.02% for 1994, respectively. Net income for 1995
included a $0.7 million after-tax writeoff of the the Bank's investment in
Nationar. Excluding the Nationar charge, core net income increased $1.4
million (5%) over 1994 and totaled $30.0 million for the year ended
December 31, 1995. Primary and fully diluted earnings per share based on
core net income were $1.99 and $1.98, respectively, for 1995 and
represented a 12% increase over the $1.77 earned on both a primary and
fully diluted basis in 1994. Return on average equity based on core net
income was 9.32% in 1995 and 9.11% in 1994; for return on average assets,
the respective ratios were 1.01% and 1.02%. The above per share earnings
results have been adjusted to reflect the Company's April 1, 1996, 20%
stock dividend.
On October 21, 1994, the Bank purchased the deposits of the Ludlow Savings
Bank of Ludlow, Massachusetts from the FDIC. The transaction added
approximately $216 million in deposits and nine banking offices, all
located in the metropolitan Springfield area. The acquisition was accounted
for under the purchase method of accounting and generated accounting
goodwill of approximately $14.6 million. Accordingly, ALBANK'S 1995 results
reflect the full year impact of the Ludlow acquisition.
Interest Income
Interest income increased $25.7 million (14%) from the prior year to equal
$212.5 million for 1995 as a $123.3 million (5%) rise in average earning
assets to $2.828 billion combined with a 60 basis point (9%) increase in
the average rate earned to 7.51%.
The most significant factor contributing to the higher level of interest
income was a rise of $26.6 million (27%) in interest earned on mortgage
loans to $125.2 million that was the combined effect of increases in both
the average outstandings of $233.9 million (17%) and the average rate
earned of 60 basis points (8%).
Income earned on other loans increased $7.3 million (34%) to $28.9 million
due to an increase of $54.0 million (22%) in average outstandings which
combined with an 86 basis point (10%) jump in the average rate earned.
Commercial loans accounted for almost half of the increase in average
outstandings.
Income earned on securities available for sale rose $1.6 million (17%) to
equal $11.1 million as a result of increases of $16.1 million (11%) in the
average amount invested and 38 basis points (6%) in yield.
A decline of $10.3 million (19%) to $43.2 million in interest income on
investment securities resulted primarily from a $171.2 million (19%)
decline in the average amount invested as funds generated from maturities
were reinvested in loan products.
Interest Expense
Interest expense for 1995 increased $21.9 million (27%) over 1994 levels to
$104.0 million as a result of increases in the average outstandings of
$127.7 million (5%) to $2.530 billion and a rise in the average rate paid
of 69 basis points (20%) to 4.11%. The increase in average outstandings was
the result of a full year's impact of the 1994 Ludlow acquisition.
Interest expense on savings accounts declined $4.0 million (13%) due to a
decrease in the average outstandings of $127.2 million (12%) and a drop in
the average rate paid of 3 basis points (1%).
Interest expense on transaction accounts rose $0.6 million (10%) as a
result of an increase of $15.9 million (5%) in the average balance and a 10
basis point (5%) increase in the average rate paid.
Most significantly, interest expense on certificate accounts rose $26.3
million (60%) to $70.3 million as an increase in the average outstandings
of $259.9 million (25%) combined with a rise in the average rate paid of
118 basis points (27%).
Average short-term borrowed funds decreased $19.3 million (91%) to $1.9
million and more than offset a 170 basis point (35%) jump in the average
rate paid; resulting interest expense declined $0.9 million (88%).
Interest expense on long-term debt declined primarily as a result of a $1.6
million (53%) decline in the average balance outstanding.
Net Interest Income
Net interest income totaled $108.5 million in 1995, an increase of $3.8
million (4%) from the prior year, as interest income advanced $25.7 million
(14%), while interest expense increased $21.9 million (27%). The net
interest spread declined 9 basis points (3%) to 3.40% in 1995, while the
net interest margin declined 3 basis points (1%) to 3.84%.
Provision for Loan Losses
The provision for loan losses amounted to $4.5 million for both 1995 and
1994. Net chargeoffs during 1995 totaled $4.1 million or 0.22% of average
loans; comparable 1994 figures were $2.1 million or 0.13%. The allowance
for loan loss as a percentage of nonperforming loans was 69% at December
31, 1995, compared with 76% a year earlier. The allowance as a percentage
of loans receivable at year-end 1995 and 1994 was 0.82% and 0.87%,
respectively. Nonperforming loans were 1.19% of loans receivable while
nonperforming assets to total assets equaled 0.91% at December 31, 1995;
comparable 1994 figures were 1.14% and 0.81%, respectively.
Noninterest Income
Noninterest income totaled $9.4 million for the year ended December 31,
1995, a decrease of $0.6 million (6%) from 1994. Excluding the Bank's $1.2
million write-off of its investment in Nationar, noninterest income would
have increased $0.6 million (6%). Service charges on deposit accounts
totaled $5.0 million for the year ended December 31, 1995, an increase of
$0.9 million (21%). This increase was reflective of fees related to deposits
acquired in the Ludlow acquisition. Brokerage and insurance commissions
decreased $0.7 million (29%) to $1.6 million as declining annuity sales
combined with a shift in the product mix away from higher-commission mutual
funds to lower-commission bonds. Other noninterest income rose $0.4 million
(10%) to total $4.0 million as a result of increases in loan related
servicing fees and customer based fees of $0.1 million (6%) and $0.3
million (20%), respectively.
Noninterest Expense
Noninterest expense for 1995 totaled $65.8 million, an increase of $4.0
million (6%) over 1994 levels. The full year impact of the operation of the
Ludlow branches and three supermarket branches combined with expenses
incurred in our data center conversion to drive up operating expenses.
Compensation and employee benefits increased $3.1 million (11%) to $31.8
million as a result of the full year impact of the Ludlow and supermarket
branches, annual merit increases, as well as overtime and temporary help
related to the data center conversion. Mitigating factors were decreases in
commission expense and costs related to employee benefits.
Net occupancy expense increased $0.6 million (7%) and totaled $8.3 million
as a result of the operation of an expanded branch network throughout all
of 1995. Similarly, expense related to furniture, fixtures and equipment
totaled $4.0 million, an increase of $0.6 million (18%).
Telephone, postage and printing expense increased $0.9 million (29%) to
$4.1 million as a result of the expanded branch network, the data center
conversion, and increased postal rates.
During 1995, FDIC premiums decreased $0.4 million (6%) to total $5.2
million. The reduction in the Bank's premium expense was directly related
to a lower premium rate paid on that portion of its deposits insured by the
BIF compared with SAIF insured deposits. Additionally, professional, legal
and other fees declined $0.5 million (16%) to $2.5 million.
During 1995, amortization of goodwill increased $0.8 million (98%) which
was reflective of a full year's amortization on goodwill generated in the
Ludlow acquisition.
Increases in computer processing and software charges and advertising
expenditures were offset by reductions in various other operating expense
categories and produced a decline in other noninterest expense of $1.2
million (12%) compared with the prior year.
The ratios of noninterest expense to average assets were 2.22% and 2.20%
for 1995 and 1994, respectively. The efficiency ratio of 52.91% for 1995
compared with 51.99% for 1994.
Income Tax Expense
Income tax expense totaled $18.3 million for the year ended December 31,
1995, a decrease of $1.6 million (8%) from 1994. The decrease was
principally the result of downward trends in state franchise tax rates
which produced an effective tax rate of 38.5% for 1995 compared with 41.0%
in 1994.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all the assets and liabilities of
the Company are monetary. As a result, interest rates have a greater impact
on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or
to the same extent as the price of goods and services.
Impact of Changes in Accounting Standards
Accounting for Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting
for Mortgage Servicing Rights," which amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities." SFAS No. 122 requires that entities
recognize as a separate asset, the rights to service mortgage loans for
others, regardless of how those servicing rights are acquired.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing
rights be assessed for impairment based on the fair value of those rights,
and that impairment, if any, be recognized through a valuation allowance.
The Company adopted SFAS No. 122 in the first quarter of 1996. The adoption
of SFAS No. 122 resulted in increased gains recognized on the sale of
mortgage loans when the servicing rights are retained, offset by the
amortization of the capitalized mortgage servicing rights. The adoption of
SFAS No. 122 did not have a material effect on the Company's consolidated
financial statements.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting
for employee stock options, such as the Company's stock option plans, or
similar equity instruments. Under SFAS No. 123, entities can recognize
stock-based compensation expense in the basic financial statements using
either (i) the intrinsic value based approach set forth in the Accounting
Principles Board ("APB") Opinion No. 25 or (ii) the fair value based method
introduced in SFAS No. 123. Entities electing to continue the application
of APB Opinion No. 25, must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting defined
in SFAS No. 123 had been applied. Under the method currently utilized by
the Company (APB Opinion No. 25), compensation expense is determined based
upon the option's intrinsic value, or the excess (if any) of the market
price of the underlying stock at the measurement date over the amount the
employee is required to pay. Under the fair value based method introduced
by SFAS No. 123, compensation expense is based on the option's estimated
fair value at the grant date and is generally recognized over the vesting
period. Management elected to continue to measure stock-based compensation
costs in accordance with APB Opinion No. 25; accordingly, the required pro
forma disclosure requirements of SFAS No. 123 are presented in Note 17 of
the accompanying consolidated financial statements.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings. SFAS No. 125 is effective for transfers and servicing
of assets and extinguishments of liabilities occurring after December 31,
1996, and will supersede SFAS No. 122. Certain aspects of SFAS No. 125 were
amended by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." Management believes the adoption of
SFAS No. 125 will not have a material impact on the Company's consolidated
financial statements.
Interest rate sensitivity analysis
The Company employs many strategies to manage interest rate risk, the
general goal of which has been to shorten the repricing periods of assets
within the Company's balance sheet. This goal has been pursued actively in
the management of the mortgage loan and investment portfolios. Since the
early 1980's, the Company has emphasized the origination of one- to four-
family ARMs for portfolio retention. As a result, the percentage of ARMs
has grown steadily and at December 31, 1996, represented 76% of total
mortgage loans outstanding. Additions to the investment securities and
securities available for sale portfolios in 1996 of $70.8 million generally
had maturities or expected average lives of three to five years; applying
reasonable prepayment assumptions to the securities backed by certain
tangible assets, the entire portfolio at year-end 1996 had an expected
average life of between two and three years.
The interest rate risk analysis table that follows sets forth at December
31, 1996, the approximate amounts of interest-earning assets and interest-
bearing liabilities outstanding which are expected to reprice or mature in
each of the time periods indicated. Loans that have an adjustable interest
rate are shown as being due in the period during which the interest rate is
next subject to change.
Principal amortization of loans is shown in accordance with contractual
terms (scheduled amortization) and by using assumptions on the rate at
which the loan will repay in excess of scheduled amortization
(prepayments). Monthly prepayment factors were developed taking into
account current economic forecasts as well as historic prepayment activity.
The monthly prepayment factors utilized were as follows: ARMs, 0.57% to
1.08%; convertible ARMs, 3.33%; residential fixed rate mortgage loans,
0.32% to 1.29%; fixed rate home equity loans, 1.15% to 1.26%; adjustable
rate home equity loans, 1.72%; nonresidential fixed rate mortgage loans,
0.19% to 0.80%; consumer loans, 0.92% to 1.00%; and student loans, 1.00%.
With regard to deposit accounts, the following withdrawal/repricing rates
have been assumed: savings accounts, 20% per year; NOW and super NOW
accounts, 10% per year, in years one through four with the remainder
repricing in year five; regular money market accounts, 25% per year;
premium money market accounts, 100% repricing in less than one year. The
20% sensitivity of savings accounts represents the portion of total savings
that management believes to be interest rate sensitive. In arriving at this
judgment, management considered a number of factors including the trend and
level of overall interest rates and the review of historic, current and
projected future deposit flows. The perceived sensitivity of premium money
market accounts to interest rate shifts is reflected in their 100%
classification in the less than one year category. The lower relative
interest rate sensitivity of regular money market accounts is reflected in
their 25% per year classification. The classification of 10% of the NOW and
super NOW accounts in the less than one year category illustrates their
lesser degree of interest rate sensitivity.
Interest rate "gap" analysis is a common, though imperfect, measure of
interest rate risk. It measures the relative dollar amounts of interest-
earning assets and interest-bearing liabilities which reprice within a
specific time period, either through maturity or by rate adjustment.
A "positive" gap for a given period means that the amount of interest-
earning assets maturing or otherwise repricing exceeds the amount of
interest-bearing liabilities maturing or otherwise repricing within the
same period. Accordingly, in a rising interest rate environment, an
institution with a positive gap would generally be expected, absent the
effects of other factors, to experience a greater increase in the yield of
its assets relative to the cost of its liabilities. Conversely, the cost of
funds for an institution with a positive gap would generally be expected to
decline less quickly than the yield on its assets in a falling interest
rate environment. Changes in interest rates generally have the opposite
effect on an institution with a "negative" gap.
There are some shortcomings inherent in the method of analysis presented in
the following table. For example, although certain assets and liabilities
have similar periods to maturity or to repricing, they may react in
different degrees to changes in market rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets such as
adjustable rate mortgage loans have features which restrict changes in
interest rates on a short-term basis and over the life of the assets.
Further, in the event of a significant change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in the table. Finally, the ability of many borrowers to service
their debt may decrease in the event of a significant interest rate
increase. Management takes these factors into account when reviewing the
Bank's gap position and establishing future asset/liability strategy.
As of December 31, 1996, the following table indicates that total interest-
earning assets maturing or repricing within one year exceeded total
interest-bearing liabilities maturing or repricing in the same time period
by $345.6 million.
One Year One to Three to Five to Over
(Dollars in thousands)
At December 31, 1996 or Less Three Years Five Years Ten Years Ten Years Total
Interest-Earning Assets
Mortgage loans $1,390,814 347,888 76,307 120,013 127,371 2,062,393<F1>
Other loans 223,362 106,183 54,789 61,647 28,174 474,155<F1>
Securities available for sale 239,020 215,901 74,303 85,225 598 615,047<F2>
Investment securities 31,785 29,616 33,497 14,454 255 109,607
Stock in Federal Home Loan Bank -- -- -- 16,913 -- 16,913
Total interest-earning assets 1,884,981 699,588 238,896 298,252 156,398 3,278,115
Interest-Bearing Liabilities
Deposits:
Savings accounts 164,831 329,660 329,660 -- 25,480 849,631<F3>
Transaction accounts 207,959 97,355 188,883 -- -- 494,197<F4>
Certificate accounts 1,114,227 417,300 44,674 7,676 48 1,583,925
Short-term borrowed funds
and repurchase agreements 42,346 -- -- -- -- 42,346
Long-term debt 10,000 20,000 -- -- 61 30,061
Total interest-bearing liabilities 1,539,363 864,315 563,217 7,676 25,589 3,000,160
Interest Sensitivity Gap
Per period $ 345,618 (164,727) (324,321) 290,576 130,809 277,955
Cumulative $ 345,618 180,891 (143,430) 147,146 277,955 277,955
Cumulative interest sensitivity gap
as a percentage of total assets 9.86% 5.16% (4.09)% 4.20% 7.93%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities 122.45% 107.53% 95.17% 104.95% 109.26%
<FN>
<F1> Mortgage and other loans are reduced for nonperforming loans but are not reduced for the allowance for loan losses.
<F2> Does not include SFAS No. 115 unrealized gain of $2,896.
<F3> Includes interest-bearing escrow accounts of $25,480.
<F4> Does not include noninterest-bearing demand deposits of $110,856.
Management's Discussion and Analysis
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly results of operations for the years ended December 31, 1996 and 1995 are as follows:
(In thousands, except per share data)
Year Ended December 31, 1996 First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly Operating Data
Interest income $ 61,588 61,089 61,660 64,189
Interest expense 30,696 29,847 30,282 32,060
Net interest income 30,892 31,242 31,378 32,129
Provision for loan losses 1,425 1,425 1,425 1,500
Noninterest income 3,010 3,092 2,910 3,142
Noninterest expense 19,648 19,729 30,571 20,355
Income before income taxes 12,829 13,180 2,292 13,416
Income tax expense 5,118 5,345 644 4,403
Net income $ 7,711 7,835 1,648 9,013
Core net income<F1> $ 7,711 7,835 8,025 9,013
Primary and fully diluted
earnings per share $ 0.53 0.54 0.12 0.64
Primary and fully diluted
earnings per share based on
core net income<F1> 0.53 0.54 0.57 0.64
Dividends declared per share 0.12 0.12 0.12 0.15
(In thousands, except per share data)
Year Ended December 31, 1995 First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly Operating Data
Interest income $ 51,224 52,779 54,549 53,950
Interest expense 23,545 26,113 27,268 27,089
Net interest income 27,679 26,666 27,281 26,861
Provision for loan losses 1,125 1,125 1,125 1,125
Noninterest income 1,419 2,916 2,602 2,511
Noninterest expense 16,547 16,513 16,253 16,491
Income before income taxes 11,426 11,944 12,505 11,756
Income tax expense 4,475 4,687 4,935 4,251
Net income $ 6,951 7,257 7,570 7,505
Core net income<F1> $ 7,681 7,257 7,570 7,505
Primary and fully diluted earnings
per share<F2> $ 0.45 0.48 0.50 0.51
Primary and fully diluted earnings
per share based on core net
income<F1><F2> 0.50 0.48 0.50 0.51
Dividends declared per share<F2> 0.10 0.10 0.10 0.10
<FN>
<F1> Core net income excludes the net after-tax effect of the September 30, 1996, $6.4 million special assessment to
recapitalize the SAIF and the March 31, 1995, $0.7 million write-off of the capital investment in Nationar.
<F2> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Statement of Management's Responsibility
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774
To Our Stockholders:
The accompanying consolidated financial statements and the related
financial information in this Annual Report were prepared by the management
of ALBANK Financial Corporation in accordance with generally accepted
accounting principles and, where appropriate, reflect management's best
estimates and judgment. Management is responsible for the integrity,
objectivity, consistency and fair presentation of the consolidated
financial statements and all financial information contained in this Annual
Report.
In order to fulfill its responsibility, management relies in part on a
system of internal accounting control which has been designed to safeguard
the Company's assets from material loss or misuse and ensure that
transactions are properly authorized and recorded in its financial records.
An extensive internal auditing program monitors compliance with established
procedures and controls to provide assurance that the system of internal
accounting control is functioning in a proper manner. There are limits
inherent in all systems of internal control based on the recognition that
the cost of such systems should not exceed the benefits to be derived.
Management believes the Company's system of internal accounting control
provides reasonable assurance that its assets are safeguarded and that its
financial records are reliable.
The consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent public accountants, who rendered an independent
professional opinion on the accompanying consolidated financial statements.
Their appointment was ratified by the stockholders of ALBANK Financial
Corporation. Their examination provides an objective assessment of the
degree to which the Company's management has met its responsibility for
financial reporting. The opinion of the independent public accountants on
the consolidated financial statements is based on auditing procedures which
include reviewing the internal control structure to determine the timing
and scope of audit procedures and performing selected tests of transactions
and records as they deem appropriate. Their auditing procedures are
designed to provide a reasonable level of assurance that the consolidated
financial statements are fairly presented in all material respects.
The Company's internal auditor and independent auditors have direct access
to the Audit Committee of the Board of Directors. This committee, which is
composed entirely of outside directors, meets periodically with management,
the internal auditor and the independent auditors to gain assurance the
financial accounting and audit process is properly conducted.
/s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer
/s/ Richard J. Heller
Richard J. Heller
Executive Vice President
and Chief Financial Officer
Independent Auditors' Report
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
KPMG Peat Marwick LLP
Certified Public Accountants
74 North Pearl Street
Albany, NY 12207-2774
The Board of Directors and Stockholders
ALBANK Financial Corporation and Subsidiary:
We have audited the accompanying consolidated statements of financial
condition of ALBANK Financial Corporation and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of earnings, changes
in stockholders' equity and cash flows for each of the years in the three-
year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ALBANK
Financial Corporation and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 31, 1997
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
(In thousands, except per share data)
Years Ended December 31, 1996 1995 1994
Interest Income
Mortgage loans $ 155,914 125,228 98,630
Other loans 38,621 28,905 21,576
Securities available for sale 41,676 11,098 9,455
Investment securities 8,532 43,186 53,478
Federal funds sold 508 918 535
Securities purchased under agreement
to resell 2,225 1,888 2,010
Stock in Federal Home Loan Bank 1,050 1,279 1,120
Total interest income 248,526 212,502 186,804
Interest Expense
Deposits and escrow accounts 120,006 103,810 80,887
Short-term borrowed funds and
repurchase agreements 1,338 125 1,037
Long-term debt 1,541 80 168
Total interest expense 122,885 104,015 82,092
Net interest income 125,641 108,487 104,712
Provision for loan losses 5,775 4,500 4,500
Net interest income after provision
for loan losses 119,866 103,987 100,212
Noninterest Income
Service charges on deposit accounts 5,556 5,046 4,181
Net security transactions 8 (1,198) 14
Brokerage and insurance commissions 2,049 1,621 2,276
Other 4,541 3,979 3,620
Total noninterest income 12,154 9,448 10,091
Noninterest Expense
Compensation and employee benefits 38,455 31,817 28,705
Occupancy, net 9,186 8,260 7,710
Furniture, fixtures and equipment 5,270 4,036 3,418
Federal deposit insurance premiums 4,331 5,152 5,508
Federal deposit insurance special
SAIF assessment 10,397 -- --
Professional, legal and other fees 3,242 2,512 2,982
Telephone, postage and printing 4,393 4,062 3,144
Goodwill amortization 3,078 1,570 794
Other 11,951 8,395 9,572
Total noninterest expense 90,303 65,804 61,833
Income before income taxes 41,717 47,631 48,470
Income tax expense 15,510 18,348 19,898
Net income $ 26,207 29,283 28,572
Earnings per share:
Primary $ 1.84 1.94 1.77
Fully diluted 1.83 1.93 1.77
See accompanying notes to consolidated financial statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
December 31, 1996 1995
Assets
Cash and due from banks $ 68,883 54,002
Federal funds sold -- 1,000
Securities purchased under agreement
to resell -- 50,000
Total cash and cash equivalents 68,883 105,002
Securities available for sale, at
approximate market value 617,943 656,784
Investment securities (approximate market
value of $111,091 at December 31,
1996 and $155,862 at December 31, 1995) 109,607 153,740
Loans receivable 2,566,364 1,946,601
Less: allowance for loan losses 24,114 15,949
Loans receivable, net 2,542,250 1,930,652
Accrued interest receivable 27,092 26,351
Office premises and equipment, net 48,554 40,655
Stock in Federal Home Loan Bank, at cost 16,913 15,750
Real estate owned 4,012 3,899
Other assets 70,882 37,337
$ 3,506,136 2,970,170
Liabilities
Deposits $ 3,013,129 2,558,288
Escrow accounts 26,603 34,928
Accrued income taxes payable 3,938 4,529
Short-term borrowed funds and
repurchase agreements 42,346 1,290
Long-term debt 30,061 --
Obligation under capital lease 4,646 4,743
Other liabilities 66,288 43,210
Total liabilities 3,187,011 2,646,988
Commitments and contingent liabilities
Stockholders' Equity
Preferred stock, $.01 par value.
Authorized 25,000,000 shares;
none outstanding -- --
Common stock, $.01 par value. Authorized
50,000,000 shares; 15,697,500 shares
issued; 12,910,763 shares outstanding
at December 31, 1996 and 11,521,970
at December 31, 1995 157 157
Additional paid-in capital 180,670 151,969
Retained earnings, substantially restricted 214,283 258,631
Treasury stock, at cost (2,786,737 shares
at December 31, 1996 and 4,175,530 at
December 31, 1995) (71,235) (82,381)
Unrealized gain on securities available for
sale, net of tax 1,781 3,528
Common stock acquired by:
Employee stock ownership plan ("ESOP") (6,279) (7,535)
Bank recognition plan ("BRP") (252) (1,187)
Total stockholders' equity 319,125 323,182
$ 3,506,136 2,970,170
See accompanying notes to consolidated financial statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Net Unrealized
Gain (Loss) Common Common
Additional on Securities Stock Stock
Common Paid-in Retained Treasury Available Acquired Acquired
(Dollars in thousands) Stock Capital Earnings Stock for Sale by ESOP by BRP Total
Balance at JANUARY 1, 1994 $ 157 150,976 211,659 (36,406) -- (10,046) (3,057) 313,283
January 1, 1994 cumulative effect
of change in accounting for
securities available for sale,
net of tax -- -- -- -- 3,239 -- -- 3,239
Net income -- -- 28,572 -- -- -- -- 28,572
Purchase of treasury stock
(1,008,122 shares) -- -- -- (22,072) -- -- -- (22,072)
Exercise of stock options -- -- (38) 260 -- -- -- 222
Tax benefits related to vested
BRP stock and stock options
exercised -- 457 -- -- -- -- -- 457
Adjustment of securities available
for sale to market, net of tax -- -- -- -- (3,974) -- -- (3,974)
Cash dividends declared -- -- (5,128) -- -- -- -- (5,128)
Amortization of award of ESOP stock -- -- -- -- -- 1,255 -- 1,255
Amortization of award of BRP stock -- -- -- -- -- -- 935 935
Balance at December 31, 1994 157 151,433 235,065 (58,218) (735) (8,791) (2,122) 316,789
Net income -- -- 29,283 -- -- -- -- 29,283
Purchase of treasury stock
(898,053 shares) -- -- -- (24,233) -- -- -- (24,233)
Exercise of stock options -- -- (10) 70 -- -- -- 60
Tax benefits related to vested
BRP stock and stock options
exercised -- 536 -- -- -- -- -- 536
Adjustment of securities available
for sale to market, net of tax -- -- -- -- 4,263 -- -- 4,263
Cash dividends declared -- -- (5,707) -- -- -- -- (5,707)
Amortization of award of
ESOP stock -- -- -- -- -- 1,256 -- 1,256
Amortization of award of BRP stock -- -- -- -- -- -- 935 935
Balance at December 31, 1995 157 151,969 258,631 (82,381) 3,528 (7,535) (1,187) 323,182
Net income -- -- 26,207 -- -- -- -- 26,207
Purchase of treasury stock
(926,517 shares) -- -- -- (25,847) -- -- -- (25,847)
Exercise of stock options -- -- 275 745 -- -- -- 1,020
Tax benefits related to
vested BRP stock and stock
options exercised -- 898 -- -- -- -- -- 898
Adjustment of securities
available for sale to market,
net of tax -- -- -- -- (1,747) -- -- (1,747)
Cash dividends declared -- -- (6,779) -- -- -- -- (6,779)
Stock dividend declared -- 27,803 (64,051) 36,248 -- -- -- --
Amortization of award
of ESOP stock -- -- -- -- -- 1,256 -- 1,256
Amortization of award
of BRP stock -- -- -- -- -- -- 935 935
Balance at December 31, 1996 $ 157 180,670 214,283 (71,235) 1,781 (6,279) (252) 319,125
See accompanying notes to consolidated financial statements.
ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands) Years Ended December 31, 1996 1995 1994
Decrease in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 26,207 29,283 28,572
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and lease amortization 5,385 3,962 3,429
Goodwill amortization 3,078 1,570 794
Net amortization of premiums and accretion of
discounts on securities 1,233 1,326 2,128
Amortization of award of ESOP and BRP stock 2,191 2,191 2,190
Net loss (gain) on security transactions (8) 1,198 (14)
Net gain on sale of real estate owned (383) (328) (338)
Origination of loans receivable for sale (22,631) (15,401) (12,506)
Proceeds from sale of loans receivable 34,024 31,379 15,112
Provision for loan losses 5,775 4,500 4,500
Writedown of real estate owned 603 312 336
Net increase in accrued income taxes payable 277 2,632 131
Net decrease (increase) in accrued
interest receivable 2,814 (1,682) (2,299)
Net increase in other assets (619) (3,291) (3,956)
Net increase (decrease) in other liabilities and
obligation under capital lease 18,692 (6,272) 10,505
Net cash provided by operating activities 76,638 51,379 48,584
Cash Flows from Investing Activities
Net cash provided (used) by acquisition activity (61,439) 17,488 201,483
Proceeds from the sale of securities
available for sale 22,985 -- 5,015
Proceeds from the maturity or call of securities
available for sale 154,445 90,008 61,563
Proceeds from the maturity or call of
investment securities 70,032 173,113 211,279
Purchase of securities available for sale (45,105) (79,902) (95,248)
Purchase of investment securities (25,678) (20,350) (141,318)
Purchase of loans receivable (229,342) (125,894) (146,162)
Net increase in loans receivable (30,157) (58,002) (114,205)
Redemption (purchase) of Federal Home Loan
Bank stock 2,912 (1,621) 407
Proceeds from the sale of real estate owned 6,950 5,648 8,624
Capital expenditures (6,740) (9,882) (6,293)
Net cash used by investing activities (141,137) (9,394) (14,855)
Cash Flows from Financing Activities
Net increase (decrease) in deposits 20,530 (1,868) (55,704)
Net increase (decrease) in escrow accounts (8,465) 1,441 2,969
Net increase (decrease) in short-term borrowed
funds and repurchase agreements 17,907 (12,010) 13,300
Proceeds from long-term debt 30,061 -- --
Redemption of long-term debt -- (2,000) (2,200)
Purchase of treasury stock (25,847) (24,233) (22,072)
Dividends paid (6,210) (5,565) (3,884)
Cash proceeds from the exercise of stock options 404 60 222
Net cash provided (used) by financing activities 28,380 (44,175) (67,369)
Net decrease in cash and cash equivalents (36,119) (2,190) (33,640)
Cash and cash equivalents at beginning of year 105,002 107,192 140,832
Cash and cash equivalents at end of year $ 68,883 105,002 107,192
Supplemental Disclosures of Cash Flow
Information
Cash paid during the year:
Interest on deposits, escrows, short-term
borrowed funds, repurchase agreements and
long-term debt $ 122,662 104,022 82,055
Income taxes 12,804 16,118 18,576
Supplemental schedule of noncash investing and
financing activities:
Net reduction in loans resulting from transfers
to real estate owned 5,941 5,710 8,026
Net unrealized gain (loss) on securities
available for sale (3,098) 7,251 (1,256)
Transfer of investment securities to securities
available for sale -- 492,246 87,793
Transfer of investment securities to other
assets -- -- 353
Transfer of investment securities to commercial
loans -- -- 175
Tax benefits related to vested BRP stock and
stock options 898 536 457
Acquisition activity:
Fair value of noncash
assets acquired 523,406 712 15,843
Fair value of liabilities assumed 461,967 18,200 217,326
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
ALBANK
FINANCIAL
CORPORATION
AND SUBSIDIARY
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALBANK Financial Corporation (the "Holding Company") completed its
initial public offering on April 1, 1992. Simultaneously, the Holding
Company purchased all of the outstanding stock of ALBANK, FSB. To
date, the principal operations of ALBANK Financial Corporation and
subsidiary (the "Company") have been those of the ALBANK, FSB and
subsidiaries (the "Bank").
The accounting and reporting policies of the Company conform in all
material respects to generally accepted accounting principles and
to general practice within the savings bank industry. Management of
the Company has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these consolidated financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates. Certain prior year amounts
have been reclassified to conform to current year classifications.
The following is a description of the more significant policies which
the Company followed in preparing and presenting its consolidated
financial statements.
(A) Basic Presentation
The accompanying consolidated financial statements include the accounts
of the Holding Company, its wholly owned subsidiary, ALBANK, FSB,
and the Bank's wholly owned subsidiaries. Significant intercompany
transactions and balances have been eliminated in consolidation.
(B) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.
(C) Restriction on Cash Balances
The Bank was required to retain cash funds of $28,164,000 at December 31, 1996,
and $23,546,000 at December 31, 1995, to satisfy minimum reserve requirements
established by the Federal Reserve Bank of New York.
(D) Securities
Securities are classified at the time of purchase as investment securities,
securities available for sale, or trading account securities. Investment
securities are those securities that management has the positive intent
and ability to hold to maturity and are carried at amortized cost.
Securities available for sale are those that management intends to
hold for an indefinite period of time. Such securities may be sold
in response to changes in interest rates, prepayment risk, liquidity
needs or other similar factors. Securities available for sale are
reported at fair value, with unrealized gains and losses reported,
net of tax, as a separate component of stockholders' equity. If securities
are purchased for the purpose of selling them in the near term, they
are classified as trading securities and are reported at fair value
with unrealized gains and losses reflected in current earnings. The
Company had no trading account securities during the three-year period
ended December 31, 1996.
Any portion of unrealized loss on an individual security deemed to
be other than temporary is recognized as a realized loss in the accounting
period in which such determination is made. Gains and losses on the
sale of securities are determined using the specific identification
method. Discounts and premiums on securities are accreted or amortized
into income using a method which approximates the level-yield method.
(E) Loans Receivable/Allowance for Loan Losses
Loans receivable are stated at unpaid principal amounts, net of unearned
discounts, unamortized premiums and net deferred loan fees/costs.
Discounts, premiums and deferred loan fees/costs on loans are accreted
into or amortized against interest income as appropriate using a method
that approximates the level-yield method over the estimated terms
of the loans.
Loans considered doubtful of collection by management are placed on
nonaccrual status. Generally, nonperforming one- to four-family residential
mortgage loans continue to accrue interest income until a formal summons
and complaint is executed by the Bank, at which time they are placed
on nonaccrual status. Loans other than residential mortgage loans
past due 90 days or more as to principal or interest are placed on
nonaccrual status except for those loans which, in management's judgment,
are adequately secured and for which collection is probable. Generally,
previously accrued income that has not been collected is reversed
from current income, and subsequent cash receipts are applied to reduce
the unpaid principal balance. Amortization of related deferred fees
is suspended when a loan is placed on nonaccrual status.
The Company accounts for impairment of loans in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosure."
These Statements prescribe recognition criteria for loan impairment,
generally related to commercial type loans. The statements also prescribe
measurement methods for certain impaired loans as well as all loans
whose terms are modified in troubled debt restructurings. A loan is
considered impaired when collection of principal and interest is doubtful,
and there is insufficient collateral or other repayment resources
available to repay the principal balance of the loan along with all
interest that would accrue until the loan is fully satisfied.
The Company generally places impaired loans on nonaccrual status and
recognizes interest income on such loans only on a cash basis upon
receipt of interest payments from the borrower. In some instances,
all moneys received from the borrower, or from the proceeds of collateral,
are applied directly to reduce the principal balance of the loan,
and no interest income is recognized until the principal balance of
the impaired loan is paid in full or is no longer considered impaired.
The Bank maintains a valuation allowance for losses on loans for estimable
and probable future losses. The allowance for loan losses is maintained
at a level deemed appropriate by management to adequately provide
for known and inherent risks in the present portfolio. The determination
of the amount of the allowance includes estimates that are susceptible
to significant changes due to changes in appraised values of collateral
and general economic conditions. In connection with such determination
concerning collateral, management obtains independent appraisals for
significant properties. While management uses available information
to recognize future losses on loans, future additions to the allowance
may be necessary based on changes in relevant facts and circumstances
including changes in general economic conditions. In addition, various
regulatory agencies as an integral part of their examination process
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of
their examinations.
(F) Originated Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights," which amends
SFAS No. 65, "Accounting for Certain Mortgage Banking Activities."
SFAS No. 122 requires that entities recognize as separate assets,
the rights to service mortgage loans for others, regardless of how
those servicing rights are acquired. Additionally, SFAS No. 122 requires
that the capitalized mortgage servicing rights be assessed for impairment
based on the fair value of those rights, and that impairment, if any,
be recognized through a valuation allowance. The Company adopted SFAS
No. 122 in the first quarter of 1996. The adoption of SFAS No. 122
resulted in increased gains recognized on the sale of mortgage loans
when the servicing rights are retained, offset by the amortization
of the capitalized mortgage servicing rights. The adoption of SFAS
No. 122 did not have a material effect on the Company's consolidated
financial statements.
(G) Real Estate Owned
It is the Company's policy to include in real estate owned all assets
received from loan foreclosure and loans deemed to be in-substance
foreclosures. A loan is considered an in-substance foreclosure when
the Company has taken possession of the collateral regardless of whether
formal foreclosure proceedings have taken place.
Real estate owned is recorded on an individual asset basis at net
realizable value which is the lower of (1) fair value minus estimated
costs to sell or (2) "cost" (defined as the fair value at initial
foreclosure). When a property is acquired, any excess of the loan
balance over fair value is charged to the allowance for loan losses.
Subsequent write-downs to carry the property at net realizable value
are included in other noninterest expense.
(H) Office Premises and Equipment
Office premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of premises
and equipment are computed primarily using the straight-line method
over the estimated useful life of the respective asset. Useful lives
vary between 20 and 50 years for banking facilities and between 3
and 15 years for furniture, fixtures, and equipment. Amortization
of capital leases and leasehold improvements is computed on the straight-line
method over the lesser of the term of the lease or the useful life
of the property.
(I) Goodwill
In acquisitions accounted for as a purchase, goodwill results when
the consideration paid exceeds the fair value of net assets acquired.
Goodwill resulting from acquisition activity by the Company is being
amortized using the straight-line method generally over 15 years.
(J) Income Taxes
Deferred income taxes arise from the recognition of certain items
of income and expense for tax purposes in years different from those
in which they are recognized in the consolidated financial statements.
The Company records deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled. To the
extent that current available evidence about the future raises doubt
about the realization of a deferred tax asset, a valuation allowance
is established.
(K) Treasury Stock
Repurchases of common stock are accounted for under the cost method,
whereby shares repurchased are recorded in a contra-equity account.
(L) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market price
of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," with respect to employee stock options granted subsequent
to 1994. As such, the Company has adopted the provision of SFAS No.
123 whereby it will continue to apply the provisions of APB Opinion
No. 25 in its financial statements and supplementally provide in its
footnotes to financial statements pro forma net income and proforma
earnings per share disclosures as if the fair value based method of
valuing options defined in SFAS No. 123 had been applied.
(M) Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.
It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for
transfers and servicing of assets and extinguishments of liabilities
occurring after December 31, 1996, and will supersede SFAS No. 122.
Certain aspects of SFAS No. 125 were amended by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No.
125." Management believes the adoption of SFAS No. 125 will not have
a material impact on the Company's consolidated financial statements.
(N) Earnings Per Share
Earnings per share are calculated by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding
for the respective period, retroactively adjusted to give effect to
the declaration of stock dividends. Stock options are regarded as
common stock equivalents and are therefore considered in the earnings
per share calculations if dilutive. Common stock equivalents are computed
using the treasury stock method. The weighted average common stock
equivalents utilized for primary earnings per share were 14,259,059,
15,112,284 and 16,130,677 for 1996, 1995, and 1994, respectively.
The weighted average common stock equivalents utilized for fully diluted
earnings per share were 14,322,166, 15,161,602 and 16,149,694 for
1996, 1995, and 1994, respectively.
2.
RESTRICTIONS ON STOCKHOLDERS' EQUITY
As part of its conversion to a stock form savings bank, the Bank established
a liquidation account for the benefit of eligible depositors who continue
to maintain their deposit accounts in the Bank after conversion. In
the unlikely event of a complete liquidation of the Bank, each eligible
depositor will be entitled to receive a liquidation distribution from
the liquidation account, in the proportionate amount of the then current
adjusted balance for deposit accounts held, before distribution may
be made with respect to the Bank's capital stock. The Bank may not
declare or pay a cash dividend to the Holding Company on, or repurchase
any of, its capital stock if the effect thereof would cause the retained
earnings of the Bank to be reduced below the amount required for the
liquidation account. Except for such restrictions, the existence of
the liquidation account does not restrict the use or application of
retained earnings.
The Bank's capital exceeds all capital regulatory requirements. The
Office of Thrift Supervision (the "OTS") regulations provide that
an institution that exceeds all capital requirements before and after
a proposed capital distribution could, after prior notice to but without
the approval of the OTS, make capital distributions during the calendar
year of an amount that would reduce by one half its "excess capital
ratio" plus its net income for the current calendar year. Under such
limitation, the Bank could declare dividends to the Holding Company
in 1997 of approximately $43 million plus an amount equal to 1997
earnings.
3.
ACQUISITIONS
On January 3, 1996, the Bank acquired all of the outstanding common
stock of Marble Financial Corporation of Rutland, Vermont for $18.00
per share in cash or approximately $61 million in total consideration.
On the date of closing, Marble Financial and its banking subsidiary
Marble Bank had consolidated assets and deposits of approximately
$396 million and $327 million, respectively. The transaction, which
was accounted for under the purchase method of accounting, generated
accounting goodwill of $20.1 million which is being amortized over
15 years.
On September 27, 1996, the Company assumed the deposit liabilities
and purchased loans owned and serviced by six banking offices formerly
operated by the Green Mountain Bank of Rutland, Vermont, a wholly
owned subsidiary of Arrow Financial Corporation. The acquisition included
$107.7 million in deposits and loans with a net book value of $108.4
million. This acquisition, which was accounted for under the purchase
method of accounting, generated goodwill amounting to $8.2 million
which is being amortized over a period of 15 years. The Rutland banking
office of Green Mountain was consolidated with the existing Rutland
banking office acquired from Marble. The remaining Green Mountain
banking offices together with the seven former Marble banking offices
are currently operating as the Bank's Marble division.
On a pro forma basis, certain historical financial information for
the Company adjusted for the acquisition of Marble Financial Corporation
and calculated for the year ended December 31, 1995, as if such acquisition
had been consummated on January 1, 1995, follows: net interest income,
$120.4 million; net income, $29.7 million; and $1.96 for both primary
and fully diluted earnings per share.
Subsequent Event (Unaudited)
On January 30, 1997, the Company entered into a purchase agreement
with KeyCorp. Under the terms of the agreement, the Company will assume
deposit liabilities of approximately $530 million and purchase 35
New York State banking offices currently operated by KeyBank. The
offices are located in northern New York, the greater Hudson Valley,
and the Binghamton area. The Company will pay a deposit premium of
approximately 7% based on average deposit balances just prior to closing
and has the option to purchase $53 million in small business, consumer,
and mortgage loans. The agreement is subject to approval by bank regulatory
authorities. Pending those approvals, the two companies will move
to close the sale in mid-1997.
4.
SECURITIES
The amortized cost and estimated market value of investment securities
are as follows:
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1996 Amortized Cost Gains Losses Market Value
U.S. Government obligations $ 1,744 9 (6) 1,747
U.S. Government agency obligations 25,140 129 -- 25,269
Mortgage-backed securities 25,082 1,456 (5) 26,533
Corporate bonds 219 -- -- 219
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 34,587 21 (248) 34,360
Asset-backed securities 21,532 141 (48) 21,625
Other debt securities 1,303 35 -- 1,338
Total $ 109,607 1,791 (307) 111,091
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1995 Amortized Cost Gains Losses Market Value
U.S. Government obligations $ 1,592 35 -- 1,627
U.S. Government agency obligations 20,393 174 -- 20,567
Mortgage-backed securities 31,030 1,957 -- 32,987
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 55,446 241 (341) 55,346
Asset-backed securities 43,540 159 (151) 43,548
Other debt securities 1,739 54 (6) 1,787
Total $ 153,740 2,620 (498) 155,862
There were no sales of investment securities in the three year period
ended December 31, 1996. Gross gains and losses recorded on calls
and writedowns of investment securities were as follows:
(In thousands) Years Ended December 31, 1996 1995 1994
Gross gains recognized $ 3 1 14
Gross losses recognized -- (1,199) --
Total $ 3 (1,198) 14
The contractual maturity schedule of investment securities at amortized
cost and estimated market value is as follows:
Estimated
(In thousands) December 31, 1996 Amortized Cost Market Value
Within 1 year $ 7,432 7,527
After 1 year through 5 years 49,035 49,209
After 5 years through 10 years 10,380 10,477
After 10 years 42,760 43,878
Total $ 109,607 111,091
In the foregoing table and the contractual maturity table of securities
available for sale on the following page, maturities of mortgage-backed
securities, collateralized mortgage obligation securities, real estate
mortgage investment conduit securities and asset-backed securities
are based on the maturity of the final scheduled payment. Such securities,
which comprise most of the balances shown as maturing beyond five
years, generally amortize on a regular basis, predominantly monthly,
and are subject to prepayment. Taking into account such contractual
amortization and expected prepayments, a significant amount of principal
reduction on the aforementioned securities will occur within five
years.
In November 1995, the FASB released its Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities." The Special Report contained a unique
provision that, as of one date between November 15, 1995, and December
31, 1995, allowed entities to assess the appropriateness of the
classifications of all securities held at that time. In conjunction with
the provisions of this Special Report, as of December 29, 1995, the
Company transferred investment securities with a book value of
$492.3 million and a market value of $491.9 million to securities
available for sale.
The amortized cost and estimated market value of securities available
for sale are as follows:
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1996 Amortized Cost Gains Losses Market Value
U.S. Government obligations $ 75,910 604 (252) 76,262
U.S. Government agency obligations 6,032 24 (42) 6,014
Mortgage-backed securities 200,870 1,407 (2,235) 200,042
Corporate bonds 282,867 1,862 (869) 283,860
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 19,443 -- (392) 19,051
Asset-backed securities 23,093 94 (31) 23,156
Equity securities 6,832 2,732 (6) 9,558
Total $ 615,047 6,723 (3,827) 617,943
Gross Gross
Unrealized Unrealized Estimated
(In thousands) December 31, 1995 Amortized Cost Gains Losses Market Value
U.S. Government obligations $ 120,980 1,602 (96) 122,486
Mortgage-backed securities 122,952 562 (1,072) 122,442
Corporate bonds 352,727 4,213 (461) 356,479
Collateralized mortgage obligation and
real estate mortgage investment conduit securities 25,322 41 (269) 25,094
Asset-backed securities 24,043 178 (20) 24,201
Equity securities 4,766 1,329 (13) 6,082
Total $ 650,790 7,925 (1,931) 656,784
Proceeds from the sale of securities available for sale in 1996, 1995
and 1994 amounted to $22,985,000, $0, and $5,015,000, respectively.
In 1996, gains and losses amounted to $11,198 and $6,575, respectively.
There were no gains or losses in 1995 or 1994.
The contractual maturity schedule of securities available for sale
(exclusive of equity securities) at amortized cost and estimated market
value is as follows:
Estimated
(In thousands) December 31, 1996 Amortized Cost Market Value
Within 1 year $ 191,060 190,987
After 1 year through 5 years 269,831 270,066
After 5 years through 10 years 56,055 56,206
After 10 years 91,269 91,126
Total $ 608,215 608,385
The book value of securities pledged as required by law and for other
purposes amounted to $107.2 million and $3.8 million at December 31, 1996
and 1995, respectively. The increase in such securities in 1996
was primarily used to secure municipal deposits located in the state
of Vermont.
The Bank has entered into an agreement to loan certain securities
to investment brokers for which the Bank receives a fee. The total
book value of securities loaned to brokers under this agreement was
approximately $67.0 million and $75.7 million at December 31, 1996
and 1995, respectively.
5.
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
(In thousands) December 31, 1996 1995
Loans $ 18,223 15,151
Securities available for sale 7,669 9,368
Investment securities 989 1,269
Other earning assets 211 563
Total $ 27,092 26,351
6.
LOANS RECEIVABLE
Loans receivable consist of the following:
(In thousands) December 31, 1996 1995
Mortgage Loans
One- to four-family $ 1,730,059 1,362,277
Home equity 169,214 147,136
Commercial real estate 135,284 81,448
Multi-family 31,792 28,313
Construction 13,338 11,577
Total 2,079,687 1,630,751
Other Loans
Commercial 247,783 115,698
Student 94,478 93,816
Personal, secured and unsecured 84,308 52,627
Home improvement 23,593 22,800
Credit cards 14,754 17,233
Overdraft and other 16,222 12,065
Total 481,138 314,239
Total loans receivable 2,560,825 1,944,990
Net discounts, premiums and
deferred loan fees and costs 5,539 1,611
Loans receivable $ 2,566,364 1,946,601
Real estate mortgage loans serviced by the Bank for other institutions
of approximately $289.7 million and $138.2 million at December 31, 1996
and 1995, respectively, are not included in loans receivable.
Nonperforming loans are as follows:
(In thousands) December 31, 1996 1995 1994
Mortgage Loans
Nonaccrual $ 15,298 12,571 10,231
Delinquent more than 90 days and still accruing 7,367 5,567 5,104
Total nonperforming mortgage loans 22,665 18,138 15,335
Other Loans
Nonaccrual 3,933 372 424
Delinquent more than 90 days and still accruing 3,218 4,646 4,544
Total nonperforming other loans 7,151 5,018 4,968
Total nonperforming loans $ 29,816 23,156 20,303
Assuming all nonaccrual loans had been current, the amounts of interest
income recorded on such loans during the years ended December 31, 1996,
1995 and 1994, based on such loans' original rates of interest,
would have totaled $1.7 million, $1.0 million and $0.9 million, respectively.
The amounts included in interest income recorded in these periods
with respect to such loans were $320,000, $295,000 and $290,000, respectively.
The Bank has no commitments to extend further credit on nonaccrual
loans.
Certain directors and executive officers of the Company, as well as
certain affiliates of directors, were customers of and had other transactions
with the Company in the ordinary course of the Company's business.
Loans to these parties were made in the ordinary course of business
at the Company's normal credit terms, including interest rate and
collateralization. The aggregate of such loans totaled $463,000 and
$894,000 at December 31, 1996 and 1995, respectively. Total advances
to these directors and executive officers during the year ended
December 31, 1996, were $152,000. Total payments made on these loans
were $583,000.
7.
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
(In thousands) Years Ended December 31, 1996 1995 1994
Balance, beginning of year $ 15,949 15,510 12,984
Allowance of acquired banks 11,310 -- 151
Provision charged to operations 5,775 4,500 4,500
Loans charged-off (9,648) (4,421) (3,011)
Recoveries of loans previously charged-off 728 360 886
Balance, end of year $ 24,114 15,949 15,510
Of the total loans charged-off in 1996, $4.1 million was related to
a sale of a group of one- to four-family nonperforming loans consummated
during the fourth quarter of 1996.
8.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
The allowance for loan losses related to impaired loans is based on
discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain loans where repayment
of the loan is expected to be provided solely by the underlying collateral
(collateral dependent loans). Impaired loans at December 31, 1996
and 1995, were generally collateral dependent. The Company considers
estimated costs to sell, on a discounted basis, when determining the
fair value of collateral in the measurement of impairment if those
costs are expected to reduce the cash flows available to repay or
otherwise satisfy the loans.
At December 31, 1996 and 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 totaled $4,358,000
and $948,000, respectively. Restructured loans included in the foregoing
impaired loan balances amounted to $320,000 and $398,000 at the respective
year-end dates. The allowance for loan losses allocated to impaired
loans at December 31, 1996 and 1995, was $1,375,000 and $390,000,
respectively. Included in the total impaired loans at December 31, 1995,
were $106,000 of impaired loans that as a result of charge-offs
of $75,000 did not have an allowance for loan losses determined in
accordance with SFAS No. 114. The average recorded investment in impaired
loans during the twelve months ended December 31, 1996 and 1995, was
approximately $3,560,000 and $1,433,000, respectively.
Impaired loans are included in nonperforming loans generally as nonaccrual
loans. Commercial type loans past due greater than 90 days and still
accruing are generally not considered to be impaired as the Company
expects to collect all amounts due, including interest accrued at
the contractual interest rate for the delinquent period. As of December
31, 1996, the balance of loans restructured prior to the adoption
of SFAS No. 114 amounted to $742,000; such loans were not considered
impaired.
For the years ended December 31, 1996 and 1995, the Company recognized
no interest income on impaired loans.
9.
REAL ESTATE OWNED
A summary of real estate acquired through foreclosure follows:
(In thousands) December 31, 1996 1995
Residential (1-4 family) $ 2,750 3,760
Commercial properties 1,262 139
Total $ 4,012 3,899
10.
DEPOSITS
A summary of depositors' balances is as follows:
(Dollars in thousands) December 31, 1996 1995
Weighted Weighted
Amount Average Rate Amount Average Rate
Passbook and statement accounts $ 824,151 2.94% $ 826,875 2.96%
Certificate accounts:
2.01% to 3.00% 9,215 4,626
3.01% to 4.00% 11,908 16,384
4.01% to 5.00% 411,986 237,755
5.01% to 6.00% 967,800 630,827
6.01% to 7.00% 110,113 348,158
7.01% to 8.00% 69,572 61,070
8.01% to 9.00% 3,196 9,502
9.01% to 10.00% -- 414
10.01% to 11.00% 135 122
Total certificate accounts 1,583,925 5.37 1,308,858 5.64
Money market accounts 260,521 3.14 157,056 2.74
Super NOW accounts 27,908 1.82 10,139 1.09
NOW accounts 195,479 1.02 181,022 1.00
Commercial demand deposit accounts
from 0% to 2.47% in 1996 and 0%
to 1.50% in 1995 74,238 0.29 45,113 0.05
Demand deposit accounts 46,907 -- 29,225 --
Total $ 3,013,129 3.99% $ 2,558,288 4.09%
At December 31, 1996 and 1995, the aggregate amounts of certificate
accounts with balances equal to or in excess of $100,000 were approximately
$174.5 million and $91.0 million, respectively.
The approximate amount of contractual maturities of certificate accounts
for the years subsequent to December 31, 1996, is as follows:
(In thousands) Amount
1997 $ 1,114,101
1998 225,080
1999 192,220
2000 33,703
2001 10,971
Thereafter 7,850
Total $ 1,583,925
Components of interest expense on deposits and escrow accounts are
detailed as follows:
(In thousands) Years Ended December 31, 1996 1995 1994
Passbook and statement accounts $ 24,773 25,870 30,057
Certificate accounts 82,734 70,341 44,027
Money market accounts 9,320 4,346 3,124
Super NOW and NOW accounts 2,499 2,557 3,093
Commercial demand deposit accounts 79 22 21
Escrow accounts 601 674 565
Total $ 120,006 103,810 80,887
11.
SHORT-TERM BORROWED FUNDS AND REPURCHASE AGREEMENTS
Short-term borrowed funds and repurchase agreements, consisting of
advances with maturities of less than one year are as follows:
(Dollars in thousands) December 31, Interest Rate 1996 1995
Federal Home Loan Bank advances 5.38% $ -- 1,290
6.88% to 7.38% 36,000 --
Repurchase agreements 4.00% 4,796 --
Other short-term borrowings 6.00% 1,550 --
Total $ 42,346 1,290
Repurchase agreements are accounted for as borrowings and are secured
by certain mortgage-backed and other qualifying securities. Short-term
Federal Home Loan Bank advances are made pursuant to several different
credit programs, each of which has its own interest rate and range
of maturities, and are collateralized by Federal Home Loan Bank stock
and real estate mortgages.
12.
LONG-TERM DEBT
Long-term debt, consisting of advances from the Federal Home Loan
Bank with maturities of one year or more is as follows:
(Dollars in thousands) December 31, Interest Rate 1996 1995
Year of Maturity
1997 5.40% $ 10,000 --
1998 5.41% 10,000 --
1999 5.52% 10,000 --
2016 7.47% 61 --
Total $ 30,061 --
Long-term Federal Home Loan Bank advances are collateralized by Federal
Home Loan Bank stock and real estate mortgages.
13.
OFFICE PREMISES AND EQUIPMENT
A summary of office premises and equipment follows:
(In thousands) December 31, 1996 1995
Banking house, land and land improvements $ 37,975 30,607
Leasehold improvements 9,010 9,206
Furniture, fixtures and equipment 35,488 30,118
Capitalized lease 5,775 5,775
88,248 75,706
Less: accumulated depreciation and amortization 39,694 35,051
Total $ 48,554 40,655
Amounts charged to expense for depreciation and amortization aggregated
$5,385,000, $3,962,000 and $3,429,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
14.
INCOME TAXES
Income tax expense consists of the following:
(In thousands) Years Ended December 31, 1996 1995 1994
Current tax expense:
Federal $ 10,860 15,648 14,347
State 2,835 3,626 4,864
13,695 19,274 19,211
Deferred tax expense (benefit) 1,815 (926) 687
Total $ 15,510 18,348 19,898
The income tax provisions are higher than the statutory federal income
tax rate. The reasons for the differences are as follows:
Years Ended December 31, 1996 1995 1994
% of % of % of
Pretax Pretax Pretax
(Dollars in thousands) Amount Income Amount Income Amount Income
Federal income tax at 35% $ 14,601 35.0% $ 16,671 35.0% $ 16,965 35.0%
Tax-exempt income and
dividend received deduction (272) (0.7) (178) (0.4) (122) (0.3)
State income taxes, net of
federal tax benefit 1,843 4.4 2,357 4.9 3,162 6.5
Other (662) (1.5) (502) (1.0) (107) (0.2)
Total $ 15,510 37.2% $ 18,348 38.5% $ 19,898 41.0%
Prior to 1996, the Bank was allowed to claim a special bad debt deduction
in excess of its actual loss experience; such special deduction was
not subject to deferred tax allocation prior to 1988 in accordance
with SFAS No. 109. Accordingly, no deferred tax liability has been
recorded for the tax bad debt reserve at December 31, 1987 (the "base
year reserve"). The pre-1988 tax bad debt reserve, which was approximately
$27.3 million at December 31, 1996, will not be subject to tax as
long as the Bank does not redeem stock or distribute amounts to the
Company in excess of historical tax earnings.
As a result of tax legislation passed by Congress in 1996, the Bank
is no longer eligible to claim the special bad debt deduction for
federal income tax purposes. The total federal tax bad debt reserve,
aggregating approximately $33.5 million at December 31, 1995, exceeds
the base year reserve by approximately $6.2 million (the "excess reserve").
The excess reserve is to be recaptured as taxable income over a defined
number of years. The Company had previously established a deferred
tax liability for this excess reserve such that there is no impact
on total tax expense for the Company for 1996 or any future year based
on current tax rates.
Significant net temporary differences and carryforwards that give
rise to net deferred tax assets are as follows:
(In thousands) December 31, 1996 1995
Allowance for loan losses $ 6,279 5,000
Net operating loss carryforwards 247 389
Employee benefit plans 5,589 5,153
Net deferred fees on loans (1,225) (329)
Prepaid expenses (1,907) (1,826)
Accrued expenses 1,246 987
Unrealized gain on securities
available for sale (1,115) (2,466)
Other items (92) (161)
9,022 6,747
Valuation reserve (1,689) (2,150)
Net deferred tax asset--at year end 7,333 4,597
Less: net deferred tax asset--
at beginning of year 4,597 6,657
Decrease (increase) in deferred
tax asset (2,736) 2,060
Change in temporary difference
for unrealized gain on
securities available for sale 1,351 (2,986)
Deferred tax asset acquired 3,200 --
Deferred tax expense (benefit)
for the years ended $ 1,815 (926)
The Company established valuation reserves at December 31, 1996 and
1995, based on an evaluation of the Company's historical levels of
taxable income in prior years and the anticipated time period for
the reversal of the items giving rise to the deferred tax asset. Management
believes that it is more likely than not that the results of future
operations of the Company will generate sufficient taxable income
to realize the net deferred tax asset as of December 31, 1996. At
December 31, 1996, the Company has a net operating loss carryforward
of $705,000 available to offset future taxable income. Such carrryforward
expires in 2004.
15.
RETIREMENT PLANS
The Company maintains a noncontributory defined benefit pension plan
covering substantially all employees 21 years of age or older who
have completed at least one year of service. The amounts contributed
to the plan are determined annually on the basis of (a) the maximum
amount that can be deducted for federal income tax purposes or (b)
the amount certified by a consulting actuary as necessary to avoid
an accumulated funding deficiency as defined by the Employee Retirement
Income Security Act of 1974. Contributions are intended to provide
for benefits attributed to service to date and for those expected
to be earned in the future. Assets of the plan are primarily invested
in pooled equity funds and fixed income funds.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements at or for the
years ended December 31, 1996 and 1995:
(In thousands) December 31, 1996 1995
Accumulated benefit obligation,
including vested benefits of $21,081
in 1996 and $21,434 in 1995 $ (23,488) (23,267)
Projected benefit obligation for
service rendered to date $ (30,379) (28,589)
Plan assets at fair value 33,261 30,097
Plan assets greater than projected
benefit obligation 2,882 1,508
Unrecognized net loss from past
experience different from that
assumed and effects and changes
in assumptions 359 1,987
Unrecognized prior service cost 758 816
Unrecognized net asset at July 1, 1987,
being recognized over a weighted
average period of 13 years (879) (1,077)
Prepaid pension asset $ 3,120 3,234
Net periodic pension cost includes the following components:
(In thousands) Years Ended December 31, 1996 1995 1994
Service cost--benefits earned
during the year $ 820 561 794
Interest cost on projected
benefit obligation 2,119 1,959 1,921
Actual return on plan assets (4,245) (5,196) (17)
Net amortization and deferral 1,652 2,994 (1,928)
Net periodic pension cost $ 346 318 770
Significant assumptions used in the accounting for the plan were:
(In percentages) As of December 31, 1996 1995 1994
Settlement rate 7.50% 7.50 8.50
Expected long-term rate of return
on plan assets 8.50 8.50 8.50
Salary increase rate 5.00 5.00 4.50
The Company also has a directors' retirement plan which was amended
to freeze participation in the plan to directors who were participants
in the plan on January 1, 1992. The directors' retirement plan, which
is unfunded, provides a benefit of $500 for each quarter of service
not to exceed 40 quarters or a total annual maximum pension payment
of $20,000. The amount of pension liability recorded on the books
of the Company related to the directors' retirement plan was $2.4
million and $2.0 million at December 31, 1996 and 1995, respectively.
Net periodic pension costs for this plan for the years ended
December 31, 1996, 1995 and 1994, were $248,000, $284,000 and $348,000,
respectively. Settlement rates used in accounting for the plan were 7.50%,
7.50% and 8.50% as of December 31, 1996, 1995 and 1994, respectively.
The Company also has supplemental retirement contracts with certain
key executives. The amount of pension liability recorded on the books
of the Company related to these supplemental retirement contracts
was $1.0 million and $0.7 million at December 31, 1996 and 1995, respectively.
Net periodic pension costs in connection with these contracts for
the years ended December 31, 1996, 1995 and 1994 were $238,700, $173,300
and $116,200, respectively. Settlement rates used in accounting for
the plan were 7.50%, 7.50% and 8.50% as of December 31, 1996, 1995
and 1994, respectively.
16.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a defined benefit postretirement medical plan
that covers all of its full-time employees who have retired from the
Bank and attained age 55 with 15 years of service. Retired employees
contribute towards these benefits for themselves and their spouses
based on age and service at retirement. The Company also sponsors
an employer paid postretirement life insurance plan which covers all
employees who have retired from the Bank and attained 15 years of
service.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements:
(In thousands) December 31, 1996 1995
Accumulated postretirement
benefit obligation:
Retired employees $ (5,586) (4,981)
Active employees (2,520) (1,720)
Unfunded postretirement benefit obligation (8,106) (6,701)
Unrecognized net loss (gain) resulting
from past experience different from that
assumed and changes in assumptions 521 (479)
Accrued postretirement benefit liability $ (7,585) (7,180)
Net periodic postretirement benefit cost included the following components:
(In thousands) Years Ended December 31, 1996 1995 1994
Service cost--benefits earned
during the year $ 169 81 83
Interest cost 580 474 453
Net amortization and deferral 6 (56) --
Net periodic postretirement benefit cost $ 755 499 536
For measurement purposes, an 8.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal
1997; the rate was assumed to decrease gradually down to 5.5% for
fiscal 2003 and remain at that level thereafter. The healthcare cost
trend rate assumption has a significant effect on the amounts reported.
To illustrate, increasing the assumed health care cost trend rate
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by $712,000 (9%)
and the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for fiscal 1996 by $52,400 (7%). The
weighted average discount rates used in determining the accumulated
postretirement benefit obligation were 7.50%, 7.25% and 8.50% as of
December 31, 1996, 1995 and 1994, respectively.
17.
STOCK BENEFIT PLANS
At December 31, 1996, the Company had several stock-based compensation
plans, which are described below. As allowed by SFAS No. 123, the
Company has continued to apply APB Opinion No. 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. Alternatively, had
compensation cost for the Company's stock-based compensation plans
been determined consistent with the fair value based method outlined
in SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
(In thousands, except per share data) Years Ended December 31, 1996 1995
Net income:
as reported $ 26,207 29,283
pro-forma 25,822 29,236
Primary earnings per share:
as reported 1.84 1.94
pro-forma 1.81 1.93
Fully dilurted earnings per share:
as reported 1.83 1.93
proforma 1.80 1.93
Under the 1992 Incentive Stock Option Plan as amended, the Company
may grant up to 1,674,500 shares to senior officers. Under this plan,
the exercise price of each option equals the market price of the Company
stock on the date of grant. Options granted before December 18, 1995,
become exercisable on a cumulative basis in equal installments at
a rate of one-fifth per year commencing one year from the date of
grant; however, all options become 100% exercisable in the event the
employee's employment is terminated due to death, disability or in
the event of a change in control of the Bank or the Company. Options
granted on or after December 18, 1995, become exercisable on a cumulative
basis in equal installments at a rate of one-third per year commencing
one year from the date of grant. All options granted under the 1992
Incentive Stock Option Plan as amended give rise to a "limited right"
with respect to the shares covered by the options. Limited rights
granted are subject to certain terms and conditions and can be exercised
only in the event of a change in control of the Company. Upon exercise
of a limited right, the holder shall receive from the Company a cash
payment equal to the difference between the exercise price of the
option and the fair market value of the underlying shares of the Company's
common stock. All options granted under the 1992 Incentive Stock Option
Plan as amended, including limited rights, expire ten years following
the date of grant.
Under the 1992 Directors' Option Plan, the Company granted to directors
who were not officers or employees of the Company options to acquire
330,000 shares. Under this plan, the exercise price of each option
equals the market price of the Company stock on the date of grant
with limited rights. Options are exercisable by a director on a cumulative
basis in equal installments at the rate of one-fifth per year commencing
one year from the date of grant; however, all options become 100%
exercisable in the event a director dies or becomes disabled or in
the event of a change in control of the Bank or the Company. All options
granted under this Directors' Option Plan, including limited rights
which have characteristics similar to the rights granted under the
1992 Incentive Stock Option Plan as amended, expire upon the earlier
of ten years following the date of grant or one year following the
date the optionee's term as a director or a director emeritus expires.
Under the 1995 Directors' Option Plan, which superseded the 1992 Directors'
Option Plan, the Company may grant up to 240,000 options to acquire
shares to directors who are not officers or employees of the Company.
Options are exercisable by a director on a cumulative basis in equal
installments at a rate of one-third per year commencing one year from
the date of grant. All other significant provisions of this plan are
identical to those of the 1992 Directors' Option Plan.
In connection with the acquisition of Marble, the Company assumed
liability for the Marble stock option plans (the "Marble Option Plan").
All options granted under the Marble Option Plan were converted to
options to acquire 0.732 shares of ALBANK stock, based on the market
price of the Company stock and cash consideration paid for the Marble
common stock on the acquisition date. All options granted under these
plans have an original maximum term of ten years from the date of
grant and are fully vested. The Company recorded a liability of $1,867,000
for the estimated fair value of these options on the assumption date.
In regard to the disclosure required by SFAS No. 123, the fair value
of each of the option grants in the years ended December 31, 1996
and 1995, was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
used for grants in 1996 and 1995, respectively: dividend yields of
1.91% and 1.92%; expected volatility of 25% and 25%; risk-free interest
rates of 6.5% and 5.6%; and expected lives of 7.5 years for all plan
options.
A summary of the status of the Company's fixed-stock option plans
as of December 31, 1996, 1995 and 1994 is as follows:
Years Ended December 31, 1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning of year 1,464,960 $ 10.7550 1,263,960 $ 8.5791 1,290,600 $ 8.5740
Granted 192,000 31.1146 208,200 23.8809 -- --
Assumed in acquisition 112,362 8.1784 -- -- -- --
Exercised (53,349) 7.5708 (7,200) 8.3333 (26,640) 8.3333
Forfeited -- -- -- -- -- --
Outstanding at end of year 1,715,973 $ 12.9633 1,464,960 $ 10.7550 1,263,960 $ 8.5791
Options exercisable at year-end 1,113,893 722,400 468,120
Weighted-average fair value of
options granted during the year $ 2,077,000 1,611,000
Weighted-average fair value of
options assumed during the year $ 1,867,000
The following table summarizes information about fixed-stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
$ 6.6598 to $ 9.9999 1,228,029 5.1 years $ 8.2705 983,949 $ 8.2549
$10.0000 to $14.9999 85,914 6.5 years 12.9388 63,114 12.6339
$15.0000 to $24.9999 234,030 8.8 years 23.9184 66,830 23.9307
$25.0000 to $32.1250 168,000 9.9 years 32.0179 -- --
$ 6.6598 to $32.1250 1,715,973 6.1 years $ 12.9633 1,113,893 $ 9.4435
Incentive Savings and Employee Stock Ownership Plans
The Bank maintains an Incentive Savings Plan which is a tax-qualified
defined contribution plan. All salaried employees of the Bank become
eligible to participate in the plan after completing one year of service.
The Incentive Savings Plan was amended effective April 1, 1992, to
discontinue after-tax contributions and instead provide for pretax
contributions pursuant to Section 401(k) of the Internal Revenue Code.
The plan as amended requires a minimum age of 21 for participation.
In connection with the amendment of the Incentive Savings Plan, the
Bank established an employee stock ownership plan ("ESOP"). The ESOP
borrowed $12.4 million from the Holding Company and, along with $126,000
contributed by the Bank, purchased 8%, or 1,255,800 shares, of common
stock issued in the Bank's conversion to stock form. The cost of the
purchased shares is being amortized over a ten-year period. At December
31, 1996, the total unamortized cost of $6.3 million is reflected
as a reduction of stockholders' equity. Shares purchased by the ESOP
are held in a suspense account for allocation among participants as
the ESOP loan is repaid. The Bank's current intention is to repay
the loan in substantially equal installments over a remaining term
of five years. The Bank will make scheduled discretionary cash contributions
as approved by the Board of Directors to the ESOP at least sufficient
to fund the scheduled principal and interest payments on the debt
of the ESOP. During 1996 and 1995, dividends on unallocated ESOP shares
amounted to $427,000 and $417,000, respectively and were used to reduce
the Company's compensation expense. The Company has elected to make
payments on the loan obligation equal to the amount of these dividends;
such amounts will be used to reduce the regularly scheduled principal
and interest payments due on the ESOP obligation. At December 31,
1996 and 1995, the loan had an outstanding balance of $6.3 million
and $7.5 million, respectively, and respective interest rates of 8.00%
and 8.25%, both of which were based on the prime lending rate less
0.25%. Interest paid by the Bank on the obligation of $596,000 and
$742,000 for the years ended December 31, 1996 and 1995, respectively,
was eliminated in consolidation. ESOP shares are allocated to contributing
participants in the Bank's amended 401(k) plan in order to satisfy
the Company's minimum matching obligation. The shares released from
the ESOP in excess of the amount necessary to satisfy the minimum
matching allocation of the 401(k) plan are allocated to eligible employees
on the basis of compensation subject to Internal Revenue Code limitations.
In connection with these plans, an expense of $780,000, $790,000 and
$849,000 was recognized for the years ended December 31, 1996, 1995
and 1994, respectively.
Bank Recognition Plans and Trusts
In conjunction with the Bank's conversion, a Bank recognition plan
("BRP") was established to acquire, in the aggregate, 3% of the shares
of common stock issued in the conversion to provide employees, officers,
and directors of the Company with a proprietary interest in the Holding
Company in a manner designed to encourage such persons to remain with
the Company. The Bank's BRP trustee acquired a total of 470,925 shares
of common stock in the conversion and an additional 6,183 shares during
the first quarter of 1993. The BRP will vest on the anniversary of
the date of award at a rate of one-fifth per year. The BRP becomes
100% vested in the event an employee, officer or director's employment
is terminated due to death, disability or in the event of a change
in control of the Bank or the Company.
The $4.8 million contributed to the BRP is being amortized to compensation
expense as the Company's employees become vested in those shares.
Amortized expense related to the BRP of $900,000, $907,000 and $916,000
was recognized for the years ended December 31, 1996, 1995 and 1994,
respectively. The expense includes the pro-rata amount of shares earned
but not yet vested. The Bank distributed 93,583, 80,010 and 83,442
shares of common stock pursuant to the BRP during the years ended
December 31, 1996, 1995 and 1994, respectively. The unamortized cost
is reflected as a reduction of stockholders' equity.
18.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires the Company to disclose estimated fair values for its financial
instruments. SFAS No. 107 defines fair value of financial instruments
as the amount at which the instrument could be exchanged in a current
transaction between willing parties other than in a forced or liquidation
sale. SFAS No. 107 defines a financial instrument as cash, evidence
of ownership interest in an entity, or a contract that imposes on
one entity a contractual obligation to deliver cash or another financial
instrument to a second entity or to exchange other financial instruments
on potentially unfavorable terms with a second entity and conveys
to that second entity a contractual right to receive cash or another
financial instrument from the first entity or to exchange other financial
instruments on potentially favorable terms with the first entity.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings
of a particular financial instrument. Because no ready market exists
for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected
net cash flows, current economic conditions, risk characteristics
of various financial instruments, and other factors. These estimates
are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets
and liabilities that are not considered financial assets or liabilities
include the deferred tax asset and office premises and equipment.
In addition, tax ramifications related to the realization of the unrealized
gains and losses on securities available for sale, which can have
a significant effect on fair value estimates, have not been considered
in the estimates of fair value under SFAS No. 107.
In addition there are significant intangible assets that SFAS No.
107 does not recognize, such as the value of "core deposits," the
Bank's branch network and other items generally referred to as "goodwill".
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments:
(In thousands) December 31, 1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Cash and cash equivalents $ 68,883 68,883 105,002 105,002
Securities available for sale 617,943 617,943 656,784 656,784
Investment securities 109,607 111,091 153,740 155,862
Stock in Federal Home Loan Bank 16,913 16,913 15,750 15,750
Accrued interest receivable 27,092 27,092 26,351 26,351
Loans receivable 2,560,825 2,602,160 1,944,990 1,963,541
Allowance for loan losses (24,114) -- (15,949) --
Net discounts, premiums and deferred
loan fees and costs 5,539 -- 1,611 --
Loans receivable, net 2,542,250 2,602,160 1,930,652 1,963,541
Demand deposits 121,145 121,145 74,338 74,338
Passbook, statement, NOW and
super NOW accounts 1,047,538 1,047,538 1,018,036 1,018,036
Money market accounts 260,521 260,521 157,056 157,056
Certificates of deposit 1,583,925 1,589,489 1,308,858 1,317,599
Escrow accounts 26,603 26,603 34,928 34,928
Short-term borrowed funds and
repurchase agreements 42,346 42,346 1,290 1,290
Long-term debt 30,061 29,958 -- --
Financial Instruments with Carrying Amount Equal to Fair Value
The carrying amount of cash and due from banks, federal funds sold
and securities purchased under agreement to resell (collectively defined
as "cash and cash equivalents"), accrued interest receivable and
stock in the Federal Home Loan Bank is considered to be equal to fair
value as a result of their short-term nature or limited marketability.
Securities Available for Sale and Investment Securities
The fair value of securities available for sale and investment securities
is estimated based on bid prices published in financial newspapers
and bid quotations received from either quotation services or securities
dealers.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as one- to four-family,
commercial real estate, consumer and commercial loans. Each loan category
is further segmented into fixed and adjustable rate interest terms
and by performing and nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the contractual term of
the loans to maturity, adjusted for estimated prepayments.
The fair value estimate for credit card loans is based on the value
of existing loans at December 31, 1996 and 1995. This estimate does
not include the value of estimated cash flows from new loans generated
from existing cardholders over the remaining life of the portfolio.
Fair value for nonperforming loans is based on recent external appraisals
and discounting of cash flows. Estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows, and discount
rates are judgmentally determined using available market information
and specific borrower information.
Deposits, Escrow Accounts, Short-Term Borrowed Funds and Repurchase
Agreements, and Long-Term Debt
Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, passbook, statement,
NOW and super NOW accounts, money market accounts and escrow accounts,
is estimated to be the amount payable on demand as of December 31,
1996 and 1995. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate
is estimated using the rates currently offered for deposits of similar
remaining maturities. As per SFAS No. 107, the fair value estimates
of deposit liabilities in the foregoing table do not include the benefit
that results from the low cost funding provided by the deposit liabilities
compared to the cost of borrowing funds in the debt market.
The fair value of short-term borrowed funds and repurchase agreements
for 1996 and 1995 is considered to be equal to the carrying amount
due to their short-term nature. The fair value of long-term debt for
1996 and 1995 is estimated using the present value of the anticipated
cash flows related to the debt considering the remaining maturity
and yield.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated using
the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
credit worthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters
of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. Fees such as these are not a
major part of the Bank's business. Based on an analysis of the foregoing
factors, the fair value of these items is deemed insignificant at
December 31, 1996 and 1995.
19.
COMMITMENTS AND CONTINGENT LIABILITIES
(A) Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit
The Bank enters into financial agreements in the normal course of
business that have off-balance sheet risk. These agreements include
commitments to extend credit and standby letters of credit and involve,
to varying degrees, elements of credit risk in excess of the amount
recognized on the consolidated statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the commitments to extend credit and standby
letters of credit is represented by a contractual amount. The Bank
uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk
are as follows:
(In thousands) December 31, 1996 1995
Mortgage loans $ 30,757 19,404
Commercial real estate loans 9,726 5,320
Construction loans 12,247 6,722
Credit cards 42,002 43,942
Commercial loans 98,115 74,972
Student loans 6,322 6,063
Overdraft loans 17,883 13,808
217,052 170,231
Standby letters of credit 1,599 230
Total $ 218,651 170,461
The range of interest rates on fixed rate commitments was 7.13% to
18.00% at December 31, 1996, and 7.00% to 18.00% at December 31, 1995.
The Bank offers a variety of adjustable rate mortgage ("ARM") products
on one- to four-family residential dwellings. Generally, the principal
one-year ARM offered by the Bank has a 2.00% annual interest rate
adjustment cap, and uses the weekly average from the one-year Treasury
Constant Maturity Index, plus a margin of 3.00%, as an index for rate
adjustments. The lifetime rate ceilings for one-year ARM originations
generally are 6.00% over the initial first year rate. Another one-year
product offered by the Bank is an ARM that is convertible to a fixed
rate loan between the 13th and 60th months. Three-, five- and seven-year
ARMs are also available; such loans have a 3.00% periodic adjustment
cap at the first adjustment date and a 2.00% cap in all subsequent
years. The Bank does not originate loans which provide for negative
amortization. Loan terms vary from 5 to 30 years.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being fully drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral, if any, required
by the Bank upon the extension of credit is based on management's
credit evaluation of the customer. Mortgage and construction loan
commitments are secured by a first lien on real estate. Collateral
on extensions of credit for commercial loans varies but may include
accounts receivable, inventory, property, plant and equipment, and
income producing commercial property.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support borrowing arrangements.
The credit risk involved in issuing standby letters of credit is essentially
the same as that involved in extending loan facilities to customers.
The Bank grants residential, consumer and commercial loans to customers
principally throughout much of upstate New York State and Vermont,
and in a part of western Massachusetts. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate and construction
related sectors of the local/regional economy.
(B) Leases
The Bank leases several branch office facilities and equipment used
in its operations which are accounted for as operating leases. These
leases expire (excluding renewal options) in periods ranging from
1 to 9 years. The Bank also occupies its main office building under
a lease agreement which is accounted for as a "capital lease" for
financial reporting purposes. Minimum rental commitments under operating
and capital leases are as follows:
(In thousands) Operating Leases Capital Leases
1997 $ 2,311 415
1998 1,502 415
1999 1,052 415
2000 761 415
2001 616 415
Thereafter 2,483 6,656
Total minimum lease payments 8,725 8,731
Imputed interest at 6.76% n.a. 4,085
Present value of minimum
lease payments $ n.a. 4,646
Rent expense aggregated $2,544,000, $2,082,000 and $1,873,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
(C) Litigation
There are legal proceedings against the Company arising in the ordinary
course of business. Although it is not possible to determine the ultimate
outcome of the Company's legal proceedings, management believes that
the outstanding litigation will not result in material losses to the
Company upon resolution.
20.
CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of December
31, 1996 and 1995, and condensed statements of earnings and cash flows
for each of the years in the three-year period ended December 31, 1996,
for ALBANK Financial Corporation (parent company only) should
be read in conjunction with the consolidated financial statements
and accompanying notes.
Statements of Financial Condition
(In thousands) December 31, 1996 1995
Assets
Cash and cash equivalents $ 13,813 1,581
Securities available for sale 9,453 16,137
Loans receivable 12,994 14,752
Equity in net assets of subsidiary 284,813 290,890
Intercompany accounts receivable 3,037 2,073
Other assets 180 129
$ 324,290 325,562
Liabilities
Accrued income taxes payable $ 1,031 571
Other liabilities 4,134 1,809
Total liabilities 5,165 2,380
Stockholders' Equity
Preferred stock -- --
Common stock 157 157
Additional paid-in capital 180,670 151,969
Retained earnings 214,283 258,631
Treasury stock (71,235) (82,381)
Unrealized gain on securities
available for sale, net of tax 1,781 3,528
Common stock acquired by ESOP (6,279) (7,535)
Common stock acquired by BRP (252) (1,187)
Total stockholders' equity 319,125 323,182
$ 324,290 325,562
Statements of Earnings
(In thousands) Years Ended December 31, 1996 1995 1994
Interest income $ 1,984 2,091 2,742
Interest expense 63 215 435
Net interest income 1,921 1,876 2,307
Noninterest income 2 157 16
Noninterest expense 967 782 951
Income before income taxes and
equity in earnings of subsidiary 956 1,251 1,372
Income tax expense 256 459 577
Income before equity in earnings
of subsidiary 700 792 795
Equity in earnings of subsidiary 25,507 28,491 27,777
Net income $ 26,207 29,283 28,572
Statements of Cash Flows
(In thousands) Years Ended December 31, 1996 1995 1994
Increase (Decrease) in Cash
and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 26,207 29,283 28,572
Reconciliation of net income to net
cash provided (used) by
operating activities:
Equity in earnings of subsidiary (25,507) (28,491) (27,777)
Net amortization of premiums and accretion
of discounts on securities 32 106 316
Net decrease (increase) in other assets (51) 61 14
Net increase in intercompany
accounts receivable (964) (47) (1,791)
Net increase in accrued income
taxes payable 103 5 110
Net increase (decrease) in other liabilities 2,372 (128) (740)
Net cash provided (used) by
operating activities 2,192 789 (1,296)
Cash Flows from Investing Activities
Net decrease (increase) in loans receivable 1,758 (1,359) (3,347)
Proceeds from the sale of securities
available for sale -- -- 5,015
Proceeds from the maturity of
investment securities -- 7,500 10,000
Proceeds from the maturity of securities
available for sale 10,000 -- --
Purchase of securities available for sale (2,065) (3,205) (1,182)
Net cash provided by investing activities 9,693 2,936 10,486
Cash Flows from Financing Activities
Net increase (decrease) in repurchase
agreements -- (11,800) 9,300
Dividends received 32,000 28,000 17,500
Dividends paid (6,210) (5,565) (3,884)
Purchase of treasury stock (25,847) (24,233) (22,072)
Cash proceeds from the exercise
of stock options 404 60 222
Net cash provided (used) by
financing activities 347 (13,538) 1,066
Net increase (decrease) in cash and
cash equivalents 12,232 (9,813) 10,256
Cash and cash equivalents at
beginning of year 1,581 11,394 1,138
Cash and cash equivalents at end of year $ 13,813 1,581 11,394
Supplemental Disclosures of Cash
Flow Information
Net unrealized gain on securities
available for sale, net of tax $ 824 677 125
Transfer of investment securities to
securities available for sale -- -- 23,196
Tax benefits related to stock
options exercised 100 40 117
21.
REGULATORY CAPITAL REQUIREMENTS
Office of Thrift Supervision ("OTS") capital regulations require savings
institutions to maintain minimum levels of regulatory capital. Under
the regulations in effect at December 31, 1996, the Bank was required
to maintain a minimum ratio of tangible capital to tangible assets
of 1.5%; a minimum leverage ratio of core (Tier 1) capital to total
adjusted tangible assets of 3.0%; and a minimum ratio of total capital
(core capital and supplementary capital) to risk-weighted assets of
8.0%, of which 4.0% must be core (Tier 1) capital.
Under its prompt corrective action regulations, the OTS is required
to take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions
could have a direct material effect on an institution's financial
statements. The regulations establish a framework for the classification
of savings institutions into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Generally, an institution is considered
well capitalized if it has a core (Tier 1) capital ratio of at least
5.0% (based on adjusted total assets); a core (Tier 1) risk-based
capital ratio of at least 6.0%; and a total risk-based capital ratio
of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by the
OTS about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1996, the Bank meets
all capital adequacy requirements to which it is subject. Further,
the most recent OTS notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There
have been no conditions or events since that notification that management
believes have changed the Bank's capital classification.
The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1996, compared to the OTS minimum bank capital
adequacy requirements and the OTS requirements for classification
as a well-capitalized institution. Although the OTS capital regulations
apply at the Bank level only, the Company's consolidated capital amounts
and ratios are also presented. The OTS does not have a holding company
capital requirement.
OTS Bank Capital Requirements
Minimum For Classification
Capital Adequacy as Well Capitalized
(Dollars in thousands) Amount Ratio Ratio Ratio
Tangible capital:
Bank only $ 241,150 7.00% 1.50% 5.00%
Consolidated 273,835 7.92
Core (Tier 1) capital:
Bank only 241,150 7.00 3.00 5.00
Consolidated 273,835 7.92
Risk-based capital:
Core (Tier 1):
Bank only 241,150 10.80 4.00 6.00
Consolidated 273,835 12.24
Total:
Bank only 265,094 11.88 8.00 10.00
Consolidated 290,971 13.00
Directors and Officers
BOARD OF DIRECTORS
Herbert G. Chorbajian
Chairman of the Board, President and Chief Executive Officer
William J. Barr
Retired Senior Vice President and Controller, ALBANK, FSB
Henry M. Elliot, Jr.
Retired Agency Manager, Equitable Life Assurance Society of the United States
John E. Maloy, Sr.
President, J.H. Maloy, Inc.
Susan J. Stabile, Esq.
Associate Professor of Law, St. John's University School of Law
Anthony P. Tartaglia, M.D.
Professor of Medicine, Albany Medical College
John G. Underhill
Retired President, Sager Spuck Supply Company, Inc.
Karen R. Hitchcock, Ph.D.
President, University at Albany, State University of New York
Francis L. McKone
President and Chief Executive Officer, Albany International Corp.
OFFICERS
Herbert G. Chorbajian
Chairman of the Board, President and Chief Executive Officer
Clifford M. Apgar
Executive Vice President--Senior Credit Officer
Barry G. Blenis
Executive Vice President--Operations and Strategic Planning
Richard J. Heller
Executive Vice President and Chief Financial Officer
Freling H. Smith, Esq.
Senior Vice President, Secretary and General Counsel
Frank J. Vaselewski
Senior Vice President--Retail Banking
Margaret F. Ludington
Senior Vice President--Human Resources
Robert L. Meyer
Senior Vice President--Retail Lending
Joseph P. Richardson
Senior Vice President--Commercial Lending
Margaret J. Welch
Senior Vice President--Branch Administration
Robert J. Gould
Vice President and Controller
Mary Jean Laraway
Vice President--Corporate Services
Edward C. Tremblay
Vice President and Auditor