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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER: 00-25439
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TROY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-1559508
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
32 SECOND STREET 12180
TROY, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(518) 270-3313
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(NOT APPLICABLE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK ($0.0001 PAR VALUE PER SHARE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K (Section 299.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [ ]
Based upon the closing price of the registrant's common stock as of December
27, 2000, the aggregate market value of the voting stock held by non-affiliates
of the registrant is $122.8 million.
The number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date is:
CLASS: COMMON STOCK, PAR VALUE $0.0001 PER SHARE
OUTSTANDING AT DECEMBER 27, 2000: 10,494,597 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to shareholders for fiscal year ended
September 30, 2000 are incorporated by reference into Part II, Items 7, 7A
and 8 of this Form 10-K
(2) Portions of the definitive Proxy Statement for the Registrant's Annual
Meeting of Shareholders to be held on February 8, 2001 are incorporated by
reference into Part III, Items 10, 11, 12 and 13 of this Form 10-K.
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PART I
ITEM 1. BUSINESS
BUSINESS OF TROY FINANCIAL CORPORATION
Troy Financial Corporation ("Troy Financial" or the "Company") is a Delaware
corporation that has registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve") as the bank holding company for The Troy
Savings Bank (the "Savings Bank") and The Troy Commercial Bank (the "Commercial
Bank")(collectively, the "Banks"). Troy Financial's primary business is the
business of the Banks.
Presently, Troy Financial and the Commercial Bank have no plans to own or
lease any property, but instead use the premises and equipment of its
subsidiaries. Troy Financial does not employ any persons other than certain
officers of the Savings Bank who are not separately compensated by Troy
Financial or the Commercial Bank. Troy Financial and the Commercial Bank may
utilize the support staff of the Savings Bank from time to time, if needed, and
additional employees will be hired as appropriate to the extent Troy Financial
or the Commercial Bank expand their business in the future. Troy Financial was
incorporated in 1998.
Troy Financial is subject to regulation and supervision by the Federal
Reserve. See "Regulation."
The Savings Bank is a community oriented savings bank headquartered in Troy,
New York. Until November 2000, the Savings Bank operated through 14 full service
branch offices in a six county market area. As a full service financial
institution, the Savings Bank places a particular emphasis on residential and
commercial real estate loan products, as well as retail and business banking
products and services. The Savings Bank and its subsidiaries also offer a
complete range of trust, insurance and investments services, including
securities brokerage, annuity and mutual funds sales, money management and
retirement plan services, and other traditional investment/brokerage activities
to individuals, families and businesses throughout the eight New York State
counties of Albany, Greene, Saratoga, Schenectady, Schoharie, Warren, Washington
and Rensselaer, the county in which Troy is located.
In August 2000, the Company established the Commercial Bank, which is a
commercial bank headquartered in Troy, New York. The Commercial Bank's purpose
is to provide an alternative source of funding for the Company through the
generation of municipal deposits.
As of the close of business on November 10, 2000, the Company completed the
acquisition of Catskill Financial Corporation ("Catskill") in a cash transaction
for $23.00 per share, for a total transaction value of approximately $90.0
million. The seven former offices of Catskill Savings Bank are now open as
full-service offices of the Savings Bank. The combined regional bank has total
assets of approximately $1.2 billion, deposits of $780 million and 21
full-service offices located in eight New York counties throughout New York
State's Capital and Catskill regions. In accordance with the purchase method of
accounting for business combinations, the assets acquired and liabilities
assumed were recorded by the Company at their estimated fair value. Related
operating results will be included in the Company's consolidated financial
statements from the date of acquisition.
The Company's goal is to be the primary source of financial products and
services for its business, retail, and municipal customers. The Company's
business strategy is to serve as a community based, full-service financial
services firm by offering a wide variety of business, retail, and municipal
banking products, and trust, insurance, investment management and brokerage
services to its potential and existing customers throughout its market area.
The Company delivers its products and services and interacts with its
customers primarily through its 21 branches and 22 proprietary automated teller
machines ("ATMs") and its 24-hour telephone banking service ("Time$aver"). The
Company's branches are staffed by managers, branch operations supervisors and
customer sales and service representatives ("CSSRs") who are trained and
encouraged to market and service the Company's products and services, including
those of the Company's subsidiaries.
The Savings Bank and the Commercial Bank are subject to regulation,
examination and supervision by Federal Deposit Insurance Corporation (the
"FDIC") and the New York State Banking Department ("NYSBD"), and the Savings
Bank is a
3
member of the Federal Home Loan Bank System ("FHLB System"). The Banks' deposits
are insured by the FDIC to the maximum extent provided by law. See "Regulation."
LENDING ACTIVITY
The Company focuses its lending activity primarily on the origination of
commercial real estate loans, commercial business loans, residential mortgage
loans and consumer loans. The types of loans that the Company may originate are
subject to federal and state law and regulations. Interest rates charged by the
Company on loans are affected principally by the demand for such loans, the
supply of money available for lending purposes and the rates offered by its
competitors. These factors are, in turn, affected by general and economic
conditions, monetary policies of the federal government, including the Federal
Reserve, legislative tax policies and governmental budget matters. All loan
approval decisions are made locally, by individual loan officers or loan
committees, depending upon the size of the loan, and the Company responds to all
loan requests in a prompt and timely manner.
Loan Portfolio Composition. At September 30, 2000, the Company's loan
portfolio totaled $598.7 million, or 64.9% of total assets, and consisted
primarily of single family residential mortgage loans and commercial real estate
loans, as well as construction loans, commercial business loans and consumer
loans.
The commercial real estate loan portfolio totaled $233.3 million, or 39.0%
and 25.3% of the Company's loans and total assets, respectively, at September
30, 2000. Approximately 82.0% of the loans are secured by properties located in
the Company's six county market area, and an additional 8.0% are secured by
properties located in the New York City area. Approximately 28.0% of the
properties securing the loans are apartment buildings and cooperatives, 32.0%
are office buildings and warehouses and 22.0% are retail buildings. The
Company's commercial real estate loans range in size from $1,000 to $12.2
million, and the average outstanding principal balance at September 30, 2000 was
approximately $799,000. The 20 largest commercial real estate loans range in
size from $3.0 million to $12.2 million, and the Company had 64 loans with
outstanding balances of more than $1.0 million at September 30, 2000. The
Company's largest commercial real estate exposure at September 30, 2000
involving a single entity was $29.2 million to a local real estate developer and
his related real estate interests with whom the Company has had a fifteen year
relationship.
The commercial business loan portfolio totaled $87.2 million, or 14.6% of
the Company's loans and 9.5% of total assets, at September 30, 2000, and
includes fixed and adjustable rate loans and adjustable rate lines of credit to
a diverse customer base which includes manufacturers, wholesalers, retailers,
service providers, educational institutions and government funded entities. The
Company's commercial business loans range in size from $5,000 to $10.0 million,
with an average principal balance outstanding of approximately $291,000 as of
September 30, 2000. The Company's 20 largest commercial business loans at that
date ranged in terms of total exposure, including outstanding balances and
unfounded commitments, from $2.5 million to $10.8 million.
The Company's portfolio of single family residential mortgage loans totaled
$227.0 million, or 37.9% of loans and 24.6% of total assets, at September 30,
2000, and consisted primarily of fixed rate and adjustable rate loans secured by
detached, single family homes located in the Company's market area, as well as
secured home equity and home improvement loans. As of September 30, 2000, the
Company's largest single-family residential mortgage loan had an outstanding
balance of $672,500. As of that date, the typical residential mortgage loan held
by the Company in its portfolio had an average principal balance of
approximately $80,000, an initial loan-to-value ("LTV") ratio of 80% and was
secured by a detached, single family home.
The consumer loan portfolio totaled $44.3 million, or 7.4% of the Company's
loans and 4.8% of total assets, at September 30, 2000. The Company's consumer
loan portfolio includes home equity lines of credit, fixed rate consumer loans,
overdraft protection and "Creative Loans", which start with a modest below
market interest rate that increases each year. The Company's home equity lines
of credit and Creative Loans represented 11.3% and 13.5% of the Company's
consumer loan portfolio, respectively, at September 30, 2000. Personal fixed
rate loans originated through direct mail marketing programs represented $19.2
million, or 43.3% of the Company's consumer loan portfolio at September 30,
2000.
4
The following table presents the composition of the Company's loan
portfolio, excluding loans held for sale, in dollar amounts and percentages at
the dates indicated.
Loan Portfolio Composition
At September 30,
2000 1999 1998 1997 1996
Percent of Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total Amount Total
(Dollars in thousands)
Real estate loans:
Residential mortgage $226,961 37.9% $221,721 39.1% $202,511 43.5% $214,638 45.2% $204,879 44.9%
Commercial 233,334 39.0 216,700 38.2 166,186 35.7 184,561 38.9 191,624 42.0
Construction 7,300 1.2 13,761 2.4 10,052 2.2 15,508 3.3 12,999 2.9
------ --------- ------ ---------- ------- ----------- ------ ------ ------- ----
Total real estate loans 467,595 78.1 452,182 79.8 378,749 81.4 414,707 87.4 409,502 89.8
------ --------- ------ ---------- ------- ----------- ------ ------ ------- ----
Commercial business loans 87,167 14.6 66,274 11.7 45,156 9.7 29,961 6.3 24,762 5.4
Consumer loans:
Home equity lines of 5,019 0.8 6,776 1.2 8,575 1.8 9,883 2.1 9,387 2.1
Other consumer 39,320 6.6 42,081 7.4 33,445 7.2 20,539 4.3 13,159 2.9
------ --------- ------ ---------- ------- ----------- ------ ------ ------- ----
Total consumer loans 44,339 7.4 48,857 8.6 42,020 9.0 30,422 6.4 22,546 4.9
------ --------- ------ ---------- ------- ----------- ------ ------ ------- ----
Gross loans 599,101 567,313 465,925 475,090 456,810
Net deferred loan fees and
costs and unearned discount (364) (0.1) (407) (0.1) (344) (0.1) (501) (0.1) (684) (0.2)
----- ----- ----- ----- ----- ---- ----- ----- ---- -----
Total loans 598,737 100.0% 566,906 100.0% 465,581 100.0% 474,589 100.0% 456,126 100.0%
Allowance for loan losses (11,891) (10,764) (8,260) (6,429) (4,304)
------- ------- ------- -------- -------
Total loans receivable, net $586,846 $556,142 $457,321 $468,160 $451,822
========= ========= ========= ======== =========
5
The following table presents, at September 30, 2000, the dollar amount of
all loans in the Company's portfolio, excluding loans held for sale, and
contractually due after September 30, 2001, and whether such loans have fixed or
adjustable interest rates.
Due After
September 30,
2001
Amount Percent
--------------- -----------
(Dollars in thousands)
FIXED:
Residential mortgage $ 165,917 30.85%
Commercial mortgage 149,725 27.83%
Construction -- 0.00%
---------- -------
Total real estate loans 315,642 58.68%
Commercial business 22,359 4.15%
Consumer:
Home equity lines of credit -- 0.00%
Other consumer 23,345 4.34%
---------- -------
Total consumer 23,345 4.34%
---------- -------
Total fixed rate loans 361,346 67.17%
---------- -------
ADJUSTABLE:
Residential mortgage 59,498 11.06%
Commercial mortgage 56,342 10.47%
Construction 2,414 45.00%
---------- -------
Total real estate loans 118,254 21.98%
---------- -------
Commercial business 40,829 7.59%
Consumer:
Home equity lines of credit 5,019 0.93%
Other consumer 12,497 2.33%
---------- -------
Total consumer 17,516 3.26%
---------- -------
Total adjustable rate loans 176,599 32.83%
---------- -------
Total loans $ 537,945 100.00%
========== ========
6
Loan Maturity. The following table shows the contractual maturates of the
Company's loan portfolio at September 30, 2000. The table does not include loans
held for sale, and does not take into account possible prepayments or scheduled
principal amortization.
At September 30, 2000
Real Estate Loans Home
Equity
Residential Commercial Lines Other
Mortgage Commercial Construction Business of Credit Consumer Total
Amounts due:
Within one year $ 1,546 $ 27,267 $ 4,886 $ 23,979 $ -- $ 3,478 $ 61,156
After one year:
one to five years 6,412 90,116 2,414 22,143 -- 27,657 148,742
five to ten years 27,981 93,874 -- 22,396 5,019 6,247 155,517
ten to twenty years 78,037 21,854 -- 2,567 -- 816 103,274
more than twenty years 112,985 223 -- 16,082 -- 1,122 130,412
---------- ---------- -------- --------- -------- --------- ----------
Total due after 9/30/01 225,415 206,067 2,414 63,188 5,019 35,842 537,945
Total amount due $ 226,961 $ 233,334 $ 7,300 $ 87,167 $ 5,019 $ 39,320 $ 599,101
========== ========== ======== ========= ======== ========= ==========
Less:
Net deferred loan fees and cost and
unearned discount (364)
Allowance for loan losses (11,891)
Loans receivable, net $ 586,846
==========
7
The Company generally does not purchase loans from other financial
institutions. The Company does, however, sell or enter into commitments to sell
certain of its fixed rate mortgage loans to Freddie Mac, as well as to other
parties. Historically the Company has sold substantially all of its 30-year
conforming fixed rate mortgage loans and from time to time, as conditions
warrant, substantially all of its 15-year conforming fixed rate mortgage loans
into the secondary mortgage market. During fiscal 2000 and 1999, the Company
sold $12.9 million and $46.7 million, respectively, of fixed rate mortgage loans
into the secondary mortgage market. In order to reduce the interest rate risk
associated with mortgage loans held for sale, as well as outstanding loan
commitments and uncommitted loan applications with rate lock agreements which
are intended to be held for sale, the Company enters into mandatory forward
sales commitments and option agreements to sell loans in the secondary market.
The Company typically retains servicing rights on loans sold in order to
generate fee income. As of September 30, 2000, the Company was servicing
mortgage loans for others, with an aggregate outstanding principal balance of
$236.3 million.
The following is a more detailed discussion of the Company's current lending
practices.
Commercial Real Estate Lending. The Company originates commercial real
estate loans primarily in its six county market area, as well as New York City
and northern New York, and to a lesser extent in other states. Approximately 8%,
8% and 3%, respectively, of the Company's commercial real estate loans are
secured by real estate located in New York City, primarily Manhattan, Brooklyn
and the Bronx; northern New York; and states other than New York. At September
30, 2000, the Company's commercial real estate loan portfolio by sector is as
follows: 28% in apartment buildings and cooperatives; 32% in office and
warehouse buildings; 22% in retail buildings; 1% in buildings owned by
non-profit organizations; 5% in the hospitality industry; and 12% in other
property types.
The Company's commercial real estate loans outstanding increased moderately
in fiscal 2000, after substantial growth in fiscal 1999, and following
relatively consistent activity in the prior two years. The Company originated
$56.1 million, $105.2 million and $27.4 million of new commercial real estate
loans in fiscal years 2000, 1999 and 1998, respectively. As part of the
Company's commercial real estate lending marketing effort, the Company's
commercial real estate loan officers call on prospective borrowers, follow up on
branch walk-ins and referrals and interact with representatives of the local
real estate industry.
In addition to developing business, the Company's commercial real estate
loan officers are responsible for the underwriting of commercial real estate
loans. The Company's underwriting standards focus on a review of the potential
borrower's cash flow, LTV ratios and rent-rolls, as well as the borrower's
leverage and working capital ratios, the real estate securing the loan, personal
guarantees and the borrower's other on-going projects. In general, the Company
seeks to underwrite loans with an LTV ratio of 75% or less, although under
certain circumstances it will accept an LTV ratio of up to 90%.
The Company assigns each commercial real estate loan a risk rating that
focuses on the loan's risk of loss. Following the loan officer's initial
underwriting and preparation of a credit memorandum, the loan file is reviewed
by the Vice President and Director of Commercial Real Estate Lending who then
has authority to approve the loan if the loan amount is less than $100,000, in
the case of unsecured loans, and less than $252,700, in the case of loans
secured by commercial real estate. Unsecured loans between $100,000 and $1.5
million and secured loans between $252,700 and $1.5 million require approval of
the Company's Commercial Mortgage Credit Committee. All loans in excess of $1.5
million require approval of the Loan Committee of the Board of Directors.
The commercial real estate loan officers are also responsible for monitoring
the Company's portfolio of commercial real estate loans on an on-going basis,
which includes reviewing annual financial statements, verification that loan
covenants have not been violated and property inspections. In addition, the
Company employs an annual review process in which an outside consultant, who was
previously the director of commercial lending for a large New York commercial
bank, reviews 75% to 80% of the Company's commercial real estate portfolio to
confirm the Company's assigned risk rating and to review the Company's overall
monitoring of the loan portfolio.
Commercial Business Lending. Since 1993, the Company has actively sought to
originate commercial business loans in its market area. The Company originated
$43.0 million and $53.0 million of commercial business loans in fiscal years
2000 and 1999, respectively. The Company's commercial loans generally range in
size up to $10.0 million, and the borrowers are located within the Company's
market area. The Company offers both fixed rate loans, with terms ranging from
three to seven years, and adjustable rate lines of credit. As of September 30,
2000, 40.0% of the Company's outstanding commercial loan portfolio consisted of
variable rate loan products. As a general rule, the Company sets the interest
rates on its loans based on the Company's prime rate or other index rates, plus
a premium, and its variable-rate loans reprice at least every 90 days. The
Company's commercial loans includes loans used for equipment financing, working
capital and accounts receivable and these loans are made to a diverse customer
base which includes manufacturers, wholesalers, retailers, service providers,
educational institutions and government funded entities.
8
The Company solicits commercial loan business through its commercial loan
officers who call on potential borrowers and follow-up on referrals from other
Company employees. The commercial loan officers market the Company's commercial
loan products by focusing on the Company's competitive pricing, the Company's
reputation for service and the Company's ties to the local business communities.
In many cases, the Company's senior management, including the President, will
meet with prospective borrowers.
The Company also has a small business lending program whereby the Company
lends money to small, locally owned and operated businesses. During the fiscal
year ended September 30, 2000, the Company originated 88 new small business
loans of up to $50,000, and as of September 30, 2000, the Company had over $14.0
million of such loans outstanding. Many of the Company's small business loans
are secured by cash collateral or marketable securities or are guaranteed by the
Small Business Administration.
In addition to developing business, the Company's commercial loan officers
are responsible for the underwriting of the commercial loans and the monitoring
of the ongoing relationship between the borrower and the Company. Following the
loan officer's initial underwriting and preparation of a credit memorandum, the
potential loan is reviewed by the Vice President and Director of Commercial
Lending who then has authority to approve the loan if the loan amount is less
than $100,000. Loans between $100,000 and $1.0 million require approval of the
Company's Commercial Loan Credit Committee, and loans in excess of $1.0 million
require approval of the Loan Committee of the Board of Directors. The Company's
underwriting standards focus on a review of the potential borrower's cash flow,
as well as the borrower's leverage and working capital ratios. To a lesser
extent, the Company will consider the collateral securing the loan and whether
there is a personal guarantee on the loan.
To assist with the initial underwriting and ongoing maintenance of the
Company's commercial loans, the Company employs the same risk rating system as
is used by the Company's commercial real estate loan department. See "--
Commercial Real Estate Lending." At the time a loan is initially underwritten,
as well as every time a loan is reviewed, the Company assigns a risk rating. In
addition, the Company employs an annual review process in which an outside
consultant, who was previously the director of commercial lending for a large
New York commercial bank, reviews 75% to 80% of the Company's commercial loan
portfolio to confirm the Company's assigned risk rating and to review the
Company's overall monitoring of the loan portfolio.
The Company monitors its commercial loan portfolio by closely watching all
loans with a risk rating which indicates certain adverse factors, such as debt
ratio or cash flow issues. In addition, the Company receives delinquency reports
beginning on the 10th of every month. If a loan payment is more than 20 days
late, then the commercial loan officer begins active loan management, which
initially will include calling the borrower or sending a written notice.
Moreover, because the Company's lines of credit expire every 12 months, or five
months after the borrower's fiscal year end, and the borrower is required to
renew the line of credit at such time, the Company, in effect, reunderwrites the
loan annually. Because a term loan often includes a line of credit, the status
of the borrower and loan is reviewed annually because of the line of credit
review. In all reviews, the Company analyzes the borrower's most current
financial statements, and in some cases will visit the borrower or inspect the
borrower's business and properties.
Single Family Residential Lending. The Company has originated $44.4 million
and $95.8 million of single family residential real estate loans in fiscal years
2000 and 1999, respectively. Substantially all of the Company's residential
mortgage loans were originated through the Family Mortgage Banking Co., Inc.
(the "FMB"), the Company's mortgage banking subsidiary. FMB currently employs
four loan counselors who are responsible for developing the Company's mortgage
business by meeting with referrals, networking with representatives of the local
real estate industry and sponsoring home buying seminars. In addition, the
Company's CSSRs are trained to refer potential mortgage customers to FMB.
Although FMB meets with applicants and assists with the application process, the
Company handles the processing, underwriting, funding and closing of all
residential mortgage loans. The single family residential mortgage loans not
originated through FMB generally are originated through independent mortgage
brokers or by the Company.
The Company currently makes a variety of fixed rate and adjustable rate
("ARMs") mortgage loans which are secured by one- to four-family residences
located in the Company's six county market area. The Company offers mortgage
loans that conform to Freddie Mac guidelines, as well as jumbo loans, which
presently are loans in amounts over $252,700, and loans with other
non-conforming features. The Company will underwrite a single family residential
mortgage loan with an LTV ratio of up to 95% with private mortgage insurance,
and the Company's fixed rate mortgages generally have maturities of 10 to 30
years.
The Company offers a variety of ARM programs based on market demand. The
Company generally amortizes an ARM over 30 years. On select ARMs, the Company
offers a conversion option, whereby the borrower, at his or her option, can
convert the loan to a fixed interest rate after a predetermined period of time,
generally 10 to 57 months. Interest rates are generally adjusted based on a
specified margin over the Constant Treasury Maturity Index. Interest rate
adjustments on such loans are limited to both annual adjustment caps and a
maximum adjustment over the life of the loan. The origination of ARMs, as
opposed to fixed rate loans, helps
9
to reduce the Company's exposure to increases in interest rates. During periods
of rising interest rates, however, ARMs may increase credit risks not inherent
in fixed rate loans, primarily because, as interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default. The
annual and lifetime adjustable caps do however help to reduce such risks. The
volume and type of ARMs originated through FMB are affected by numerous market
factors, including the level of interest rates, competition, consumer
preferences and the availability of funds. At September 30, 2000, the Company
held $57.9 million of ARMs in its loan portfolio, most of which were one-year
ARMs.
Single family residential loans are generally underwritten according to
Freddie Mac guidelines. The Company requires borrowers who obtain mortgage loans
with an LTV ratio greater than 80% to obtain private mortgage insurance in an
amount sufficient to reduce the Company's exposure to not more than 80% of the
lower of the purchase price or appraised value. In addition, the Company
requires escrow accounts for the payment of taxes and insurance if the LTV ratio
exceeds 80%, but will permit borrowers to request an escrow account waiver if
the LTV ratio is less than 80%. Substantially all mortgage loans originated by
the Company include due-on-transfer clauses which provide the Company with the
contractual right to deem the loan immediately due and payable, in most
instances, if the borrower transfers ownership of the property without the
Company's consent. The Company's staff underwriters have authority to approve
loans in amounts up to $252,700. Loans between $252,700 and $1.0 million require
the approval of the Company's Commercial Mortgage Credit Committee, and loans in
excess of $1.0 million require the approval of the Loan Committee of the Board
of Directors.
In an effort to help low and moderate income home buyers in the Company's
communities, the Company participates in residential mortgage programs and
products sponsored by the State of New York Mortgage Agency ("SONYMA") and the
Federal Housing Authority ("FHA"). SONYMA and FHA mortgage programs provide low
and moderate income households with smaller down payment and below-market rate
loans. The Company typically sells the SONYMA loans back to SONYMA for sale in
the secondary market. The Company is also a charter member of the Capital
District Affordable Housing Partnership, a local lending consortium which makes
mortgage funds available to homebuyers who are unable to obtain conventional
financing. The Company participates in the Capital District Community Loan and
the FHLB Home Buyer's Club. In the past five years, the Company has also made
available to low-to-moderate income first-time homebuyers over $15 million of
conventional no down payment mortgages for its loan portfolio.
To complement the Company's portfolio of residential mortgage loan products,
the Company also originates fixed rate home equity mortgage loans. These loans
are secured by a first or second mortgage on the owner-occupied property. During
fiscal 2000, the Company originated $6.2 million of home equity mortgage loans.
As of September 30, 2000, the average size of the Company's outstanding home
equity mortgage loans in its residential mortgage loan portfolio was $20,000.
Consumer Lending. In addition to the Company's residential mortgage loans,
the Company offers a variety of consumer credit products, including home equity
lines of credit, variable rate or Creative Loans, fixed rate consumer loans and
overdraft protection. The objective of the Company's consumer lending program is
to maintain a profitable loan portfolio and to serve the credit needs of the
Company's customers and the communities in which it does business, while
providing for adequate liquidity, diversification and safe and sound banking
practices.
The Company offers home equity lines of credit in amounts up to $100,000.
The home equity lines of credit have fixed interest rates and are available only
if the LTV ratio is less than 80%. The Company's Creative Loans begin with a
modest below market interest rate that increases each year, and are generally
secured by personal property and do not carry prepayment penalties. The average
balance on the Company's Creative Loans for fiscal 2000 was $19.7 million.
The Company's fixed rate consumer loans are typically made to finance the
purchase of new or used automobiles. In such cases, the Company offers 100%
financing on new automobiles with terms available up to 60 months and 80%
financing on used automobiles with loan terms dependent upon the year of
vehicles. The Company also offers unsecured lines of credit or overdraft
protection to credit qualified depositors who maintain checking accounts with
the Company. In addition to covering overdrafts on checking accounts, these
unsecured lines of credit are accessible to borrowers from ATMs throughout the
world.
The Company markets its consumer credit products through its branches, local
advertisements and direct mailings. Applications can be completed at any branch
of the Company, and in most cases, the Company will respond to a customer's
completed credit application within 24 hours, including the funding of the loan
if the borrower is approved. Individual authority to approve consumer loans
varies by the amount of the loan and whether it is real estate related. Consumer
loans are underwritten according to the Company's Consumer Loans Underwriting
practices, and loan approval is based primarily on review of the borrower's
employment status, credit report and credit score.
10
Construction Lending. The Company offers residential construction loans to
individuals who are constructing their own homes in the Company's market area.
Generally, the builders utilized by the Company's construction loan borrowers
are ones with whom the Company is familiar and has a long-standing relationship.
The Company's loan administration group monitors the periodic disbursements of
all construction loans, and before advances are made the Company's independent
appraisers provide reports comparing the progress of the construction to the
pre-construction schedule. In many cases, the Company converts construction
loans to traditional residential or commercial mortgage loans, as the case may
be, following completion of construction. During the year ended September 30,
2000, the Company originated $2.3 million of residential construction loans.
Residential construction loans outstanding are reported with residential
mortgage loans.
The Company's construction loans generally have terms of up to six months,
and require payments of interest only. If construction is not completed on
schedule, the Company charges the borrower additional fees in connection with an
extension of the loan. The Company's staff underwriters have approval authority
of up to $252,700. Loans in excess of $252,700 require approval of the
Commercial Mortgage Credit Committee, and loans in excess of $1.5 million
require approval of the Loan Committee of the Board of Directors. The Company
will not make construction loans in excess of $1.5 million, or greater than 95%
of the estimated cost of construction.
Construction lending generally involves greater credit risk than permanent
financing on owner-occupied real estate. The risk of loss is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction, compared to the estimated cost, including interest, of
construction, and the ability of the builder to complete the project. If the
estimate of the value proves to be inaccurate, then the Company may be
confronted with a project that, when completed, has a value that is insufficient
to assure full repayment of the loan.
The Company also makes construction loans on commercial real estate projects
where the borrowers are well known to the Company and have the necessary
liquidity and financial capacity to support the projects through to completion,
and where the source of permanent financing, either the Company or another
institution, can be verified. All commercial real estate construction lending is
done on a recourse basis. As of September 30, 2000, the Company had $7.3 million
of commercial real estate construction loans outstanding, or 1.2% of the
Company's loans and .79% of total assets.
Loan Review. As part of the portfolio monitoring process, all commercial
business loans, regardless of size, and all commercial real estate loans over
$750,000 are subjected to an annual detailed loan review process. All classified
loans over $100,000 (see below) in both portfolios are subjected to this process
quarterly. Current financial information is analyzed and the loan rating is
evaluated to determine if it still accurately represents the level of risk posed
by the credit. These reviews are then reviewed by an outside consultant who
opines on the reasonableness of the loan officers' conclusions with respect to
the loan's risk rating and the related allowance for loan loss, if any. For the
classified loans, these quarterly reviews and review by the consultant are
complemented by a quarterly loan officers' meeting with the consultant and the
Company's Chief Credit Officer. The conclusions reached at these meetings become
an integral part of the quarterly analysis of loan loss reserve adequacy.
Delinquent Loans. It is the policy of the management of the Company to
monitor the Company's loan portfolio to anticipate and address potential and
actual delinquencies. The procedures taken by the Company vary depending on the
type of loan.
With respect to single family residential mortgage loans and consumer loans,
when a borrower fails to make a payment on the loan, the Company takes immediate
steps to have the delinquency cured and the loan restored to current status. On
the 15th of every month, the Credit Administration Department prepares
delinquency reports. The Company's collection manager and her staff then contact
the borrower by telephone to ascertain the reason for the delinquency and the
prospects of repayment. Written notices are also sent at that time. The borrower
is again contacted by telephone on the 20th and 26th of the month if payment has
not been received. After 30 days another notice is sent and the borrower is
reported as delinquent. The Credit Administration Department continues to call
the borrower, and if payment has not been received by the 60th day, then another
notice is sent informing the borrower that the loan must be brought current
within the next 30 days or foreclosure proceedings will be commenced. Generally,
the Company does not accrue interest on loans more than 90 days past due. The
Company's procedures for single family residential loans which have previously
been sold by the Company but which the Company currently services are identical
during the first 60 days. After 60 days, the Company follows the Freddie Mac or
applicable investor guidelines and timeframes regarding delinquent loan
accounts.
11
With respect to commercial real estate and commercial business loans, the
Credit Administration Department delivers delinquency reports to the respective
departments beginning on the 10th of every month. If a loan payment is more than
20 days late, then the loan officer begins active loan management.
Classified Assets. The Company's classification policies require the
classification of loans and other assets such as debt and equity securities,
considered to be of lesser quality, as "substandard," "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the borrower or of the collateral
pledged, if any. Substandard assets include those characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified as substandard, with the added characteristic that
the weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Assets classified as "loss" are those considered uncollectible and
of such little value that their continuance as assets without the establishment
of a specific loss reserve is not warranted. At September 30, 2000, the Company
had classified $4.0 million and $2.0 million of assets as "substandard" and
"doubtful," respectively. At such date, the Company did not have any assets
classified as "loss."
At September 30, 2000, the Company had one lending relationship with an
outstanding principal balance in excess of $1.0 million that had an internal
adverse classification. The classified loan was a construction loan classified
as "doubtful," with a carrying amount of $2.0 million. The loan is secured by an
office property located in Albany, New York. As of September 30, 2000, the loan
was on non-accrual status and considered impaired. The Company has a sale
pending on the property at it's present net realizable value, however the sale
is not expected to close until January 2001.
In addition to classified assets, the Company also has certain "special
mention" or "watch list" assets that have characteristics, features or other
potential weaknesses that warrant special attention. At September 30, 2000,
special mention assets totaled $5.2 million, or 0.6% of total assets.
Non-Performing Assets. It is the policy of the Company to place a loan on
non-accrual status when the loan is contractually past due 90 days or more, or
when, in the opinion of management, the collection of principal and/or interest
is in doubt. At such time, all accrued but unpaid interest is reversed against
current period income and, as long as the loan remains on non-accrual status,
interest is recognized only when received, if considered appropriate by
management. In certain cases, the Company will not classify a loan that is
contractually past due 90 days or more as non-accruing if management determines
that the particular loan is well secured and in the process of collection. In
such cases, the loan is simply reported as "past due." Loans are removed from
non-accrual status when such loans become current as to principal and interest
or when, in the opinion of management, the loans are expected to be fully
collectible as to principal and interest. The Company did not have any loans
classified as 90 days past due and still accruing interest at September 30,
2000. Non-performing loans also include troubled debt restructurings ("TDRs").
TDRs are loans whose repayment criteria have been renegotiated to below market
terms given the credit risk inherent in the loan due to the borrowers' inability
to repay the loans in accordance with the loans' original terms. At September
30, 2000, the Company classified $53,000, or 0.01% of total assets, as TDRs.
The Company classifies property that it acquires as a result of foreclosure
or settlement in lieu thereof as other real estate owned ("OREO"). The Company
records OREO at the lower of the unpaid principal balance or fair value less
estimated costs to sell at the date of acquisition and subsequently recognizes
any decrease in fair value by a charge to income. At September 30, 2000, the
Company had $240,000 of OREO resulting from single family residential mortgage
loans, and $1.0 million of OREO resulting from commercial real estate loans.
12
The following presents the amounts and categories of non-performing assets
at the dates indicated.
AT SEPTEMBER 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(dollars in thousands)
Non-accrual loans:
Real estate loans:
Residential mortgage $ 2,424 $ 2,707 $ 2,900 $ 2,598 $ 3,418
Commercial mortgage 2,829 4,210 6,327 3,438 6,613
Construction -- -- -- 350 516
Total real estate loans 5,253 6,917 9,227 6,386 10,547
Commercial business loans 103 10 31 33 105
Home equity lines of credit 84 58 259 -- --
Other consumer loans 160 282 50 40 17
Total non-accrual loans 5,600 7,267 9,567 6,459 10,669
Troubled debt restructurings 53 616 2,081 2,256 1,810
Total non-performing loans $ 5,653 $ 7,883 $11,648 $ 8,715 $ 12,479
Other real estate owned :
Residential real estate 240 76 345 589 622
Commercial real estate 1,033 1,769 1,527 2,101 1,903
Total other real estate owned $ 1,273 $ 1,845 $ 1,872 $ 2,690 $ 2,525
Total non-performing assets $ 6,926 $ 9,728 $13,520 $ 11,405 $ 15,004
Allowance for loan losses $11,891 $ 10,764 $ 8,260 $ 6,429 $ 4,304
Allowance for loan losses as a percentage
of non-performing loans 210.35% 136.55% 70.91% 73.77% 34.49%
Non-performing loans as a percentage of
total loans 0.94% 1.39% 2.50% 1.84% 2.74%
Non-performing assets as a percentage of
total assets 0.75% 1.06% 1.89% 1.72% 2.28%
For the fiscal years ended 2000, 1999 and 1998, the gross interest income
that would have been recorded had the non-accrual loans been on an accrual basis
or had the rate not been reduced with respect to the loans restructured in
troubled debt restructurings amounted to $340,000, $624,000, and $591,000,
respectively. The amounts included in interest income on these loans were
$154,000, $298,000, and $411,000 for the fiscal years ended 2000, 1999, and
1998, respectively.
Allowance for Loan Losses. In originating loans, there is a substantial
likelihood that loan losses will be experienced. The risk of loss varies with,
among other things, general economic conditions, the type of loan, the
creditworthiness of the borrower and, in the case of a collateralized loan, the
quality of the collateral securing the loan. In an effort to minimize loan
losses, the Company monitors its loan portfolio by reviewing delinquent loans
and taking appropriate measures. In addition, with respect to the Company's
commercial real estate and commercial business loans, the Company closely
watches all loans with a risk rating that indicates potential adverse factors.
Moreover, on an annual basis, the Company reviews borrowers' financial
statements, including rent-rolls if appropriate, and in some cases inspects
borrowers' properties, in connection with the annual renewal of lines of credit.
The Company's outside consultant periodically reviews the credit quality of the
loans in the Company's commercial real estate and commercial business loan
portfolios, and, together with the Company's Commercial Loan Credit Committee,
reviews on a quarterly basis all classified loans over $100,000 with a risk
rating that indicates the loan has certain weaknesses.
Based on management's on-going review of the Company's loan portfolio,
including the risks inherent in the portfolio, historical loan loss experience,
general economic conditions and trends and other factors, the Company maintains
an allowance for loan losses to cover probable loan losses. The allowance for
loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based upon a number of factors,
including the historical loan loss experience, changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific problem
loans, industry trends, and general economic conditions affecting borrowers'
abilities to pay. Loans are charged against the allowance for loan losses when
management believes that the collectibility of all or a portion of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb probable losses on existing loans. Based on information
currently known to management, management considers
13
the current level of reserves adequate to cover probable loan losses, although
there can be no assurance that such reserves will in fact be sufficient to cover
actual losses. At September 30, 2000, the Company's allowance for loan losses
was $11.9 million, or 1.99% of total loans, and 210.35% of non-performing loans
at that date. Net charge-offs during the year ended September 30, 2000 were $1.4
million. The Company will continue to monitor and modify its allowance for loan
losses as conditions dictate.
The following table is a summary of the activity in the Company's allowance
for loan losses for the last five years:
Allowance for loan losses
For the years ended September 30, 2000 1999 1998 1997 1996
(Dollars in thousands)
Total loans outstanding at end of period $ 598,737 $ 566,906 $ 465,581 $ 474,589 $ 456,126
Average total loans outstanding $ 594,570 $ 505,489 $ 467,406 $ 471,779 $ 432,569
Allowance for loan losses at beginning of year $ 10,764 $ 8,260 $ 6,429 $ 4,304 $ 4,297
Loan charge-offs:
Residential real estate (412) (362) (521) (320) (578)
Commercial real estate (550) (252) (1,612) (1,286) (165)
Construction real estate (375) -- (130) (140) (401)
Commercial business (40) (75) (51) (110) (17)
Home equity lines of credit -- -- -- -- --
Other consumer loans (565) (306) (132) (34) (8)
Total charge-offs (1,942) (995) (2,446) (1,890) (1,169)
Loan recoveries:
Residential real estate 84 40 147 80 92
Commercial real estate 155 176 57 13 83
Construction real estate 219 13 -- -- 58
Commercial business 6 8 4 12 9
Home equity lines of credit -- -- -- -- 1
Other consumer loans 42 12 19 10 5
Total recoveries 506 249 227 115 248
Loan charge-offs net of recoveries (1,436) (746) (2,219) (1,775) (921)
Provision charged to operations 2,563 3,250 4,050 3,900 928
Allowance for loan losses at end of year $ 11,891 $ 10,764 $ 8,260 $ 6,429 $ 4,304
Ratio of net charge-offs during the year to
Average loans outstanding during the year 0.24% 0.15% 0.48% 0.38% 0.21%
Allowance as a percentage of non-performing loans 210.35% 136.55% 70.91% 73.77% 34.49%
Allowance as a percentage of total loans end of 1.99% 1.90% 1.77% 1.35% 0.94%
year
14
The following table presents an allocation of the Company's allowance for
loan losses, the percent of allowance for loan losses to total allowance, and
the percent of loans to total loans in each of the categories listed at the
dates indicated. This allocation is based on management's assessment as of a
given point in time of the risk characteristics of each of the component parts
of the total loan portfolio and is subject to changes as and when the risk
factors of each such component part change. The allocation is neither indicative
of the specific amounts or the loan categories in which future charge-offs may
occur nor is it an indicator of future loss trends. The allocation of the
allowance to each category does not restrict the use of the allowance to absorb
losses in any category.
At September 30,
2000 1999 1998
Percent Percent Percent
of Loans of Loans of Loans
Percent of in Each Percent of in Each Percent of in Each
Allowance Category Allowance Category Allowance Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in thousands)
Allocation of allowance
for loan losses:
Real estate loans:
Residential mortgage $ 2,062 17.34% 37.91% $ 1,967 18.28% 39.11% $ 1,316 15.93% 43.50%
Commercial mortgage 5,533 46.53 38.97 5,379 49.97 38.22 3,964 47.99 35.69
Construction 297 2.50 1.22 95 0.88 2.43 131 1.59 2.16
Commercial business
Loans 2,059 17.32 14.56 1,716 15.94 11.69 1,503 18.20 9.70
Home equity lines of credit 21 0.18 0.84 30 0.28 1.20 31 0.37 1.84
Other consumer loans 792 6.66 6.56 621 5.77 7.42 488 5.91 7.18
Net deferred loan fees and
costs and unearned discount -- -- (0.06) -- -- (0.07) -- -- (0.07)
Unallocated 1,127 9.47 -- 956 8.88 -- 827 10.01 --
-------- ------ ------- -------- ------- ------ ------- ------- -------
Total $ 11,891 100.00% 100.00% $ 10,764 100.00% 100.00% $ 8,260 100.00% 100.00%
======== ====== ====== ======== ======= ====== ======= ======= =======
At September 30,
1997 1996
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- -----
(Dollars in thousands)
Allocation of allowance
for loan losses:
Real estate loans:
Residential mortgage $ 878 13.66% 45.23% $ 372 8.64% 44.92%
Commercial mortgage 3,240 50.39 38.89 2,624 60.97 42.01
Construction 127 1.98 3.27 149 3.46 2.85
Commercial business
Loans 1,275 19.84 6.31 801 18.61 5.43
Home equity lines of credit 31 0.48 2.08 31 0.72 2.06
Other consumer loans 278 4.32 4.33 96 2.23 2.88
Net deferred loan fees and
costs and unearned discount -- -- (0.11) -- -- (0.15)
Unallocated 600 9.33 -- 231 5.37 --
-------- ------- ------- -------- -=----- -------
Total $ 6,429 100.00% 100.00% $ 4,304 100.00% 100.00%
======== ======= ======= ======== ======= =======
15
SECURITIES
The Company separates its securities portfolio into securities available for
sale and investment securities held to maturity. At September 30, 2000, the
Company had $266.8 million, or 28.9% of total assets in securities available for
sale and $2.3 million, or 0.2% of total assets, in investment securities held to
maturity. These portfolios consist primarily of U.S. government securities and
agency obligations, corporate debt securities, municipal securities,
mortgage-backed securities, mutual funds and equity securities. Management
determines the appropriate classification of securities at the time of purchase.
If management has the positive intent and ability to hold debt securities to
maturity, then they are classified as investment securities held to maturity and
are carried at amortized cost. Securities that are identified as trading account
assets for resale over a short period are stated at fair value with unrealized
gains and losses reflected in current earnings. All other debt and equity
securities are classified as securities available for sale and are reported at
fair value, with net unrealized gains or losses reported, net of income taxes,
as a separate component of equity. At September 30, 2000, the Company did not
hold any securities considered to be trading securities. As a member of the FHLB
of New York, the Company is required to hold FHLB stock, which is carried at
cost because the FHLB stock is not marketable and may only be resold to the FHLB
of New York. A July 13, 2000 proposed regulation by the Federal Housing Finance
Board ("FHFB") would permit inter-member transfers of stock, which if approved
could cause the FHLB stock to be accounted for as an available for sale security
requiring the Company to mark the FHLB stock to observed market value. The
decision to accept the proposed regulation is expected to occur in August 2001,
and member banks would have until August 2004 to implement the regulation, if it
is approved.
The Company's investment policy focuses investment decisions on maintaining
a balance of high quality, diversified investments. In making its investments,
the Company also considers liquidity, the potential need for collateral to be
used for pledging purposes, and earnings. Investment decisions are made by the
Company's Trust and Investment Officer who has authority to purchase, sell or
trade securities qualifying as eligible investments under applicable law and in
conformance with the Company's investment policy. In addition, the Company's
Director of Municipal Finance is authorized to purchase municipal securities for
the Company's portfolio.
Under the Company's investment policy, securities eligible for the Company
to purchase include: U.S. Treasury obligations, securitized loans from the
Company's loan portfolio, municipal securities, certain corporate obligations,
equity mutual funds, common stock, preferred stock, convertible preferred,
convertible notes and bonds, U.S. governmental agency or agency sponsored
obligations, collateralized mortgage obligations and REMICs, banker's
acceptances and commercial paper, certificates of deposit and federal funds.
16
The following table presents the composition of the Company's securities
available for sale and investment securities held to maturity in dollar amounts
and percentages at the dates indicated.
At September 30,
2000 1999 1998
Carrying Percent Carrying Percent Carrying Percent
Value of Total Value of Total Value of Total
----- -------- ----- -------- ----- --------
(Dollars in thousands)
Securities available for sale
(fair value):
U.S. Government securities and
agency obligations $ 161,184 60.42% $ 171,992 61.24% $ 117,220 59.27%
Obligations of states and
political subdivisions 80,359 30.12 73,262 26.08 51,681 26.13
Mortgage-backed securities 2,149 0.81 17,132 6.10 3,744 1.89
Corporate debt securities 12,345 4.63 5,661 2.02 16,984 8.59
Mutual funds and marketable
equity securities 1,865 0.70 5,486 1.95 4,822 2.44
Non-marketable equity
securities 8,848 3.32 7,338 2.61 3,307 1.68
--------- ------- --------- ------- --------- -------
Total securities available
for sale 266,750 100.00% 280,871 100.00% 197,758 100.00%
--------- ------- --------- ------- --------- -------
Investment securities held to
Maturity (amortized cost):
Mortgage-backed securities 1,301 56.56% 1,535 60.58% 1,980 56.85%
Corporate and other debt
securities 1,000 43.44% 999 39.42% 1,503 43.15%
--------- ------- --------- ------- --------- -------
Total investment
securities held to
maturity 2,301 100.00% 2,534 100.00% 3,483 100.00%
--------- ------- --------- ------- --------- -------
Total securities portfolio $ 269,051 $ 283,405 $ 201,241
========== ========== =========
17
The following table presents information regarding the carrying value,
weighted average yields and contractual maturities of the Company's debt
securities available for sale and investment securities held to maturity
portfolios as of September 30, 2000. Weighted average yields are based on
amortized cost.
AT SEPTEMBER 30, 2000
----------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS
---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Securities available for sale
(fair value):
U.S. Government securities $ 103,972 6.37% $ 49,952 6.62% $ 7,259 6.84%
Obligations of states and
political subdivisions(1) 44,298 6.86 24,525 7.07 9,632 6.98
Mortgage-backed securities 12 6.87 176 6.97 761 7.06
Corporate debt securities 1,498 5.74 10,847 8.01 -- --
--------- -------- -------
Total due.......... $ 149,780 6.50% $ 85,500 6.93% $17,652 6.93%
========= ======== =======
Investment securities held to
Maturity (amortized cost):
Mortgage-backed securities 782 8.89
Corporate debt securities -- --
-------
Total due.......... $ 782 7.90%
=======
AT SEPTEMBER 30, 2000
---------------------------------------------
MORE THAN
TEN YEARS TOTAL
---------------------- ---------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Securities available for sale
(fair value):
U.S. Government securities $ -- --% $161,183 6.47%
Obligations of states and
political subdivisions(1) 1,905 6.83 80,360 6.94
Mortgage-backed securities 1,199 7.47 2,149 7.28
Corporate debt securities -- -- 12,345 7.73
----- --------
Total due.......... $3,105 7.08% $256,037 6.68%
====== ========
Investment securities held to
Maturity (amortized cost):
Mortgage-backed securities 519 7.62 1,301 8.38
Corporate debt securities 1,000 7.13 1,000 7.13
------- --------
Total due.......... $ 1,519 7.62% $ 2,301 7.84%
======= ========
- ----------
(1) Weighted average yields are presented on a tax equivalent basis, using an
assumed tax rate of 35%.
18
The following is a more detailed discussion of the Company's securities
available for sale and investment securities held to maturity portfolios.
U.S. Government Securities and Agency Obligations. The Company invests in
U.S. Treasury securities, and also debt securities and mortgage-backed
securities issued by government agencies and government sponsored agencies such
as Fannie Mae, the FHLBs, Ginnie Mae and Freddie Mac. At September 30, 2000, the
Company held, as available for sale, $161.2 million of non-government guaranteed
bonds issued by the FHLBs, Freddie Mac and Fannie Mae, of which $103.9 million
are discount notes. These securities had an average yield of 6.47% and of these
securities which were rated, all had ratings of "AAA." The Company's investment
policy does not limit the amount of U.S. government and agency obligations that
can be held.
Corporate Debt Securities. The Company's corporate debt securities portfolio
at September 30, 2000 totaled $13.3 million, and consisted of general corporate
obligations, public utility and telephone bonds, and an asset-backed security.
All of the Company's corporate debt securities were rated "BBB" or higher, and
$12.3 million and $1.0 million were classified as available for sale and held to
maturity, respectively. The Company's investment policy limits the amount of
corporate debt securities to 25% of the Company's total securities portfolio or
approximately $67.3 million at September 30, 2000.
Municipal Securities. At September 30, 2000, $72.1 million of the Company's
securities consisted of tax-exempt municipal bonds and notes, all of which were
classified as available for sale. Of that $72.1 million, $43.4 million were
invested in general obligations of jurisdictions in the State of New York, of
which $37.9 million represented relationship investments in 54 separate
municipalities, including counties, cities, school districts, towns, villages
and fire districts. In addition, the Company held $28.7 million in bonds of
various municipalities throughout the United States. The Company also held $8.3
million in taxable municipal securities in bonds of municipalities within New
York State. The Company's municipal securities have a weighted average maturity
of 14 months and a taxable equivalent yield of 6.94% at September 30, 2000.
Interest earned on municipal bonds is exempt from federal and, in some cases a
portion is excludable from state income taxes. The Company's investment policy
limits the amount of municipal securities to 15% of the Company's total assets
or approximately $138.3 million at September 30, 2000.
Mutual Funds and Equity Securities. At September 30, 2000, the Company's
mutual funds and equity securities portfolio totaled $10.7 million, all of which
was classified as available for sale. The single largest investment in one
issuer was $8.8 million of FHLB of New York stock, which the Company is required
to hold as a member institution. At September 30, 2000, the Company also had a
$1.1 million investment in equity securities, primarily of financial
institutions that trade on the major stock exchanges, and $769,000 in Federated
mutual funds, which invest primarily in the common stock of nationally
recognized corporations. The Company's investment policy limits the Company's
investments in common stock (other than FHLB stock), preferred stock and mutual
funds to 3% of the Company's total assets, or $27.7 million at September 30,
2000. The investment policy presently limits the Company's investment in the
equity securities of any single issuer (other than the FHLB of New York) to 1%
of the Company's total assets or approximately $9.2 million and limits an
investment in any stock mutual fund to .75% of total assets ($6.9 million at
September 30, 2000).
SOURCES OF FUNDS
The Company's lending and investment activities are primarily funded by
deposits, repayments and prepayments of loans and securities, proceeds from the
sale of loans and securities, proceeds from maturing securities and cash flows
from operations. In addition, the Company borrows from the FHLB of New York to
fund its operations.
Deposits. The Company offers a variety of deposit accounts with a range of
interest rates and terms. The Company's deposit accounts consist of interest
bearing checking, non-interest bearing checking, business checking, regular
savings, money market savings and time deposit accounts. The maturities of the
Company's time deposit accounts range from three months to five years. In
addition, the Company offers IRAs and Keogh accounts. To enhance its deposit
products and increase its market share, the Company offers overdraft protection
and direct deposit for its retail banking customers and cash management services
for its business customers. In addition, the Company offers a low-cost interest
bearing checking account service to its customers over 55 years of age. Rates on
deposit products are set by the Company's ALCO Committee.
At September 30, 2000, the Company's deposits totaled $556.0 million or
80.3% of interest bearing liabilities. At September 30, 2000, the balance of
core deposits, which is defined to include NOW accounts, money market accounts,
savings accounts and non-interest bearing checking accounts, totaled $337.7
million, or 60.7% of total deposits. At September 30, 2000, the Company had a
total of $218.3 million in time deposit accounts, or 39.3% of total deposits,
and $166.6 million had maturities of one year or less.
The flow of deposits is influenced significantly by general economic
conditions, changes in interest rates and competition. The Company's deposits
are obtained primarily from the six counties in which the Company's branches are
located. The Company relies
19
primarily on the competitive pricing of its deposit products and customer
service and long-standing relationships to attract and retain these deposits,
although market interest rates and rates offered by competing financial
institutions affect the Company's ability to attract and retain deposits. The
Company uses traditional means of advertising its deposit products, including
local radio and print media, and does not solicit deposits from outside its
market area. In fiscal 2000, the Company generated $3.2 million of municipal
deposits through its recently established commercial bank. The Company expects
the Commercial Bank to continue providing an alternative source of funding
through the generation of municipal deposits. In addition, the Company does not
currently use brokers to obtain deposits, and at September 30, 2000, the Company
had no brokered deposits. However, the Company may from time-to-time consider
these funding opportunities.
At September 30, 2000, the Company had outstanding $218.3 million in time
deposit accounts, maturing as follows:
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
------------------------------------ --------- ---------------
(DOLLARS IN THOUSANDS)
TIME DEPOSITS LESS THAN $100,000:
Three months or less............ $ 37,334 4.82%
Over three months through six 44,245 5.09
Over six months through 12 months 62,726 5.61
Over 12 months.................. 43,940 5.63
---------
Total...................... $ 188,245 5.34%
=========
TIME DEPOSITS MORE THAN $100,000:
Three months or less............ $ 7,208 4.68%
Over three months through six 6,271 4.78
Over six months through 12 months 8,840 5.63
Over 12 months.................. 7,715 5.78
---------
Total...................... $ 30,034 5.26%
=========
Borrowings. The principal source of the Company's borrowing is through FHLB
advances and repurchase agreements. The FHLB system functions in a reserve
credit capacity for member savings associations and certain other home financing
institutions. Members of a FHLB are required to own stock in the FHLB, and, at
September 30, 2000, the Company owned approximately $8.8 million of FHLB stock.
The Company uses FHLB advances as an alternative funding source to fund its
lending activities when it determines that it can profitably invest the borrowed
funds over their term. As of September 30, 2000, the Company had outstanding
FHLB advances of approximately $73.0 million. Such borrowings had a weighted
average interest rate of 6.16% and a weighted average term of 3.6 years.
At September 30, 2000, the Company also had $105.8 million of borrowed funds
in the form of securities sold under agreements to repurchase, of which $102.4
million was entered into with the FHLB. All securities repurchase agreements at
September 30, 2000 mature within ninety days, and had a weighted average rate of
6.42%. In prior years, the Company entered into these agreements generally as an
accommodation to its business customers, however in fiscal 2000, these
agreements were entered into with the FHLB as a more significant short-term
funding source.
TRUST SERVICES
The Trust Department of the Company offers a full range of services,
including living trusts, executor services, testamentary trusts, employee
benefit plan management, custody services and investment management, primarily
to corporations, unions and other institutions. The Trust Department has
retained the services of two independent financial services firms to provide
investment advice and to ratify the decisions of the Trust Department. Operation
of the Trust Department is overseen by a Trust Committee that consists of two
trust officers and four members of the Company's Board of Directors who rotate
on a semi-annual basis. The Trust Department markets its services through its
trust officers who call on the Company's existing customers, the Company's CSSRs
and branch managers who cross-sell the Trust Department's services, and free
seminars open to the public. As of September 30, 2000, the Trust Department
managed over $373.5 million of assets, which includes $132.5 million over which
the Trust Department has discretionary investment authority. The Trust
Department's fee income, which totaled $704,000 for the year ended September 30,
2000, supplements the Company's rate-sensitive interest income.
SAVINGS BANK LIFE INSURANCE
As of January 2000, the Savings Bank Life Insurance Department ("SBLI"),
became part of a new corporation, SBLI U.S.A. Life Insurance Company. The
Company will continue to offer a wide variety of low-cost insurance policies,
including whole life, single premium life, senior life and children's term, to
its customers who live or work in the State of New York. Management believes
that offering SBLI is beneficial to the Company's relationship with its
customers. The Company receives commission income from the sale and the renewal
of life insurance policies.
20
SUBSIDIARY ACTIVITIES
The following are descriptions of the Savings Bank's wholly owned
subsidiaries, which are indirectly owned by Troy Financial.
The Family Investment Services Co., Inc. The Family Investment Services Co.
("FISC"), which was incorporated in May 1989, is the Savings Bank's wholly owed
full-service brokerage firm, offering a complete range of investment products,
including mutual funds and debt, equity and government securities, on a
fee-per-transaction basis. FISC's goal is to market its products and services to
the Company's existing customers who seek alternatives to traditional financial
institution savings products. As a complement to the Company's municipal
investment activities, FISC intends to begin underwriting general obligation
securities of state and political subdivisions. FISC has two full time employees
who interface with the Company's branches to facilitate referrals from the CSSRs
and branch managers, as well as one officer who assists customers with
investment decisions and trading. As of September 30, 2000, FISC managed
approximately $70.0 million of customer assets. FISC is a member of the National
Association of Securities Dealers and is insured by the Securities Insurance
Protection Corporation.
Family Mortgage Banking Co., Inc. FMB, which was incorporated in April 1987,
is the Savings Bank's wholly owned mortgage banking subsidiary. The Company
originates the majority of its residential real estate and residential
construction loans through applications received from commissioned employees of
FMB.
Other Subsidiaries. The Savings Bank has eleven other wholly owned
subsidiaries: The Family Advertising Co. is an advertising agency; T.S. Capital
is licensed by the Small Business Administration as a Small Business Investment
Corporation in order to offer small business loans and make equity investments
in small businesses; The Family Insurance Agency, Inc. is an insurance agency
that offers a full range of life and health insurance products, as well as
taxed-deferred annuities; and T.S. Real Property Inc., Troy SB Real Estate Co.,
32 Second Street Inc., Camel Hill Corporation, 507 Heights Corp. and Realty
Umbrella, Ltd. are all related to the management of, or investment in, the
Company's foreclosed or purchased real estate. Troy Realty Funding Corp. is a
real estate investment trust formed in 1999. The Savings Bank funded Troy Realty
Funding Corp. with approximately $197 million in commercial real estate
mortgages. The interest income earned on those assets is passed through to the
Savings Bank in the form of dividends. In fiscal 2000, the Savings Bank formed
T.S.B. Real Property, Inc. to acquire a 50% non-controlling interest in a
limited liability company ("LLC") that will own and develop office buildings for
sale or lease within the Company's market area. The Savings Bank funded T.S.B.
Real Property, Inc. with $2.0 million of cash. The carrying amount of T.S.B.
Real Property's 50% interest in the LLC at September 30, 2000 was approximately
$1.65 million.
COMPETITION
The Company faces significant competition for both deposits and loans. The
deregulation of the financial services industry and the commoditization of
savings and lending products has led to increased competition among banks and
other financial institutions for a significant portion of the deposit and
lending activity that had traditionally been the arena of savings banks and
savings and loan associations. The Company competes for deposits with other
savings banks, savings and loan associations, commercial banks, credit unions,
money market and other mutual funds, insurance companies, brokerage firms and
other financial institutions, many of which are substantially larger in size and
have greater financial resources than the Company.
The Company's competition for loans comes principally from savings banks,
savings and loan associations, commercial banks, mortgage banks, credit unions,
finance companies and other institutional lenders, many of whom maintain offices
in the Company's market area. The Company's principal strategy to address this
competition includes providing competitive loan and deposit pricing,
personalized customer service, access to senior management of the Company and
continuity of banking relationships.
Although the Company is subject to competition from other financial
institutions, some of which have much greater financial and marketing resources,
the Company believes it benefits by its position as a community oriented
financial services provider with a long history of serving its market area.
Management believes that the variety, depth and stability of the communities
that the Company services support the service and lending activities conducted
by the Company.
REGULATION
Troy Financial, as a bank holding company, is subject to regulation,
supervision, and examination by the Federal Reserve Board. The Savings Bank, as
a New York-chartered savings bank, and the Commercial Bank, as a New
York-chartered bank, are subject to regulation, supervision, and examination by
the FDIC as their primary federal regulator and by the Superintendent of the
NYSBD as their state regulator.
21
BANK HOLDING COMPANY REGULATION
Troy Financial is a bank holding company subject to the regulation,
supervision, and examination of the Federal Reserve under the Bank Holding
Company Act. Troy Financial is required to file periodic reports and other
information with the Federal Reserve, and the Federal Reserve may conduct
examinations of Troy Financial and the subsidiary banks.
Troy Financial is subject to capital adequacy guidelines of the Federal
Reserve. The guidelines apply on a consolidated basis and require bank holding
companies to maintain a ratio of tier 1 capital to total assets of 4.0% to 5.0%.
There is a minimum ratio of 3.0% established for the most highly rated bank
holding companies. The Federal Reserve's capital adequacy guidelines also
require bank holding companies to maintain a minimum ratio of qualifying total
capital to risk-weighted assets of 8.0%, and a minimum ratio of tier 1 capital
to risk-weighted assets of 4.0%. As of September 30, 2000, Troy Financial's
ratio of tier 1 capital to total assets was 19.88%, its ratio of tier 1 capital
to risk-weighted assets was 25.01%, and its ratio of qualifying total capital to
risk-weighted assets was 26.28%.
Troy Financial's ability to pay dividends to its shareholders and expand its
line of business through the acquisition of new banking or non-banking
subsidiaries can be restricted if its capital falls below levels established by
the Federal Reserve's guidelines. In addition, any bank holding company whose
capital falls below levels specified in the guidelines can be required to
implement a plan to increase capital.
The Federal Reserve is empowered to initiate cease and desist proceedings
and other supervisory actions for violations of the Bank Holding Company Act, or
the Federal Reserve's regulations, orders or notices issued thereunder. Under
Federal Reserve regulations, bank holding companies which do not meet minimum
capital adequacy guidelines are considered to be undercapitalized and are
required to submit an acceptable plan for achieving capital adequacy.
Federal Reserve approval is required if Troy Financial seeks to acquire
direct or indirect ownership or control of any voting shares of a bank if, after
such acquisition, Troy Financial would own or control directly or indirectly
more than 5% of the voting stock of the bank. Federal Reserve approval also must
be obtained if a bank holding company acquires all or substantially all of the
assets of a bank or merges or consolidates with another bank holding company.
Bank holding companies like Troy Financial are currently prohibited from
engaging in activities other than banking and activities so closely related to
banking or managing or controlling banks as to be a proper incident thereto. The
Federal Reserve regulations contain a list of permissible non-banking activities
that are closely related to banking or managing or controlling banks. These
activities include lending activities, certain data processing activities,
securities brokerage and investment advisory services, trust activities and
leasing activities. A bank holding company must file an application or notice
with the Federal Reserve prior to acquiring more than 5% of the voting shares of
a company engaged in such activities.
On November 12, 1999, President Clinton signed legislation to reform the
U.S. banking laws, including the Bank Holding Company Act. The changes made to
the Bank Holding Company Act by this legislation, referred to as the
Gramm-Leach-Bliley Act, became effective on March 11, 2000, and expand the
permissible activities of bank holding companies under certain circumstances.
Bank holding companies that meet certain conditions are now permitted to engage
in activities that are financial in nature or incidental to financial
activities, or activities that are complementary to a financial activity and do
not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. The legislation identifies
certain activities that are deemed to be financial in nature, including
non-banking activities currently permissible for bank holding companies to
engage in both within and outside the United States, as well as insurance and
securities underwriting and merchant banking activities. The Federal Reserve is
authorized under the legislation to identify additional activities that are
permissible financial activities, but only after consultation with the
Department of the Treasury. No prior notice to the Federal Reserve would be
required to acquire a company engaging in these activities or to commence these
activities directly or indirectly through a subsidiary.
In order to take advantage of this new authority, a bank holding company
must elect to be treated as a financial holding company and its depository
institution subsidiaries must be well capitalized and well managed and have at
least a satisfactory record of performance under the Community Reinvestment Act.
Troy Financial has not elected to be treated as a financial holding company
since it has no current plans to use the new authority to engage in expanded
activities.
Under the Change in Bank Control Act, persons who intend to acquire control
of a bank holding company, either directly or indirectly or through or in
concert with one or more persons, must give 60 days' prior written notice to the
Federal Reserve. "Control" would exist when an acquiring party directly or
indirectly has voting control of at least 25% of Troy Financial's voting
securities or the power to direct the management or policies of the company.
Under Federal Reserve regulations, a rebuttable presumption of
22
control would arise with respect to an acquisition where, after the transaction,
the acquiring party has ownership, control or the power to vote at least 10%
(but less than 25%) of Troy Financial's common stock.
The New York Banking Law requires prior approval of the New York Banking
Board before any action is taken that causes any company to acquire direct or
indirect control of a banking institution that is organized in the State of New
York. The term "control" is defined generally to mean the power to direct or
cause the direction of the management and policies of the banking institution
and is presumed to exist if the company owns, controls or holds with power to
vote 10% or more of the voting stock of the banking institution.
BANK REGULATION
The Savings Bank and the Commercial Bank (together the "Banks") are New
York-chartered institutions, and their deposit accounts are insured up to
applicable limits by the FDIC under the Bank Insurance Fund ("BIF"). The Banks
are subject to extensive regulation by the NYSBD as their chartering agency, and
by the FDIC as the deposit insurer. The Banks must file reports with the NYSBD
and the FDIC concerning their activities and financial condition, and they must
obtain regulatory approval prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions and opening or
acquiring branch offices. The NYSBD and the FDIC conduct periodic examinations
to assess the Banks' compliance with various regulatory requirements. This
regulation and supervision is intended primarily for the protection of the
deposit insurance funds and depositors. The regulatory authorities have
extensive discretion in connection with the exercise of their supervisory and
enforcement activities, including the setting of policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes.
The Banks derive their lending, investment and other powers primarily from
the applicable provisions of the New York Banking Law and the regulations
adopted thereunder. Under these laws and regulations, the Savings Bank may
invest in real estate mortgages, consumer and commercial loans, certain types of
debt securities, including certain corporate debt securities and obligations of
federal, state and local governments and agencies, certain types of corporate
equity securities and certain other assets. It also may exercise trust powers
upon approval of the NYSBD. The Commercial Bank currently limits its activities
to accepting municipal deposits, originating and acquiring commercial loans, and
acquiring municipal and other investment securities and loan participations.
Under the New York Banking Law, the Banks are not permitted to declare,
credit or pay any dividends if capital stock is impaired or would be impaired as
a result of the dividend. In addition, the New York Banking Law provides that
the Banks cannot declare and pay dividends in any calendar year in excess of
their "net profits" for such year combined with their "retained net profits" of
the two preceding years, less any required transfer to surplus or a fund for the
retirement of preferred stock, without prior regulatory approval.
The Banks are subject to minimum capital requirements imposed by the FDIC
that are substantially similar to the capital requirements imposed on Troy
Financial. The FDIC regulations require that the Banks maintain a minimum ratio
of qualifying total capital to risk-weighted assets of 8.0%, and a minimum ratio
of tier 1 capital to risk-weighted assets of 4.0%. In addition, under the
minimum leverage-based capital requirement adopted by the FDIC, the Banks must
maintain a ratio of tier 1 capital to average total assets (leverage ratio) of
at least 3% to 5%, depending on the Banks' CAMELS rating. As a recently
chartered bank, the Commercial Bank must maintain a leverage ratio of at least
8% during its first three years of operations. As of September 30, 2000, the
Savings Bank's ratio of total capital to risk-weighted assets was 14.16%, its
ratio of tier 1 capital to risk-weighted assets was 19.12%, and its ratio of
tier 1 capital to average total assets was 20.38%. As of September 30, 2000, the
Commercial Bank's ratio of total capital to risk-weighted assets was 97.82%, its
ratio of tier 1 capital to risk-weighted assets was 97.82%, and its ratio of
tier 1 capital to average total assets was 150.88%. Capital requirements higher
than the generally applicable minimum requirements may be established for a
particular bank if the FDIC determines that a bank's capital is, or may become,
inadequate in view of its particular circumstances. Failure to meet capital
guidelines could subject a bank to a variety of enforcement actions, including
actions under the FDIC's prompt corrective action regulations.
State banks are limited in their investments and activities engaged in as
principal to those permissible under applicable state law and that are
permissible for national banks and their subsidiaries, unless such investments
and activities are specifically permitted by the Federal Deposit Insurance Act
or the FDIC determines that such activity or investment would pose no
significant risk to the BIF. The FDIC has by regulation determined that certain
real estate investment and securities underwriting activities do not present a
significant risk to the BIF provided they are conducted in accordance with the
regulations. Provisions of the Gramm-Leach-Bliley Act which became effective on
March 11, 2000, expanded the permissible activities of national banks to include
the activities noted above that are permissible for bank holding companies,
other than insurance underwriting, merchant banking and real estate development
or investment activities.
23
The FDIC, as well as the NYSBD, has extensive enforcement authority over
insured savings and commercial banks, including the Banks. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders and to remove directors and
officers. In general, these enforcement actions may be initiated in response to
violations of laws and regulations and to unsafe or unsound practices.
The Banks are subject to quarterly payments on semiannual insurance premium
assessments for its FDIC deposit insurance. The FDIC implements a risk-based
deposit insurance assessment system. Deposit insurance assessment rates
currently are within a range of $0.00 to $0.27 per $100 of insured deposits,
depending on the assessment risk classification assigned to each institution.
Under current FDIC assessment guidelines, the Banks expect that they will not
incur any FDIC deposit insurance assessments during the next fiscal year,
although the current system for assigning assessment risk classifications to
insured depository institutions is being reviewed by the FDIC and the deposit
insurance assessments are subject to change. The Banks are subject to separate
assessments to repay bonds ("FICO bonds") issued in the late 1980's to
recapitalize the former Federal Savings and Loan Insurance Corporation. The
annual rate of assessments for the payments on the FICO bonds for the quarter
beginning on October 1, 2000 is 2.02 basis points for BIF-assessable deposits.
Transactions between the Banks and any of their affiliates (including Troy
Financial) are governed by Sections 23A and 23B of the Federal Reserve Act. An
affiliate of a bank is any company or entity that controls, is controlled by or
is under common control with the bank. A subsidiary of a bank that is not also a
depository institution is not treated as an affiliate of a bank for purposes of
Sections 23A and 23B unless it engages in activities not permissible for a
national bank to engage in directly. Generally, Sections 23A and 23B (i) limit
the extent to which a bank or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, and limit such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus, and (ii)
require that all such transactions be on terms that are consistent with safe and
sound banking practices. The term "covered transaction" includes the making of
loans, purchase of or investment in securities issued by the affiliate, purchase
of assets, issuance of guarantees and other similar types of transactions. Most
loans by a bank to any of its affiliates must be secured by collateral in
amounts ranging from 100 to 130 percent of the loan amount, depending on the
nature of the collateral. In addition, any covered transaction by a bank with an
affiliate and any sale of assets or provision of services to an affiliate must
be on terms that are substantially the same, or at least as favorable, to the
bank as those prevailing at the time for comparable transactions with
nonaffiliated companies. The Banks are also restricted in the loans they may
make to their executive officers, directors, any owner of 10% or more of their
stock and to certain entities affiliated with any such person.
The Banks are subject to certain FDIC standards designed to maintain the
safety and soundness of individual banks and the banking system. The FDIC has
prescribed safety and soundness guidelines relating to (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate exposure; (v) asset growth and quality;
(vi) earnings; and (vii) compensation and benefit standards for officers,
directors, employees and principal stockholders. A state nonmember bank not
meeting one or more of the safety and soundness guidelines may be required to
file a compliance plan with the FDIC.
Under the FDIC's prompt corrective action regulations, insured institutions
will be considered (i) "well capitalized" if the institution has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater, and a leverage ratio of 5% or greater (provided that the
institution is not subject to an order, written agreement, capital directive or
prompt corrective action directive to meet and maintain a specified capital
level for any capital measure), (ii) "adequately capitalized" if the institution
has a total risk-based capital ratio of 8% or greater, a Tier 1 risk based
capital ratio of 4% or greater and a leverage ratio of 4% or greater (3% or
greater if the institution is rated composite CAMELS 1 in its most recent report
of examination and is not experiencing or anticipating significant growth),
(iii) "undercapitalized" if the institution has a total risk-based capital ratio
that is less than 8%, or a Tier 1 risk-based ratio of less than 4% and a
leverage ratio that is less than 4% (3% if the institution is rated composite
CAMELS 1 in its most recent report of examination and is not experiencing or
anticipating significant growth), (iv) "significantly undercapitalized" if the
institution has a total risk-based capital ratio that is less than 6%, Tier 1
risk-based capital ratio of less than 3% or a leverage ratio that is less than
3%, and (v) "critically undercapitalized" if the institution has a ratio of
tangible equity to total assets that is equal to or less than 2%. Under certain
circumstances, the FDIC can reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the next lower category (except that the FDIC may not reclassify a
significantly undercapitalized institution as critically undercapitalized). At
September 30, 2000, each Bank was classified as a "well capitalized"
institution.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency,
which would be the FDIC for the Banks. An undercapitalized institution also is
generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except in accordance with an accepted capital restoration plan or with
the approval 24
of the FDIC. In addition, the FDIC may take any other action that it determines
will better carry out the purpose of prompt corrective action initiatives.
The Banks are not permitted to pay dividends if, as the result of the
payment, they would become undercapitalized, as defined in the prompt corrective
action regulations of the FDIC. In addition, if the Banks become
"undercapitalized" under these regulations, payment of dividends would be
prohibited without the prior approval of the FDIC. Either Bank also could be
subject to these dividend restrictions if the FDIC determines that the Bank is
in an unsafe or unsound condition or engaging in an unsafe or unsound practice.
Under Federal Reserve regulations, the Banks are required to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The Federal Reserve regulations require that
reserves of 3% must be maintained against aggregate transaction accounts of
$44.3 million or less (subject to adjustment by the Federal Reserve). Reserves
of 10% (subject to adjustment by the Federal Reserve between 8% and 14%) must be
maintained against that portion of total transaction accounts in excess of $44.3
million. The first $5 million of otherwise reservable balances (subject to
adjustment by the Federal Reserve) are exempted from the reserve requirements.
The Banks are in compliance with the foregoing requirements. Because required
reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve, the effect of this reserve requirement is to
reduce the Banks' interest-earning assets.
The Savings Bank is a member of the FHLB System. The FHLB System consists
of 12 regional Federal Home Loan Banks and provides a central credit facility
primarily for member institutions. The Savings Bank, as a member of FHLB of New
York, is required to acquire and hold shares of capital stock in the FHLB of New
York in an amount equal to the greater of 1.0% of the aggregate principal amount
of its unpaid residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, 5% of its FHLB of New York advances
outstanding, or one per cent of thirty per cent of total assets. At September
30, 2000, the Savings Bank owned $8.8 million of FHLB of New York common stock.
Advances from the FHLB of New York are secured by a member's shares of stock
in the FHLB of New York and certain types of mortgages and other assets.
Interest rates charged for advances vary depending upon maturity and cost of
funds to the FHLB of New York. As of September 30, 2000, the Savings Bank had
$73.0 million of outstanding advances from the FHLB of New York.
EMPLOYEES
At September 30, 2000, the Company had 217 full-time employees and 32
part-time employees. The Company's employees are not represented by any
collective bargaining group.
25
ITEM 2. PROPERTIES
As of September 30, 2000, the Company conducted its business through 14
full-service banking offices. The following table sets forth certain information
on the Company's offices as of September 30, 2000.
NET BOOK VALUE
ORIGINAL OF PROPERTY OR
YEAR DATE OF LEASEHOLD
LEASED OR LEASED OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION SEPTEMBER 30, 2000
- -------------------------- --------- --------- ---------- -----------------
HEADQUARTERS:
Troy Office............. Owned 1871 N/A $3,897,163
32 Second Street
Troy, NY 12180
OPERATIONS CENTER Leased 1993 8/31/03 557,192
433 River St.
Troy, NY 12180
BRANCH OFFICES:
Hudson Valley Plaza Office Leased 1983 12/31/05 18,963
75 Vandenburgh Avenue
Troy, NY 12180
East Greenbush Office Owned 1969 N/A 100,959
615 Columbia Pike
East Greenbush, NY 12061
Albany Office............. Owned 1995 N/A 1,304,178
120 State Street
Albany, NY 12207
Watervliet Office......... Leased 1983 3/1/03 2,075
1601 Broadway
Watervliet, NY 12189
Latham Office............. Leased 1989 6/30/04 370,321
545 Troy-Schenectady Rd
Latham, NY 12110
Colonie Office............ Leased 1994 3/31/07 26,381
103 Wolf Road
Colonie, NY 12205
Guiderland Office......... Leased 1997 6/9/07 292,022
1704 Western Avenue
Guiderland, NY 12203
Schenectady Office........ Owned 1987 N/A 221,470
1626 Union Street
Schenectady, NY 12309
Clifton Park/Halfmoon Office Owned 1999 N/A 702,791
86 Main Avenue
Wynantskill, NY 12198
Wynantskill Office........ Owned 1999 N/A 834,301
9 Clifton Country Road
Clifton Park, NY 12065
Quaker Road Office........ Owned 1995 N/A 1,184,395
44 Quaker Road
Queensbury, NY 12804
Queensbury Office......... Leased 1979 9/30/04 117,555
739 Upper Glen Street
Queensbury, NY 12804
Whitehall Office.......... Owned 1971 N/A 217,100
184 Broadway
Whitehall, NY 12887
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which Troy Financial or any of its
subsidiaries is a party or of which their property is the subject.
26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of Troy Financial Corporation ("Common Stock") is quoted on
the Nasdaq Stock Market National Market Tier under the symbol "TRYF". Because
Troy Financial first issued stock on March 31, 1999, closing sale prices are
available for the last two quarters of fiscal 1999 only. The following table
sets forth the market prices for the Common Stock for the periods indicated.
HIGH LOW DIVIDEND
---- --- --------
1999
3rd quarter $ 10.625 $ 10.000 $ --
4th quarter $ 11.250 $ 10.688 $ --
2000
1st quarter $ 11.500 $ 9.938 $ 0.05
2nd quarter $ 10.250 $ 8.688 $ 0.05
3rd quarter $ 10.625 $ 9.188 $ 0.06
4th quarter $ 11.938 $ 9.625 $ 0.07
No dividends were paid in fiscal 1999. The closing price of the Common Stock
on September 30, 2000 was $11.750. The approximate number of holders of record
of the Company's Common Stock on September 30, 2000 was 4,139.
ITEM 6. SELECTED FINANCIAL DATA
The following summary financial and other information about the Company is
derived from the Company's audited consolidated financial statements for each of
the five fiscal years ended September 30, 2000, 1999, 1998, 1997 and 1996.
AT SEPTEMBER 30,
--------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ----------- ---------- ---------
(IN THOUSANDS)
SELECTED FINANCIAL DATA:
Total assets................. $ 922,028 $ 915,096 $ 716,649 $ 662,448 $ 657,524
Loans receivable, net........ 586,846 556,142 457,321 468,160 451,822
Securities available for sale
(fair value)............... 266,750 280,871 197,758 117,552 148,917
Investment securities held to
(amortized cost)........... 2,301 2,534 3,483 4,000 4,515
Deposits..................... 555,972 563,373 578,202 572,397 564,606
Borrowings................... 178,808 148,933 47,464 4,728 9,899
Shareholders' equity......... 167,278 180,439 71,029 71,542 67,408
27
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------- ---------- -------
(IN THOUSANDS)
SELECTED OPERATING DATA:
Interest and dividend income...... $ 57,506 $ 51,802 $ 48,030 $ 48,287 $ 46,862
Interest expense............. 24,358 23,782 24,193 23,351 23,017
--------- --------- --------- ------------- -----------
Net interest income........ 33,148 28,020 23,837 24,936 23,845
Provision for loan losses.... 2,563 3,250 4,050 3,900 928
--------- --------- --------- ------------- -----------
Net interest income after
provision for loan losses. 30,585 24,770 19,787 21,036 22,917
--------- --------- --------- ------------- -----------
Non-interest income:
Service charges on deposits 1,076 892 858 822 802
Loan servicing fees........ 504 523 432 460 443
Trust service fees......... 704 665 459 362 293
Net (losses) gains from
securities transactions.. (283) 17 8 4 1
Net (losses) gains from
mortgage loan sales...... (45) 245 76 14 (14)
Other income............... 1,723 705 719 1,075 1,340
--------- --------- --------- ------------- -----------
Total non-interest income 3,679 3,047 2,552 2,737 2,865
--------- --------- --------- ------------- -----------
Non-interest expenses:
Compensation and employee
benefits................. 12,587 10,839 10,218 9,573 9,009
Occupancy.................. 1,972 2,094 2,101 2,089 1,956
Furniture, fixtures, and
equipment................ 802 728 1,080 901 961
Computer charges........... 1,647 1,508 1,424 1,322 1,248
Professional, legal, and other
fees..................... 1,471 1,362 924 726 658
Printing, postage and
telephone................ 904 707 614 559 543
Other real estate owned (241) 781 1,087 380 499
Contributions ............. 205 4,706 4,759 102 479
Other expenses............. 2,853 3,100 2,884 2,887 2,845
--------- --------- --------- ------------- -----------
Total non-interest expenses 22,200 25,825 25,091 18,539 18,198
--------- --------- --------- ------------- -----------
Income (loss) before income tax
expense (benefit)......... 12,064 1,992 (2,752) 5,234 7,584
Income tax expense (benefit). 3,454 (85) (1,874) 1,576 2,506
--------- ---------- --------- ------------- -----------
Net income (loss)............ $ 8,610 $ 2,077 $ (878) $ 3,658 $ 5,078
========= ========= ========= ============= ===========
(continued on following page)
28
AT OR FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- --------
SELECTED FINANCIAL RATIOS AND
OTHER DATA
PERFORMANCE RATIOS:
Return on average assets.... 1.02% 0.57%(1) 0.27%(2) 0.55% 0.79%
Return on average equity.... 5.02 3.43(1) 2.49(2) 5.22 7.84
Average equity to average total
assets..................... 20.37 16.60 10.80 10.57 10.05
Equity to total assets (period end) 18.14 19.72 9.91 10.80 10.25
Average interest earning assets to
average interest bearing
liabilities................ 130.31 122.89 113.96 112.29 110.80
Net interest rate spread(3).. 3.46 3.17 3.32 3.50 3.49
Net interest rate margin(4).. 4.39 3.89 3.84 3.96 3.90
Efficiency ratio(5).......... 57.83 64.92(1) 71.22(2) 65.48 66.27
Operating expenses to average
asserts ratio.............. 2.66 2.64(1) 2.88(2) 2.74 2.75
ASSET QUALITY RATIOS:
Non-performing loans to total
loans...................... 0.94 1.39 2.50 1.84 2.74
Non-performing assets to total
assets..................... 0.75 1.06 1.89 1.72 2.28
Allowance for loan losses to
total loans................ 1.99 1.90 1.77 1.35 0.94
Allowance for loan losses to
non-performing loans....... 210.35 136.55 70.91 73.77 34.49
REGULATORY CAPITAL RATIOS
(CONSOLIDATED):
Leverage capital............. 19.88 21.21 9.89 10.64 10.20
Tier I risk-based capital.... 25.01 28.71 14.02 15.01 14.48
Total risk-based capital..... 26.28 29.96 15.27 16.37 15.41
OTHER DATA:
Full-service banking offices. 14 14 14 13 13
Number of deposit accounts... 64,614 68,117 70,057 70,185 71,458
- --------------------------------------------------------------------------------
(1) Excludes effect of the $4.1 million stock contribution to The Troy Savings
Bank Community Foundation.
(2) Excludes effect of the $4.5 million cash contribution to The Troy Savings
Bank Charitable Foundation.
(3) Net interest rate spread represents the difference between the tax effected
yield on average interest earning assets and the rate on average interest
bearing liabilities.
(4) Net interest rate margin represents the tax effected net interest income as
a percentage of average interest earning assets.
(5) The efficiency ratio represents non-interest expenses less other real
estate owned expense, divided by the sum of net interest income on a tax
effected basis and non-interest income, excluding gains and losses on
securities.
29
SELECTED QUARTERLY DATA
Three Months Ended Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
(In thousands, except per share data ) 2000 2000 2000 1999 1999 1999 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 14,742 $ 14,380 $ 14,340 $ 14,044 $ 13,994 $ 13,346 $ 12,295 $ 12,167
Interest expense 6,228 5,965 6,256 5,909 5,894 5,580 6,108 6,200
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 8,514 8,415 8,084 8,135 8,100 7,766 6,187 5,967
- --------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 756 469 538 800 813 812 812 813
Total non-interest income 1,059 794 875 1,151 798 780 846 623
Total non-interest expense 5,477 5,436 5,400 5,887 5,666 4,900 10,418 4,841
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax
expense (benefit) 3,340 3,304 2,821 2,599 2,419 2,834 (4,197) 936
Income tax expense (benefit) 978 1,005 752 719 656 874 (1,848) 233
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,362 $ 2,299 $ 2,069 $ 1,880 $ 1,763 $ 1,960 $ (2,349) $ 703
- --------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share (1) $ 0.25 $ 0.23 $ 0.21 $ 0.18 $ 0.16 $ 0.16 -- --
Diluted earnings per share (1) 0.25 0.23 0.21 0.18 0.16 0.16 -- --
Cash dividends per share 0.07 0.06 0.05 0.05 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
(1) Earnings per share data only applies to periods since the Company's initial
public offering on March 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by reference from Troy Financial's 2000
Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The required information is incorporated herein by reference from Troy
Financial's 2000 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated herein by reference from Troy
Financial's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required is incorporated herein by reference from Troy
Financial's definitive Proxy Statement for its annual meeting of shareholders to
be held on February 8, 2001 (the "Proxy Statement"), which will be filed with
the Securities and Exchange Commission within 120 days of Troy Financial's 2000
fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference from the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference from the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
30
The information required is incorporated herein by reference from the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)The following consolidated financial statements are incorporated by
reference from Item 8 hereof:
Consolidated Statements of Condition -- September 30, 2000 and 1999.
Consolidated Statements of Income -- Years Ended September 30, 2000,
1999, and 1998.
Consolidated Statements of Changes in Shareholders' Equity -- Years
Ended September 30, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows -- Years Ended September 30,
2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a)(2) There are no financial statement schedules that are required to be
filed as part of this form since they are not applicable or the
information is included in the consolidated financial statements.
(a)(3) See (c) below for all exhibits filed herewith and the Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
(c) Exhibits. The following exhibits are either filed as part of this
annual report on Form 10-K, or are incorporated herein by reference:
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Incorporation of Troy
Financial Corporation ("Troy
Financial") (filed as Exhibit 3.1 to
Troy Financial's Form S-1
Registration Statement (SEC File No.
333-68813) filed with the Securities
and Exchange Commission (the "SEC")
on December 11, 1998 and
incorporated herein by reference).
3.2 Bylaws, as amended, of Troy
Financial.
4.1 Certificate of Incorporation, of
Troy Financial (see Item 3.1 above).
4.2 Bylaws, as amended, of Troy
Financial (see Item 3.2 above).
4.3 Specimen certificate evidencing
shares of common stock of Troy
Financial (filed as Exhibit 4.3 to
Troy Financial's Form S-1
Registration Statement (SEC File No.
333-68813) filed with the SEC on
December 11, 1998 and incorporated
herein by reference).
10.1 Troy Financial Corporation Long-Term
Equity Compensation Plan (filed as
Exhibit 10.1 to Troy Financial's
Annual Report on Form 10-K for the
fiscal year ended September 30, 1999
and incorporated herein by
reference).
10.2 Forms of Employment Agreements, by
and among The Troy Savings Bank,
Troy Financial and the following
executives: Daniel J. Hogarty, Jr.,
Michael C. Mahar and Kevin M.
O'Bryan (filed as Exhibit 10.1 to
Pre-Effective Amendment No. 2 to
Troy Financial's Form S-1
Registration Statement (SEC File No.
333-68813) filed with the SEC on
February 11, 1999 and incorporated
herein by reference).
10.3 Form of Employment Protection
Agreements with The Troy Savings
Bank and Troy Financial (filed as
Exhibit 10.2 to Pre-Effective
Amendment No. 2 to Troy Financial's
Form S-1 Registration Statement (SEC
File No. 333-68813) filed with the
SEC on February 11, 1999 and
incorporated herein by reference).
31
10.4 Form of The Troy Savings Bank
Employee Change of Control Severance
Plan (filed as Exhibit 10.3 to
Pre-Effective Amendment No. 2 to
Troy Financial's Form S-1
Registration Statement (SEC File No.
333-68813) filed with the SEC on
February 11, 1999 and incorporated
herein by reference).
10.5 Form of The Troy Savings Bank
Supplemental Retirement and Benefits
Restoration Plan (filed as Exhibit
10.1 to Pre-Effective Amendment No.
2 to Troy Financial's Form S-1
Registration Statement (SEC File No.
333-68813) filed with the SEC on
February 11, 1999 and incorporated
herein by reference).
13 Portions of Troy Financial's Annual
Report 2000.
21 Subsidiaries of Troy Financial.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
(d) There are no other financial statements and financial statement
schedules which were excluded form the Annual Report which are required
to be included herein.
- ------------
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Troy Financial Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TROY FINANCIAL CORPORATION
(Registrant)
December 28, 2000
/s/ Daniel J. Hogarty, Jr.
--------------------------
Daniel J. Hogarty, Jr.
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Daniel J. Hogarty, Jr.
--------------------------
Daniel J. Hogarty, Jr.
President, Chief Executive Officer
and Chairman (Principal Executive
Officer)
Date: December 28, 2000
/s/ David J. DeLuca
-------------------
David J. DeLuca
Chief Financial Officer (Principal
Financial Officer)
Date: December 28, 2000
/s/ George H. Arakelian
-----------------------
George H. Arakelian, Director
Date: December 28, 2000
/s/ Wilbur J. Cross
-------------------
Wilbur J. Cross, Director
Date: December 28, 2000
/s/ Richard B. Devane
---------------------
Richard B. Devane, Director
Date: December 28, 2000
/s/ Michael E. Fleming
----------------------
Michael E. Fleming, Director
Date: December 28, 2000
33
/s/ Willie A. Hammett
---------------------
Willie A. Hammett, Director
Date: December 28, 2000
/s/ Thomas B. Healy
-------------------
Thomas B. Healy, Director
Date: December 28, 2000
/s/ Keith D. Millsop
--------------------
Keith D. Millsop, Director
Date: December 28, 2000
/s/ Edward G. O'Haire
---------------------
Edward G. O'Haire, Director
Date: December 28, 2000
/s/ Marvin L. Wulf
------------------
Marvin L. Wulf, Director
Date: December 28, 2000
34
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Incorporation of Troy Financial Corporation
("Troy Financial") (filed as Exhibit 3.1 to Troy Financial's
Form S-1 Registration Statement (SEC File No. 333-68813) filed
with the Securities and Exchange Commission (the "SEC") on
December 11, 1998 and incorporated herein by reference).
3.2 Bylaws, as amended, of Troy Financial.
4.1 Certificate of Incorporation, of Troy Financial (see Item 3.1
above).
4.2 Bylaws, as amended, of Troy Financial (see Item 3.2 above).
4.3 Specimen certificate evidencing shares of common stock of Troy
Financial (filed as Exhibit 4.3 to Troy Financial's Form S-1
Registration Statement (SEC File No. 333-68813) filed with the
SEC on December 11, 1998 and incorporated herein by
reference).
10.1 Troy Financial Corporation Long-Term Equity Compensation Plan
(filed as Exhibit 10.1 to Troy Financial's Annual Report on
Form 10-K for the fiscal year ended September 30, 1999 and
incorporated herein by reference).
10.2 Forms of Employment Agreements, by and among The Troy Savings
Bank, Troy Financial and the following executives: Daniel J.
Hogarty, Jr., Michael C. Mahar and Kevin M. O'Bryan (filed as
Exhibit 10.1 to Pre-Effective Amendment No. 2 to Troy
Financial's Form S-1 Registration Statement (SEC File No.
333-68813) filed with the SEC on February 11, 1999 and
incorporated herein by reference).
10.3 Form of Employment Protection Agreements with The Troy Savings
Bank and Troy Financial (filed as Exhibit 10.2 to
Pre-Effective Amendment No. 2 to Troy Financial's Form S-1
Registration Statement (SEC File No. 333-68813) filed with the
SEC on February 11, 1999 and incorporated herein by
reference). 31
10.4 Form of The Troy Savings Bank Employee Change of Control
Severance Plan (filed as Exhibit 10.3 to Pre-Effective
Amendment No. 2 to Troy Financial's Form S-1 Registration
Statement (SEC File No. 333-68813) filed with the SEC on
February 11, 1999 and incorporated herein by reference).
10.5 Form of The Troy Savings Bank Supplemental Retirement and
Benefits Restoration Plan (filed as Exhibit 10.1 to
Pre-Effective Amendment No. 2 to Troy Financial's Form S-1
Registration Statement (SEC File No. 333-68813) filed with the
SEC on February 11, 1999 and incorporated herein by
reference).
13 Portions of Troy Financial's Annual Report 2000.
21 Subsidiaries of Troy Financial.
23 Consent of KPMG LLP.
27 Financial Data Schedule.