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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, 2001
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 NO.)
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
26, 2001, the aggregate market value of the voting stock held by non-affiliates
of the registrant is $186.1 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 26, 2001: 9,763,764 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to shareholders for fiscal year ended
September 30, 2001 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 14, 2002 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 and 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 the Savings Bank.
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 Board of
Governors of the Federal Reserve System (the "Federal Reserve"). See
"Regulation."
The Savings Bank is a community-based savings bank headquartered in Troy, New
York. The Savings Bank operates through 21 full service branch offices in an
eight-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,
Rensselaer, Saratoga, Schenectady, Schoharie, Warren and Washington.
In August 2000, the Company established the Commercial Bank, which is a
commercial bank headquartered in Troy, New York. The Commercial Bank's primary
purpose is to generate municipal deposits, which under New York State law cannot
be collected by the Savings Bank.
On November 10, 2000, the Company acquired Catskill Financial Corporation
("Catskill") in a cash transaction for $23.00 per share, for a total transaction
value of approximately $89.8 million. The seven former offices of Catskill
Savings Bank are now full-service offices of the Savings Bank. In accordance
with the purchase method of accounting for business combinations, the assets
acquired and liabilities assumed were recorded by the Company at their estimated
fair value. Related operating results have been included in the Company's
consolidated financial statements from the date of acquisition.
The Company's goal is to be the primary source of financial products and
services for its business, retail, and municipal customers. The Company's
business strategy is to serve as a community based, full-service financial
services firm by offering a wide variety of business, retail, municipal banking
products, trust, insurance, investment management and brokerage services to its
potential and existing customers throughout its market area.
The Company delivers its products and services and interacts with its customers
primarily through its 21 branches and 22 proprietary automated teller machines
("ATMs") and its 24-hour telephone banking service ("Time$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 nonbanking 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"). The Savings Bank is a member of the
Federal Home Loan Bank System ("FHLB System"). Deposits in the Banks are insured
by the FDIC to the maximum extent provided by law. See "Regulation."
-3-
LENDING ACTIVITY
The Company focuses its lending activity primarily on the origination of
commercial real estate, commercial business, residential mortgage 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 approvals are made
locally, by individual loan officers, or loan committees, depending upon the
size of the loan. The Company makes every effort to respond to all loan requests
in a prompt and timely manner.
LOAN PORTFOLIO COMPOSITION. At September 30, 2001, the Company's loan portfolio
totaled $760.8 million, or 65.5% of total assets, and consisted primarily of
single-family residential mortgages, commercial real estate, construction,
commercial business, and consumer loans.
The commercial real estate loan portfolio totaled $269.1 million, or 35.3% of
the Company's total loans and 23.2% of total assets, at September 30, 2001.
Approximately 85.9% of the loans are secured by properties located in the
Company's eight county market area, and an additional 6.4% are secured by
properties located in the New York City area. Approximately 29.0% of the
properties securing the loans are office buildings and warehouses, 25.8% are
apartment buildings and cooperatives, and 24.7% are retail buildings. The
Company's commercial real estate loans range in size up to $12.2 million, and
the average principal balance outstanding at September 30, 2001 was
approximately $857 thousand. The 20 largest commercial real estate loans range
in size from $3.0 million to $12.2 million, and the Company had 71 loans with
outstanding balances of more than $1.0 million at September 30, 2001. The
Company's largest commercial real estate exposure involving a single
relationship was $37.8 million, of which $34.7 million was outstanding at
September 30, 2001 to Morris Massry, a nominee for director who is a local real
estate developer and his related real estate interests with whom the Company has
had a sixteen-year lending relationship.
The commercial business loan portfolio totaled $95.6 million, or 12.5% of the
Company's loans and 8.2% of total assets, at September 30, 2001. The portfolio
includes fixed and adjustable rate loans, as well as adjustable rate lines of
credit to a diverse customer base including manufacturers, wholesalers,
retailers, service providers, educational institutions and government-funded
entities. The Company's commercial business loans range in size up to $10.6
million, with an average principal balance outstanding of approximately $221
thousand at September 30, 2001. The Company's 20 largest commercial business
loans at that date ranged in terms of total exposure, including balances
outstanding and unfunded commitments, from $2.5 million to $10.6 million.
The Company's portfolio of single family residential mortgage loans totaled
$326.1 million, or 42.8% of total loans and 28.1% of total assets, at September
30, 2001, 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,
2001, the Company's largest single-family residential mortgage loan had an
outstanding balance of $750,000. As of that date, the typical residential
mortgage loan held by the Company in its portfolio had an average principal
balance of approximately $70,000, an initial loan-to-value ("LTV") ratio of 80%
and was secured by a detached, single family home.
The consumer loan portfolio totaled $55.4 million, or 7.3% of the Company's
loans and 4.8% of total assets, at September 30, 2001. The Company's consumer
loan portfolio includes home equity lines of credit, auto loans, 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 represented 12.8% of the Company's consumer loan
portfolio and its auto loans represented 27.7% of the portfolio, at September
30, 2001. Personal fixed rate loans originated through direct mail marketing
programs represented $7.9 million, or 14.3% of the Company's consumer loan
portfolio at September 30, 2001.
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:
-4-
LOAN PORTFOLIO COMPOSITION
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AS OF SEPTEMBER 30, 2001 2000 1999 1998 1997
PERCENT PERCENT PERCENT PERCENT PERCENT
(Dollars in thousands) AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
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Real estate loans:
Residential mortgage $326,074 42.8% $226,961 37.9% $221,721 39.1% $202,511 43.4% $214,638 45.2%
Commercial 269,092 35.3 233,334 38.9 216,700 38.2 166,186 35.7 184,561 38.8
Construction 16,379 2.1 7,300 1.2 13,761 2.4 10,052 2.2 15,508 3.3
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Total real estate loans 611,545 80.2 467,595 78.0 452,182 79.7 378,749 81.3 414,707 87.3
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Commercial business loans 95,563 12.5 87,167 14.6 66,274 11.7 45,156 9.7 29,961 6.3
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Consumer loans:
Home equity lines of credit 7,108 0.9 5,019 0.8 6,776 1.2 8,575 1.8 9,883 2.1
Other consumer 48,341 6.4 39,320 6.6 42,081 7.4 33,445 7.2 20,539 4.3
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Total consumer loans 55,449 7.3 44,339 7.4 48,857 8.6 42,020 9.0 30,422 6.4
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Gross loans $762,557 100.0% $599,101 100.0% $567,313 100.0% $465,925 100.0% $475,090 100.0%
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Net deferred loan fees and costs
and unearned discount (1,774) (364) (407) (344) (501)
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Total loans 760,783 598,737 566,906 465,581 474,589
Allowance for loan losses (14,333) (11,891) (10,764) (8,260) (6,429)
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Total loans receivable,
net $746,450 $586,846 $556,142 $457,321 $468,160
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-5-
The following table presents as of September 30, 2001, the dollar amount of all
loans in the Company's portfolio, excluding loans held for sale, that are
contractually due after September 30, 2002, and indicates whether such loans
have fixed or adjustable interest rates:
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DUE AFTER
SEPTEMBER 30, 2002
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(Dollars in thousands) AMOUNT PERCENT
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FIXED:
Residential mortgage $237,302 35.5%
Commercial mortgage 210,381 31.5
Construction 1,255 .2
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Total real estate loans 448,938 67.2
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Commercial business 26,953 4.0
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Consumer:
Home equity lines of credit --
Other consumer 22,636 3.4
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Total consumer 22,636 3.4
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Total fixed rate loans 498,527 74.6
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ADJUSTABLE:
Residential mortgage 68,539 10.3
Commercial mortgage 38,587 5.8
Construction 6,121 .9
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Total real estate loans 113,247 17.0
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Commercial business 47,141 7.0
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Consumer:
Home equity lines of credit 7,108 1.1
Other consumer 2,357 .3
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Total consumer 9,465 1.4
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Total adjustable rate loans 169,853 25.4
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Total loans due after September 30, 2002 $668,380 100.00%
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-6-
LOAN MATURITY. The following table shows the contractual maturity of the
Company's loan portfolio at September 30, 2001. The table does not include loans
held for sale, and does include possible prepayments or scheduled principal
amortization.
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AT SEPTEMBER 30, 2001
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HOME
EQUITY
RESIDENTIAL COMMERCIAL LINES OF OTHER
(DOLLARS IN THOUSANDS) MORTGAGE COMMERCIAL CONSTRUCTION BUSINESS CREDIT CONSUMER TOTAL
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Amounts due:
Within one year $ 20,233 $ 20,124 $ 9,003 $ 21,469 $ -- $ 23,348 $ 94,177
After one year:
one to five years 78,060 143,430 6,184 58,930 -- 24,657 311,261
five to ten years 87,768 89,225 1,134 15,164 7,108 177 200,576
ten to twenty years 100,564 14,073 -- -- -- 2 114,639
more than twenty years 39,449 2,240 58 -- -- 157 41,904
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Total due after one year 305,841 248,968 7,376 74,094 7,108 24,993 668,380
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Total amount due $326,074 $ 269,092 $ 16,379 $ 95,563 $ 7,108 $ 48,341 $ 762,557
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Less:
Net deferred loan fees/costs
and unearned discounts (1,774)
Allowance for loan losses (14,333)
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Loan receivable, net $ 746,450
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The Company participates with other financial institutions in certain larger
credits (both selling and purchasing interests) and also purchases loans from
other financial institutions and brokers. The Company also sells or enters 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
its 30-year conforming fixed rate mortgage loans and, from time to time as
conditions warrant, its 15-year conforming fixed rate mortgage loans into the
secondary mortgage market. During fiscal 2001 and 2000, the Company sold $27.2
million and $12.9 million of 30-year and 15-year, respectively, 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 with
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, 2001, the Company serviced
mortgage loans for others with an aggregate principal balance of $230.9 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 eight-county market area, as well as New York City and
northern New York, and to a lesser extent in other states. Approximately 6%, 4%
and 4%, 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,
2001, the Company's commercial real estate loan portfolio by sector is as
follows: 26% in apartment buildings and cooperatives; 29% in office and
warehouse buildings; 25% in retail buildings; 1% in buildings owned by
non-profit organizations; 5% in the hospitality industry; and 14% in other
property types.
The Company's commercial real estate loans outstanding increased $35.8 million
or 15.3%, in fiscal 2001, compared to growth of $16.6 million or 7.8% in fiscal
2000 and $50.5 million or 30.4% in fiscal 1999. Loans originated in fiscal year
2001 and 2000 were $100.8 million and $98.1 million, 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, solicit
existing customers for additional business, follow up on branch "walk-ins" and
referrals and interact with representatives of the local real estate industry.
-7-
In addition to developing business, the Company's commercial real estate loan
officers are responsible for the initial underwriting of commercial real estate
loans and preparation of a credit memorandum. The Company's underwriting
standards focus on review of the potential borrower's cash flow, loan-to-value
("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%.
As part of the origination process, 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 analysis, described above, 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 $275,000, in the case of loans secured by
commercial real estate. Unsecured loans between $100,000 and $1.5 million and
secured loans between $275,000 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 Board of Directors Loan Committee.
Commercial real estate loan officers also are responsible for monitoring the
Company's portfolio of commercial real estate loans on an on-going basis, which
includes reviewing annual financial statements, verifying that loan covenants
have not been violated and inspecting property. 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
$40.3 million and $42.8 million of commercial business loans in fiscal years
2001 and 2000, respectively. The Company's commercial loans generally range in
size up to $10.0 million, and the borrowers are principally 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, 2001, 40.0% of the Company's outstanding commercial loan portfolio
consisted of variable rate loans. As a general rule, the Company sets the
interest rates on its loans based on the prime rate, London Inter-Bank Offered
Rate ("LIBOR") or other index rates, plus a premium, and its variable-rate loans
reprice at least every 90 days. The Company's commercial loans include loans to
finance equipment acquisitions, working capital and accounts receivable. These
loans are made to a diverse customer base that includes manufacturers,
wholesalers, retailers, service providers, educational institutions and
government funded entities.
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 community.
In many cases, the Company's senior management, including the President, 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, 2001, the Company originated $8.4 million of new small
business loans, up from $5.0 million in the prior year. At September 30, 2001,
the Company had $23.6 million of such loans outstanding. Approximately 10% of
the Company's small business loans are secured by cash collateral or marketable
securities or are guaranteed up to 90% of the principal amount by the Small
Business Administration.
In addition to developing business, the Company's commercial loan officers are
responsible for underwriting the commercial loans and monitoring the ongoing
relationship between the borrower and the Company. Following the loan officer's
initial underwriting and preparation of a credit memorandum, the loan
application is reviewed by the Vice President and Director of Commercial
Lending, who 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 Board of Directors' Loan Committee. 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 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 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.
-8-
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 includes 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, re-underwrites the loan
annually. A term loan often includes a line of credit, in which case 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 most cases will visit the borrower or inspect the
borrower's business and properties.
SINGLE FAMILY RESIDENTIAL LENDING. The Company originated $53.9 million and
$44.4 million of single-family residential real estate loans in fiscal years
2001 and 2000, respectively. Substantially all the Company's residential
mortgage loans were originated through Family Mortgage Banking Co., Inc.
("FMBC"), the Company's mortgage banking subsidiary. FMBC currently employs five
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 FMBC.
Although FMBC meets with applicants and assists with the application process,
the Company handles the processing, underwriting, funding and closing of all
residential mortgage loans. Single-family residential mortgage loans not
originated through FMBC generally are originated through independent mortgage
brokers or by the Savings Bank.
The Company currently makes a variety of fixed rate and adjustable rate mortgage
loans ("ARMs") , which are secured by one- to four-family residences located in
the Company's eight-county market area. The Company offers mortgage loans that
conform to Freddie Mac guidelines, as well as jumbo loans, which are loans in
amounts over $275,000 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 by both annual adjustment caps and maximum rate adjustments
over the life of the loan. The origination of ARMs, as opposed to fixed rate
loans, helps 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
payment obligations of the borrowers rise, thereby increasing the potential for
default. The annual and lifetime adjustable caps however, help to reduce this
risk. The volume and type of ARMs originated through FMBC are affected by
numerous market factors, including the level of interest rates, competition,
consumer preferences and the availability of funds. At September 30, 2001, the
Company held $69.0 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 purchase
price or appraised value, whichever is lower. In addition, the Company requires
escrow accounts for the payment of taxes and insurance if the LTV ratio exceeds
80%, but permits 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 generally provide the Company the
contractual right to deem the loan immediately due and payable 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 $275,000.
Loans between $275,000 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.
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 payments and below-market interest
rates. The Company typically sells its SONYMA loans back to SONYMA for resale in
the secondary market. The Company also is a charter member of the Capital
District Affordable Housing Partnership, a local lending consortium that makes
mortgage funds available to homebuyers who are unable to obtain conventional
financing. The Company also participates in the Capital District Community Loan
and the FHLB Home Buyer's Club. In the past five years, the Company also has
made available to low- to moderate-income first-time homebuyers over $15 million
of conventional no down payment mortgages for its loan portfolio.
-9-
To complement the Company's portfolio of residential mortgage loan products, the
Company also originates fixed rate home equity mortgage loans. A first or second
mortgage on the owner-occupied property secures these loans. During fiscal 2001,
the Company originated $7.0 million of home equity mortgage loans. As of
September 30, 2001, the average size of the Company's outstanding home equity
mortgage loans in its residential mortgage loan portfolio was $19.5 thousand.
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, auto 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, higher yielding short duration
assets as well as portfolio diversification.
The Company offers home equity lines of credit in amounts up to $100,000. The
home equity lines of credit have variable interest rates and are available only
if the LTV ratio is less than 90%. The Company's Creative Loans begin with a
modest below market interest rate that increases each year, and can be either
unsecured or secured by personal property and do not carry prepayment penalties.
The outstanding balance on the Company's Creative Loans at September 30, 2001
was $2.8 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 for terms up to 60 months and 80% financing on used
automobiles for terms dependent on the age of the vehicle. 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 approved
loans. 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.
CONSTRUCTION LENDING. The Company offers residential construction loans to
individuals who are constructing their own homes in the Company's market area.
Generally, in these cases, the Company is familiar with the builders utilized by
the Company's borrowers and has a long-standing relationship with them. The
Company's residential mortgage loan origination 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, 2001, 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 up to six months, and
require payment 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
$275,000. Loans in excess of $275,000 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 of construction, including
interest, 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 the source of permanent financing, whether the Company or another
institution, can be verified. All commercial real estate construction lending is
done on a recourse basis. As of September 30, 2001, the Company had $16.4
million of commercial real estate construction loans outstanding, or 2.1% of the
Company's loans and 1.4% of total assets.
-10-
LOAN REVIEW. As part of the portfolio monitoring process, commercial business
loans over $750,000, and commercial real estate loans over $1 million are
subjected to an annual detailed loan review. 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 loans risk
rating and the related allowance for loan loss, if any. For classified loans,
these reviews are complemented by 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 review of loan loss
reserve adequacy.
DELINQUENT LOANS. It is the policy of management 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.
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 improbable. Assets classified as
"losses" 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, 2001, the Company had classified $6.0 million of
assets as "substandard" and $220,000 of assets as "doubtful." At such date, the
Company did not have any assets classified as "loss."
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, 2001, special
mention assets totaled $5.5 million, or 0.7% of total loans and 0.5% 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 doubtful. 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,
2001. 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, 2001, the Company had no loans classified as TDRs.
-11-
The Company classifies property that it acquires through 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 non-interest expense. At September 30,
2001, the Company had $140 thousand of OREO resulting from single family
residential mortgage loans, and $125 thousand from commercial real estate loans.
The following presents the amounts and categories of non-performing assets at
the dates indicated:
- ------------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans:
Real estate loans:
Residential mortgage $ 1,825 $ 2,424 $ 2,707 $ 2,900 $ 2,598
Commercial mortgage 898 2,829 4,210 6,327 3,438
Construction -- -- -- -- 350
- ------------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 2,723 5,253 6,917 9,227 6,386
Commercial business loans 63 103 10 31 33
Home equity lines of credit 83 84 58 259 --
Other consumer loans 380 160 282 50 40
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 3,249 5,600 7,267 9,567 6,459
Troubled debt restructurings -- 53 616 2,081 2,256
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 3,249 5,653 7,883 11,648 8,715
- ------------------------------------------------------------------------------------------------------------------------------------
Other real estate owned:
Residential real estate 140 240 76 345 589
Commercial real estate 125 1,033 1,769 1,527 2,101
- ------------------------------------------------------------------------------------------------------------------------------------
Total other real estate owned 265 1,273 1,845 1,872 2,690
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 3,514 $ 6,926 $ 9,728 $13,520 $11,405
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses $14,333 $11,891 $10,764 $ 8,260 $ 6,429
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage of non-performing loans 441.15% 210.35% 136.55% 70.91% 73.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing loans as a percentage of total loans 0.43% 0.94% 1.39% 2.50% 1.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing assets as a percentage of total assets 0.30% 0.75% 1.06% 1.89% 1.72%
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended 2001, 2000 and 1999, the gross interest income that would
have 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 $210 thousand, $186 thousand, and $326 thousand,
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.
Furthermore, the Company's outside consultant periodically reviews the credit
quality of the loans in the commercial real estate and commercial business loan
portfolios, and, together with the Company's Commercial Loan Credit Committee,
reviews quarterly all classified loans over $100,000 with a risk rating that
indicates the loan has certain weaknesses.
-12-
Based on management's on-going review of the Company's loan portfolio, including
the inherent risks therein, 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 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, 2001, the
Company's allowance for loan losses was $14.3 million, or 1.88% of total loans
and 441.15% of non-performing loans, at that date. Net charge-offs during the
year ended September 30, 2001 were $1.2 million, down $196 thousand or 13.6%,
from fiscal 2000. 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 over the last five years:
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans outstanding ( at end of period ) $ 760,783 $ 598,737 $ 566,906 $ 465,581 $ 474,589
Average total loans outstanding $ 741,709 $ 594,570 $ 505,489 $ 467,406 $ 471,779
Allowance for loan losses at beginning of year $ 11,891 $ 10,764 $ 8,260 $ 6,429 $ 4,304
Loan charge-offs:
Residential real estate (258) (412) (362) (521) (320)
Commercial real estate (20) (550) (252) (1,612) (1,286)
Construction (89) (375) -- (130) (140)
Commercial business (184) (40) (75) (51) (110)
Home equity lines of credit -- -- -- -- --
Other consumer loans (1,041) (565) (306) (132) (34)
- ----------------------------------------------------------------------------------------------------------------------------------
Total charge-offs (1,592) (1,942) (995) (2,446) (1,890)
- ----------------------------------------------------------------------------------------------------------------------------------
Loan recoveries:
Residential real estate 26 84 40 147 80
Commercial real estate 71 155 176 57 13
Construction 32 219 13 -- --
Commercial business 22 6 8 4 12
Home equity lines of credit -- -- -- -- --
Other consumer loans 201 42 12 19 10
- ----------------------------------------------------------------------------------------------------------------------------------
Total recoveries 352 506 249 227 115
- ----------------------------------------------------------------------------------------------------------------------------------
Loan charge-offs ( net of recoveries ) (1,240) (1,436) (746) (2,219) (1,775)
- ----------------------------------------------------------------------------------------------------------------------------------
Provision charged to operations 1,498 2,563 3,250 4,050 3,900
Allowance acquired 2,184 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year $ 14,333 $ 11,891 $ 10,764 $ 8,260 $ 6,429
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the year to
average loans outstanding during the year .17% .24% .15% .48% .38%
Allowance as a percentage of non-performing loans 441.15% 210.35% 136.55% 70.91% 73.77%
Allowance as a percentage of total loans ( end of year ) 1.88% 1.99% 1.90% 1.77% 1.35%
- ----------------------------------------------------------------------------------------------------------------------------------
-13-
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 management's assessment 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,
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
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
( Dollars in thousands) AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
Allocation of allowance
for loan losses:
Real estate loans:
Residential mortgage $ 2,085 14.5% 42.8% $ 2,062 17.3% 37.9% $ 1,967 18.2% 39.1%
Commercial mortgage 5,504 38.4% 35.3% 5,533 46.5% 38.9% 5,379 50.0% 38.2%
Construction 470 3.3% 2.1% 297 2.5% 1.2% 95 0.9% 2.4%
Commerical business loans 2,636 18.4% 12.5% 2,059 17.3% 14.6% 1,716 15.9% 11.7%
Home equity lines of credit 18 0.1% 0.9% 21 0.2% 0.8% 30 0.3% 1.2%
Other consumer loans 1,205 8.4% 6.4% 792 6.7% 6.6% 621 5.8% 7.4%
Unallocated 2,415 16.9% 1,127 9.5% 956 8.9%
===================================================================================================================================
Total $14,333 100.0% 100.0% $ 11,891 100.0% 100.0% $10,764 100.0% 100.0%
===================================================================================================================================
- -----------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------
Allocation of allowance
for loan losses:
Real estate loans:
Residential mortgage $ 1,316 15.9% 43.4% $ 878 13.7% 45.2%
Commercial mortgage 3,964 48.0% 35.7% 3,240 50.4% 38.8%
Construction 131 1.6% 2.2% 127 2.0% 3.3%
Commercial business loans 1,503 18.2% 9.7% 1,275 19.8% 6.3%
Home equity lines of credit 31 0.4% 1.8% 31 0.5% 2.1%
Other consumer loans 488 5.9% 7.2% 278 4.3% 4.3%
Unallocated 827 10.0% 600 9.3%
===============================================================================================
Total $ 8,260 100.0% 100.0% $6,429 100.0% 100.0%
===============================================================================================
-14-
SECURITIES
The Company separates its securities portfolio into securities available for
sale and investment securities held to maturity. At September 30, 2001, the
Company had $248.5 million, or 21.4% of total assets, in securities available
for sale and $2.1 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 if any, 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, 2001, 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.
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 Chief Financial 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
Vice President and 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.
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, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
CARRYING PERCENT CARRYING PERCENT CARRYING PERCENT
(Dollars in thousands) VALUE OF TOTAL VALUE OF TOTAL VALUE OF TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale (at fair value):
U.S. Government securities and agency obligations $ 60,463 24.3% $161,184 60.4% $171,992 61.2%
Obligations of states and political subdivisions 87,308 35.1% 80,359 30.1% 73,262 26.1%
Mortgage-backed securities 50,312 20.3% 2,149 0.8% 17,132 6.1%
Corporate debt securities 13,639 5.5% 12,345 4.7% 5,661 2.0%
Mutual funds and marketable equity securities 28,669 11.5% 1,865 0.7% 5,486 2.0%
Non-marketable equity securities 8,078 3.3% 8,848 3.3% 7,338 2.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 248,469 100.0% 266,750 100.0% 280,871 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity
(at amortized cost):
Mortgage-backed securities 1,130 53.1% 1,301 56.6% 1,535 60.6%
Corporate and other debt securities 1,000 46.9% 1,000 43.4% 999 39.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity 2,130 100.0% 2,301 100.0% 2,534 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities portfolio $250,599 $ 269,051 $ 283,405
- ------------------------------------------------------------------------------------------------------------------------------------
-15-
The following table presents information regarding the amortized cost, weighted
average yields and contractual maturities of the Company's securities available
for sale and investment securities held to maturity debt portfolios (excludes
mutual fund shares and equities) as of September 30, 2001. Weighted average
yields are based on amortized cost.
- ------------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
MORE THAN ONE YEAR TO MORE THAN FIVE YEARS TO
ONE YEAR OR LESS FIVE YEARS TEN YEARS MORE THAN TEN YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
(Dollars in thousands) COST YIELD COST YIELD COST YIELD COST YIELD COST YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
U.S. Government
securities and
agency obligations $ 40,340 4.21% $15,144 5.42% $ 3,498 6.75% $ -- $ 58,982 4.67%
Obligations of states and
political subdivisions 61,267 5.43% 19,420 7.17% 3,863 7.03% 1,411 8.25% 85,961 5.95%
Mortgage-backed securities 6 6.56% 395 6.91% 3,200 7.12% 44,411 7.03% 48,012 7.03%
Corporate debt securities 600 7.23% 10,000 4.75% 2,988 5.15% -- 13,588 4.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Total available for sale $102,213 4.96% $44,959 6.04% $13,549 6.56% $45,822 7.07% $206,543 5.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities held to
maturity:
Mortgage-backed securities -- 40 7.50% 600 8.96% 490 7.61% 1,130 8.33%
Corporate and other debt -- -- -- 1,000 7.13% 1,000 7.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $ -- $ 40 7.50% $ 600 8.96% $ 1,490 7.08% $ 2,130 7.76%
====================================================================================================================================
(1) Weighted average yields are presented on a tax equivalent basis, using an
assumed federal tax rate of 34%.
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, debt securities and mortgage-backed securities issued by
government agencies and government sponsored agencies such as Fannie Mae, the
FHLBs, the Government National Mortgage Association ("Ginnie Mae") and the
Federal Home Loan Mortgage Company ("Freddie Mac"). At September 30, 2001, the
Company held, as available for sale, $60.0 million of non-government guaranteed
bonds issued by the FHLBs, Freddie Mac and Fannie Mae, of which $25.0 million
are discount notes. These securities had an average yield of 4.67% and all of
these securities which were rated "AAA." The Company's investment policy does
not limit the amount of U.S. government and agency obligations that can be held.
MUNICIPAL SECURITIES. At September 30, 2001, $86.0 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 total, $58.3 million were invested in
general obligations of jurisdictions in the State of New York representing
relationship investments in 92 separate municipalities, including counties,
cities, school districts, towns, villages and fire districts. In addition, the
Company held $20.5 million in bonds of various municipalities throughout the
United States. The Company also held $7.2 million of taxable municipal bonds of
municipalities within New York State. The Company's municipal securities have a
weighted average maturity of approximately 11 months and a taxable equivalent
yield of 5.95% at September 30, 2001. Interest earned on municipal bonds is
exempt from federal income taxes and, for issues in the State of New York, a
portion is excludable from state income taxes. The Company's investment policy
limits the amount of municipal securities to 25.0% of the Company's total assets
or approximately $290.4 million at September 30, 2001, however, the Company
continuously monitors its tax-exempt portfolio to avoid being subject to the
alternative minimum tax.
CORPORATE DEBT SECURITIES. The Company's corporate debt securities portfolio at
September 30, 2001 totaled $14.6 million and consisted of general corporate
obligations, public utility and telephone bonds, and an asset-backed security.
All the Company's corporate debt securities at September 30, 2001, were rated
"BBB" or higher, and $13.6 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 25.0% of the Company's total
assets or approximately $290.4 million at September 30, 2001.
-16-
MUTUAL FUNDS AND EQUITY SECURITIES. At September 30, 2001, the Company's mutual
funds and equity securities portfolio totaled $36.6 million, all of which were
classified as available for sale. The largest investment in one issuer was $25.0
million in a Federated ARM fund and $8.0 million in FHLB of New York stock which
the Company is required to hold as a member. At September 30, 2001, the Company
also had $1.3 million invested in common stocks, primarily shares of publicly
traded financial institutions, and an additional $2.3 million of preferred
stocks of nationally recognized corporations.
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, and 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
for all deposit products are set by the Company's ALCO Committee.
At September 30, 2001, the Company's deposits totaled $808.5 million or 69.6% of
total assets. At September 30, 2001, the balance of core deposits, which is
defined to include NOW accounts, money market accounts, savings accounts and
non-interest bearing checking accounts, totaled $468.4 million, or 57.9% of
total deposits and represented 40.3% of total assets. At September 30, 2001, the
Company had a total of $340.1 million in time deposit accounts, or 42.1% of
total deposits. Time deposits of $266.1 million or 78.2%, mature in 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 eight counties in which the Company's branches are located.
The Company relies primarily on 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 2001, the Commercial Bank increased its municipal deposits $14.3
million. 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, 2001, the Company had no brokered deposits. However, the Company
may, from time to time, consider these funding opportunities.
At September 30, 2001, the Company had $340.1 million in time deposit accounts,
with the following maturities:
--------------------------------------------------------------------
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
--------------------------------------------------------------------
(Dollars in thousands)
TIME DEPOSITS LESS THAN $100,000:
Three months or less $ 71,979 5.05%
Over three months through six months 73,754 4.76%
Over six months through 12 months 73,601 4.75%
Over 12 months 64,394 4.92%
--------------------------------------------------------------------
Total $283,728 4.87%
====================================================================
TIME DEPOSITS MORE THAN $100,000:
Three months or less $ 25,448 4.03%
Over three months through six months 11,714 4.72%
Over six months through 12 months 9,624 4.61%
Over 12 months 9,581 5.02%
--------------------------------------------------------------------
Total $ 56,367 4.44%
====================================================================
-17-
BORROWINGS. The principal source of the Company's borrowings is through the FHLB
and repurchase agreements. The FHLB system functions in a reserve credit
capacity for member savings associations and certain other home financing
institutions. 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. At September 30, 2001, the Company had
outstanding FHLB short-term advances of approximately $100.0 million and
long-term borrowings of $50.0 million. Long-term borrowings had a weighted
average interest rate of 5.37% and a weighted average term of 4.8 years.
At September 30, 2001, the Company had $13.0 million of borrowed funds in the
form of securities sold under agreements to repurchase, with a weighted average
interest rate of 4.81%. All securities repurchase agreements at September 30,
2001 mature within ninety days, except for $10.0 million with the FHLB which
mature in 2008.
TRUST SERVICES
The Trust Department offers a full range of services, including living trusts,
executor services, testamentary trusts, employee benefit plan management,
custody services and investment management, primarily to individuals,
corporations, unions and other institutions. The Trust Department has retained
the services of two independent investment services firms to provide investment
research. A Trust Committee that consists of the Vice President Trust &
Investment Officer and the President, as well as four members of the Company's
Board of Directors who rotate on a semi-annual basis, oversees operation of the
Trust Department. The Trust Department markets its services through its trust
officers, who call on the Company's existing customers, referrals from attorneys
and accountants, 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, 2001, the Trust Department managed over $384.4 million of assets,
which includes $118.8 million over which the Trust Department has discretionary
investment authority. The Trust Department's fee income, which totaled $839
thousand for the year ended September 30, 2001, 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.
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.,
Inc., ("FISC"), which was incorporated in May 1989, is the Savings Bank's wholly
owned full-service brokerage firm, offering a complete range of investment
products, including mutual funds, 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 three full time
employees who monitor the Company's branches to facilitate referrals from the
CSSRs and branch managers, as well as a manager and two sales support staff who
assist customers with investment decisions and trading. As of September 30,
2001, 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. FMBC, 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
FMBC.
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 Company 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 $97 million in
-18-
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 owns and develops 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, 2001 was
approximately $2.1 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. The Savings Bank, as a New
York State chartered savings bank, and the Commercial Bank, as a New York State
chartered bank, are subject to regulation, supervision, and examination by the
FDIC as their primary federal regulator and by the NYSBD as their state
regulator.
BANK HOLDING COMPANY REGULATION
As a bank holding company, Troy Financial is 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.
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 minimum ratio of tier 1 capital to total assets of 4.0%. The
minimum ratio is 3.0% 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, 2001, Troy Financial's ratio
of tier 1 capital to total assets was 12.28%, its ratio of tier 1 capital to
risk-weighted assets was 17.56%, and its ratio of qualifying total capital to
risk-weighted assets was 18.83%.
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 does not meet the minimum capital adequacy guidelines is considered to
be undercapitalized and is required to submit an acceptable plan to the Federal
Reserve for achieving capital adequacy.
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. Federal
Reserve approval is required if Troy Financial seeks to acquire direct or
indirect ownership or control of any voting shares of a bank or bank holding
company if, after such acquisition, Troy Financial would own or control,
directly or indirectly, 5% or more of any class of the voting shares of the bank
or bank holding company. Federal Reserve approval also must be obtained if a
bank holding company acquires all or substantially all the assets of a bank or
merges or consolidates with another bank holding company.
-19-
Bank holding companies are 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, and the Federal Reserve
has identified a limited number of such activities by order. These activities
include lending activities, certain data processing activities, and securities
brokerage and investment advisory services, trust activities and leasing
activities. A bank holding company must file a notice with the Federal Reserve
prior to acquiring more than 5% of the voting shares of a company engaged in
such activities. A bank holding company that is well capitalized and well
managed and meets other conditions may provide notice after making the
acquisition.
The Gramm-Leach-Bliley Act, effective March 11, 2000, amended the Bank Holding
Company Act and expanded the permissible activities of bank holding companies
under certain circumstances. In order to take advantage of the 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. Financial holding companies may 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 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.
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 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
State 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 and acquiring municipal and other investment
securities.
-20-
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' composite examination 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. At September 30, 2001, the
Savings Bank's ratio of Tier 1 capital to risk-weighted assets was 9.79%, its
ratio of tier 1 capital to risk-weighted assets was 13.64%, and its ratio of
tier 1 capital to average total assets was 14.90%. At September 30, 2001, the
Commercial Bank's ratio of Tier 1 capital to risk-weighted assets was 38.38%,
its ratio of tier 1 capital to risk-weighted assets was 159.58%, and its ratio
of tier 1 capital to average total assets was 159.58%. 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. The Gramm-Leach-Bliley Act expanded the permissible activities of
national banks to include activities that are permissible for bank holding
companies, as noted above, other than insurance underwriting, merchant banking
and real estate development or investment activities.
The FDIC and the NYSBD have 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 their 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 payments on the FICO bonds for the quarter
beginning on October 1, 2001 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
-21-
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 also are restricted in the
loans they may make to their executive officers and directors, and the executive
officers and directors of Troy Financial, any owner of 10% or more of their
stock or the stock of Troy Financial, 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, an insured institution is
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 has the highest composite examination rating 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 less than 8%, or a Tier 1 risk-based ratio less than 4% and a
leverage ratio less than 4% (3% if the institution has the highest composite
examination rating 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 less
than 6%, Tier 1 risk-based capital ratio less than 3% or a leverage ratio less
than 3%, and (v) "critically undercapitalized" if the institution has a ratio of
tangible equity to total assets 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).
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 for the Banks would be the FDIC. 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 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.
At September 30, 2001, each Bank was classified as a "well capitalized"
institution.
The Banks are not permitted to pay dividends if, as the result of the payment,
they would become undercapitalized, as defined under the FDIC's prompt
corrective action regulations. 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 determined that the Bank is
in an unsafe or unsound condition or was 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 a
reserve of 3% must be maintained against aggregate transaction accounts up to
$42.8 million and 10% against aggregate transaction accounts in excess of that
amount. The first $5.5 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 the 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, 5.0% of its advances from the
FHLB of New York, or 0.3% of total assets. At September 30, 2001, the Savings
Bank was in compliance with this requirement and owned $8.0 million of FHLB of
New York common stock.
-22-
Advances from the FHLB of New York are secured by a member's shares of the
capital stock of 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, 2001, the Savings
Bank had $150.0 million of outstanding advances from the FHLB of New York.
Effective July 1, 2001, all financial institutions, including the Company and
the Banks, were required to establish procedures and practices to protect
customer data. The Company does not sell personal information to anyone. By law,
the Company is permitted to share experience, transaction and other personal
data such as information obtained from applications or credit reporting agencies
with our affiliates and other third parties to allow them to provide products
and services of interest its customers. The customer, however has the option to
direct the Company not to share such personal information except that which is
permitted by law.
As part of the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot Act"),
signed into law on October 26, 2001, Congress adopted the International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001 ("IMLAFATA").
IMLAFATA authorizes the Secretary of the Treasury, in consultation with the
heads of other government agencies, to adopt special measures applicable to
banks, bank holding companies, or other financial institutions. These measures
may include enhanced recordkeeping and reporting requirements for certain
financial transactions that are of primary money laundering concern, due
diligence requirements concerning the beneficial ownership of certain types of
accounts, and restrictions or prohibitions on certain types of accounts with
foreign financial institutions. Covered financial institutions also are barred
from dealing with foreign "shell" banks. In addition, IMLAFATA expands the
circumstances under which funds in a bank account may be forfeited and requires
covered financial institutions to respond under certain circumstances to
requests for information from federal banking agencies within 120 hours.
Treasury regulations implementing the due diligence requirements must be issued
no later than April 24, 2002. Whether or not regulations are adopted, the law
becomes effective July 23, 2002. Additional regulations are to be adopted during
2002 to implement minimum standards to verify customer identity, to encourage
cooperation among financial institutions, federal banking agencies, and law
enforcement authorities regarding possible money laundering or terrorist
activities, to prohibit the anonymous use of "concentration accounts," and to
require all covered financial institutions to have in place a Bank Secrecy Act
compliance program. IMLAFATA also amends the Bank Holding Company Act and the
Bank Merger Act to require the federal banking agencies to consider the
effectiveness of a financial institution's anti-money laundering activities when
reviewing an application under these acts. THE COMPANY HAS IN PLACE A BANK
SECRECY ACT COMPLIANCE PROGRAM, AND IT ENGAGES IN VERY FEW TRANSACTIONS OF ANY
KIND WITH FOREIGN FINANCIAL INSTITUTIONS OR FOREIGN PERSONS.
EMPLOYEES
At September 30, 2001, the Company had 276 full-time employees and 30 part-time
employees. The Company's employees are not presently represented by any
collective bargaining group.
-23-
ITEM 2. PROPERTIES
The Company currently conducts its business through 21 full-service banking
offices. The following table sets forth certain information on the Company's
offices as of September 30, 2001.
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NET BOOK VALUE
OF PROPERTY OR
DATE OF ORIGINAL LEASEHOLD
LEASED OR LEASE YEAR LEASED IMPROVEMENTS AT
LOCATION ADDRESS OWNED EXPIRATION OR ACQUIRED SEPTEMBER 30, 2001
(In thousands)
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HEADQUARTERS: 32 Second Street Owned N/A 1871 $ 4,009
Troy Office Troy, NY 12180
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OPERATIONS CENTER: 433 River St. Leased 8/31/04 1993 433
Troy Troy, NY 12180
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TRUST SERVICES: 50 Second Street Owned N/A 1989 226
Troy Troy, NY 12180
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BRANCH OFFICES:
Hudson Valley Plaza 75 Vandenburgh Avenue Leased 12/31/05 1983 15
Troy, NY 12180
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East Greenbush 615 Columbia Pike Owned N/A 1969 265
East Greenbush, NY 12061
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Albany 120 State Street Owned N/A 1995 1,628
Albany, NY 12207
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Watervliet 1601 Broadway Leased 3/1/03 1983 20
Watervliet, NY 12189
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Latham 545 Troy-Schenectady Rd Leased 6/30/04 1989 362
Latham, NY 12110
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Colonie 103 Wolf Road Leased 3/31/07 1994 22
Colonie, NY 12205
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Guilderland 1704 Western Avenue Leased 6/9/07 1997 275
Guilderland, NY 12203
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Schenectady 1626 Union Street Owned N/A 1987 228
Schenectady, NY 12309
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Clifton Park/Halfmoon 2 Tower Way Owned N/A 1999 1,048
Clifton Park, NY 12065
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Quaker Road 44 Quaker Road Owned N/A 1995 1,615
Queensbury, NY 12804
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Queensbury Office 739 Upper Glen Street Leased 9/30/04 1979 91
Queensbury, NY 12804
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Whitehall Office 184 Broadway Owned N/A 1971 230
Whitehall, NY 12887
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Wyantskill 86 Main Avenue Owned N/A 1999 1,273
Wynantskill, NY 12198
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Catskill 341 Main Street Owned N/A 2000 554
Catskill, NY 12414
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Greenville Route 32 Bryant's Super
Market Leased 10/27/07 2000 181
Greenville, NY 12083
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Middleburgh Route 30 & Mill Lane Owned N/A 2000 480
Middleburgh, NY 12122
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Oak Hill Route 145, P.O. Box D Owned N/A 2000 376
Oak Hill, NY 12460
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Ravena Route 9W, P.O. Box 397 Owned N/A 2000 247
Ravena, NY 12143
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West Side 245 West Bridge Street Owned N/A 2000 543
Catskill, NY 12414
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Windham Route 296, P.O. Box 1001 Owned N/A 2000 526
Windham, NY 12496
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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.
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". The following
table sets forth the market prices for the Common Stock for the periods
indicated.
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HIGH LOW DIVIDEND
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2000
1st quarter $ 11.500 $ 9.938 $ .05
2nd quarter 10.250 8.688 .05
3rd quarter 10.625 9.188 .06
4th quarter 11.938 9.625 .07
2001
1st quarter 13.688 11.625 .08
2nd quarter 15.750 14.875 .08
3rd quarter 19.500 14.750 .10
4th quarter 22.900 17.560 .10
==========================================================================
The closing price of the Common Stock on September 30, 2001 was $21.14. The
approximate number of holders of record of the Company's Common Stock on
December 26, 2001 was 4,046.
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, 2001, 2000, 1999, 1998 and 1997:
- ------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
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AT SEPTEMBER 30, 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA:
Total assets $1,161,578 $ 922,028 $ 915,096 $ 716,649 $ 662,448
Loans receivable, net 746,450 586,846 556,142 457,321 468,160
Securities available for sale
(fair value) 248,469 266,750 280,871 197,758 117,552
Investment securities held to maturity
(amortized cost) 2,130 2,301 2,534 3,483 4,000
Deposits 808,518 555,972 563,373 578,202 572,397
Borrowings 162,971 178,808 148,933 47,464 4,728
Shareholders' equity 164,746 167,278 180,439 71,029 71,542
============================================================================================================
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- ---------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
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(Dollars in thousands, except share and
per share data) 2001 2000 1999 1998 1997
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SELECTED OPERATING DATA:
Interest and dividend income $ 71,213 $ 57,506 $ 51,802 $ 48,030 $ 48,287
Interest expense 32,709 24,358 23,782 24,193 23,351
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Net interest income 38,504 33,148 28,020 23,837 24,936
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Provision for loan losses 1,498 2,563 3,250 4,050 3,900
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Net interest income after
provision for loan losses 37,006 30,585 24,770 19,787 21,036
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Non-interest income:
Service charges on deposits 1,611 1,076 892 858 822
Loan servicing fees 400 504 523 432 460
Trust service fees 839 704 665 459 362
Net (losses) gains from securities transactions (105) (283) 17 8 4
Net gains (losses) from mortgage loan sales 68 (45) 245 76 14
Other income 2,420 1,723 705 719 1,075
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Total non-interest income 5,233 3,679 3,047 2,552 2,737
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Non-interest expenses:
Compensation and employee benefits 14,777 12,587 10,839 10,218 9,573
Occupancy 2,362 1,972 2,094 2,101 2,089
Furniture, fixtures, and equipment 949 802 728 1,080 901
Computer charges 1,869 1,647 1,508 1,424 1,322
Professional, legal and other fees 1,242 1,222 1,205 924 726
Printing, postage and telephone 858 904 707 614 559
Other real estate expenses (income) net 121 (241) 781 1,087 380
Goodwill and other intangibles amortization 1,485 48 47 47 47
Contributions 159 205 4,706 4,759 102
Merger related integration costs 1,972 -- -- -- --
Other expenses 3,095 3,054 3,210 2,837 2,840
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Total non-interest expenses 28,889 22,200 25,825 25,091 18,539
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Income (loss) before income tax expense 13,350 12,064 1,992 (2,752) 5,234
(benefit)
Income tax expense (benefit) 4,276 3,454 (85) (1,874) 1,576
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Net income (loss) $ 9,074 $ 8,610 $ 2,077 $ (878) $ 3,658
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SHARE AND PER SHARE DATA:
Basic earnings per share $ 1.00 $ .86 $ .32(1) -- --
Diluted earnings per share .96 .86 .32(1) -- --
Book value per share 16.73 15.76 14.86 -- --
Tangible book value per share 13.55 15.72 14.83 -- --
Market value at period end 21.14 11.75 10.81 -- --
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Average shares outstanding, diluted 9,414,783 10,066,577 11,526,139 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Earnings per share calculations do not include earnings prior to initial
public offering on March 31, 1999.
(Continued on following page)
-26-
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AT OR FOR THE YEARS ENDED SEPTEMBER 30, 2001 2000 1999 1998 1997
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SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets .97%(1) 1.02% 0.57%(2) 0.27%(3) 0.55%
Return on average equity 6.14(1) 5.02 3.43 (2) 2.49 (3) 5.22
Average equity to average total assets 15.82 20.37 16.60 10.80 10.57
Equity to total assets (period end) 14.18 18.14 19.72 9.91 10.80
Average interest earning assets to average
interest bearing liabilities 118.36 130.31 122.89 113.96 112.29
Net interest rate spread(4) 3.57 3.46 3.17 3.32 3.50
Net interest rate margin(5) 4.19 4.39 3.89 3.84 3.96
Efficiency ratio(6) 58.59(1) 57.83 64.92(2) 71.22(3) 65.48
Operating expenses to average assets
assets ratio 2.54(1) 2.66 2.64(2) 2.88(3) 2.74
ASSET QUALITY RATIOS:
Non-performing loans to total loans .43 0.94 1.39 2.50 1.84
Non-performing assets to total assets .30 0.75 1.06 1.89 1.72
Allowance for loan losses to total loans 1.88 1.99 1.90 1.77 1.35
Allowance for loan losses to non-performing
loans 441.15 210.35 136.55 70.91 73.77
REGULATORY CAPITAL RATIOS (CONSOLIDATED):
Leverage capital 12.28 19.88 21.21 9.89 10.64
Tier I risk-based capital 17.56 25.01 28.71 14.02 15.01
Total risk-based capital 18.83 26.28 29.96 15.27 16.37
OTHER DATA:
Full-service banking offices 21 14 14 14 13
Number of deposit accounts 91,129 64,614 68,117 70,057 70,185
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(1) Excludes $2.0 million of merger related integration costs due to the
acquisition of Catskill Financial Corporation.
(2) Excludes cost of $4.1 million stock contribution to The Troy Savings Bank
Community Foundation.
(3) Excludes cost of $4.5 million cash contribution to The Troy Savings Bank
Charitable Foundation.
(4) Net interest rate spread represents the difference between the tax
equivalent yield on average interest earning assets and the rate on average
interest-bearing liabilities.
(5) Net interest rate margin represents tax equivalent net interest income as a
percentage of average interest earning assets.
(6) The efficiency ratio represents non-interest expenses less other real
estate owned expense (income), divided by the sum of net interest income on
a tax equivalent basis and non-interest income, excluding gains and losses
on securities.
-27-
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THREE MONTHS ENDED SEPT 30, JUNE 30, MARCH 31, DEC 31, SEPT 30, JUNE 30, MARCH 31, DEC 31,
(In thousands, except per share data ) 2001 2001 2001 2000 2000 2000 2000 1999
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Interest and dividend income $17,642 $18,118 $18,384 $17,069 $14,742 $14,380 $14,340 $14,044
Interest expense 7,744 8,314 8,637 8,014 6,228 5,965 6,256 5,909
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Net interest income 9,898 9,804 9,747 9,055 8,514 8,415 8,084 8,135
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Provision for loan losses 366 366 400 366 756 469 538 800
Total non-interest income 1,391 1,435 1,275 1,132 1,059 794 675 1,151
Total non-interest expenses 6,867 6,979 6,823 8,220 5,477 5,436 5,400 5,887
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Income before income tax expense 4,056 3,894 3,799 1,601 3,340 3,304 2,821 2,599
Income tax expense 1,388 1,272 1,249 367 978 1,005 752 719
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Net income $ 2,668 $ 2,622 $ 2,550 $ 1,234 $ 2,362 $ 2,299 $ 2,069 $ 1,880
====================================================================================================================================
Basic earnings per share $ 0.30 $ 0.29 $ 0.28 $ 0.13 $ 0.25 $ 0.23 $ 0.21 $ 0.18
Diluted earnings per share 0.29 0.28 0.27 0.13 0.25 0.23 0.21 0.18
====================================================================================================================================
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 2001
Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The required information is incorporated herein by reference from Troy
Financial's 2001 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated herein by reference from Troy
Financial's 2001 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 14, 2002 (the "Proxy Statement"), which will be filed with
the Securities and Exchange Commission within 120 days of Troy Financial's 2001
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
The information required is incorporated herein by reference from the Proxy
Statement.
-28-
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 Financial Condition -- September 30, 2001
and 2000.
Consolidated Statements of Income -- Years Ended September 30, 2001,
2000, and 1999.
Consolidated Statements of Changes in Shareholders' Equity -- Years
Ended September 30, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows -- Years Ended September 30,
2001, 2000 and 1999.
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 (Filed
as Exhibit 3.2 to Troy Financial's Form 10-K
for the fiscal year ended September 30, 2000
and incorporated herein by reference).
4.1 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 Form 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).
-29-
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).
10.6 Form of Employment Agreement by and among The
Troy Savings Bank, Troy Financial and David
J. DeLuca (filed as exhibit 10.1 to Troy
Financial's Form 10-Q for the quarter ended
March 31, 2001 and incorporated herein by
reference).
10.7 Agreement and Plan of Merger, dated as of
June 7, 2000, by and among Troy Financial
Corporation, Charlie Acquisition Corporation
and Catskill Financial Corporation
(incorporated herein by reference to Exhibit
10 to Troy's Form 10-Q, File No. 000-25439,
filed with the Securities and Exchange
Commission on August 11, 2000).
13 Portions of Troy Financial's 2001 Annual
Report.
21 Subsidiaries of Troy Financial.
23 Consent of KPMG LLP.
(d) There are no other financial statements and financial statement schedules,
which were excluded from the Annual Report which are required to be
included herein.
- ------------
-30-
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, 2001
/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. /s/ David J. DeLuca
-------------------------- -------------------
Daniel J. Hogarty, Jr. David J. DeLuca
President, Chief Executive Officer Chief Financial Officer (Principal
and Chairman (Principal Executive Officer) Financial Officer)
Date: December 28, 2001 Date: December 28, 2001
/s/ George H. Arakelian /s/ Thomas B. Healy
----------------------- -------------------
George H. Arakelian, Director Thomas B. Healy, Director
Date: December 28, 2001 Date: December 28, 2001
/s/ Wilbur J. Cross /s/ Keith D. Millsop
-------------------- --------------------
Wilbur J. Cross, Director Keith D. Millsop, Director
Date: December 28, 2001 Date: December 28, 2001
/s/ Richard B. Devane /s/ Edward G. O'Haire
--------------------- ---------------------
Richard B. Devane, Director Edward G. O'Haire, Director
Date: December 28, 2001 Date: December 28, 2001
/s/ Michael E. Fleming /s/ Marvin L. Wulf
---------------------- ------------------
Michael E. Fleming, Director Marvin L. Wulf, Director
Date: December 28, 2001 Date: December 28, 2001
/s/ Willie A. Hammett
---------------------
Willie A. Hammett, Director
Date: December 28, 2001
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