-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mb5GBYEzIDVIqdarGxP5ek199cqsxZ4LYlblDJpCol4CYlPQhCmmSqJ3Aq0bLgQs +UK2JKqOPVqsX0bgXPAvoQ== 0000906197-97-000014.txt : 19970329 0000906197-97-000014.hdr.sgml : 19970329 ACCESSION NUMBER: 0000906197-97-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN BANCORP INC CENTRAL INDEX KEY: 0000351521 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 363114735 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10275 FILM NUMBER: 97567671 BUSINESS ADDRESS: STREET 1: 234 GLEN ST CITY: GLENS FALLS STATE: NY ZIP: 12801 BUSINESS PHONE: 5187921151 MAIL ADDRESS: STREET 1: 234 GLEN STREET CITY: GLENS FALLS STATE: NY ZIP: 12801 FORMER COMPANY: FORMER CONFORMED NAME: FIRST GLEN BANCORP INC DATE OF NAME CHANGE: 19860514 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission File No.: 0-10275 EVERGREEN BANCORP, INC. (Exact name of Registrant as specified in its Charter) DELAWARE 36-3114785 (State of incorporation) (I.R.S. Employer Identification No.) 237 Glen Street, Glens Falls, New York 12801 (Address of principal executive offices) (Zip Code) (518) 792-1151 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered NONE Nasdaq National Market System Securities registered pursuant to Section 12(g) of the Act: Common Stock, $ 3 1/3 Par Value (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. ___ 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 ___ The aggregate market value of the Registrant's common stock (based upon the average of the bid and asked prices on February 28, 1997) held by non- affiliates was approximately $132.0 million, excluding 829 thousand shares held by affiliates of the registrant. The number of shares of Registrant's Common Stock outstanding on February 28, 1997 was 9,044,690. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1996(Parts I, II and IV). (2) Portions of the Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders to be filed within 120 days of the Registrant's fiscal year-end (Part III). PART I EVERGREEN BANCORP, INC. ITEM 1. Description of Business GENERAL Evergreen Bancorp, Inc. ("Registrant" or "Evergreen") is a Delaware Corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act") having its principal place of business at 237 Glen Street, Glens Falls, New York. Evergreen commenced business under its former name of First Glen Bancorp on November 3, 1980. Evergreen adopted its current name on April 23, 1986. The Registrant conducts substantially all of its business through its sole banking subsidiary, Evergreen Bank, N.A. (the "Bank"). Its predecessor bank, The First National Bank of Glens Falls, was originally organized as a state-chartered bank in New York State in 1853, and was converted to a national bank in 1865. Today, the Bank is regulated by the Office of the Comptroller of the Currency ("OCC"). The deposits of Evergreen Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent permitted by law. See "Supervision and Regulation." The Bank's principal offices are in Glens Falls, New York, and it has 25 banking offices in 7 counties of upstate New York. At December 31, 1996, Evergreen Bank had total assets of approximately $920.1 million, total deposits of approximately $800.9 million, and total stockholders' equity of approximately $81.4 million. Evergreen and its principal bank subsidiary derive substantially all of their revenue and income from the furnishing of bank and bank-related services. Evergreen functions primarily as the holder of stock of its subsidiaries and assists the management of its subsidiaries as appropriate. The Bank conducts a general commercial banking and trust business at 25 locations in upstate New York, concentrated in three principal regions generally known as Glens Falls, Plattsburgh and Albany. Through the Bank, Evergreen provides a variety of banking services to individuals, partnerships, corporations, municipalities and government entities in New York State. Such banking services include accepting deposits, making loans; checking and NOW accounts; business, agricultural, real estate, home improvement, automobile and other personal loans; letters of credit; home equity lines of credit; safe deposit boxes; wire transfer facilities; and access to automated teller machines. The Bank operates as a typical community banking institution, and does not currently engage in any specialized finance or capital market activities, or hold any credit card assets, although management may re- enter the credit card business in the future. In 1996, the Bank formed a new wholly owned subsidiary as a real estate investment trust to hold certain residential and commercial loans, which are serviced and otherwise managed by the Bank. The Bank engages in various finance functions for municipalities and governmental entities located within its geographic markets. Municipal deposits comprise a larger proportion of total deposits than most banks in its peer group, consequently the municipal business is relatively significant to the Bank. Evergreen is a legal entity separate and distinct from its subsidiaries. The right of Evergreen to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior claims of creditors of the subsidiary, except to the extent that claims, if any, of Evergreen itself as a creditor may be recognized. See "Supervision and Regulation -- Payment of Dividends". GOVERNMENT MONETARY POLICY The Bank is affected by the credit policies of monetary authorities, including the Board of Governors of the Federal Reserve System. An important element of the Federal Reserve System is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve are open market operations in U.S. Government securities, changes in the discount rate, reserve requirements on member bank deposits, and funds availability regulations. The monetary policies of the Federal Reserve have in the past had a significant effect on the operations of financial institutions, including the Bank, and will continue to do so in the future. Changing conditions in the national economy and money markets, as well as the impact of actions by monetary and fiscal authorities, make it difficult to predict the effect of future changes in interest rates, deposit levels or loan demand on the business and income of the Bank. COMPETITION The Bank faces strong competition in its three principal market areas, both in attracting deposits and making loans. The Bank's most direct competition for deposits and trust services has historically come from other banks, savings institutions and credit unions located in the Bank's market areas. However, the Bank also faces significant non-banking competition from mutual funds, insurance companies, investment management firms, investment banking firms, broker dealers and a growing list of other investment alternatives. This has increased the competition for funds that historically would have been maintained as bank deposits. The Bank competes in this environment by providing a broad range of financial services, competitive interest rates and a personal level of service that, combined, tend to retain the loyalty of customers in its market areas against competitors with far larger resources than that of the Bank. To a lesser extent, convenience of branch locations and hours of operations are competitive advantages of the Bank in the Glens Falls and Plattsburgh regions. The Bank encounters significant competition for new loans, both commercial and consumer, from other commercial banks, including super- regional, money center and locally owned banks. In addition, savings banks, savings and loan associations, credit unions, mortgage bankers, mortgage brokers affiliated with nationally franchised real estate brokers, and other financial institutions compete actively for new loans. Competition for home mortgages in the past five years has been especially intense in the Bank's market areas. The Bank competes for new loans principally through the interest rates and fees it charges, the responsiveness of the Bank to its local markets, and the efficiency in which it provides loan services. Mergers among financial institutions have added competitive pressure. Competition is expected to intensify as a consequence of interstate banking laws now in effect in the majority of states which permit banking organizations to expand geographically. Further, the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 has generally removed the remaining restrictions on interstate acquisitions of banks and bank holding companies, effective June 1, 1997, or sooner. SUPERVISION AND REGULATION General. The Registrant is a bank holding company, registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve") under the BHC Act. As such, the Registrant and its subsidiaries are subject to the supervision, examination, and reporting requirements of the BHC Act and the regulations of the Federal Reserve. The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (i) it may acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, the bank holding company will directly or indirectly own or control more than 5.0% of the voting shares of the bank; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of the bank; or (iii) it may merge or consolidate with any other bank holding company. The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be to substantially lessen competition in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues including the parties' performance under the Community Reinvestment Act of 1977 (the "CRA"), both of which are discussed below. The BHC Act prohibits the Federal Reserve from approving a bank holding company's application to acquire a bank or bank holding company located outside the state in which the deposits of its banking subsidiaries were greatest on the date the company became a bank holding company (New York in the case of the Registrant), unless such acquisition is specifically authorized by statute of the state in which the bank or bank holding company to be acquired is located. New York has adopted national reciprocal interstate banking legislation permitting New York- based bank holding companies to acquire banks and bank holding companies in other states and allowing bank holding companies located in states with reciprocal legislation to acquire New York banks and bank holding companies. Under the provisions of the Riegle-Neal Interstate Banking and Branching and Efficiency Act of 1994 (the "Interstate Banking Act"), 1994, the existing restrictions on interstate acquisitions of banks by bank holding companies, including the reciprocal interstate banking legislation adopted by the state of New York, have been repealed. This allows the Registrant and any other bank holding company located in New York to acquire a bank located in any other state, and a bank holding located outside New York is able to acquire any New York-based bank, in either case subject to certain deposit percentage and other restrictions. The Interstate Banking Act also generally provides that, after June 1, 1997, national and state-chartered banks may branch interstate through acquisitions of banks in other states. By adopting legislation prior to that date, a state has the ability to either "opt in" or to prohibit interstate branching altogether. The Registrant is also subject to the provisions of Article III-A of the New York State Banking Law. Among other things, Article III-A requires the approval of the New York Banking Department prior to the acquisition by a bank holding company of direct or indirect ownership or control of 10% or more of the voting stock of a banking institution, or the acquisition by a bank holding company directly or indirectly through a subsidiary of all or substantially all of the assets of a banking institution, or a merger or consolidation with another bank holding company. The BHC Act generally prohibits the Registrant from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. For example, factoring accounts receivable, acquiring or servicing loans, leasing personal property, conducting discount securities brokerage activities, performing certain data processing services, acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions, and performing certain insurance underwriting activities all have been determined by the Federal Reserve to be permissible activities of bank holding companies. The BHC Act does not place territorial limitations on permissible non-banking bank-related activities of bank holding companies. Despite prior approval, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company. The Bank, the single subsidiary bank of the Registrant, is a member of the FDIC, and as such, its deposits are insured by the FDIC to the extent provided by law. The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities, and operations, and it is supervised and examined by one or more federal bank regulatory agencies. Because the Bank is a national bank, it is subject to supervision and regulation by the OCC. The OCC regularly examines the operations of the subsidiary bank and has authority to approve or disapprove mergers, consolidations, the establishment of branches, and similar corporate actions. The OCC also has the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. The Bank is subject to the provisions of the CRA. Under the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with its examination of a subsidiary institution, to assess such institution's record in meeting the credit needs of the community served by that institution, including those of low and moderate-income neighborhoods. The regulatory agency's assessment of the institution's record is made available to the public. Further, such assessment is required of any institution which has applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage for a newly chartered institution; (iii) establish a new branch office that will accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the records of each subsidiary institution of the applicant bank holding company, and such records may be the basis for denying the application. An institution's CRA rating will continue to be taken into account by its regulator in considering various types of applications. In addition, an institution receiving a rating of "substantial noncompliance" is subject to civil money penalties or a cease and desist order under Section 8 of the Federal Deposit Insurance Act (the "FDIA"). CRA remains a critical component of the regulatory examination process. CRA examination results and related concerns have been cited as a reason to reject and or modify branching and merger applications by various federal and state banking agencies. Payment of Dividends. The Registrant is a legal entity separate and distinct from the Bank and its other subsidiaries. The principal source of cash flow of the Registrant, including cash flow to pay dividends to its stockholders, is dividends from the Bank. The subsidiary bank is required by the OCC to obtain prior approval for the payment of dividends to the Registrant if the total of all dividends declared by such subsidiary bank in any year would exceed the total of such bank's net profits (as defined and interpreted by regulation) for that year and the retained net profits (as defined) for the preceding two years, less any required transfers to surplus. There are also other statutory and regulatory limitations on the payment of dividends by the Bank to the Registrant as well as the Registrant to its stockholders. Without receiving dividends from the Bank the Registrant would not be in a position to pay dividends to its stockholders. If, in the opinion of a federal regulatory agency, an institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the institution, could include the payment of dividends), such agency may require, after notice and a hearing, that such institution cease and desist from such practice. The Federal Reserve, the OCC, and the FDIC, have indicated that paying dividends that deplete an institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), an insured institution may not pay any dividend if it is undercapitalized, or if such payment would cause it to become undercapitalized. See "Prompt Corrective Action." Moreover, the Federal Reserve, the OCC, and the FDIC have issued policy statements which provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. At December 31, 1996, under dividend restrictions imposed under federal and state laws, the Bank, without obtaining governmental approvals, could declare aggregate dividends to the Registrant of approximately $7.0 million, provided that the Bank would then be in compliance with one or more minimum capital requirements. Moreover, federal bank regulatory authorities also have the general authority to limit the dividends paid by insured banks if such payments may be deemed to constitute an unsafe and sound practice. Transactions With Affiliates. There are various regulatory restrictions on the extent to which the Registrant and its non-bank subsidiaries can borrow or otherwise obtain credit from the subsidiary bank. The Bank (and its subsidiaries) is limited in engaging in borrowing and other "covered transactions" with non-bank or non-savings bank affiliates to the following amounts: (i) in the case of any such affiliate, the aggregate amount of covered transactions of the subsidiary bank and its subsidiaries may not exceed 10% of the capital stock and surplus of such subsidiary bank; and (ii) in the case of all affiliates, the aggregate amount of covered transactions of the subsidiary bank and its subsidiaries may not exceed 20% of the capital stock and surplus of such subsidiary bank. "Covered transactions" are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve), the acceptance of securities issued by the affiliate as collateral for a loan and the issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. Covered transactions are also subject to certain collateralization requirements. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie- in arrangements in connection with any extension of credit, lease, or sale of property or furnishing of services. Capital Adequacy. The Registrant and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve in the case of the Registrant, and the OCC in the case of the subsidiary bank. There are two basic measures of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve: a risk-based measure and a leverage measure. All applicable capital standards must be satisfied for a bank holding company to be considered in compliance. The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. As to the holding company, the Registrant, the minimum guideline for the ratio of total capital ("Total Capital") to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8.0%. At least half of the Total Capital must be composed of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder may consist of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. At December 31, 1996, the Registrant's consolidated Tier 1 Capital and Total Capital ratios were 13.7% and 14.9%, respectively. In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets (the "leverage ratio"), of 3.0% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a leverage ratio of at least 3.0% plus an additional cushion of 100 to 200 basis points. The Registrant's leverage ratio at December 31, 1996 was 9.2%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a banking institutions "tangible Tier 1 Capital leverage ratio" (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or new activities. Evergreen Bank is subject to risk-based and leverage capital requirements adopted by the OCC which substantially mirror the requirements of the holding company. The Bank's capital ratios are substantially similar to those of the Registrant and as such is also in compliance with all applicable ratios. Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. See "Prompt Corrective Action." The federal bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. In this regard, the Federal Reserve and the OCC have, pursuant to FDICIA, adopted an amendment to the risk-based capital standards which would calculate the change in an institution's net economic value attributable to increases and decreases in market interest rates and would require banks with excessive interest rate risk exposure to hold additional amounts of capital against such exposures. Support of Subsidiary Bank. Under Federal Reserve policy, the Registrant is expected to act as a source of financial strength to, and to commit resources to support, the subsidiary bank. This support may be required at times when, absent such Federal Reserve policy, the Registrant may not be inclined to provide it. In addition, any capital loans by a bank holding company to the subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Under the FDIA, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with: (i) the default of a commonly controlled FDIC-insured depository institution; or (ii) any assistance provided by the FDIC to any commonly controlled FDIC- insured depository institution "in danger of default." The FDIC's claim for damages is superior to claims of stockholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors, and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The Bank is subject to these cross-guarantee provisions. As a result, any loss suffered by the FDIC in respect of the Bank would likely result in assertion of the cross-guarantee provisions superior to the claims of the parent holding company. Prompt Corrective Action. FDICIA establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, which became effective on December 19, 1992, the federal banking regulators are required to establish five capital categories ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized") and to take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the FDICIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category. 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. Under FDICIA, a bank holding company must guarantee that a subsidiary depository institution meet its capital restoration plan, subject to certain limitations. The obligation of a controlling bank holding company under FDICIA to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's assets or the amount required to meet regulatory capital requirements. The severity of the actions required to be taken by the appropriate federal banking authorities increases as an institution's capital position deteriorates. Among other actions, the mandates could include, under certain circumstances, requiring recapitalization of or a capital restoration plan by a depository institution, such as requiring the sale of new shares, a merger with (or sale to) another institution (or holding company), restricting certain transactions with banking affiliates, otherwise restricting transactions with bank or non-bank affiliates, restricting interest rates that the institution pays on deposits, restricting asset growth or reducing total assets, altering, reducing, or terminating activities, holding a new election of directors, dismissing any director or senior executive officer who held office for more than 180 days immediately before the institution became undercapitalized, employing qualified senior executive officers, or ceasing to accept deposits from correspondent depository institutions. Not later than 90 days after an institution becomes critically undercapitalized, the appropriate federal banking agency for the institution must appoint a receiver or, with the concurrence of the FDIC, a conservator, unless the agency, with the concurrence of the FDIC, determines that the purpose of the prompt corrective action provisions would be better served by another course of action. Thereafter, an institution's regulator must periodically reassess its determination to permit a particular critically undercapitalized institution to continue to operate and must appoint a conservator or receiver for the institution at the end of an approximately one year period following the institution's initial classification as critically undercapitalized unless a number of stringent conditions are met, including a determination by the regulator and the FDIC that the institution has positive net worth and a certification by such agencies that the institution is viable and not expected to fail. At December 31, 1996, Evergreen Bank had the requisite capital levels to qualify as well capitalized. Brokered Deposits. The FDIC has adopted regulations governing the receipt of brokered deposits. Under the regulations, a depository institution cannot accept, rollover, or renew brokered deposits unless (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. A depository institution that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee benefit accounts. Whether or not it has obtained such a waiver, an adequately capitalized depository institution may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates specified by regulation. There are no such restrictions on a depository institution that is well capitalized. Since Evergreen Bank had the requisite capital levels to qualify as well capitalized as of December 31, 1996, the Registrant believes the brokered deposits regulation has had no material effect on the funding or liquidity of Evergreen Bank. FDIC Insurance. Under the FDIC's risk related insurance assessment system, insured depository institutions maybe required to pay annual assessments to the FDIC. An institution's risk classification is based on assignment of the institution by the FDIC to one of three capital groups and to one of three supervisory subgroups. The three supervisory subgroups are group "A", financially solid institutions with only a few minor weaknesses, Group "B", institutions with weaknesses which, if uncorrected, could cause substantial deterioration of the institution and increased risk to the insurance fund and Group "C", institutions with a substantial probability of loss to the fund absent effective corrective action. The three capital categories are well capitalized; adequately capitalized; and undercapitalized. These three categories are substantially the as the prompt corrective action categories previously described, with the undercapitalized category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. As of May 31, 1995 the FDIC was able to determine that the Bank Insurance Fund ("BIF") obtained the desired reserve ratio (i.e., ratio of reserves to insured deposits) of 1.25%. As a result, FDIC insurance premiums were reduced in early 1996 to the point where Evergreen was required to pay only the minimum of $500 per quarter. On September 30 1996, legislation was passed recapitalizing the Savings Association Insurance Fund. Included in that legislation were provisions requiring members of the BIF to assist in the repayment of FICO bonds. The cost to Evergreen mandated by this legislation is anticipated to be at least $100,000 in 1997. Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Safety and Soundness Standards. Federal banking agencies promulgate safety and soundness standards relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits. With respect to internal controls, information systems, and internal audit systems, the standards describe the functions that adequate internal controls and information systems must be able to perform, including: (i) monitoring adherence to prescribed policies; (ii) effective risk management; (iii) timely and accurate financial, operational, and regulatory reporting; (iv) safeguarding and managing assets; and (v) compliance with applicable laws and regulations. The standards also include requirements that: (i) those performing internal audits be qualified and independent; (ii) internal controls and information systems be tested and reviewed; (iii) corrective actions be adequately documented; and (iv) that results of an audit be made available for review of management actions. Depositor Preference. The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution in the "liquidation or other resolution" of such an institution by any receiver. Legislative Proposals. Because of concerns relating to the competitiveness and the safety and soundness of the industry, Congress continues to consider a number of wide-ranging proposals for altering the structure, regulation, and competitive relationships of the nation's financial institutions. Among such bills are proposals to prohibit depository institutions and bank holding companies from conducting certain types of activities, to subject depository institutions to increased disclosure and reporting requirements, to alter the statutory separation of commercial and investment banking, and to further expand the powers of depository institutions, bank holding companies, and competitors of depository institutions. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of the Registrant may be affected thereby. NON-BANKING ACTIVITIES The Bank does not currently generate any significant revenues from non-banking activities, but it may subsequently engage in other permissible activities for registered bank holding companies when suitable opportunities develop. Any proposal for such further activities subject to approval by appropriate regulatory authorities. See "Supervision and Regulation". EMPLOYEES As of year-end 1996, Evergreen and its affiliates had a total of 398 employees on a full time equivalent basis. Evergreen considers its employee relations to be good. FOREIGN OPERATIONS Neither Evergreen nor Evergreen Bank engages in material operations in foreign countries or have any outstanding loans to foreign investors. The subsidiary bank maintains immaterial Canadian and other foreign bank accounts and currency levels for use in the ordinary course of business. STATISTICAL INFORMATION AND ANALYSIS The material under the heading "Financial Review" in the 1996 Annual Report is incorporated herein by reference as a presentation and discussion of statistical data relating to Evergreen. The information with respect to such tables should not be construed to imply any conclusions on the part of the management of Evergreen that the results, causes, or trends indicated therein will continue in the future. The nature and effects of governmental monetary policy, supervision and regulation, future legislation, inflation and other economic conditions and many other factors which affect interest rates, investments, loans, deposits and other aspects of Evergreen's operations are extremely complex and thus historical operations, earnings, assets, and liabilities are not necessarily indicative of future performance. See "Government Monetary Policy". STATISTICAL DISCLOSURE REQUIRED BY BANK HOLDING COMPANIES I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest rates and Interest Differential The information set forth on pages 15 through 17 of Registrant's 1996 Annual Report is incorporated herein by reference. II. Investment Portfolio The information set forth on page 20 of Registrant's 1996 Annual Report is incorporated herein by reference. III. Loan Portfolio The information set forth on pages 21 Registrant's 1996 Annual Report is incorporated herein by reference. Non-Performing Loans The information set forth on page 21 through 22 of Registrant's 1996 Annual Report is incorporated herein by reference. IV. Summary of Loan Loss Experiences The information set forth on page 18 of Registrant's 1996 Annual Report is incorporated herein by reference. V. Deposits The information set forth on page 24 of Registrant's 1996 Annual Report is incorporated herein by reference. VI. Return on Equity and Assets The information set forth on page 13 of Registrant's 1996 Annual Report is incorporated herein by reference. ITEM 2. Properties Registrant Registrant has six physical properties, which do not represent significant holdings. The office facilities of the Registrant are located at 237 Glen Street, Glens Falls, New York in a building owned by Evergreen Bank, N.A. Evergreen Bank, N.A. Evergreen Bank, N.A.'s main offices are also at 237 Glen Street, Glens Falls, New York. Evergreen Bank owns in fee the buildings where 20 of the Bank's offices are located. In addition, two offices are leased at the rate of $2,045 per month through October 31, 1997, and two properties are owned by the Registrant and leased to the Bank. Item 3. Legal Proceedings Evergreen is not presently involved in any material legal proceedings. The Bank is involved in a number of ordinary and routine legal proceedings which typically present, as one or more defenses by the borrower in a collection action, assertions of lender liability on the part of the Bank. In the aggregate, the Bank's legal proceedings involve claims which are not believed to be material to the financial condition of the Bank. ITEM 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to security holders during the fourth quarter of 1996. Identification of Executive Officers (pursuant to General Instruction G of Form 10-K) Executive Officers of the Registrant The following table sets forth certain information with respect to the executive officers of Registrant:
Officers with Executive Name Age Registrant or Bank Subsidiary Officer Since George W. Dougan 57 President and Chief 1994 Executive Officer of Evergreen Paul A. Cardinal 40 Executive Vice President 1995 and General Counsel of Evergreen Thomas C. Crowley 50 Executive Vice President 1994 Chief Credit Officer of Evergreen Anthony J. Koenig 58 Executive Vice President 1986 and Chief Administrative Officer of Evergreen George L. Fredette 37 Senior Vice President 1995 Chief Financial Officer of Evergreen Michael P. Brassel 55 Regional President 1981 Plattsburgh Region Jeffrey B. Rivenburg 49 Regional President 1994 Capital Region John M. Fullerton 47 Executive Vice President 1988 of Trust and Investment of Evergreen Bank
None of the individuals named in the above table as an officer of Registrant was selected to his/her position pursuant to any arrangement or understanding with any other person, nor are there any family relationships between them. Each of the above officers, except as noted below, has held the same or another executive position with Registrant, Evergreen Bank for the past five years. George W. Dougan was elected President and Chief Executive Officer of Evergreen and the Bank on March 10, 1994. Prior thereto he was Chairman of the Board for the Bank of Boston (Florida Division) from June 1992 and Senior Vice President and Director of Retail Banking, for the Bank of Boston, from June 1988 to June 1992. Paul A. Cardinal was elected Executive Vice President of Evergreen and the Bank in May 1995. For more than five years prior thereto he was General Counsel of Trans World Entertainment Corporation. Thomas C. Crowley was elected Executive Vice President and Chief Credit Officer of Evergreen and the Bank in May 1994. Prior thereto, he served as Senior Vice President for Trustco Bank New York from 1993 to 1994. Prior to 1993 he served as Executive Vice President and Chief Credit Officer for Fleet Bank of New York. Anthony J. Koenig was elected Executive Vice President and Chief Administrative Officer of Evergreen and the Bank in August 1993. He also served as Regional President of the Capital Region from January 1986 to January 1994. George L. Fredette was elected Senior Vice President Finance of Evergreen and the Bank, in November 1995. Prior thereto he was Vice President Finance for the Bank. Prior to joining Evergreen in 1993 he was Vice President and Chief Financial Officer of Schenectady Federal Savings and Loan Association. Michael P. Brassel was elected Regional President of the Bank's Plattsburgh Region in January 1990. Prior thereto he served as Executive Vice President and Cashier for Evergreen and the Bank since December, 1987. Jeffrey B. Rivenburg was elected as Regional President of the Bank's Capital Region October 1995. Prior thereto he was Executive Vice President Corporate Banking Services of Evergreen Bank since August 1993 and was Manager of Special Assets for Evergreen Bank from April 1993. Prior to joining Evergreen he was Corporate Banking Department Manager for First American Bank of New York. John M. Fullerton was elected Executive Vice President of Trust and Investments at Evergreen Bank in October 1993. Prior thereto he was Executive Vice President of Retail Banking Services at Evergreen Bank from June 1992 and Senior Vice President of Trust and Investment at Evergreen Bank prior thereto. Mr. Dougan is a director of Trans World Entertainment Corporation, a publicly traded specialty retailer traded on the NASDAQ National Market System. None of the other individuals named above holds a directorship with a company (except for the Registrant) registered pursuant to Section 12 of the Securities Exchange Act, or subject to the requirements of Section 15(d) of that Act, or with a company which is registered as an Investment Company under the Investment Company Act of 1940. PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information set forth on page 2 under caption "Common Stock Data" of the Registrant's 1996 Annual Report to stockholders is incorporated herein by reference. ITEM 6. Selected Financial Data The information set forth on page 13 under the caption "Summary of Selected Financial Data" of the Registrant's 1996 Annual Report is incorporated herein by reference. ITEM 7. Management's Discussion and Analysis of Financial Conditions and Results of Operation The information set forth on pages 14 through 25 of Registrant's 1996 Annual Report is incorporated herein by reference. ITEM 8. Financial Statements and Supplementary Data The information set forth on pages 26 through 46 of Registrant's 1996 Annual Report is incorporated herein by reference. 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 included under "Proposal One -- Election of Directors" in the Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, and under "Executive Officers of the Registrant" in Part I of this report, is hereby incorporated by reference. ITEM 11. Executive Compensation The information included under "Proposal One -- Election of Directors" in the Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, is hereby incorporated by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information included under "Proposal One -- Election of Directors" in the Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, is hereby incorporated by reference. ITEM 13. Certain Relationships and Related Transactions The information included under "Proposal One -- Election of Directors -- Certain Transactions" in the Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, is hereby incorporated by reference. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K The following consolidated financial statements of Registrant and its subsidiaries, and the accountants' report thereon, included on pages 26 through 46, inclusive, of Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1996, are incorporated herein by reference: Financial Statements: Consolidated Statements of Income -- Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Condition -- December 31, 1996 and 1995 Consolidated Statements of Changes in Stockholders' Equity -- Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Financial Statement Schedules (All financial statement schedules for Registrant and its subsidiaries have been omitted as the required information is included in the consolidated financial statements or the related notes thereto, is not required or is inapplicable.) The following exhibits are incorporated herein by reference: Exhibit 3(a) - Certificate of Incorporation (incorporated by reference to Registrant's Registration Statement on Form S-14, Registration No. 2-71111). Exhibit 3(b) - Bylaws (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 10(a)* - 1985 Incentive Stock Option Plan of the Registrant (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). Exhibit 10(b)* - 1989 Stock Incentive Plan of the Registrant (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). Exhibit 10(c)* - Deferred Compensation Plan (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). Exhibit 10(d)* - Evergreen Bancorp, Inc. Plan for the Payment and Deferral of Directors Fees (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). Exhibit 10(e)* - 1995 Incentive Stock Option Plan of the Registrant(incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 10(f)* - 1995 Directors Stock Option Plan of the Registrant(incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 10(g)* - Form of Change in Control Agreement (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). Exhibit 10(h)* - Severance Agreement, dated April 18, 1995, with Paul A. Cardinal (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). The following exhibits are submitted herewith: Exhibit 10(I)* - Employment Agreement dated as of December 19, 1996, between Registrant and George W. Dougan Exhibit 10(j)* - Supplemental Executive Retirement Plan Exhibit 11 - Computation of Net Income Per Common Share Exhibit 13 - Registrant's Annual Report to Stockholders for the year ended December 31, 1996 Exhibit 21 - Subsidiaries of Registrant Exhibit 23 - Consent of KPMG Peat Marwick to the use of its Report on the Consolidated Financial Statements of Registrant included in connection with previously filed registration statements of the Registrant. Exhibit 27 - Financial Data Schedule * Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of this report. The Registrant hereby agrees to furnish the Securities and Exchange Commission upon request, copies of instruments outstanding, including indentures, which define the rights of long-term debt security holders. No reports on Form 8-K were filed for the three months ended December 31, 1996. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EVERGREEN BANCORP, INC. (Registrant) By: /s/ George W. Dougan GEORGE W. DOUGAN President and Chief Executive Officer (Principal Executive Officer) March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signatures Titles Dates /s/ George W. Dougan Chairman of the Board 3/21/97 George W. Dougan of Directors /s/ George L. Fredette Senior Vice President 3/21/97 George L. Fredette (Chief Financial and Accounting Officer) /s/ John W. Bishop Director 3/21/97 John W. Bishop /s/ Carl R. DeSantis Director 3/21/97 Carl R. DeSantis /s/ Robert F. Flacke Director 3/21/97 Robert F. Flacke /s/Michael D. Ginsburg Director 3/21/97 Michael D. Ginsburg /s/Joan M. Mannix Director 3/21/97 Joan M. Mannix /s/Anthony J. Mashuta Director 3/21/97 Anthony J. Mashuta /s/Philip H. Morse Director 3/21/97 Phillip H. Morse /s/William E. Phillion Director 3/21/97 William E Philion /s/Alan R. Rhodes Director 3/21/97 Alan R. Rhodes /s/Floyd H. Rourke Director 3/21/97 Floyd H. Rourke /s/Paul W. Tomlinson Director 3/21/97 Paul W. Tomlinson /s/ Walter Urda Director 3/21/97 Walter Urda
EX-10 2 Exhibit 10 (i) EMPLOYMENT AGREEMENT By and Between EVERGREEN BANCORP, INC. and GEORGE W. DOUGAN TABLE OF CONTENTS Page BACKGROUND 2 1. Employment and Duties 2 2. Term 3 3. Extent of Service 3 4. Compensation 5 a. Base Compensation 5 b. Stock Options 6 5. Executive Benefits 7 6. Automobile Allowance 8 7. Termination by the Company 8 a. Death or Disability 8 b. Termination for Cause 9 c. Termination by Notice 10 8. Termination by the Executive 11 a. Termination with Good Reason 11 b. Termination without Good Reason 12 9. Effect of Termination 12 10. Covenant Not to Compete 13 a. Covenant 13 b. Change of Control 13 c. Injunctive Relief 13 d. Enforceability of Covenant 14 11. Covenant Not to Solicit 14 a. Special Value of Executive's Services 14 b. Non-Solicitation of Customers 15 c. Change of Control 15 d. Injunctive Relief 15 e. Enforceability of Covenant 16 12. Nondisclosure of Confidential Information 16 a. Confidential Information Defined 16 b. Nondisclosure of Confidential Information 16 c. Injunctive Relief 17 d. Enforceability of Covenants 17 13. Change in Control 17 a. Applicability 17 b. Definitions 18 c. Benefits upon Termination of Employment Following a Change in Control 23 i. Termination 23 ii. Benefits to be Provided 24 A. Salary 24 B. Bonuses 25 C. Health and Life Insurance Coverage 25 D. Executive Retirement Plans 26 E. Effect of Lump Sum Payment 26 F. Effect of Death or Retirement 27 G. Limitation on Amount 27 H. Modification of Amount 28 I. Avoidance of Penalty Taxes 28 J. Additional Limitation 28 K. Rabbi Trust 28 14. Regulatory Intervention 29 15. Indemnification 31 16. Litigation Expenses 32 17. Miscellaneous 32 a. Waiver 32 b. Severability 33 c. Assignability 33 d. Other Agents 33 e. Entire Agreement 33 f. Governing Law 34 g. Notices 34 h. Amendments and Modifications 34 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), dated December 19, 1996, becoming effective on the 7th day of March, 1997, is made by and between EVERGREEN BANCORP, INC. (hereinafter the "Company" and GEORGE W. DOUGAN (hereinafter "Executive"): W I T N E S S E T H: WHEREAS, Company and Executive entered into an Employment Agreement the 7th day of February, 1994 which Agreement remains in full force and effect and which Agreement has a term of 3 years and has a normal expiration date of March 6, 1997, and WHEREAS, Company has been eminently satisfied with the services of Executive and, WHEREAS, are willing to enter into a new Employment Agreement to become effective the 7th day of March, 1997 under the terms and conditions set forth below, NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereby mutually agree as follows: BACKGROUND Executive has indicated to the Company that he desires to enter into a new Employment Agreement with the Company that spells out the terms and conditions of his employment with the Company. The Company considers the establishment and maintenance of sound and vital management with a Chief Executive Officer to be essential to protecting and enhancing the best interests of the Company and its shareholders and accordingly, believes that appropriate steps should be taken to avoid distraction in circumstances arising from the possibility of a change in control of the Company. Therefore, the Company is willing to engage Executive and Executive is willing to serve the Company in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Employment and Duties. Executive will be employed as President and Chief Executive Officer of the Company. Executive's primary duties shall be those of President and Chief Executive Officer and such duties as may be assigned to him from time to time by the Board of Directors of the Company. 2. Term. The term of this Agreement shall commence on March 7, 1997, and shall continue until March 6, 2000, (the Original Term) unless earlier terminated as provided in Sections 7 or 8 of this Agreement. Provided that this Agreement shall be in full force and effect on March 7, 1999, without breach by Executive, this Agreement shall (without the need of any other signed writing) be extended for a period of one additional year, i.e., until March 6, 2001; and each March 7th after March 7, 1999, with the same proviso, this Agreement shall be similarly extended for a period of one additional year, unless either party gives written notice to the other no later than December 1 of the preceding year that the giver of notice does not elect to extend the term. No further extensions shall occur to extend this contact beyond the year in which Executive attains the age of 65, to wit: 2004. 3. Extent of Service. (a) During the term of this Agreement, Executive agrees to be a full-time executive officer of the Company and to devote his time, energy, and skill to the business of the Company and to the fulfillment of his obligations under this Agreement. During the term of this Agreement, Executive shall not engage in, or otherwise be interested in, directly or indirectly, any other business or activity that is in competition with the Company or that would result in a conflict of interest with the Company (unless such activity is approved by the Board of Directors), or that would materially affect Executive's ability to perform his duties as set forth in or contemplated by this Agreement. Executive's responsibilities for managing the Company shall be in accordance with the policies and objectives established by the Board of Directors, or in such other capacity involving duties and responsibilities at least equal in importance to those of a chief executive officer as the Board of Directors may from time to time determine. In any such capacity, Executive will report directly to the Company's Board of Directors. Executive will have the authorities, powers, functions, duties and responsibilities normally accorded to chief executive officers of comparable size bank holding companies. (b) Notwithstanding anything to the contrary contained in the provisions of Subsection 3(a) hereof, nothing in this Agreement shall preclude Executive from; (i) devoting reasonable periods of time to charitable and community activities, and from managing his personal or family investments, and (ii) serving on the Board of Directors of For- Profit or Not-For-Profit corporations or other forms of such entities, provided that the same does not result in a conflict of interest with the Company (unless such activity is approved by the Board of Directors), would conflict with any law, regulation or advice from examiners having jurisdiction over the Company's business, or would materially affect Executive's ability to perform his duties as set forth in or contemplated by this Agreement. (c) The members of the Board of Directors of the Company shall nominate and use their best efforts to secure the election of Executive as a director of the Company. (d) Executive shall not be required to perform his duties hereunder for more than sixty (60) working days in any calendar year, or for more than fourteen (14) consecutive days at any one time, at any office located in any other place than Glens Falls, New York. 4. Compensation. (a) Base Compensation. During the term of this Agreement, the Company agrees to pay Executive an annual base compensation of Three Hundred Seventeen Thousand Five Hundred Dollars ($317,500) (the "Base Compensation"), that sum being Executive's Base Compensation for the year 1996, less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company's payroll practices from time to time. The Company's Board of Directors shall review Executive's Base Compensation annually and in its sole discretion may adjust Executive's Base Compensation from year to year, but during the term of this Agreement the Board may not decrease Executive's Base Compensation below $317,500, Executive's Base Compensation for the year 1996, and periodic increases, once granted, shall not be subject to revocation during the term of this Agreement. The annual review of Executive's salary by the Board will consider, among other things, changes in the cost of living, Executive's own performance and the Company's performance. Any action or review by the Board may be delegated to the Compensation Committee thereof. (b) Stock Options. (i) Under the terms of the Employment Agreement of February 7, 1994 and as further compensation for the services of Executive hereunder, and provided Executive shall still be employed by the Company, the Company granted to Executive nonqualified stock options on the dates and upon the terms indicated below.
Dates of Number of Dates Grant Options Exercisable March 8, 1997 20,000 100% on March 7, 1998 March 8, 1998 20,000 100% on March 7, 1999
(ii) The Company has caused 40,000 shares to be available for the 1997 and 1998 option grants indicated above. (Note: The 1994 Agreement provided for two 10,000 share options to be granted on March 8, 1997 and March 8, 1998 respectively. The Board of Directors authorized a 100% stock dividend in late 1996 and that action necessitated adjusting the number of share options as reflected above.) (iii) Each option to purchase shares of the Company's common stock granted to Executive as described in Subsection 4(b) hereof shall contain the following provision, to the extent permitted under the 1995 Plan: In the event that the Executive's employment with the Company is terminated pursuant to paragraph 7(c) of this Employment Agreement dated as of March 7, 1997, between the Executive and the Company (the "Employment Agreement"), then this Option shall immediately become exercisable in full. 5. Executive Benefits. During the term of this Agreement, Executive shall be entitled to participate in all executive benefit plans including, but not limited to, the Company's Annual Short Term and Long Term Executive Incentive Plans, and to receive all of the fringe benefits which are generally available or provided to executive officers of the Company, which benefits shall include, for Executive, but not limited to, six weeks vacation in each calendar year, an office and a secretary. 6. Automobile Allowance. During the term of this Agreement, the Company will assume the lease payments currently being paid by Executive on the Acura Legend which he now drives. Upon expiration of such lease, the Company will for the remainder of the term of this Agreement, if any, provide Executive with an automobile allowance sufficient to cover the lease or purchase payments in an amount of not more than $850 per month. Company will procure and maintain liability, collision and comprehensive insurance on such vehicle providing coverage equal to or better than as exists currently. 7. Termination by the Company. (a) Death or Disability. In the event of Executive's death or disability (as defined below), this Agreement shall terminate immediately and the Company shall be obligated only to pay compensation or other benefits actually earned or accrued through such date, without prejudice to any other rights or benefits that Executive is entitled to as a consequence thereof. "Disability" means Executive's probable and expected inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. The determination of whether Executive suffers a Disability shall be made by a physician acceptable to both Executive (or his personal representative) and the Company. (b) Termination for Cause. The Company may terminate this Agreement and Executive's employment hereunder immediately for (i) any intentional acts or conduct by Executive involving moral turpitude; (ii) any gross negligence by Executive in complying with the terms of this Agreement or in performing his duties for the Company; (iii) any intentional act of dishonesty in the performance of his duties for the Company; (iv) deliberate and intentional refusal by Executive during the term of this Agreement, other than by reason of incapacity due to illness or accident, to obey lawful directives from the Board of Directors, or if Executive shall have breached any obligation under this Agreement and such breach of this Agreement shall result in a demonstrable, material injury to the Company, and Executive shall have failed to remedy such alleged breach within thirty (30) days from his receipt of written notice from the Secretary of the Company demanding that he remedy such alleged breach. For any claimed violation of this Subsection 7(b) there shall be delivered to Executive a certified copy of a resolution of the Board of Directors of the Company adopted by the affirmative vote of not less than that number of directors equal to two-thirds of the entire membership, whether or not present, at a meeting called and held for that purpose and at which Executive was given an opportunity to be heard, finding that Executive was responsible for the conduct set forth above. In the event of a termination pursuant to this Subsection 7(b), Executive will not be entitled to any further benefits or compensation under this Agreement except for compensation or benefits actually earned or accrued through the date of termination. (c) Termination by Notice. The Company shall have the additional right to terminate this Agreement and Executive's employment without cause by giving Executive written notice of termination. Such termination will be effective immediately upon receipt of notice by Executive or on such other date as is stated in the notice. In the event of a termination pursuant to this Subsection 7(c), Executive will be entitled only to (i) continuation of his Base Compensation under this Agreement for the remainder of the original (or any extended) term of this Agreement with a minimum period of eighteen (18) months severance benefit equal to (x) Executive's level of Base Compensation at the time of dismissal and (y) the continuation of related health, pension and other fringe benefits for a period of eighteen (18) months following termination. The Company's obligation under the provision in the preceding sentence shall not duplicate any payments otherwise required by Subsection 7(c). 8. Termination by the Executive. (a) Termination With Good Reason. Executive may terminate his employment if he determines, in good faith, that there has been a significant reduction in the authorities, powers, functions, duties or responsibilities assigned to him pursuant to Section 3, or because of any other material breach by the Company of the terms hereof. In the event of any such alleged breach, Executive shall specify by written notice, within a reasonable time not to exceed, except in the case of a continuing breach, thirty (30) days after the event giving rise to the notice, to the Company of the breach relied on for such termination. The Company shall have thirty (30) days from the receipt of such notice to cure such alleged breach. If Executive remains unsatisfied that the action taken by the Company cures the alleged breach the matter shall be determined by binding arbitration through an arbitrator approved by the American Arbitration Association or other arbitrator mutually acceptable to the parties. If the arbitrator determines that there was a breach and that it was not adequately cured within the time permitted, then Executive's employment hereunder shall be deemed terminated upon written notice to that effect given to the Company by Executive, and Executive shall thereupon be entitled to the benefits and remedies specified in Subsection 7(c) of this Agreement. (b) Termination Without Good Reason. In addition, Executive may terminate his employment without good reason at any time by giving thirty (30) days notice in writing. At the end of such notice period the Company will not owe Executive any compensation or benefits except as required by law or pursuant to the terms of Company's benefit plans applicable to all of Company's regular employees. 9. Effect of Termination. Notwithstanding any other provision of this Agreement, Executive agrees that upon termination of this Agreement pursuant to Section 7 hereof, he shall continue to be bound by the terms of Sections 10, 11 and 12 hereof. 10. Covenant Not to Compete. (a) Covenant. For a period of two (2) years following the expiration or termination of this Agreement for any reason, Executive shall not serve as an executive officer or director of a depository financial institution (including any holding company thereof) that is not an affiliate of the Company and that is located or has an office within a 50-mile radius of Glens Falls, New York. (b) Change of Control. The Covenant Not to Compete shall not be enforceable against the Executive in the event that either the Executive is terminated by the Company, other than for Cause, following a Change in Control or the Executive terminates his employment pursuant to Involuntary Termination following a Change in Control, all as provided or defined in Section 13 hereof. (c) Injunctive Relief. Executive acknowledges that through his employment with the Company he has and will have access to valuable confidential information of the Company as well as the opportunity to build good will among the Company's customer base and those of its subsidiary banks. Executive acknowledges that the covenant not to compete is a reasonable means of protecting and preserving the Company's investment in Executive, its confidential information and customer good will. Executive agrees that any breach of this covenant may result in irreparable damage and injury to the Company, and that the Company will be entitled to injunctive relief in any court of competent jurisdiction without the necessity of posting any bond. (d) Enforceability of Covenant. Executive and the Company agree that Executive's obligations under the covenant not to compete is separate and distinct from other provisions of this Agreement, and the failure or alleged failure of the Company to perform its obligations under any other provisions of this Agreement shall not constitute a defense to the enforceability of this covenant not to compete. 11. Covenant Not to Solicit. (a) Special Value of Executive's Services. The parties acknowledge: (i) that the Company is engaged in the business of banking throughout the northern part of the State of New York; (ii) that Executive's services under this Agreement require special expertise and talent in the area of management in the aforementioned business, (iii) that such expertise has been built up over the years; (iv) that Executive has been well compensated and will continue to be well compensated under this Agreement for the expertise and knowledge which he possesses; and (v) that due to Executive's special experience and talent, the loss of Executive's services to the Company under this Agreement cannot be reasonably or adequately compensated by damages in an action at law. (b) Non-Solicitation of Customers. For a period of two (2) years following the expiration or termination of this Agreement for any reason, Executive shall not attempt to solicit or accept, directly or by assisting others, any business from the customers or prospective customers of the Company [or its subsidiary banks] whom Executive has served or solicited on behalf of the Company during the course of his employment hereunder. (c) Change of Control. The Covenant Not to Solicit shall not be enforceable against the Executive in the event that either the Executive is terminated by the Company, other than for Cause, following a Change in Control or the Executive terminates his employment pursuant to Involuntary Termination following a Change in Control, all as provided or defined in Section 13 hereof. (d) Injunctive Relief. Executive acknowledges that the covenant not to solicit is a reasonable means of protecting and preserving the Company's investment in Executive. Executive agrees that any breach of this covenant may result in irreparable damage and injury to the Company, and that the Company will be entitled to injunctive relief in any court of competent jurisdiction without the necessity of posting any bond. (e) Enforceability of Covenant. Executive and the Company agree that Executive's obligations under the covenant not to solicit is separate and distinct from other provisions of this Agreement, and the failure or alleged failure of the Company to perform its obligations under any other provisions of this Agreement shall not constitute a defense to the enforceability of this covenant not to solicit. 12. Nondisclosure of Confidential Information. (a) Confidential Information Defined. As used in this Agreement, the term "Confidential Information" shall mean all information that is not generally disclosed or known to persons not employed by the Company, and shall include, without limitation, any customer lists or customer account information of the Company and any non-public matters concerning the financial affairs and management of the Company. (b) Nondisclosure of Confidential Information. Throughout the term of this Agreement and any renewal periods hereunder, and for a period of two (2) years following the expiration or termination of this Agreement, Executive shall not, either directly or indirectly, transmit or disclose any Confidential Information to any person, concern or entity. (c) Injunctive Relief. Executive acknowledges that the nondisclosure covenant is a reasonable means of protecting and preserving the Company's interests in the confidentiality of the Confidential Information. Executive agrees that any breach of such covenant may result in irreparable damage and injury to the Company and that the Company will be entitled to injunctive relief in any court of competent jurisdiction without the necessity of posting any bond. (d) Enforceability of Covenants. Executive and the Company agree that Executive's obligations under the nondisclosure covenant is separate and distinct from other provisions of this Agreement, and the failure or alleged failure of the Company to perform its obligations under any provisions of this Agreement shall not constitute a defense to the enforceability of the nondisclosure covenant. 13. Change in Control. (a) Applicability. The provisions of this Section 13 shall be effective immediately upon execution of this Agreement, but anything in this Agreement to the contrary notwithstanding, the provisions of this Section 13 shall not be operative unless, during the term of this Agreement, there has been a Change in Control of the Company, as defined in Subsection 13(b) below. Upon such a Change in Control of the Company during the term of this Agreement, all of the provisions of this Section 13 shall become operative immediately. (b) Definitions. "Board" or "Board of Directors" means the Board of Directors of the Company. "Cause" means, for purposes of this Section 13 only, either (i) any act that constitutes, on the part of Executive, (A) fraud, dishonesty, a felony or gross malfeasance of duty, and (B) that directly results in a demonstrable, material injury to the Company; or (ii) conduct by Executive in his office with the Company that is grossly inappropriate and demonstrably likely the lead to a demonstrable, material injury to the Company, as determined by the affirmative vote of not less than that number of directors equal to two thirds of the entire membership of the Board, whether or not present, acting reasonably in good faith; provided, however, that in the case of (ii) above, such conduct shall not constitute Cause unless the Board shall have delivered to Executive notice setting forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty (30) days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. It is expressly understood that Executive's attention to matters not directly related to the business of the Company, but consistent with the terms of this Agreement, shall not provide a basis for termination for Cause. "Change of Control" means: An event of the nature that: (i) Would be required to be reported in response to Item 1(a) of the current report on Form F-3, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (henceforth the "Exchange Act"); or (ii) Results in a Change in Control of the Bank within the meaning of the Change in Bank Control Act, as amended, and the Rules and Regulations promulgated by the Federal Deposit Insurance Company (henceforth the "FDIC") at 12 C.F.R. Section 303.4(a) as in effect on the date hereof; or (iii) Without limitation such a Change in Control shall be deemed to have occurred at such time as: (A) Any "person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act), or group of persons acting in concert, is or becomes the beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of any class of equity securities of the Bank representing 25% or more of a class of equity securities except for any securities purchased by the Bank's employee stock ownership plan and trust; or (B) Individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three- quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Bank's shareholders was approved by the same Committee serving under an Incumbent Board, shall be, for purposes of this clause (B) considered as though he were a member of the Incumbent Board; or (C) A plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or similar transaction occurs in which the Bank is not the resulting entity; or (D) A proxy statement shall be distributed soliciting proxies from stockholders of the Bank, by someone other than the current management of the Bank, seeking stockholder approval of a plan or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Bank; or (E) A tender offer is made for 25% or more of the voting securities of the Bank then outstanding. "Code" means the Internal Revenue Code of 1986, as amended. "Compensation Committee" means the Human Resources and Nominating Committee of the Board of Directors, or any successor committee. "Disability" shall have the meaning assigned such term in Subsection 7(a) of this Agreement. "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(l) of the Code. "Involuntary Termination" means termination of Executive's employment by Executive following a Change in Control which, in the reasonable judgment of Executive, is due to (i) a change of Executive's responsibilities, position (including title, reporting relationships or working conditions), authority or duties(including changes resulting from the assignment to Executive of any duties inconsistent with his positions, duties or responsibilities as in effect immediately prior to the Change in Control); or (ii) a reduction in Executive's compensation or benefits as in effect immediately prior to the Change in Control, or (iii) a forced relocation of Executive outside the Glens Falls, New York metropolitan area or significant increase in Executive's travel requirements. Involuntary Termination does not include retirement (including early retirement) within the meaning of the Company's retirement plan, or death or Disability of Executive. "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280GCb)(2) of the Code. "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. (c) Benefits upon Termination of Employment Following a Change in Control. (i) Termination. Executive shall be entitled to, and the Company shall pay or provide to Executive, the benefits described in Subsection 13(c)(ii) below if a Change in Control occurs during the term of this Agreement and Executive's employment is terminated within two (2) years following the Change in Control, either: (A) by the Company (other than for Cause or by reason of Executive's death or Disability) or (B) by Executive pursuant to Involuntary Termination; provided, however, that if: (x) during the term of this Agreement there is a public announcement of a proposal for a transaction that, if consummated, would constitute a Change in Control or the Board receives and decides to explore an expression of interest with respect to a transaction which, if consuitunated, would lead to a Change in Control (either transaction being referred to herein as the "Proposed Transaction"); and (y) Executive's employment is thereafter terminated by the Company other than for Cause or by reason of Executive's death or Disability; and (z) the Proposed Transaction is consummated within one year after the date of termination of Executive's employment, then, for the purposes of this Agreement, a Change in Control shall be deemed to have occurred during the term of this Agreement and the termination of Executive's employment shall be deemed to have occurred within two (2) years following a Change in Control. (ii) Benefits to be Provided. If Executive becomes eligible for benefits under Subsection 13(c)(i) above, the Company shall pay or provide to Executive the benefits set forth in this Subsection 13(c)(ii). (A) Salary. Executive will continue to receive his current Base Compensation (subject to withholding of all applicable taxes and any amounts referred to in (C) below) for a period of thirty-six (36) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than thirty (30) days after his termination of employment; provided further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value. For purposes hereof, Executive's Base Compensation shall be the highest rate in effect during the six-month period prior to Executive's termination. (B) Bonuses. Executive shall receive bonus payments from the Company for the thirty-six (36) months following the month in which his employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses paid to him for the two calendar years immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than thirty (30) days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value. (C) Health and Life Insurance Coverage. The health and life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment had not terminated (subject to the customary changes in such coverage's if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date thirty- six (36} months from the date of such termination. Any additional coverage's Executive had at termination, including dependent coverage, will also continued for such period at the same level and on the same terms as provided to Executive immediately prior to his termination, to the extent permitted by the applicable policies or contracts and with such reasonable increases as applicable to other participants for the same or similar coverage. Any costs Executive was paying for such coverage's at the time of termination (plus reasonable increases as applicable to other participants for the same or similar coverage) shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Subsection do not permit continued participation by Executive, then the Company will arrange for other coverage, at its expense, providing substantially similar benefits as it can find for other officers in similar position. (D) Executive Retirement Plans. To the extent permitted by the applicable plan, Executive will be fully vested in and will be entitled to continue to participate, consistent with past practices, in all Executive retirement plans, including the Supplemental Chief Executive Retirement Plan, maintained by the Company in effect as of his date of termination. (E) Effect of Lump Sum Payment. The lump sum payment under (A) or (B) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in (C) and (D) above. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of thirty-six (36) months. (F) Effect of Death or Retirement. The benefits payable or to be provided under this Agreement shall cease in the event of Executive's death or election to commence retirement benefits under the Company's retirement plan. (G) Limitation on Amount. Notwithstanding anything in this Agreement to the contrary, any benefits payable or to be provided to Executive by the Company or its affiliates, whether pursuant to this Agreement or otherwise, which are treated as Severance Payments shall be modified or reduced in the manner provided in (H) below to the extent necessary so that the benefits payable or to be provided to Executive under this Agreement that are treated as Severance Payments, as well as any payments or benefits provided outside of this Agreement that are so treated, shall not cause the Company to have paid an Excess Severance Payment. In computing such amount, the parties shall take into account all provisions of Internal Revenue Code Section 280G, including making appropriate adjustments to such calculation for amounts established to be Reasonable Compensation. (H) Modification of Amount. In the event that the amount of any Severance Payments that would be payable to or for the benefit of Executive under this Agreement must be modified or reduced to comply with this Subsection 13(c)(ii), Executive shall direct which Severance Payments are to be modified or reduced; provided, however, that no increase in the amount of any payment or change in the timing of the payment shall be made without the consent of the Company. (I) Avoidance of Penalty Taxes. This Subsection 13(c)(ii) shall be interpreted so as to avoid the imposition of excise taxes on Executive under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G(a) of the Code with respect to amounts payable under this Agreement or otherwise. (J) Additional Limitation. In addition to the limits otherwise provided in this Subsection 13(c)(ii), to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (K) Rabbi Trust. In order to fund the Company's obligations under this Section 13, the Company agrees to create a rabbi trust (in a form mutually acceptable to the Company and Executive) with an independent trustee and to fund such trust prior to the effective date of a Change in Control. Except to the extent of funds available under such rabbi trust, the agreement of the Company (or its successor) to make payments to Executive hereunder shall represent solely the unsecured Obligation of the Company (and its successor). 14. Regulatory Intervention. Notwithstanding any term of this Agreement to the contrary, this Agreement is subject to the following terms and conditions: (a) The Company's obligations to provide compensation or other benefits to Executive under this Agreement may be suspended if the Company has been served with a notice of charges by the appropriate federal banking agency under provisions of Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) directing the Company to cease making payments required hereunder; provided, however, that (i) The Company shall seek in good faith with its best efforts to oppose such notice of charges as to which there are reasonable defenses; (ii) In the event the notice of charges is dismissed or otherwise resolved in a manner that will permit the Company to resume its obligations to provide compensation or other benefits hereunder, the Company shall immediately resume such payments and shall also pay Executive the compensation withheld while the contract obligations were suspended, except to the extent precluded by such notice; and (iii) During the period of suspension, the vested rights of the contracting parties shall not be affected, except to the extent precluded by such notice. (b) The Company's obligations to provide compensation or other benefits to Executive under this Agreement shall be terminated to the extent a final order has been entered by the appropriate federal banking agency under provisions of Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) directing the Company not to make the payments required hereunder; provided, however, that the vested rights of the contracting parties shall not be affected by such order, except to the extent precluded by such order. (c) The Company's obligations to provide compensation or other benefits to Executive under this Agreement shall be terminated or limited to the extent required by the provisions of any final regulation or order of the Federal Deposit Insurance Corporation promulgated under Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) limiting or prohibiting any "golden parachute payment" as defined therein, but only to the extent that the compensation or payments to be provided under this Agreement are so prohibited or limited. (d) Notwithstanding the foregoing, the Company shall not be required to make any payments under this Agreement prohibited by law. 15. Indemnification. The Company will indemnify Executive (and his legal representatives or other successors) to the fullest extent permitted (including payment of expenses in advance of final disposition of a proceeding) by the laws of the State of New York, as in effect at the time of the subject act or omission, or the Restated Certificate of Incorporation and Bylaws of the Company, as in effect at such time or on the effective date of this Agreement, whichever affords or afforded greater protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which he (or his legal representatives or other successors) may be made a party by reason of his being or having been a director, officer or employee of the Company or any subsidiary, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. 16. Litigation Expenses. In the event of any litigation, arbitration or other proceeding between the Company and Executive with respect to the subject matter of this Agreement or the enforcement of his rights hereunder, the Company shall reimburse Executive, but only if he is substantially successful in such proceeding, for all of his reasonable costs and expenses relating to such litigation, arbitration or other proceeding, including, without limitation, his reasonable attorneys' fees and expenses. In no event shall Executive be required to reimburse the Company for any of the costs and expenses relating to such litigation, arbitration or other proceeding. 17. Miscellaneous (a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. (b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. (c) Assignability. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. Any business entity succeeding to all or substantially all of the business of the Company by purchase, merger, consolidation, sale of assets or otherwise, shall be bound by this Agreement. (d) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. (e) Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreements or understandings between the parties with respect to such subject matter. (f) Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. (g) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Evergreen Bancorp, Inc. 237 Glen Street Glens Falls, New York 12801 Attention: Secretary To Executive: Mr. George W. Dougan 237 Glen Street Glens Falls, New York 12801 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. (h) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which make specific reference to this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written. EVERGREEN BANCORP, INC. By:/S/ Robert Flacke Title:Chairman, Human Resource and Nominating Committee Attest: By:/S/Anthony J. Koenig Title:Executive Vice President (CORPORATION SEAL) /S/ George W. Dougan George W. Dougan B:1DOU-A,15 EX-10 3 Exhibit 10 (j) Evergreen Bancorp, Inc. Supplemental Executive Retirement Plan (as amended and restated) Article 1 Purpose The Board of Directors of Evergreen Bancorp, Inc. and its wholly owned subsidiary, Evergreen Bank, N.A. (collectively, the "Bank"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Bank and its shareholders. Accordingly, the Bank has established this plan with the intention of attracting and retaining executives whose skills and talents are important to the Bank's operations by providing monthly supplemental retirement income. Article 2 Definitions For purposes of the Plan, the following words and phrases shall have the following meanings unless a different meaning is plainly required by the context. Whenever used, the masculine pronoun shall include the feminine pronoun and the feminine pronoun shall include the masculine and the singular shall include the plural and the plural shall include the singular. 2.1 Accrued Benefit. The monthly retirement income benefit payable at Normal Retirement under this Plan, in an amount determined under Section 6.1 based on the Participant's Final Average Compensation and the Benefit Factor of the Participant. 2.2 Actuarial Equivalent. A form of benefit differing in time, period, or manner of payment, that replaces another and has the same value, based on actuarial assumptions, as the benefit or amount it replaces, shall be determined, as follows: (a) For purposes of determining a lump sum value of any benefit payable, the Unisex Pension 1984 Mortality Table, with the interest rates promulgated by the Pension Benefit Guaranty Corporation as in effect the first day of the Plan Year during which such lump sum is to paid or such determination is to be made, as applicable, will used. (b) For purposes of determining the amount of any optional form of retirement income payable other than a lump sum distribution, 1983 Group Annuity Mortality Table (1983 GAM) for males, interest at seven and one-half percent (7.50%), will be used. (c) If any benefit is payable before a Participant's Normal Date, the Participant's benefit payable shall be reduced by 5/9 of 1% for each of the first 60 months and by 5/18 of 1% for each of the next 60 months by which commencement of benefits precedes the Participant's Normal Retirement Date. 2.3 Affiliate. (a) A member of a controlled group of corporations of which the Bank is a member; or (b) An unincorporated trade or business which is under common control with the Bank as determined in accordance with Section 414(c) of the Code and the regulations promulgated thereunder. For purposes hereof, a "controlled group of corporations" shall mean a controlled group of corporations as defined in Section 1563(a) of the Code determined without regard to Section 1563(a)4 and (e)(3)(C) of the Code. 2.4 Administrator. The Human Resource and Nominating Committee of the Board of Directors of the Bank, or such successor committee or individual as they shall duly appoint to administer the Plan. 2.5 Bank. Evergreen Bancorp, Inc., together with its principal operating subsidiary, Evergreen Bank, N.A., any successors thereto, and any Affiliates. 2.6 Beneficiary. The person or persons designated by a Participant pursuant to Article 8 to receive benefits under the Plan in the event of the Participant's death. 2.7 Benefit Factor. The percentage that shall be multiplied by the Final Average Compensation to determine a Participant's annual retirement benefits which, for the Chief Executive Officer shall be fifty percent (50%) and for other principal Executive Officers shall be forty-five percent (45%). 2.8 Cause. The Bank's termination of any Participant's employment for "Cause" shall mean only the following: (a) the commission of any intentional acts or conduct by the Participant involving moral turpitude; (b) the gross negligence by the Participant in complying with the terms of his employment agreement, if any, or otherwise in performing his required duties for the Bank; (c) the commission of any intentional act of dishonesty in the performance of the Participant's duties for the Bank; or (d) the deliberate and intentional refusal by Participant during the term of his employment, other than by reason of incapacity due to illness or accident, to obey lawful directives from the Board of Directors of the Bank, and such refusal shall result in a demonstrable, material injury to the Bank, and the Participant shall have failed to remedy such alleged breach within thirty (30) days from his receipt of written notice from the Secretary of the Bank demanding that he remedy such alleged breach. For any claimed termination for "Cause" there shall be delivered to the Participant a certified copy of a resolution of the Board of Directors of the Bank adopted by the affirmative vote of not less than that number of directors equal to two-thirds of the entire membership, whether or not present, at a meeting called and held for that purpose and at which the Participant was given an opportunity to be heard, finding that the Participant was responsible for the conduct set forth above. 2.9 Change in Control. An event of the nature that: (a) Would be required to be reported in response to Item 1(a) of the current report on Form F-3, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (b) Results in a Change in Control of the Bank within the meaning of the Change in Bank Control Act of 1978, as amended, and the Rules and Regulations promulgated by the Federal Deposit Insurance Company (the "FDIC") at 12 C.F.R. Section 303.4(a), as in effect on the date hereof; or (c) Without limiting the above conditions, such a Change in Control shall be deemed to have occurred at such time as: (i) Any "person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act), or group of persons acting in concert, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of any class of equity securities of the Bank representing 25% or more of a class of equity securities, except that a securities purchase or purchases by the Bank's employee stock ownership plan and trust that exceeds, in the aggregate, 25% or more of a class of equity securities shall not be deemed to be a Change in Control under this Plan; or (ii) Individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Bank's shareholders was approved by the same Committee serving under an Incumbent Board, shall be, for purposes of this clause (ii) considered as though he were a member of the Incumbent Board; or (iii) A plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or any similar transaction occurs in which the Bank is not or will not be the resulting entity; or (iv) A proxy statement shall be distributed soliciting proxies from stockholders of the Bank, by someone other than the current management of the Bank, seeking stockholder approval of a plan or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Bank; or (v) A tender offer is made for 25% or more of the voting securities of the Bank then outstanding. 2.10 Code. The Internal Revenue Code of 1986, as it may from time to time be amended. 2.11 Committee. "Committee" means the Human Resources and Nominating Committee of the Board of Directors of the Bank. Such Committee shall be comprised at all times of at least two "non-employee directors", as that term is defined under Rule 16b-3 of the Exchange Act promulgated by the Securities and Exchange Commission, or any successor regulation. 2.12 Compensation. For purposes of this Plan, only the following items shall be included in determination of remuneration for determination of benefits: (a) Salary; and (b) Cash bonuses, whether either of the foregoing is paid currently or deferred under either a qualified or non-qualified arrangement; and without regard to any limits imposed by Section 415 or 401(a)(17) or similar sections of the Code. 2.13 Disability. Any physical or mental condition which may reasonably be expected to be permanent and which renders the Participant incapable of continuing as an Employee in his customary job; provided, however, that such disability originated while the Participant was in the active service of the Company and which: (a) did not arise while engaged in or as a result of having engaged in an illegal or criminal act or an act contrary to the best interests of the Company; or (b) did not result from habitual drunkenness or addiction to narcotics or a self-inflicted injury while sane or insane. To aid the Committee in determining whether such disability exist, the Committee may require, as a condition precedent to receipt of any benefits hereunder, that the Participant submit to examinations by one or more duly licensed and practicing physicians selected by the Committee. 2.14 Early Retirement. The election of the Participant to commence receiving vested benefits hereunder before the Normal Retirement Date, if permitted by the Committee in the Committee's sole discretion unless voided pursuant to Section 6.4, following termination of the Participant's employment with the Bank. Subject to Committee approval, a participant shall become eligible for Early Retirement under this plan upon, the later to occur of the following: (a) the date the Participant attains age 55; and (b) the date the Participant becomes vested under this plan pursuant to Article 5. Notwithstanding the foregoing, the current Chief Executive Officer, George W. Dougan, may elect "Early Retirement" under this Plan without the prior approval of the Committee. 2.15 Effective Date. January 16, 1997. 2.16 Employee. Any person in the employ of the Bank for whom the Bank is required to contribute Federal Insurance Contribution Act taxes. 2.17 Final Average Compensation. The monthly Compensation of a Participant averaged over thirty-six consecutive months which produce the highest average of the 60 completed months (or the number of completed months if less than 60) ending before the first day of the month coincident with on next following the Participant's date of Normal or Early Retirement, whichever is applicable, or, if applicable and earlier, the first day of the month following the date such Participant ceases to be an Active Participant. 2.18 Normal Form of Benefit. A pension benefit payable for the life of the Participant, beginning on the first day of the month following Normal Retirement, in equal monthly installments and ceasing on the last day of the month preceding the death of the Participant. 2.19 Normal Retirement. Termination of service with the Bank on or after the Participant's Normal Retirement Date. 2.20 Normal Retirement Date. The sixty-fifth birthday of the Participant. 2.21 Participant. An Employee of the Bank selected by the Committee to participate in the Plan, including the following: (a) An Active Participant is a Participant who is currently an Employee of the Bank; and (b) An Inactive Participant is a Participant who is no longer an Active Participant. 2.22 Plan. This Supplemental Executive Retirement Plan, as it may be from time to time amended or restated. 2.23 Plan Year. A 12-month period commending on the first day of the Bank's fiscal year. 2.24 Qualified Plan. The Bank's Employees' Retirement Plan of Evergreen Bancorp, Inc., restated as of January 1, 1989, and from time to time amended, or under any successor plan thereto. 2.25 Year of Service. Being in the employ of the Bank for an entire year. Article 3 Administration of the Plan 3.1 Administration. The Plan shall be administered by the Committee. The Committee shall act by vote or written consent of a majority of its members. 3.2 Adoption of Rules and Regulations. Subject to the express provisions and limitations of the Plan as stated in this Plan document, the Committee may adopt such rules, regulations, guidelines, and procedures as it deems appropriate for the proper administration of the Plan, and the Committee may make whatever determinations and interpretations it deems to be necessary or advisable. 3.3 Determinations by the Committee. All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants and on their legal representatives and beneficiaries. 3.4 Indemnification of the Committee and Employees of the Bank. The Bank hereby agrees to indemnify, defend and hold harmless, jointly and severally, the members of the Committee and employees of the Bank who are involved in the administration of the Plan, from and against all claims, losses, damages, expenses, including counsel fees and their costs and expenses, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act with respect to any matter relating to the Plan, except when the same shall be judicially determined to be attributable to their willful misconduct. The indemnification provided by this Section 3.4 shall survive any termination of the Plan and shall be binding upon the Bank's successors and assigns. Article 4 Eligibility 4.1 Selection. The Committee may select Employees who, in the Committee's sole and absolute discretion, are key Employees of the Bank, to participate in the Plan. Such Employees shall withdraw from participation in the supplemental retirement plan in effect on the effective date of their participation in this Plan, but shall not be precluded by the terms of this Plan from consideration to participate in subsequent supplemental retirement plans, if any, that may be adopted by the Bank after the Effective Date. 4.2 Termination for Cause. No Participant shall have a right to any benefit under the Plan if his employment with the Bank is terminated for Cause, except following the vesting of benefits. 4.3 Detrimental or Prejudicial Conduct of a Participant. If a Participant has engaged in activities which, in the determination of the Board, are materially detrimental to the Bank, the Committee may terminate the Participant's participation in the Plan. In such event, no benefit shall be payable under this Plan, and if a Participant is currently receiving benefits under this Plan, such benefits shall cease. 4.4 Change in Control. If there is a Change of Control of the Bank, Section 4.3 of the Plan shall thereafter become inoperative and null and void. Article 5 Vesting of Benefits 5.1 Vesting Conditions. The benefits under this Plan shall become fully vested upon: (a) a Participant reaching Normal Retirement Age while in the continuous employment with the Bank; or (b) the completion of five Years of Service; or (c) the death of the Participant; or (d) the termination of his employment by the Bank without Cause; or (e) the occurrence of a Change in Control, as defined in this Plan, whichever of the forgoing occurs earlier. 5.2 Vesting Upon Disability. If a Participant's employment by the Bank is terminated by reason of his Disability, he shall become fully vested in his benefits under this Plan. Article 6 Payment of Benefits 6.1 Upon Normal Retirement. (a) A Participant shall be entitled to receive the monthly Normal Form of Benefit equal to the amount determined by: (i) Multiplying the Participant's Final Average Compensation by the Benefit Factor, and (ii) Subtracting from the amount determined pursuant to Section 6.1(a)(i) an amount equal to the monthly Normal Form of Benefit then payable to the Participant under the Qualified Plan. (b) If a Participant is eligible to receive a benefit under this Plan, and he has participated in a supplemental retirement plan maintained by the Bank prior to the effective date of his participation, his benefit under this Plan shall further be reduced by the actuarial equivalent Normal Form of Benefit payable to the Participant under such other supplemental retirement plan. 6.2 Upon Early Retirement. Effective upon the date that a Participant ceases to be an Active Participant because of Early Retirement, a Participant shall be entitled to receive the Actuarial Equivalent of his Accrued Benefit as of such date. 6.3 Upon Death. A preretirement spousal annuity shall be payable to the spouse of a Participant who dies before commencement of payment of his Accrued Benefits hereunder, if the Participant, on the date of his death, was married and was an Active Participant under the Plan. The preretirement spousal annuity shall be the survivor annuity that the Participant's spouse would have received under the Plan had the Participant retired on the day before his date of death with his Accrued Benefit payable in the form of an immediate Joint and 50% survivor annuity described under Section 7.2(b). In no event shall the preretirement spousal annuity be payable to anyone other than the Participant's spouse on the date of the Participant's death. 6.4 Upon a Change in Control. (a) Upon a Change in Control, the Bank shall, as soon as possible, but in no event longer than 15 days after such Change in Control, establish, fund (as set forth below) and maintain an irrevocable "rabbi trust", the assets of which shall be subject to the claims of creditors of Evergreen Bank, N.A. in the event of its insolvency or bankruptcy, in order to provide a source of funds to assist the Bank in the meeting of its liabilities hereunder. At such time, the Bank shall irrevocably contribute cash or other property to the rabbi trust in an amount sufficient to pay the benefits of each Participant and Beneficiary payable at Normal Retirement under the Plan when conservatively invested in U.S. Treasury securities or similar instruments by an institutional trustee that is not affiliated with the person that causes, directly or indirectly, the Change in Control. Amounts payable to Participants or Beneficiaries hereunder shall be payable from the assets of such rabbi trust. In the event the assets of the rabbi trust are not sufficient to satisfy all benefits payable hereunder, the remaining benefits shall be payable from the general assets of the Bank or its successor. (b) Upon the occurrence of a Change in Control, the provisions of Early Retirement set forth in Section 2.14 that require the Committee's prior written approval shall thereafter become inoperative and null and void. 6.5 Other Vested Participants. An Inactive Participant shall be entitled to receive the Actuarial Equivalent of his vested Accrued Benefit commencing at his Normal Retirement Date, and shall not be eligible for Early Retirement except in the case of Disability. 6.6 Withholding of Taxes. The Bank shall withhold from payments made hereunder any income taxes required to be withheld by any law or regulation of the federal, state of local governments. Article 7 Optional Forms of Payment 7.1 Election of Form of Payment. In lieu of the Normal Form of Benefit, a Participant may elect to receive his retirement income under one of the following optional forms. A Participant's Accrued Benefit payment election shall be in the form of a written election made at the time he first becomes a Participant in the Plan. An election made under this Article 7 may be changed in writing, except that such new election shall be effective only if made at least one year prior to the Participant's termination of employment with the Bank. 7.2 Optional Forms of Payment. The retirement income payable under an optional form shall be the Actuarial Equivalent of the Participant's Accrued Benefit, as follows: (a) The Joint and 100% Survivor benefit shall provide a reduced retirement income during the Participant's lifetime. Upon his death, if the Participant's Beneficiary survives him, the same income will continue to the Participant's Beneficiary until the Beneficiary's death. Only one individual may be named as a Beneficiary. (b) The Joint and 50% Survivor benefit shall provide a reduced retirement income during the Participant's lifetime. Upon death, if the Participant's Beneficiary survives him, then 50% of the Participant's retirement income will continue to the Participant's Beneficiary until the Beneficiary's death. Only one individual may be named as a Beneficiary. (c) The Lump Sum benefit shall provide a lump-sum distribution of the Actuarial Equivalent value of the Accrued Benefit to the Participant. Any lump sum distribution in excess of $10,000 may be paid only with the express approval of the Committee. (d) The Automatic Spouse Benefit shall provide that, if a Participant does not elect a form of payout, a married Participant will automatically be assumed to have elected a Joint and 50% Survivor benefit with his spouse designated as his Beneficiary. Article 8 Beneficiary Designation 8.1 Each Participant shall have the right at any time to designate any person or persons as his Beneficiary, to whom any benefits under Section 7.2(a) or (b) which the Participant may have elected shall be payable. 8.2 The designation of a Beneficiary shall become effective when it is filed in writing with the Bank, with a copy provided to the Committee. 8.3 The filing of a Beneficiary designation may be accompanied by a statement of the Actuarial Equivalent the Participant elects in lieu of the Normal Form of Benefit. 8.4 The Participant may revoke a beneficiary designation at any time before benefits commence by filing a new election with the Committee. Article 9 Amendment of the Plan 9.1 The Board may at any time amend the Plan in whole or in part; provided, however, that no amendment shall be effective to reduce the benefits under the Plan to any Participant without the consent of all Participants in the Plan, which consent may be withheld in the sole discretion of any Participant. Written notice of any proposed amendment shall be given to each Participant. Article 10 Miscellaneous 10.1 Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a fiduciary relationship between the Bank and the Participant or any other person. Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interests, or other claims in any property or assets of the Bank, except as an unsecured general creditor of the Bank. The Bank's obligation under this Plan shall be that of an unfunded and unsecured promise of the Bank to pay money in the future. 10.2 By agreeing to become covered by this Plan, each Participant hereby expressly agrees that the Bank may, in the Bank's sole and absolute discretion, offset any amounts payable under this Plan against any debts, loans, obligations, or other liabilities owed by the Participant to the Bank at the time benefits become payable under the Plan, whether or not such debts have matured. No prepayment penalties or fees will be charged by the Bank in connection with any such offset. The provisions of this Section 10.2 shall not apply following a Change in Control. 10.3 Neither a Participant nor any other person shall have the right to assign, sell, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are expressly declared to be unassignable and nontransferable. 10.4 Nothing herein contained shall be construed as a contract of employment, nor as giving any Participant any right to be retained in the employ of the Bank. Participation in this Plan shall not interfere with the Board's rights to terminate a Participant's employment at any time, subject to any express, written employment agreement, if any, as may be in effect for any such Participant. 10.5 All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter as the identity of the person or persons may require. As the context may require, singular may be read as plural and plural as singular. 10.6 Should any provision of this Plan or any regulation adopted herein under be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions or regulations unless such invalidity shall render impossible or impractical the functioning of the Plan, and in such case, the appropriate parties shall immediately adopt a new provision or regulation to take the place of the one held illegal or invalid. 10.7 The titles and headings of the Articles and sections of this Plan are for the convenience of reference only, and in the event of any conflict, the text rather than such titles or headings shall control. 10.8 This Plan shall be governed by and construed in accordance with the laws of the State of New York. * * * * * Adopted: 10/1/95; amended and restated 1/16/97 - ------------------------------------------------------------- ADOPTED, APPROVED AND CERTIFIED: Human Resources and Nominating Committee By: /S/ Robert F. Flacke Robert F. Flacke, Chairman Human Resources and Nominating Committee EX-11 4 Exhibit 11 Evergreen Bancorp, Inc. Computation of Net Income Per Common Share (Dollars in Thousands, except Per Share Amounts)
Year Ended December 31, 1996 1995 1994 Net Income Per Common Share Weighted Average Common Shares Outstanding 9,229,000 9,430,000 9,456,000 Net Income $ 10,313 $ 8,380 $ 7,265 Net Income per Common Share $ 1.12 $ .89 $ .77 Net Income Per Common Share -- Primary Weighted Average Common Shares Outstanding 9,229,000 9,430,000 9,456,000 Dilutive Common Stock Options 124,000 76,000 32,000 Weighted Average Common shares and Common Share Equivalents Outstanding 9,353,000 9,416,000 9,488,000 Net Income $ 10,313 $ 8,380 $ 7,265 Net Income per Common Share -- Primary $ 1.10 $ .89 $ .77 Net Income Per Common Share -- Fully Diluted Weighted Average Common Shares Outstanding 9,229,000 9,430,000 9,456,000 Dilutive Common Stock Options 215,000 132,000 32,000 Weighted Average Common shares and Common Share Equivalents Outstanding 9,444,000 9,562,000 9,488,000 Net Income $ 10,313 $ 8,380 $ 7,265 Net Income per Common Share -- Fully Diluted $ 1.09 $ .88 $ .77
EX-13 5 Exhibit 13 Evergreen Annual Report 1996 INSIDE Profile: An eye for value. What shareholder value really means. Evergreen Bancorp logo Contents Financial Highlights pg. 2 Solid figures from 1996. An Eye for Value pg. 4 The quarterly statement isn't the only measure of a bank. Reinventing Market Share pg. 7 Evergreen fills in the franchise--in more ways than one. Solving the Productivity Puzzle pg. 10 How to create excellence and efficiency in the company. A Gallery of Leaders pg. 12 Evergreen's Board of Directors and Corporate Management. Financial Review pg. 13 The complete story, by the numbers. YEAR TO DATE EARNINGS Financial HIGHLIGHTS Solid figures for 1996. Common Stock Data Evergreen Bancorp's common stock is traded on the NASDAQ National Market System under the symbol EVGN. There were 1,667 stockholders of record as of December 31, 1996. The range of the high and low sales prices, as reported by NASDAQ, and the quart-erly cash dividends paid for the years 1996 and 1995 are shown below. The information provided has been adjusted to reflect the company's two-for-one stock split. For information on restrictions relating to the payment of cash dividends, see Note 11 of Notes to Consolidated Financial Statements.
1996 High Low Div. Paid 4th Quarter $16.50 $14.00 $0.13 3rd Quarter 15.00 12.13 0.10 2nd Quarter 13.13 10.63 0.10 1st Quarter 11.56 10.38 0.10
1995 High Low Div. Paid 4th Quarter $11.63 $10.25 $0.08 3rd Quarter 11.00 8.88 0.05 2nd Quarter 9.17 8.13 0.05 1st Quarter 8.63 7.38 0.05
Net Income
Millions 1994 $ 7,265 1995 8,380 1996 10,313
Stock Price As of December 31
Dollars per share 1994 $ 7.38 1995 11.63 1996 16.38
Deposits
Millions 1994 $735,821 1995 750,224 1996 800,856
Non-Performing Assets
Millions 1994 $29,922 1995 9,772 1996 7,033
Earnings Per Share
Dollars 1994 $0.77 1995 0.89 1996 1.12
Loans (End of year)
Millions 1994 $577,329 1995 592,198 1996 654,888
Financial Highlights (Dollars--except per share data--expressed in thousands)
1996 1995 1994 Net Income $ 10,313 $ 8,380 $ 7,265 Per Share: Net Income 1.12 .89 .77 Cash Dividends .43 .23 .03 Book Value 9.37 8.86 7.76 Average Shares Outstanding 9,229,000 9,430,000 9,456,000 Year End: Assets $ 928,649 $ 871,423 $ 833,618 Loans, Net of Unearned Income 654,888 592,198 577,329 Deposits 800,856 750,224 735,821 Stockholders' Equity 85,439 83,045 73,601
Corporate Profile Evergreen Bancorp, Inc. (NASDAQ: EVGN) is a one-bank holding company headquartered in Glens Falls, New York. Its subsidiary, Evergreen Bank, N.A., operates 26 banking locations in a 250-mile area of eastern New York, from 50 miles south of Albany to the Canadian border. Within this region the bank provides its corporate, institutional and individual customers with a wide range of deposit, lending, trust and investment services. Throughout its 143-year history, Evergreen has pursued the essential mission of a community bank: to provide exemplary service and responsiveness to its customers and local communities. Evergreen Bank, N.A., with assets exceeding $920 million as of year-end 1996, is among the leading community banks in its franchise area. Annual Meeting The Annual Meeting of Shareholders will be held in the Adirondack Room of the Queensbury Hotel, 88 Ridge Street, Glens Falls, New York at 10:00 a.m. on May 8, 1997. Form 10-K A copy of the Company's Form 10-K annual report is available without charge to shareholders on written request to Kathleen G. Martinez, Secretary, 237 Glen Street, Glens Falls, New York, 12801. PROFILE An eye FOR VALUE Too many companies manage quarter by quarter. In a revealing interview, the Chairman of Evergreen explains why his bank's value extends far beyond yesterday's results. A Philosophy Apart When he gauges his bank's performance, George Dougan naturally begins with the quarterly statement. But he doesn't stop there--and that sets Evergreen Bancorp apart from the mainstream. During his assessment, Dougan might also examine a new branch, review the latest product for small business or look in on a training session. All in the name of uncovering one crucial element: shareholder value. "Everything we do should increase our franchise value as an independent bank--not just for the next quarter, but for the long term," said Evergreen's Chairman and Chief Executive Officer in a recent interview. "This past year, I'm pleased to say, we excelled in both." Shareholder Value for Today The baseline figures for 1996 justify his confidence in current results: Evergreen enjoyed record earnings, with net income of $10.3 million--a 23% increase over 1995; In September, the bank announced a 2-for-1 stock split. For the year, stock value increased 40%; Two increases boosted the quarterly dividend to an all-time high of $.13 per share (post-split), up from $.075 at the end of 1995; Led by a strong performance in retail lending-- especially in indirect loans, mortgages, and home equities--overall lending increased by 11% to a record level of $655 million net of unearned income. Supporting that increase was a corresponding 7% rise in deposits. Dougan cited several initiatives that generated the 1996 numbers. The stock split, for instance, arose from presentations that he and George Fredette, Senior Vice President and Chief Financial Officer, made to major investment bankers and fund managers. "They looked on Evergreen very favorably but suggested that our stock was not liquid enough for effective trading," Dougan related. The bank responded by doubling shares outstanding through the split. The markets confirmed the wisdom of that move by trading Evergreen more actively. Also affecting the stock was the bank's ongoing repurchase program, which enjoyed its best year ever in 1996, buying back 345,000 shares. A new authorization from the Board of Directors will enable Evergreen to continue repurchasing shares throughout 1997, depending on market conditions. "The program helps keep the bank's capital at appropriate levels and has in the past been a good investment, increasing earnings per share," Dougan explained. "With this program, the split and the dividend increases, I believe we've created significant shareholder value here and now." Closer to the balance sheet, substantive reductions in nonperforming assets played a key role in Evergreen's successful 1996. "Our work toward eliminating problem loans in 1995 set us up for higher earnings potential in 1996," he noted. "Then, this past year, the sale of our largest remaining nonperformer removed another obstacle to earnings. We have basically put the last of our major credit concerns behind us; now, as we maintain strict credit quality, we can focus on new business." Value for Tomorrow: Expanding Market Share That new-business focus achieved two notable Evergreen objectives. It not only contributed significantly to the strong 1996 figures, but also formed the foundation for Evergreen's long-term value. Many of the past year's moves--in both traditional and alternative areas of product delivery--represented an aggressive effort in the bank's existing market. "Infilling and expanding our natural franchise are important elements in our long-term strategic plan," the Chairman explained. "That's why, in 1996, we opened or committed to opening four new branch locations in the Capital Region, which holds very high market potential. These branches provide the physical presence that many customers still require, as industry trends demonstrate." Elaborating on these trends, Dougan cited the fact that, in spite of massive consolidation and new technologies in the past decade, the number of new retail branches has risen to an all-time high in the banking industry. "To a large extent, customers still prefer to visit a branch and speak with a person," he said, "which is why our new branches are integral to maximizing our market share." Concerning alternate methods of product delivery, Dougan asserted that "we have introduced other delivery systems strategically across the market to extend our reach. Loan applications by touch-tone phone, our soon-to-be-introduced call center, our CD-by-mail program--all of these penetrate market areas that Evergreen could not effectively reach before. They succeed because they satisfy the demands of today's customers--especially the demand for convenience. And they represent a very cost-efficient way for us to generate income." Infilling and expansion, however, go beyond simply covering the map. For that reason, Evergreen complemented its geographic expansion with initiatives in high-potential market segments. Following through on its goal of 1995, Evergreen introduced Private Banking last year to capture a promising segment composed of high-net-worth individuals. Coming in 1997, a new cash management product will add convenience for small and midsize businesses, allow Evergreen to better compete in the commercial market and provide a new source of fee income. Value for Tomorrow: Achieving Cost Savings Pursuing expanded market share provides only half the story of long-term shareholder value. As diligently as they penetrated the market, Dougan and his management team also increased the bank's value by boosting operating efficiencies, achieving a $2.5 million reduction in noninterest expenses in 1996. Savings came from such areas as other real estate expenses and professional fees (due to the sale of nonperforming assets), renegotiated agreements with vendors, higher staff efficiency and a reduction in FDIC insurance. On this last point, technology has played a pivotal role. A new imaging system, a teller automation system and a bankwide platform upgrade have enabled Evergreen employees to carry out procedures faster and boost productivity. Additionally, customer-driven technologies--such as the Nice 'n Easy Touch Tone Phone Loan, Evergreen Tellerphone, and a streamlined network for indirect lending-- increase staff efficiency even as they provide customers with convenience. Dougan asserts that the key to technology investments is to implement them intelligently. "While we can't stand still on technological advancement, it makes no sense for us to acquire indiscriminately either. The question that always confronts us is, what is the appropriate level of investment?" Each time he faces that question, the Chairman comes back to the same basic objective. "We ask ourselves, how does this particular technology increase the value of the bank? We proceed only if it will pay for itself, reduce overall expenses and give us a competitive edge. Those criteria guide us toward smart technology decisions." An Enduring Place in the Marketplace And what of the larger picture? According to Dougan, 1996 enhanced shareholder value not only by directly providing for future growth, but also by enhancing Evergreen's established position as "a profitable, well-managed, customer-focused community bank." That position holds special promise in today's banking climate. "Just as it has in the last decade, the industry will continue to consolidate heavily," Dougan said. "The larger banks can't provide the highly personalized service that customers value, and they can't respond as flexibly as a community bank. "Therein lies the opportunity for Evergreen. Because our community banking niche meets the needs of so many people, it becomes our competitive advantage. And because customers are demanding responsive service in increasing numbers, we have the opportunity to maintain that competitive advantage--and enhance shareholder value--for years to come." Flexibility plays a role in astute management as well. "Community banks can survive as long as they recognize that change is a fact of life," Dougan asserted. "Looking forward, I believe banks like Evergreen will thrive by leveraging their branch franchise and by using technology in the most resourceful manner. And that's exactly what we did in 1996." In 1997, Evergreen will continue that thrust while pursuing proven strategies for sound growth: Introduction of new products to expand the bank's share of the middle market; Additional mortgage counselors in the Capital Region to maximize an underserved market with high potential; Pursuit of complementary lines of business to increase fee income; Judicious expansion of the distribution network, including technology-driven delivery systems that contain costs and meet high demand; Expansion of touch-tone loan capabilities; Continued vigilance on credit and expense control. From Dougan's point of view, the leadership is in place to implement these goals and sustain Evergreen's success. "In 1997, as in 1996, we will benefit from having a superb management team--and a superb Board of Directors." He singled out three retiring board members--Dean V. Chandler, Samuel P. Hoopes and Henry J. W. Vanderminden III--for their long-standing leadership and service. "They, and the rest of our Directors, committed themselves to our shareholders from the beginning, and I thank them for that. Because of their enthusiastic commitment, I'm confident we'll see continuing success, whatever the banking environment." That success may indeed come if Evergreen continues to do what it did in 1996: make the right choices to deliver value to shareholders. The kind of value found where George Dougan looks: not only on the bottom line, but throughout the bank--and throughout the community. MAXIMIZING THE MARKET Reinventing MARKET SHARE Even recently, "maximizing the market" meant new branches, period. Not anymore. So Evergreen has moved boldly to expand within, and beyond, its current franchise. As they planned the opening of one Capital Region branch last fall, Evergreen's senior managers came up with what, by any standard, were reasonable milestones for deposits. Six weeks after the ribbon cutting, deposits had far surpassed expectations. And loans had picked up momentum as well--and continue to roll in. Proof that the branch system still thrives? Absolutely. Even with such success, however, branches are no longer the only game in town. Those facts have not escaped Evergreen's management. With a flair for making the right moves, bank officials have used a blend of traditional and innovative strategies to expand the franchise to untapped markets. Redrawing the Map The traditional, of course, involves a physical presence. In 1996, the bank initiated plans for four new branch locations in the Capital Region--one of several Evergreen markets with demonstrated growth potential. Three of the locations are new in every sense of the term: the Latham office, which serves as the bank's Capital Region headquarters, opened in December 1996; the Clifton Park branch a month later; a branch in Niskayuna will open early in the second quarter of 1997. "The solid demographics for these locations--steady population growth, families with significant earning potential--present us with an excellent growth opportunity," noted Daniel J. Burke, Evergreen's Senior Vice President, Retail Banking. In each case, Evergreen's planners have consistently built cost efficiency into construction, staffing and operations, while providing for the full service so critical to the bank's positioning. The fourth branch opening is actually a strategic relocation; to expand its customer base, Evergreen will move an existing branch to one of the Capital Region's busiest business and shopping areas. "This new location presents the best of both worlds," explained Burke. "The branch will continue to serve its current customers, while enhancing access for new customers. With this and the other new branches, we've positioned ourselves to capture significant market share in an important market." Evergreen's Trust & Investment Group has already seen results from its Capital Region team, which it introduced in 1995. Those results are reflected in the bank's overall trust numbers for 1996: assets under management rose to $463.6 million--fueled not only by asset appreciation, but also by an ever-increasing number of new accounts. While important to bank growth, physical locations are no longer enough. Two converging trends--banking's drive for operating efficiency and the customer's demand for convenience--necessitate the use of innovative ways to deliver products and services. No wonder, then, that bank officials have made the best use of innovation to extend Evergreen's reach well beyond the branch system. A new call center, which will be operational in early 1997, will enable even remote customers to conduct bank transactions and to get quick answers. The Nice 'n Easy Touch Tone Phone Loan has generated $8.7 million in new loans by allowing applicants to access the bank according to their schedule, 24 hours a day, seven days a week. Both new and current customers have heavily utilized the bank's CD-by-mail program. Fax and ACH technologies have spread Evergreen's indirect lending to dealers located far from any branch. "We have fine-tuned our indirect program so that we can respond very quickly to dealers' needs," said Thomas C. Crowley, Executive Vice President and Chief Credit Officer. Of course not every out-of-office strategy requires high technology. Take mortgage counselors. Without occupying any branch space, Evergreen's counselors have added to market share with stronger-than- expected performance: originations increased 32% over 1995. The bank supported its mortgage staff, including an additional counselor in the Capital Region, with several flexible products. A new adjust-able rate mortgage, which locks in a fixed interest rate for the loan's first five years, has generated considerable demand across Evergreen's markets. Also in demand is the Bi-Weekly Mortgage, through which homeowners save on interest payments while paying off their mortgages faster. Deeper into Market Segments "Yes, our key thrust in 1996 was to fill in and expand our market," said Evergreen Chairman and CEO George Dougan. "But if you focus exclusively on geography, you end up with a market a mile wide and an inch deep." Recognizing that, Dougan and his management team have pursued several important market segments. For individuals with high net worth, Evergreen launched Private Banking early in 1996. Providing a complete range of financial services--all coordinated by a Private Banker dedicated to each account--the program taps an important source of both deposits and loans, as well as new trust business. For the middle market, the bank will introduce a new checking package in early 1997. Like Evergreen's Privilege 50 for the mature market, this package will offer such benefits as a low minimum balance, interest-bearing checking, and travel and buyer's discounts, only this time to the single largest segment of Evergreen's market. "Research has shown these packages to be successful in generating new deposit and loan business," Burke said. "They create strong demand in the market by adding value to the standard checking account. Our success with Privilege 50 bears this out." For small and midsize businesses, Evergreen has prepared a major new cash management software product for the coming year. Because it allows businesses to manage their accounts daily, directly from their own offices, cash management extends Evergreen's market boundaries while attracting a greater share of the business market. Like many of the bank's offerings and improvements, this product arose in response to an independently conducted survey of businesses in Evergreen's market. "Cash management positions us as a full-service provider, developing products to give customers what they need," Crowley said. The new product should add to Evergreen's continued success with business clients, success made clear from the numbers. During 1996, the bank originated nearly $70 million in new commercial loans. Especially effective has been the Small Business Term Loan product, part of the Small Business Solution product line. "With this product," cited Crowley, "Evergreen served the small business community by initiating loans that aggregated over $1.75 million in outstandings." According to Crowley, popular products account for only part of Evergreen's success with business. "Because we've placed critical decision makers in each market area, we're much closer to the local and regional businesses we serve. That enhances our standing as a responsive bank." Early in 1997, the bank bolstered its image of responsiveness by achieving Preferred Lending Status with the Small Business Administration. "Our surveys show that small busi-nesses are concerned about the paperwork and time involved in the loan process. The new SBA status resolves those issues." Perhaps the most obvious market segment is the one overlooked by many companies: existing customers. Here, Evergreen's initiatives in database management come into play. "By using our customer database, we can match individuals with specific products they might need," Burke explained. "Through the cross-selling that results, we maximize profitability per existing customer relationship with an efficient use of resources." Happy Customers, Shareholder Value With the right treatment, existing customers quickly become satisfied customers--and therein lies Evergreen's main advantage. "The levels of satisfaction generated by our customer contact personnel exceed those in most industries, including banking," Burke commented. "The value of satisfied customers, of course, is that you retain them for the long term--profitably." Because such customers deliver obvious advantages to Evergreen--repeat business and referrals--they form the basis of shareholder value. "All of our initiatives really come down to one positive result: a growing base of satisfied customers," Dougan asserted. "As long as we provide the services they need, I'm confident they'll continue to help us grow in the years ahead." HUMAN RESOURCES Solving the PRODUCTIVITY PUZZLE To thrive, a bank needs the best people in the most efficient organization. A challenge indeed - but Evergreen has found new ways to solve it. A generation ago, productivity may not have seemed like an enigma; to make a business more productive, simply add resources and serve. How times have changed. In the wake of the market's single-minded drive toward efficiency, bankers face a tough question: how does a bank--how does any company--get the most from its streamlined resources? Evergreen's version of the answer includes several themes: equipping staff for peak performance, allocating resources efficiently and controlling costs vigilantly. Following those themes, the bank's management team realized significant efficiencies in 1996 while shaping the very best staff available. The People Factor Even as it held the number of full-time equivalent employees to forecasted levels, while at the same time growing the bank, top management has devised a range of programs to maximize human resources. Perhaps most notable is Evergreen's innovative Opportunity Shares Program, stock options that employees can exercise upon a stated increase in the stock price. By tying employee compensation directly to the stock's value, Opportunity Shares encourage employees to help boost that value by finding more cost-effective ways of doing things. The new program complements the judicious use of traditional incentives in targeted areas. To boost their bank's value, employees must possess ever sharper skills, both technical and relational. Not surprisingly, Evergreen is quick to develop those skills. As in past years, employees receive continual training: coaching, counseling, management training, software courses and regulatory seminars. The bank's Legendary Service Program not only sets standards but also equips employees to deliver "quality service" to all customers, internal and external. The Integrity Selling Program trains customer contact staff to first identify the needs of customers, then sell them only the offerings that fulfill those needs. "Our experience has shown that if we treat customers this way, they will come back," said Daniel Burke, Senior Vice President, Retail Banking. Unlocking the Tool Box Evergreen has proved equally adept in equipping employees with critical technology. To streamline internal work flows, the bank initiated a complete upgrade of its software system. "Not only does the improvement provide a more user-friendly vehicle," said Tony Koenig, Executive Vice President and Chief Operating Officer, "but it extends the life of the software at a significantly lower cost than a new system." Other improvements were aimed at specific high-volume areas. A new imaging system in loan documentation greatly reduces paper use and speeds responses to customers. At the branch level, a teller automation system will improve customer service throughout Evergreen's marketplace while enhancing safeguards for both the customer account and the bank. Initiated in 1996, the system is scheduled for full implementation by early 1998. The coming year will find Evergreen's managers planning targeted investments in technologies to come--with an eye toward maximizing productivity. "We're not interested in technology for technology's sake," said Koenig. "We will stay tuned in to new technology, and from that, we will use only what improves efficiency, keeps us competitive, and provides a quick return on capital expenditure." Progress in the Cost War Peak performance, of course, only goes so far toward peak productivity. How has Evergreen fared in the other half of the puzzle--the cost war? "Cost control is a constant process, and it requires constant vigilance," said George Fredette, Senior Vice President and Chief Financial Officer. "In that context, I'm pleased to say that we achieved significant savings on several fronts in 1996." A look at Evergreen's initiatives confirms Fredette's claim. Bank officials successfully renegotiated two large vendor contracts, with substantially lower costs the result. Outsourcing for cost reduction has continued in other areas, from document imaging to dealer floor planning audits. "As always, we look to outsource where it makes the most sense--that is, where we truly can cut costs while improving performance," Fredette said. By combining such an approach with the performance-enhancing initiatives mentioned earlier, Evergreen's top managers have begun to create the kind of streamlined organization that delivers value for shareholders. According to Dougan, completing that creation ranks as priority one for Evergreen. "In 1996, we were able to remain efficient and productive, even as we've grown the bank. We fully intend to do the same in the years to come." And by doing so, Evergreen's management may well implement the best answer to the productivity puzzle. The "Community" in "Community Banking" The connection has long been clear. Community involvement boosts shareholder value--especially if you're positioned as a community bank in a region where community is a high priority. Fitting that description, Evergreen has stepped up its involvement even from previous levels. Throughout the marketplace, employees have contributed to efforts that cement the image of the bank as "a good neighbor." For sheer participation, Evergreen's United Way campaign stands among the most notable successes of 1996. Challenged by management to boost their already considerable efforts, employees bankwide responded with a 95% participation rate. "The United Way effort was a perfect example of our employees' ongoing commitment to their communities," remarked John Fullerton, Executive Vice President, Trust & Investment Group. "It's a commitment I see every day at Evergreen." Every day, in many different guises. For instance, bank sponsorship of "The Evergreen Holiday Parade" in South Glens Falls has helped transform the event into one of the region's most popular. Volunteer efforts at public television station WMHT included fundraising and membership recruitment, while the bank served as sponsor for the station's popular auction. The SPCA, girls' softball leagues, arts organizations, local schools, fire departments--Evergreen contributions of time and talents have helped them all. In turn, those contributions have helped Evergreen. "Our involvement creates tremendous customer loyalty," Fullerton said, "because people want to do business with good corporate citizens. As a result, we maintain an unshakable foothold in all our markets. And our reputation works for us when we expand into new markets. Bottom line: our position as a community bank gives us a tremendous advantage." A GALLERY OF LEADERS George W. Dougan Chairman and CEO Evergreen Bancorp, Inc. John W. Bishop Construction Executive Retired Dean V. Chandler* President Agency Insurance Brokers, Inc. Carl R. DeSantis, Sr. Vice Chairman of the Board Evergreen Bancorp, Inc. Vice Chairman and Director Franchise Associates, Inc. Robert F. Flacke President Fort William Henry Corp. Director Finch Pruyn & Co., Inc. Michael D. Ginsburg President Broad Street Carwash, Inc. Partner M & R Ginsburg Partners Samuel P. Hoopes* Director Finch Pruyn & Co., Inc. Vice President, Retired Joan M. Mannix Real Estate Developer Anthony J. Mashuta President Cool Insuring Agency, Inc. Phillip H. Morse Chairman of the Board NAMIC USA Corporation NAMIC International, Inc. Retired William E. Philion President and CEO Glens Falls Hospital Retired Finch Pruyn & Co., Inc. Director NAMIC USA Corporation Director Alan R. Rhodes Attorney Bartlett, Pontiff, Steward & Rhodes P.C. Floyd H. Rourke Chairman of the Board and President Sandy Hill Corp. Retired Director Finch Pruyn & Co., Inc. Paul W. Tomlinson President Salem Farm Supply, Inc. Retired Walter Urda President Irontech Industries, Inc. Henry J.W. Vanderminden III* President and Treasurer Telescope Casual Furniture, Inc. Directors Emeriti F. Earl Bach Gerald J. Buckley Donald S. Creal John V. Hallett Donald D. Hanks Paul E. Lavine Warren E. Rouillard Bjarne G. Soderstrom * Retired from Evergreen Bancorp Board April 1996 Executive Officers George W. Dougan President, Chief Executive Officer and Chairman Paul A. Cardinal Executive Vice President and General Counsel Thomas C. Crowley Executive Vice President and Chief Credit Officer George L. Fredette Senior Vice President and Chief Financial Officer Anthony J. Koenig Executive Vice President and Chief Operating Officer Corporate Management Larry E. Blanchard, Senior Vice President and Director of Auditing Michael P. Brassel Regional President, Plattsburgh Region Daniel J. Burke Senior Vice President, Retail Banking Kenneth J. Cartledge Senior Vice President, Asset Quality Patrick T. Day Vice President and Loan Review Manager John M. Fullerton Executive Vice President, Trust & Investment Barbara B. Glenn Senior Vice President, Human Resources Jeffrey B. Rivenburg Regional President, Capital Region EVERGREEN BANCORP, INC. FINANCIAL REVIEW
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992 SUMMARY OF OPERATIONS: ($000 Omitted) Interest Income $ 70,533 $ 67,171 $ 60,987 $ 62,612 $ 70,708 Interest Expense 29,349 27,572 21,683 24,532 32,951 Net Interest Income 41,184 39,599 39,304 38,080 37,757 Provision for Loan Losses 1,440 1,800 2,211 15,377 13,675 Net Interest Income After Provision for Loan Losses 39,744 37,799 37,093 22,703 24,082 Other Income 6,387 6,224 7,516 8,106 11,476 Other Expenses 30,143 32,600 33,528 35,360 30,545 Income/(Loss) Before Income Taxes 15,988 11,423 11,081 (4,551) 5,013 Applicable Income Taxes/(Benefit) 5,675 3,043 3,816 (1,225) 1,403 NET INCOME/(LOSS) $ 10,313 $ 8,380 $ 7,265 $ (3,326) $ 3,610 PER COMMON SHARE: Net Income/(Loss) $ 1.12 $ .89 $ .77 $ (.36) $ .39 Cash Dividends .43 .23 .03 .10 .38 AVERAGE BALANCE SHEET DATA (UNAUDITED): ($000 Omitted) Total Assets $889,333 $849,824 $838,236 $871,418 $894,192 Loans Net of Unearned Income and Allowance 616,602 562,368 560,998 584,577 618,369 Deposits 766,474 739,254 740,176 775,359 795,803 Stockholders' Equity 83,985 78,987 72,235 70,739 73,810 RETURN ON EQUITY AND ASSETS: Return on Average Assets 1.16% .99% .87% (.38)% .40% Return on Average Equity 12.28 10.61 10.06 (4.70) 4.89 Dividend Payout Ratio 38.58 25.30 3.25 N/A 98.75 Average Equity to Average Asset Ratio 9.44 9.29 8.62 8.12 8.25 All per share data has been adjusted for a two-for-one stock split effected September 16, 1996.
DIVIDEND PER SHARE
1994 0.03 1995 0.23 1996 0.43
RETURN ON ASSETS
1994 0.87% 1995 0.99% 1996 1.16%
RETURN ON EQUITY
1994 10.06% 1995 10.61% 1996 12.28%
OVERVIEW OF PERFORMANCE The principal source of earnings for the Evergreen Bancorp, Inc. is its single banking subsidiary, Evergreen Bank, N.A. All discussions herein refer to the banking activities of the Company's banking subsidiary unless otherwise noted. In 1996, the Company earned $10,313,000 or $1.12 per share compared to 1995 net income of $8,380,000 or $.89 per share. This represents a $1,933,000 increase from the prior year. Pre-tax income in 1996 increased $4,565,000 to $15,988,000, principally because of increased net interest income of $1,585,000, a reduction in the provision for loan losses of $360,000, and decreases in FDIC insurance expense and professional fees of $1,063,000 and $545,000, respectively. Income tax expense increased to $5,675,000, an increase of $2,632,000 over the 1995 level of $3,043,000. The increase in income tax expense is largely attributable to increased income and the fact that during the third quarter of 1995, the Company derived significant tax benefits from the completion of a bulk sale (the "Bulk Sale") of certain performing and non-performing assets for $13,250,000. Net income for 1995 increased $1,115,000 when compared to 1994 earnings, largely because of lower non-interest expenses and taxes. Average assets for 1996 totaled $889.3 million, an increase of $39.5 million, or 4.7% from 1995 average of $849.8 million. This compares to the 1995 increase from 1994 of $11.6 million, or 1.4%. The return on average assets in 1996 was 1.16%, as compared to .99% and .87% in 1995 and 1994, respectively. The year-to-year increase in the return on average assets is primarily due to increased levels of net income. The return on average stockholders' equity was 12.3% in 1996, as compared to 10.6% and 10.1% for 1995 and 1994, respectively. On September 29, 1995, Evergreen consummated the Bulk Sale of certain performing and non-performing loans and Other Real Estate Owned (OREO) for approximately $13,250,000. The assets sold carried a net book value of approximately $20,000,000 and the loan loss reserve was reduced by approximately $6,345,000 as a result of the sale. In addition the Company recognized additional write downs on OREO and fees from the sale of approximately $900,000. NET INTEREST INCOME Net interest income represents the most significant component of the Company's earnings. Changes in net interest income from period to period result from increases or decreases in the average balances (volume) of earning assets and interest bearing liabilities, increases or decreases in the average rates earned and paid on such assets and liabilities, the Company's ability to manage its earning asset portfolio and the availability of particular sources of funds and investment opportunities. The Analysis of Variance in Net Interest Income Due to Volume and Rates exhibit on page 15 presents an analysis of the increases and decreases in interest income and interest expense which resulted from changes in volume and changes in rates during the periods presented herein. Net interest income on a taxable equivalent basis for 1996 increased $1,209,000 or 3.0%, from that for 1995. This increase resulted primarily from an increase in average earning assets. Average earning assets increased $38.7 million or 4.8% from 1995 levels. This increase resulted primarily from higher levels of taxable loans which increased $53.3 million on average. The increase in loans was primarily funded by decreases in average Fed Funds and increases in average balances in interest bearing deposits. The increase in net interest income due to volume was somewhat offset by a lower net interest margin. The net interest margin on a tax equivalent basis decreased by 9 basis points to 4.98% in 1996 compared to 5.07% in 1995. The yield on average earning assets decreased 4 basis points from 8.51% in 1995 to 8.47% in 1996. Average rates paid on interest bearing liabilities increased 7 basis points to 4.20% in 1996 from 4.13% in 1995. In 1995 the net interest margin decreased 7 basis points from 5.14% in 1994. The decrease in yield on taxable loans is due to a shift in loans from commercial loans to lower yielding consumer and mortgage products. Funding provided by interest bearing liabilities was concentrated in time deposits and long term debt. Average balances in these categories increased $32.7 million and $10.3 million respectively. This higher cost source of funding is the principal cause of the increase in average rates paid on interest bearing liabilities. ANALYSIS OF VARIANCE IN NET INTEREST INCOME DUE TO VOLUME AND RATES The following table sets forth the dollar amounts of interest income (on a taxable equivalent basis) and interest expense and changes therein resulting from changes in volume and changes in rate. The change in interest due to both rate and volume has been allocated to change due to volume and change due to rate based on the percentage relationship of such variances to each other.
1996 vs. 1995 1995 vs. 1994 TOTAL INCREASE/(DECREASE) TOTAL INCREASE/(DECREASE) INCREASE/ DUE TO CHANGE IN INCREASE/ DUE TO CHANGE IN (DECREASE) VOLUME RATE (DECREASE) VOLUME RATE INTEREST EARNED: ($000 Omitted) Loans Taxable $4,120 $4,863 $(743) $ 4,791 $ (73) $4,864 Tax-Exempt (534) (280) (254) 4 (45) 49 Investment Securities Taxable 707 384 323 481 (20) 501 Tax-Exempt (745) (874) 129 (315) (100) (215) Federal Funds Sold (549) (423) (126) 1,041 895 146 Interest Bearing Deposits (13) (13) -- 10 (3) 13 Change in Total Interest Income 2,986 3,657 (671) 6,012 654 5,358 INTEREST EXPENSE INCURRED: Regular Savings, NOW and MMDAs (306) (185) (121) (1,251) (1,832) 581 Time Deposits 1,704 1,783 (79) 6,533 3,368 3,165 Short-Term Borrowings (351) (257) (94) 296 118 178 Long-Term Debt 730 709 21 311 110 201 Change in Total Interest Expense 1,777 2,050 (273) 5,889 1,764 4,125 CHANGE IN NET INTEREST INCOME $1,209 $1,607 $(398) $ 123 $(1,110) $1,233
NET INTEREST INCOME--AVERAGE RATES AND YIELDS
($000 Omitted) 1996 1995 1994 INTEREST INTEREST INTEREST AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE ASSETS Loans Taxable $614,558 $55,991 9.11% $561,276 $51,871 9.24% $562,149 $47,080 8.38% Tax Exempt 14,552 1,130 7.77 17,840 1,664 9.33 18,329 1,660 9.06 Securities Held to Maturity and Securities Available for Sale Taxable 185,319 12,243 6.61 179,435 11,536 6.43 179,761 11,055 6.15 Tax Exempt 10,763 1,034 9.61 19,952 1,779 8.92 20,985 2,094 9.98 Federal Funds Sold 15,160 812 5.36 22,864 1,361 5.95 7,261 320 4.41 Interest Bearing 88 4 4.55 373 17 4.56 579 7 1.21 Deposits with Banks Total Earning Assets 840,440 71,214 8.47 801,740 68,228 8.51 789,064 62,216 7.89 Allowance for Loan Losses (12,508) (16,748) (19,480) Cash and Due from Banks 30,010 28,436 30,808 Other Non-Earning Assets 31,391 36,396 37,844 TOTAL ASSETS $889,333 $849,824 $838,236 LIABILITIES AND STOCKHOLDERS' EQUITY Regular Savings, NOW and MMDAs $340,951 $ 9,495 2.78% $347,575 $ 9,801 2.82% $413,426 $11,052 2.67% Time Deposits 331,403 18,069 5.45 298,703 16,365 5.48 229,915 9,832 4.28 Short-Term Borrowings 3,536 181 5.12 8,220 532 6.47 5,855 236 4.03 Long-Term Debt 23,255 1,604 6.90 12,970 874 6.74 11,029 563 5.10 Total Interest Bearing Liabilities 699,145 29,349 4.20 667,468 27,572 4.13 660,225 21,683 3.28 Demand Deposits 94,120 92,976 96,835 Other Liabilities 12,122 9,098 8,941 Stockholders' Equity 83,946 80,282 72,235 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $889,333 $849,824 $838,236 Net Interest Income (Tax Equivalent Basis) 41,865 40,656 40,533 Tax Equivalent Adjustment (681) (1,057) (1,229) Net Interest Income $41,184 $39,599 $39,304 NET INTEREST RATE SPREAD 4.27% 4.38% 4.61% NET INTEREST MARGIN 4.98% 5.07% 5.14% Non-accrual loans are included in the above analysis and the related income on these loans is deemed immaterial. Portions of income earned on certain Commercial Loans, U.S. Government Obligations and Obligations of State and Political Subdivisions are exempt from Federal and/or State taxation. Appropriate adjustments have been made to reflect the equivalent amount of taxable income that would have been necessary to generate an equal amount of after tax income. The taxable equivalent adjustment is based on a marginal Federal income tax rate of 35% in 1996 and 1995, and 34% in 1994 along with a marginal State income tax rate of 9.225%, 9.675%, and 10.125% in 1996, 1995 and 1994 respectively. For the purposes of this analysis, Securities Available for Sale are stated at average amortized cost and Stockholders' Equity is unadjusted for the effects of SFAS No. 115.
ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses increased $.3 million from $12.1 million at December 31, 1995 to $12.4 million at December 31, 1996 reflecting a stable loan loss experience even with an 8.6% increase in average outstanding loans. During 1995 the allowance decreased $6.6 million from $18.8 million at December 31, 1994, because of the net charge off of $6.3 million taken as a result of the Bulk Sale. The Bulk Sale and other resolutions of non-performing loans has caused the Com-pany's ratios of allowance for loan losses to non-performing loans to steadily improve. The provision for loan losses amounted to $1.4 million for 1996 compared to $1.8 million for 1995, a decrease of $.4 million, or 20%. The reduced provision, from year earlier levels, reflects the reduction of non-performing loans from the levels of the previous years. The allowance for loan losses represents amounts available for future credit losses and reflects management's ongoing detailed review of certain individual credits, as well as analysis of the historic net charge off experience of the portfolio, an evaluation of current and anticipated economic conditions, peer group statistics and other pertinent factors. Loans (or portions thereof) deemed uncollectible are charged against the allowance, while recoveries of amounts previously charged off are added to the allowance. Provisions for loan losses charged to earnings are added to the allowance. Amounts are charged off once the probability of loss has been determined, with consideration given to factors such as the customer's financial condition, underlying collateral and guarantees, and general and industry economic conditions. The following table summarizes year-end loan balances, average loans outstanding and changes in the allowance for loan losses due to loan losses, recoveries and additions charged to expense:
($000 Omitted) YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 Amount of Loans Outstanding End of Year (Less Unearned Income) $654,888 $592,198 $577,329 $577,351 $620,979 Average Loans Outstanding During Year (Less Average Unearned Income) $629,110 $579,116 $580,478 $603,356 $629,014 Balance of Allowance at Beginning of Year $ 12,115 $ 18,752 $ 18,754 $ 13,357 $ 8,842 Loans Charged Off: Commercial, Financial and Agricultural (298) (8,569) (4,021) (10,597) (8,625) Real Estate (189) (227) (283) (321) (257) Consumer (1,227) (742) (477) (919) (741) Total Loans Charged Off (1,714) (9,538) (4,781) (11,837) (9,623) Recoveries of Loans Previously Charged Off: Commercial, Financial and Agricultural 389 881 2,275 1,586 219 Real Estate 12 16 84 43 42 Consumer 151 204 209 228 202 Total Recoveries 552 1,101 2,568 1,857 463 Net Loans Charged Off (1,162) (8,437) (2,213) (9,980) (9,160) Additions to Allowance Charged to Operating Expense 1,440 1,800 2,211 15,377 13,675 BALANCE OF ALLOWANCE AT END OF YEAR $ 12,393 $ 12,115 $ 18,752 $ 18,754 $ 13,357 Net Charge-Offs as Percent of Average Loans Outstanding During Year (Less Average Unearned Income) .18% 1.46% .38% 1.65% 1.46% Net Charge-Offs as Percent of Allowance at Beginning of Year 9.59 44.99 11.80 74.72 103.60 Allowance as Percent of Loans Outstanding at End of Year (Less Unearned Income) 1.89 2.05 3.25 3.25 2.15 Allowance as Percent of Non-Performing Loans Outstanding at End of Year (Less Unearned Income) 232.12 204.92 96.54 50.48 24.63
Evergreen Bancorp, Inc. OTHER (NON-INTEREST) INCOME Non-interest income increased $163,000 or 2.6% in 1996 as compared to 1995 which was a decrease of $1,292,000 from 1994. Service charges on deposit accounts increased $21,000 and $24,000 in 1996 over 1995, and 1995 over 1994, respectively. Trust Department fees increased $169,000 or 7.6% in 1996, following a decrease of $177,000 in 1995. Net losses on security transactions of $6,000, $137,000 and $93,000 during 1996, 1995 and 1994, respectively were the result of management's decision to replace certain under performing securities. Miscellaneous other income decreased $158,000 or 11.6% in 1996 after a decrease of $1,095,000 in 1995 or 44.7%. The decrease in other income in 1995 verses 1994 was caused primarily by a $152,000 liquidating dividend received by the Company from its past data processor, a $202,000 gain on the sale of the credit card merchant portfolio in 1994 and $662,000 of merchant discount income earned prior to the sale. Management does not see a material change in the trend of other income in the foreseeable future.
($000 Omitted) 1996 1995 1994 Trust Department Fees $2,382 $2,213 $2,390 Services Charges on Deposit Accounts 2,812 2,791 2,767 Net Loss on Security Transactions (6) (137) (93) Miscellaneous Other Income 1,199 1,357 2,452 TOTAL $6,387 $6,224 $7,516
EFFICIENCY RATIO
1994 71.6% 1995 71.1% 1996 63.4%
OTHER (NON-INTEREST) EXPENSES Non-interest expense decreased $2,457,000 or 7.5% in 1996 and $928,000 or 2.8% in 1995 from prior year levels. The decreases were primarily due to reductions in FDIC insurance during 1996 and 1995 and a reduction in net loss of other real estate and professional fees during 1996. Salaries and benefits, which represent the largest portion of non-interest expense, recorded an increase of $232,000 or 1.5% in 1996 and $677,000, or 4.5%, in 1995. 1995's increase over 1994 was primarily the result of merit increases and expenses associated with the Corporate reduction in force. The full time equivalent staff was 398, 392 and 428 at year-end 1996, 1995 and 1994, respectively. The full time equivalent staff increased by approximately 10 in late 1996 with the opening of the Latham branch and the employment of staff for the pending opening of the Clifton Park branch. FDIC insurance expense was essentially eliminated and decreased $1,063,000 in 1996. In 1995, FDIC Insurance decreased $938,000 or 46.8%. No FDIC insurance is currently required to be paid in 1997. However, legislation to recapitalize the Savings and Loan Insurance Fund requires Bank Insurance Fund members to contribute to the repayment of FICO bonds. Evergreen's contribution is anticipated to be at least $100,000 in 1997. Data processing increased $329,000, or 15.7%, in 1996 after remaining stable from 1994 to 1995. The increase relates to the outsourcing of the items processing function in December 1995. Professional fees decreased $545,000 or 33% in 1996 and $251,000, or 13.1%, in 1995, principally because of a decreased utilization of lawyers and consultants engaged to assist in the reduction of non-performing assets. Total non-interest expense as a percentage of average assets was 3.4%, 3.8% and 4.0% in 1996, 1995 and 1994, respectively. This ratio decreased primarily due to decreases in FDIC insurance, professional fees and net losses on other real estate. Management, except as noted above, does not anticipate a material change in the trend of other non-interest expenses in the foreseeable future.
($000 Omitted) 1996 1995 1994 Salaries & Benefits $16,041 $15,809 $15,132 FDIC Insurance 2 1,065 2,003 Data Processing 2,421 2,092 2,092 Professional Services 1,114 1,659 1,910 Occupancy 2,009 2,017 1,819 Furniture & Equipment 1,856 1,852 1,881 Advertising 907 729 878 Net (Gain)/Loss on Other Real Estate (86) 781 869 Supplies and Printing 819 1,038 760 Miscellaneous Other Expenses 5,060 5,558 6,184 TOTAL $30,143 $32,600 $33,528
INCOME TAXES Income tax expense for 1996 was $5.7 million compared to income tax expense of $3.0 million in 1995. The effective income tax rates were 35%, 27% and 34% for 1996, 1995 and 1994, respectively. The marginal rate for Federal Income Taxes was 35% in 1996 and 34% in 1995 and 1994. Income taxes for financial reporting purposes differ from the amount computed by applying the statutory rate to income before taxes. The difference is due primarily to tax-exempt income from certain loans and investment securities and nondeductible expenses. The decrease in the effective tax rate for 1995 is primarily a result of New York State tax benefits resulting from the Bulk Sale and the re-evaluation of reserves related to deferred Federal tax assets in light of the sale. Refer to Note 9 of the Notes to Consolidated Financial Statements for a more comprehensive analysis of the provision for income taxes. The Company accounts for income taxes in conformity with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. SFAS No. 109 adopts what is known as the liability method of accounting for deferred taxes. The liability method requires recognition of a tax liability, or asset, for the deferred tax consequences of events that have occurred at the date of the financial statements. Subsequent changes in tax rates and other tax law provisions are to be reflected in the measurement of those tax liabilities and assets and are to be recognized in net income when the changes are enacted. SECURITIES The Company's securities portfolio in the aggregate totaled to $197.2 million at December 31, 1996, a $16.7 million decrease from 1995's balance of $213.9 million. In 1995, the aggregate securities portfolio increased by $17.1 million from 1994. The decrease during 1996 was primarily associated with strong retail loan demand throughout the year. The increase in the securities portfolio in 1995 was largely attributed to the Company's improved liquidity, due primarily to proceeds from the Bulk Sale and moderate loan demand. Securities held to maturity comprise approximately 10% of the aggregate securities portfolio at December 31, 1996. This is consistent with management's objective to maintain flexibility and adequate liquidity by classifying most securities as available for sale. The following table displays the distribution of the securities portfolio by major category and maturity: Securities Available for Sale & Securities Held to Maturity As of December 31, 1996:
($000 Omitted) TOTAL SECURITIES U.S. TREASURY STATE AND AVAILABLE FOR SALE AND & AGENCY POLITICAL SUBDIVISIONS OTHER SECURITIES HELD TO MATURITY AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST YIELD VALUE COST YIELD VALUE COST YIELD VALUE COST YIELD VALUE 0-1 year $ 34,686 6.27% $ 34,742 $ 2,102 6.56% $ 2,131 $ 6 4.11% $ 7 $ 36,794 6.28% $ 36,880 1-5 years 98,936 6.73 99,327 3,728 6.81 3,908 3,023 6.19 2,980 105,687 6.72 106,215 5-10 years 20,791 7.10 20,746 4,948 8.46 5,548 -- -- -- 25,739 7.36 26,294 Over 10 years 28,703 7.40 28,554 204 5.30 213 -- -- -- 28,907 7.39 28,767 TOTAL $183,116 6.79% $183,369 $10,982 7.48% $11,800 $3,029 6.19% $2,987 $197,127 6.82% $ 98,156 Avg. Maturity: 3.0 years 4.1 years 3.0 years 3.1 years Includes $141,021 of mortgage-backed securities which are secured by agencies of the U.S. government.
LOANS The total loan portfolio, net of unearned income, increased $62.7 million to $654.9 million at the end of 1996 compared to $592.2 million at year end 1995. Increases in residential real estate and consumer loans were offset by continued decreases in commercial loan balances. Commercial loans decreased by $5.4 million in 1996 to a balance of $225.0 million, following a decrease of $26.8 million in 1995 to $230.4 million. The decrease in the commercial loan portfolio in 1995 and 1994 was accompanied by significant improvements in the credit quality of the loan portfolio, as management resolved significant portions of its non-performing loans through workouts and also, in 1995, the Bulk Sale. During 1996, the commercial loan portfolio remained relatively stable as the economy in which the Company operates remained flat. Meaningful growth in the commercial loan portfolio is dependent on improved economic conditions in the upstate New York regions in which the Company operates. Residential mortgage loans increased to $280.8 million at December 31, 1996, a $36.3 million increase over 1995's balance of $244.6 million. In 1995, residential mortgage loans increased by $14.8 over 1994. The increases in 1996 and 1995 were attributable to improved efforts in residential loan origination. Consumer loans increased to $146.5 million at December 31, 1996, a $31.7 million increase over 1995's balance of $114.9 million. The significant increase in consumer loans in 1996 and 1995 was due primarily to the products such as the Touch-Tone Loan Program, and continued penetration into the automobile dealer indirect markets. The most significant portion of the new consumer loans in 1996 and 1995 were secured by first liens on automobiles. However, in 1996, the continued success of the Touch-Tone Loan Program decreased the proportion of the Company's consumer loans that are secured. Consumer loans increased by $27.5 million in 1995 over 1994. The following table sets forth the classification of the Evergreen's consolidated loans, net of unearned income, by major category:
($000 Omitted) DECEMBER 31, 1996 1995 1994 1993 1992 Commercial $224,955 $230,373 $257,152 $301,756 $359,137 Real Estate Construction 2,265 1,992 2,574 2,538 2,127 Real Estate Mortgage 280,833 244,575 229,799 204,276 194,535 Installment 146,528 114,874 87,352 67,794 63,899 Other 307 384 452 987 1,281 TOTAL LOANS $654,888 $592,198 $577,329 $577,351 $620,979
NON-PERFORMING ASSETS Non-performing assets consist of non-performing loans, other real estate and other forms of repossessed assets. Non-performing loans are composed of (1) loans on a non-accrual basis, (2) loans which are contractually past due 90 days or more as to interest or principal payments but have not been classified as non-accrual and (3) loans whose terms have been restructured to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. The Company's policy with regard to non-accrual loans varies by the type of loan involved. Generally, commercial, financial and agricultural loans are placed on a non-accrual status when they are 90 days past due unless they are well secured and in the process of collection, or regardless of the past due status of the loan when management determines that the complete recovery of principal and interest is in doubt. As a matter of general policy, consumer loans are charged off after they become 120 days past due unless they are well secured and in the process of collection; however, in some instances, consumer loans are classified non-accrual when payments are past due 120 days. Mortgage loans are not generally placed on a non-accrual basis unless it is determined that the value or marketability of real estate securing the loans has deteriorated to the point that a potential loss of principal or interest exists. Once a loan is on a non-accrual basis, interest is recorded only as received and only if the loan principal is deemed fully collectible. Interest payments received on loans not deemed fully collectible are applied against the principal balance until management determines that the principal balance is fully collectible. Interest previously accrued on non-accrual loans which has not been paid is reversed and charged against income during the period in which the loan is placed on non-accrual status. Interest on restructured loans is only recognized in current income at the renegotiated rate and then only to the extent that such interest is deemed collectible. Non-performing assets were $7,033,000 at December 31, 1996. This represents a decrease of $2,739,000 from $9,772,000 at December 31, 1995. Non-performing loans decreased $573,000 since December 31, 1995 to $5,339,000 at December 31, 1996. The 1996 decrease in non-performing assets was primarily the result of the sale from OREO of the remaining Hiland Park property. Other real estate net of transfers, losses and write-downs, decreased $2,308,000 since December 31, 1995 to $1,476,000 at December 31, 1996. Non-accrual loans decreased $779,000 from $4,571,000 at December 31, 1995 to $3,792,000 at December 31, 1996. Management continually evaluates the adequacy of the collateral on non-performing loans and charges off that portion of the loan not considered recoverable. Management considers restructuring a loan when the facts and circumstances indicate that working with the borrower will maximize potential for principal repayment while minimizing the risk of loss. At December 31, 1996 the Company is carrying only one restructured loan totaling $133,000. That loan is in compliance with the renegotiated terms. The Following Table Presents Information Concerning Non-Performing Assets:
($000 Omitted) DECEMBER 31, 1996 1995 1994 1993 1992 COMMERCIAL LOANS Non-Accrual $3,425 $4,191 $13,951 $32,299 $43,236 Past Due 90 Days and Still Accruing 45 387 1,053 1,430 5,878 Restructured 133 138 2,656 1,476 3,196 Total Non-Performing Commercial 3,603 4,716 17,660 35,205 52,310 RESIDENTIAL REAL ESTATE LOANS Non-Accrual 180 334 188 406 14 Past Due 90 Days and Still Accruing 946 491 1,172 1,255 1,125 Total Non-Performing Residential Mortgage 1,126 825 1,360 1,661 1,139 INSTALLMENT LOANS Non-Accrual 187 46 -- -- 44 Past Due 90 Days and Still Accruing 423 325 405 282 731 Total Non-Performing Installment 610 371 405 282 775 Total Non-Performing Loans 5,339 5,912 19,425 37,148 54,224 Other Real Estate 1,476 3,784 10,319 2,750 1,798 Repossessed Assets--Other 218 76 178 606 930 TOTAL NON-PERFORMING ASSETS $7,033 $9,772 $29,922 $40,504 $56,952 NON-PERFORMING ASSETS AS A PERCENT OF TOTAL LOANS-- NET OF UNEARNED INCOME 1.07% 1.65% 5.18% 7.02% 9.17% NON-PERFORMING LOANS AS A PERCENT OF TOTAL LOANS-- NET OF UNEARNED INCOME .82% 1.00% 3.36% 6.43% 8.73%
Of the $3.8 million of loans in non-accrual status as of December 31, 1996, approximately $3.4 million represents loans which are secured, primarily by real estate. At December 31, 1996, the allowance for loan losses as a percent of total non-performing loans was 232.1 percent. This compares to 204.9 percent at December 31, 1995. The coverage percent at December 31, 1996, compares favorably to that ratio for peer group institutions. In addition to the total non-performing loans set forth above, other "classified" loans were $15.6 million at December 31, 1996, compared to $13.5 million at December 31, 1995. These are loans for which management has information which indicates that the borrower may not be able to comply with present payment terms. Since there is some doubt about the ability of these borrowers to comply with payment terms, management has taken these loans under greater consideration in determining the adequacy of the allowance for loan losses. CAPITAL At December 31, 1996, and 1995, stockholders' equity was $85.4 million and $83.0 million, respectively. This represents an increase of $2.4 million, or 2.9%. This compares to an increase of $9.4 million, or 12.8%, for 1995 versus to 1994. The 1996 increase primarily represents the retention of $6.3 million of earnings in 1996. During 1996, the Company paid $4.0 million in dividends or $.43 per share and purchased approximately 345,000 shares of treasury stock at a cost of $4.4 million. The adequacy of the Company's capital is reviewed by management on an ongoing basis in relation to the size, composition and quality of the Company's resources and in conjunction with regulatory guidelines and industry standards. In early 1990, United States bank regulators issued guidelines with respect to the capital adequacy of banks and bank holding companies. These guidelines supplement the existing definitions of capital for regulatory purposes and establish minimum capital standards related to the level of assets and off-balance sheet exposures, adjusted for credit risk. Specifi-cally, the guidelines categorize assets on and off balance sheet into four risk-weightings and require banking institutions to maintain minimum ratios of capital to risk-weighted assets. Tier 1 capital is essentially comprised of tangible stockholders' equity for common stock and certain perpetual preferred stock, and Total capital includes a portion of the reserve for loan losses, certain qualifying long-term debt and preferred stock that does not qualify as Tier 1. The regulatory minimum for Tier 1 capital is 4.0% of risk-adjusted assets while the minimum for Total capital is 8.0%. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and the Federal Deposit Insurance Corporation Improvement Act (FDICIA) are laws enacted that have or will change various aspects of the banking industry. In part these laws deal with regulatory oversight and reporting. The following table sets forth the Company's risk based capital ratios as of December 31, 1996 and 1995, and the minimum regulatory guidelines effective for year-end 1996:
EVERGREEN EVERGREEN MINIMUM REGULATORY BANCORP, INC. BANCORP, INC. REGULATORY RATIOS DEC. 31, 1996 DEC. 31, 1995 GUIDELINES Leverage Ratio 9.2% 9.5% 3.0% Tier 1 13.7 14.0 4.0 Total Capital 14.9 15.2 8.0
RATE OF INTERNAL CAPITAL GENERATION
1996 1995 1994 Return on Average Assets 1.16% .99% .87% Average Equity to Average Assets 9.44 9.29 8.62 Return on Average Equity 12.28 10.61 10.06 Earnings Retention Ratio 61.42 74.70 96.75 Internal Capital Generation Ratio 7.54 7.93 9.73 Return on average equity times earnings retention ratio equal internal capital generation ratio.
LIQUIDITY Liquidity represents a banking enterprise's continuing ability to meet its funding needs, such as loan demand and the maturity or withdrawal of deposits and other financial obligations. In addition to maintaining liquid assets, factors such as capital position, profitability, asset quality and availability of funding, affect a bank's ability to meet its liquidity needs. The Company's primary sources of liquidity continue to be federal funds sold, securities available for sale and investment securities maturing within one year. The securities available for sale portfolio was created in 1992 largely from securities previously held as investment securities. The available for sale portfolio is carried at estimated fair value and is available to support funding requirements. Other sources of liquidity include repayment of loans and the federal funds market (a system that banks use to trade surplus funds). There is also balance sheet liquidity in the form of assets that can collateralize securities to be offered for sale or borrowings. The Company, through the bank subsidiary, has the availability to borrow up to $85.1 million from the Federal Home Loan Bank of New York (FHLB) (upon purchase of required FHLB stock) through its line of credit program. In addition, the subsidiary bank is eligible to borrow up to 30% of assets under the FHLB advance program subject to FHLB stock level requirements, collateral requirements and individual advance approvals based on FHLB credit standards. The Company also has the availability to borrow up to $8.5 million at the Federal Reserve Discount Window along with informal federal funds purchase agreements with correspondent banks of up to $13.0 million. When the Company experiences a net outflow of funds, maturing certificates of deposit with other banks and maturing long-term investments are not reinvested until sufficient excess funds are available. The Company during 1996 sold on average $15.2 million daily in federal funds, in contrast, purchases and other short-term borrowings averaged $3.5 million. Net cash provided by operating activities was $15.3 million for 1996 as compared to $15.1 million for 1995. Net cash used by investing activities was $49.3 million in 1996 compared to net cash used of $29.0 million in 1995. This increase is primarily a result of net increases in loans, net of loan sales, compared to the prior year of $38.4 million. Net cash provided by financing activities increased $23.5 million to $46.5 million in 1996. This increase is primarily a result of a $50.6 million increase in deposits and $2.9 million in additions to long-term debt. The level of cash and cash equivalents was $56.1 million at December 31, 1996. The Parent Company (see Note 17 to the financial statements) held cash and readily liquefiable assets of $2.1 million. ASSET/LIABILITY MANAGEMENT The Company, in order to insure that the risk to earnings from changes in interest rates is maintained within acceptable limits, manages these risks through its asset/liability management function. Asset/liability management at Evergreen consists primarily of, the interest rate sensitivity "gap" analysis, and simulations of net interest income under alternative balance sheet structures incorporating a "rate shock" to measure earnings volatility due to an immediate increase or decrease in market interest rates of up to 200 basis points. The Company has established guidelines for acceptable levels of interest rate risk and monitors the effects of changing interest rates and potential changes in interest rates on a continuous basis under the supervision of the corporate Asset/Liability Committee. The following table shows the interest rate sensitivity gaps as of December 31, 1996:
BALANCE MATURING OR SUBJECT TO REPRICING AFTER 3 MO. AFTER 1 YEAR WITHIN BUT WITHIN BUT WITHIN AFTER AT DECEMBER 31, 1996 3 MONTHS 1 YEAR 5 YEARS 5 YEARS TOTAL ($000 Omitted) INTEREST-EARNING ASSETS: Securities Available for Sale at Amortized Cost $ 27,871 $ 38,424 $ 93,848 $ 16,956 $177,099 Securities Held to Maturity 599 2,341 14,779 2,309 20,028 Total Loans 225,086 110,192 242,422 77,188 654,888 Other Earning Assets 22,935 -- -- -- 22,935 Total Earning Assets 276,491 150,957 351,049 96,453 874,950 Excess Fair Value Over Cost of Securities Available for Sale 41 Other Assets 53,658 TOTAL ASSETS $928,649 INTEREST-BEARING LIABILITIES: Savings, NOW and MMDA $143,150 $ -- $207,612 $ -- $350,762 Time Deposits 133,711 100,968 119,075 3,603 357,357 Short-Term Debt 3,846 -- -- -- 3,846 Long-Term Debt 262 200 17,965 7,811 26,238 Total Interest-Bearing Liabilities 280,969 101,168 344,652 11,414 738,203 Demand Deposits 92,737 Other Liabilities & Equity 97,709 Total Liabilities & Equity $928,649 INTEREST RATE SENSITIVITY GAP $ (4,478) $ 49,789 $ 6,397 $ 85,039 CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (4,478) $ 45,311 $ 51,708 $136,747 $136,747
Interest rate gap analysis provides a static viewpoint of the repricing characteristics of the entire balance sheet. It is prepared by scheduling assets and liabilities into time bands based on their next opportunity to reprice. In computing the interest rate sensitivity gap, securities available for sale and securities held to maturity are determined to reprice at the earlier of maturity (including scheduled monthly principal repayments and anticipated principal prepayments of securities collateralized by mortgages) or the contractual repricing date. Monthly amortization and prepayments of fixed rate mortgage loans have been adjusted to reflect anticipated principal repayments above contractual terms, all other loans are presented based on contractual terms. Savings, NOW and Money Market Deposit Accounts are allocated based on management assumptions as to their interest rate sensitivity over an entire interest rate cycle even though they are subject to immediate withdrawal. At December 31, 1996 the Company exhibited a positive, or asset sensitive, gap position. Consequently, if interest rates fall, and all other variables remained fixed, it may be assumed that net interest income would decrease. Were rates to increase, net interest income might be expected to increase if all other variables remained constant. Simple gap analysis measures the Company's exposure at a particular point in time. Moreover, gap analysis does not adequately reveal timing differences within broad time frames, delays in the repricing of certain assets or liabilities when market rates change, or changes in spreads between different markets. Accordingly, management supplements its gap analysis with simulation analysis of net interest income under a variety of alternative market interest rate scenarios. The Company's simulation modeling indicates the potential changes to net interest income under the various rate shock scenarios employed are well within the guidelines of acceptable levels. The Company does not currently utilize derivative instruments such as interest rate options, futures, or swaps to manage the Company's interest rate risk, although it may do so from time to time in the future. The following table sets forth the maturities of the Company's consolidated loan portfolio, excluding Real Estate Mortgage, Installment, and Other Loans (loans are categorized based on the contract time period rather than based on when the loan reprices):
($000 Omitted) Within Within After Loans at December 31, 1996, Maturing: 1 Year 1 to 5 Years 5 Years Total Commercial $ 49,242 $ 97,893 $ 77,820 $ 224,955 Real Estate Construction 2,265 -- -- 2,265 Total $ 51,507 $ 97,893 $ 77,820 $ 227,220 Loans Maturing After 1 Year: With Pre-Determined Interest Rate $ 34,339 With Floating Interest Rate 141,374 Total $ 175,713 Includes demand loans having no stated schedule of prepayments and no stated maturity and certain time loans that, in the ordinary course of business, will be renewed, in whole or in part as to principal amount, at interest rates prevailing at the date of renewal.
CAPITAL EXPENDITURES AND COMMITMENTS The Company has significant capital expenditure commitments outstanding at December 31, 1996. Plans to open two new branches and relocate an existing branch during 1997 are expected to require capital expenditures of approximately $1 million. In addition, the Company plans to undertake technology improvements including an upgrade to teller platforms, an imaging system and upgrades to other computer systems throughout the organization during 1997. The cost of these technology upgrades is estimated to approximate $1 million. Finally, general branch and facilities upgrades and refurbishment are anticipated to require expenditures approximating $700 thousand during 1997. During 1996, the Company incurred $3.3 million in capital expenditures. $1.8 million was spent on purchasing and refurbishing a new branch and regional headquarters in Latham, New York. The balance was utilized to acquire office furniture, data processing equipment and software. Capital expenditures of $1.3 million in 1995 consisted of substantially the same type items as 1996. DESCRIPTION OF BUSINESS Evergreen Bancorp, Inc. is registered as a bank holding company with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956. It is regulated and supervised by the Board of Governors of the Federal Reserve System. The Company has as its principal assets, the outstanding shares of Evergreen Bank, N.A. Outside of its ownership of Evergreen Bank, N.A., Evergreen Bancorp owns only a nominal amount of assets, including an inactive venture capital subsidiary. Evergreen Bank, N.A.'s principal banking office is located at 237 Glen Street, Glens Falls, New York. In addition it operates 25 branches located in seven counties in northeastern New York State as well as drive-in facilities in Glens Falls and Granville and a separate operations center in downtown Glens Falls. At December 31, 1996 Evergreen Bank, N.A. had assets of $920.1 million, deposits of $800.9 million and equity of $81.4 million. Evergreen Bank, N.A. is a member of the Federal Reserve System and is subject to regulations and supervision by the Federal Reserve and the Comptroller of the Currency. Through Evergreen Bank, N.A., the holding company engages in commercial and retail banking as well as trust services. A complete range of banking services is provided including all forms of demand deposits, time deposits and repurchase agreements as well as consumer, mortgage, business and agricultural loans. Evergreen Bank, N.A. offers safe deposit facilities, night depository, credit cards and collection services. In addition, Evergreen Bank, N.A. facilitates municipal bond transactions for customers and provides computer services with respect to payroll processing and account reconciliation. Evergreen Venture Capital, Inc. was formed for the purpose of financing small businesses with high growth potential. This subsidiary is currently inactive and has no assets, liabilities or equity as of December 31, 1996. Evergreen Real Estate Appraisers, formed for the purpose of performing appraisals of residential and commercial properties, was liquidated during 1995. CONSOLIDATED STATEMENTS OF INCOME
($000 Omitted) (Except Per Share Data) For the years ended December 31, 1996 1995 1994 Interest Income $ 56,794 $ 52,971 $ 48,231 Interest and Fees on Loans Interest and Dividends on Securities Available for Sale and Held to Maturity: U.S. Government and Agency Obligations 11,369 10,550 9,594 State and Municipal Obligations 1,095 1,718 2,179 Other 459 554 656 Interest on Balances with Banks 4 17 7 Interest on Federal Funds Sold 812 1,361 320 Total Interest Income 70,533 67,171 60,987 Interest Expense Interest on Deposits: Regular Savings, NOW and Money Market Deposit Accounts 9,495 9,801 11,052 Certificates of Deposit (in Denominations of $100,000 or More) 3,713 3,492 1,419 Other Time 14,356 12,873 8,413 Interest on Short-Term Borrowings 181 532 236 Interest on Long-Term Debt 1,604 874 563 Total Interest Expense 29,349 27,572 21,683 Net Interest Income 41,184 39,599 39,304 Provision for Loan Losses 1,440 1,800 2,211 Net Interest Income after Provision 39,744 37,799 37,093 for Loan Losses Other Income Trust Department Income 2,382 2,213 2,390 Service Charges on Deposit Accounts 2,812 2,791 2,767 Net Losses on Security Transactions (6) (137) (93) Other 1,199 1,357 2,452 Total Other Income 6,387 6,224 7,516 Other Expense Salaries and Employee Benefits 16,041 15,809 15,132 FDIC Insurance 2 1,065 2,003 Professional Services 1,114 1,659 1,910 Net Occupancy Expense of Bank Premises 2,009 2,017 1,819 Furniture and Equipment Expense 1,856 1,852 1,881 Net (Gain)/Loss on Other Real Estate (86) 781 869 Other 9,207 9,417 9,914 Total Other Expense 30,143 32,600 33,528 Income Before Income Taxes 15,988 11,423 11,081 Applicable Income Taxes 5,675 3,043 3,816 Net Income $ 10,313 $ 8,380 $ 7,265 Average Net Shares Outstanding 9,229,000 9,430,000 9,456,000 Net Income Per Common Share $ 1.12 $ .89 $ .77 Per share data have been adjusted for the two-for-one stock split. See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CONDITION ($000 Omitted) As of December 31, 1996 1995 Assets Cash and Cash Equivalents: Cash and Due from Banks $ 33,430 $ 31,021 Federal Funds Sold 22,700 12,600 Total Cash and Cash Equivalents 56,130 43,621 Securities Available for Sale 177,140 190,785 Securities Held to Maturity 20,028 23,128 Loans 659,153 599,037 Less: Allowance for Loan Losses (12,393) (12,115) Unearned Income (4,265) (6,839) Net Loans 642,495 580,083 Bank Premises and Equipment 15,278 13,694 Other Real Estate Owned 1,476 3,784 Other Assets 16,102 16,328 Total Assets $ 928,649 $ 871,423 Liabilities and Stockholders' Equity Deposits: Demand $ 92,737 $ 97,380 Regular Savings, NOW Accounts and Money Market Deposit Accounts 350,762 340,218 Certificates of Deposit (In Denominations of $100,000 or More) 79,808 70,614 Other Time 277,549 242,012 otal Deposits 800,856 750,224 Short-Term Borrowings 3,846 3,260 Accrued Taxes and Other Liabilities 12,270 11,419 Long-Term Debt 26,238 23,475 Total Liabilities 843,210 788,378 Stockholders' Equity Common Stock $3.33 Par Value: Shares Authorized 20,000,000, Shares Issued 9,633,966 in 1996 and 9,621,966 in 1995 32,113 16,036 Surplus 6,787 6,680 Undivided Profits 53,149 63,065 Market Over Cost of Securities Available For Sale Net of Deferred Tax 24 474 Common Stock Subscribed by ESOP (808) (967) Treasury Stock (514,158 shares in 1996 and 244,538 shares in 1995) (5,826) (2,243) Total Stockholders' Equity 85,439 83,045 Total Liabilities and Stockholders' Equity $ 928,649 $ 871,423 See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($000 Omitted) Market Common Over/(Under) Stock Common Undivided Cost of Subscribed Treasury Stock Surplus Profits Securities By ESOP Stock Total Balance at January 1, 1994 $ 15,785 $ 5,840 $ 49,782 $ -- $ (1,264) $ (258) $ 69,885 Net Income--1994 -- -- 7,265 -- -- -- 7,265 Cash Dividends ($.03 per share) -- -- (236) -- -- -- (236) Stock Issued (59,578 shares) 99 301 -- -- -- -- 400 Stock Vested in ESOP -- -- -- -- 144 -- 144 Change in Valuation Allowance on Securities -- -- -- (3,857) -- -- (3,857) Balance at December 31, 1994 15,884 6,141 56,811 (3,857) (1,120) (258) 73,601 Net Income--1995 -- -- 8,380 -- -- -- 8,380 Cash Dividends ($.23 per share) -- -- (2,126) -- -- -- (2,126) Stock Issued (91,460 shares) 152 539 -- -- -- -- 691 Purchase of Treasury Stock (205,818 shares) -- -- -- -- -- (1,985) (1,985) Stock Vested in ESOP -- -- -- -- 153 -- 153 Change in Valuation Allowance on Securities -- -- -- 4,331 -- -- 4,331 Balance at December 31, 1995 16,036 6,680 63,065 474 (967) (2,243) 83,045 Net Income--1996 -- -- 10,313 -- -- -- 10,313 Cash Dividends ($.43 per share) -- -- (3,979) -- -- -- (3,979) Stock Issued (12,000 shares) 21 107 -- -- -- -- 128 Two-for-One Stock Split 16,056 -- (16,056) -- -- -- -- Stock Grants, Awards and Options Exercised (75,392 shares) -- -- (194) -- -- 803 609 Purchase of Treasury Stock (345,012 shares) -- -- -- -- -- (4,386) (4,386) Stock Vested in ESOP -- -- -- -- 159 -- 159 Change in Valuation Allowance on Securities -- -- -- (450) -- -- (450) Balance at December 31, 1996 $ 32,113 $ 6,787 $ 53,149 $ 24 $ (808) $ (5,826) $ 85,439 See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 Omitted) For the Years Ended December 31, 1996 1995 1994 Cash Flows from Operating Activities Net Income $ 10,313 $ 8,380 $ 7,265 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Net Change in Unearned Loan Fees 50 52 123 Net Change in Other Assets and Other Liabilities 2,308 707 89 (Gain)/Loss on Sale of Loans, Securities and Other Real Estate (287) 136 43 (Increase)/Decrease in Deferred Tax Benefit (932) 1,489 (210) Write-Down of Other Real Estate 279 781 869 Loss on Disposition of Assets 164 -- 31 Depreciation 1,533 1,515 1,572 Provision for Loan Losses 1,440 1,800 2,211 Amortization of Premiums & Accretion of Discounts on Securities, Net 433 214 767 Net Cash Provided By Operating Activities 15,301 15,074 12,760 Cash Flows From Investing Activities Proceeds from Sales of Securities Available for Sale 6,753 8,404 24,872 Proceeds from Maturities of Securities Available for Sale 51,517 42,278 34,172 Purchases of Securities Available for Sale (45,794) (73,505) (46,606) Proceeds of Maturities of Securities Held to Maturity 8,077 23,021 3,043 Purchases of Securities Held to Maturity (4,996) (10,361) (10,670) Proceeds from Sales of Loans 3,124 18,480 6,676 Change in Check Overdraft Receivables 223 331 100 Proceeds from Sales of Other Real Estate 2,911 8,340 2,300 Net Increase in Loans (67,838) (44,754) (19,778) Capital Expenditures (3,281) (1,263) (732) Net Cash Used by Investing Activities (49,304) (29,029) (6,623) Cash Flows From Financing Activities Net Increase/(Decrease) in Deposits 50,632 14,403 (207) Net Increase/(Decrease) in Short-Term Borrowings 586 (1,158) (5,382) Payments on Long Term Debt (7,078) (341) (5,283) Proceeds from Issuance of Long-Term Debt 10,000 13,500 7,200 Proceeds from Issuance of Common Stock 737 691 400 Payments for Purchase of Treasury Shares (4,386) (1,985) -- Dividends Paid (3,979) (2,126) (236) Net Cash Provided/(Used) by financing Activities 46,512 22,984 (3,508) Net Increase in Cash and Cash Equivalents 12,509 9,029 2,629 Cash and Cash Equivalents at Beginning of Year 43,621 34,592 31,963 Cash and Cash Equivalents at End of Year $ 56,130 $ 43,621 $ 34,592 Supplemental Disclosure of Cash Flows Interest Paid $ 28,973 $ 28,271 $ 21,366 Taxes Paid $ 6,678 $ 3,388 $ 4,068
Certain properties which were foreclosed upon or title was otherwise transferred to the Company were transferred from loans to other real estate in the amount of $589,000, $2,586,000 and $10,738,000 in 1996, 1995, and 1994, respectively. The Company borrowed $1,600,000 which was used to subscribe for common stock of the Company in 1990. Payments were made on the ESOP loan in the amount of $159,000, $153,000 and $144,000 in 1996, 1995 and 1994, respectively. As a result of the adoption of SFAS No. 115, securities available for sale are recorded at fair value. The unrealized gain on these securities was $41,000 at December 31, 1996. The adjustment to stockholders' equity for the unrealized gain was $24,000 net of deferred income tax expense of $17,000 which is included as a decrease in the deferred tax asset. At December 31, 1995 securities available for sale had an unrealized gain of $790,000. The adjustment to stockholders' equity, net of deferred income tax expense of $316,000, was $474,000. See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Evergreen Bancorp, Inc. (Company) and its subsidiaries, are in accordance with generally accepted accounting principles and general practices within the banking industry. The following is a summary of the significant accounting policies used in the preparation of the consolidated financial statements. Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of significant inter-company accounts and transactions. Securities Management determines the appropriate classification of securities at the time of purchase. If management has the positive intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as securities held to maturity and carried at amortized historical cost. If securities are purchased for the purpose of selling them in the near term, they are classified as a trading securities and are reported at fair value with unrealized holding 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 and losses reported, net of income taxes, as a separate component of stockholders' equity. Premiums are amortized and discounts accreted using a method which approximates the level-yield method. Gains or losses on security transactions are based on the adjusted cost of specific securities sold. Securities gains and losses are included in other income. Loans Loans are stated at the principal amount outstanding, net of unearned discount and deferred fees. Interest on loans is computed by methods which result in level rates of return on principal amounts outstanding. Net deferred fees are amortized as yield adjustments using methods that provide for a constant level-yield on the loan. Commercial loans which are 90 days past due are placed on a non-accrual status unless they are well secured and in the process of collection, or regardless of the past due status of the loan when management determines that the complete recovery of principal and interest is in doubt. Consumer loans are generally charged off after they become 120 days past due. Mortgage loans are not generally placed on a non-accrual basis unless the value of the real estate has deteriorated to the point that a potential loss of principal or interest exists. Amortization of related deferred fees is suspended when a loan is placed on a non-accrual status. As of January 1, 1995, the Company has adopted the provisions of SFAS No. 114 and SFAS No. 118 and has provided the required disclosures. These Statements prescribe recognition criteria for loan impairment and measurement methods for certain impaired loans, and loans whose terms are modified in a troubled debt restructuring subsequent to the adoption of SFAS No. 114. The adoption of SFAS No. 114 and SFAS No. 118 did not have a material effect on the Company's consolidated financial position or results of operations. In May 1995, the Financial Accounting Standards Board issued SFAS No. 122, Accounting for Mortgage Servicing Rights, which amends SFAS No. 65, Accounting for Certain Mortgage Banking Activities. SFAS No. 122 requires that entities recognize as separate assets, the right to service mortgage loans for others, regardless of how those servicing rights are acquired. Additionally, SFAS No. 122 requires that the capitalized mortgage servicing rights be assessed for impairment based on the fair value of those rights, and that impairment, if any, be recognized through a valuation allowance. The Company adopted SFAS No. 122 in the first quarter of 1996. The adoption of SFAS No. 122 did not have a material effect on the Company's consolidated financial position or results of operations. Allowance for Loan Losses The allowance for loan losses is utilized to absorb losses in the loan portfolio. Provisions for loan losses are charged to operating expense and added to the allowance for loan losses. Losses are charged to the allowance and recoveries are credited to it. As a result of the adoption of SFAS No. 114, the allowance for loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The allowance is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the present portfolio. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgements of information available to them at the time of examination. Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation and amortization of bank premises and equipment and leasehold improvements are calculated primarily by the straight-line method over an estimated useful life ranging from 3 to 40 years for financial reporting purposes and by accelerated methods for income tax purposes. Other Real Estate Includes real estate held for sale which has been acquired through foreclosure or a similar conveyance of title. These assets are reported at fair value at acquisition date, and subsequently reported at the lower of its new cost basis or fair value less estimated costs to sell. Fair value is determined by appraisal of the asset. Any asset writedown at the date of acquisition is charged to the allowance for loan losses. Subsequent write down, gain or expense incurred is included in other non-interest expense. In May 1995, the Financial Accounting Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Various assets are excluded from the scope of SFAS No. 121, including financial instruments which constitute the majority of the Company's assets. For long-lived assets included in the scope of SFAS No. 121, such as premises and equipment, an impairment loss must be recognized when the estimate of total undiscounted future cash flows attributable to the asset is less than the asset's carrying amount. Measurement of the impairment loss is determined by reducing the carrying amount of the asset to its fair value. Long-lived assets to be disposed of such as other real estate or premises to be sold, are reported at the lower of carrying amount or fair value less cost to sell. The Company adopted SFAS No. 121 in the first quarter of 1996. The adoption of SFAS No. 121 did not have a material effect on the Company's consolidated financial statements. Income Taxes Certain income and expense items are reported in different time periods for financial statement purposes, than for income tax purposes. Deferred income taxes are provided in recognition of such differences. The Financial Accounting Standards Board issued statement No. 109, Accounting for Income Taxes, which changed the Company's method of accounting for income taxes from the deferred method required under APB 11 to the asset and liability method. Retirement Plans The employees of the Company and its subsidiaries are covered by non-contributory pension plans which cover substantially all employees. Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125 (SFAS No. 125), which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on consistent application of a financial components approach that focuses on control. In addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being classified as held to maturity if the security can be prepaid or settled in such a manner that the holder of the security would not recover substantially all of its recorded investment. The extension of the SFAS No. 115 approach to certain non-security financial assets and the amendment to SFAS No. 115 are effective for financial assets held on or acquired after January 1, 1997. Effective January 1, 1997, SFAS No. 125 will supersede SFAS No. 122. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996. Management believes the adoption of SFAS No. 125 will not have a material impact on the Company's consolidated financial statements. Earnings Per Share Earnings per common share is based on the daily average of common shares outstanding during each year. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which establishes a fair value based method of accounting for employee stock options, such as the Company's stock option plans, or similar equity instruments. Under SFAS No. 123, entities can recognize stock-based compensation expense in the basic financial statements using either (i) the intrinsic value based approach set forth in the APB Opinion No. 25 or (ii) the fair value based method introduced in SFAS No. 123. Entities electing to remain with the accounting in APB Opinion 25, must make pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting defined in SFAS No. 123 had been applied. Under APB Opinion No. 25, compensation expense is determined based upon the option's intrinsic value, or the excess (if any) of the market price of the underlying stock at the measurement date over the amount the employee is required to pay. Under the fair value based method introduced by SFAS No. 123, compensation expense is based on the option's estimated fair value at the grant date and is generally recognized over the vesting period. Manage-ment has elected to continue to measure stock-based compensation costs in accordance with APB Opinion No. 25 and adopted the pro forma disclosure requirements of SFAS No. 123 in 1996. These disclosures are provided in Note 12. Statement of Cash Flows Cash and cash equivalents as shown in the Consolidated Statements of Condition and Statements of Cash Flow consist of cash, balances due from banks and federal funds sold. Financial Instruments The Company is a party to certain financial instruments with off balance sheet risk such as commitments to extend credit and standby letters of credit. The Company's policy is to record such instruments when funded. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE 2 CASH BALANCES Cash balances on deposit at the Federal Reserve to meet regulatory requirements amounted to $7,207,000 on December 31, 1996 and $6,584,000 on December 31, 1995. NOTE 3 SECURITIES The amortized cost and estimated fair value of securities available for sale at December 31, 1996 by maturity, are shown in the accompanying table. Securities available for sale are listed by contractual maturity except for collateralized mortgage obligations which are listed by average life. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities available for sale carried at $159,197,000 on December 31, 1996 and $143,261,000 on December 31, 1995 were pledged to secure public deposits, short-term repurchase agreements, and for other purposes. Proceeds from sales of securities available for sale during 1996, 1995 and 1994 were $6,753,000, $8,404,000, and $24,872,000 respectively. Gross gains of $31,000, $31,000 and $133,000 and gross losses of $57,000, $168,000 and $226,000 were realized on those sales during 1996, 1995 and 1994, respectively. At January 1, 1996, the net unrealized gain on securities available for sale, net of the income tax effect, was $474,000. At December 31, 1996, the net unrealized gain on securities available for sale, net of the income tax effect, was $24,000 representing a $450,000 decrease from January 1, 1996. At December 31, 1995 securities available for sale had an unrealized gain of $790,000. The adjustment to stockholders' equity net of deferred income tax benefit of $316,000, was $474,000.
($000 Omitted) Estimated Amortized Fair Cost Value Due in one year or less $ 34,692 $ 34,749 Due after one year through five years 101,959 102,307 Due after five years through ten years 11,745 11,530 Due after ten years -- -- Mortgage-backed securities due after ten years 28,703 28,554 Total $177,099 $177,140
Securities Available For Sale at December 31, 1996, and 1995 were as follows:
($000 Omitted) 1996 1995 Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value U.S. Government & Agency Obligations $ 33,049 $ 156 $ 18 $ 33,187 $ 28,783 $ 418 $ 7 $ 29,194 Mortgage-backed Securities 141,021 803 858 140,966 157,386 1,303 831 157,858 Other Securities 3,029 2 44 2,987 3,826 1 94 3,733 Total $177,099 $ 961 $ 920 $177,140 $189,995 $ 1,722 $ 932 $190,785
Securities Held to Maturity at December 31, 1996 and 1995 were as follows:
($000 Omitted) 1996 1995 Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value U.S. Government & Agency Obligations $ 9,046 $ 170 $ -- $ 9,216 $ 4,085 $ 113 $ -- $ 4,198 State & Political Subdivisions 10,982 818 -- 11,800 19,043 1,275 1 20,317 Total $ 20,028 $ 988 $ -- $ 21,016 $ 23,128 $ 1,388 $ 1 $ 24,515
The amortized cost and estimated fair value of Securities Held to Maturity at December 31, 1996 by maturity, are shown in the accompanying table. Securities Held to Maturity are listed by contractual maturity. Expected maturities will differ from contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities Held to Maturity carried at $17,744,000 on December 31, 1996 and $16,437,000 on December 31, 1995 were pledged to secure public deposits, short-term repurchase agreements, and for other purposes. Gross gains of $20,000 were realized on securities called during 1996. There were no proceeds from sales recorded during 1996, 1995 or 1994.
($000 Omitted) Estimated Amortized Fair Cost Value Due in one year or less $ 2,102 $ 2,131 Due after one year through five years 3,728 3,908 Due after five years through ten years 13,994 14,764 Due after ten years 204 213 Total $ 20,028 $ 21,016
NOTE 4 LOANS Loans at December 31, 1996 and 1995 were as follows:
($000 Omitted) 1996 1995 Commercial $225,420 $230,771 Real Estate Mortgage 283,664 247,183 Installment 149,745 120,654 Other 324 429 659,153 599,037 Less: Allowance for Loan Losses 12,393 12,115 Unearned Income 4,265 6,839 16,658 18,954 Net Loans $642,495 $580,083
The following table presents information concerning non-performing loans:
($000 Omitted) December 31, 1996 1995 1994 Non-Accrual $ 3,792 $ 4,571 $ 14,139 Past due 90+ days 1,414 1,203 2,630 Restructured 133 138 2,656 Total $ 5,339 $ 5,912 $ 19,425
At December 31, 1996 and 1995 the recorded investment in loans considered to be impaired under SFAS No. 114 was $3,792,000 and $4,571,000, respectively. Included in these amounts is $586,000 and $341,000, respectively, of impaired loans for which the related allowance for credit losses is $134,000 and $201,000, respectively. Also included are $3,206,000 and $4,230,000, respectively of impaired loans, that as a result of write downs, do not have an allowance for credit losses. The average recorded investment in impaired loans during the years ended December 31, 1996 and 1995 was approximately $4,151,000 and $10,708,000, respectively. For the years ended December 31, 1996 and 1995 the Company recognized interest income on those impaired loans of $342,000, and $41,000, respectively, which is recognized using the cash basis method of income recognition. Interest that would have been recorded on the non-accrual and restructured loans had they remained current, would have been $454,000, $634,000, and $1,656,000, in 1996, 1995 and 1994, respectively. Of those amounts, $140,000, $195,000, and $333,000 were recognized as interest income. There were no unused loan commitments on non-accrual and restructured loans at December 31, 1996. Certain directors and executive officers of the Company and its subsidiaries, including their immediate families and companies of which they were principal owners, had loan transactions with the subsidiary bank. Such loans were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as comparable loans made to others. Total loans to these persons and companies at December 31, 1996 and 1995, respectively, amount to $11,800,000 and $12,941,000. During 1996, $2,948,000 of new loans were made, repayments of $4,089,000 were received. NOTE 5 ALLOWANCES FOR LOAN LOSSES Changes in the allowance for loan losses for the years ended December 31, 1996, 1995 and 1994 were as follows:
($000 Omitted) 1996 1995 1994 Balance at beginning of year $ 12,115 $ 18,752 $ 18,754 Provision for loan losses 1,440 1,800 2,211 Recoveries during period 552 1,101 2,568 Losses charged to allowance (1,714) (9,538) (4,781) Balance at end of year $ 12,393 $ 12,115 $ 18,752
NOTE 6 BANK PREMISES AND EQUIPMENT Premises and equipment at December 31, 1996 and 1995 were as follows:
($000 Omitted) 1996 1995 Land $ 2,230 $ 1,975 Buildings 16,342 15,531 Furniture, fixtures and equipment 11,762 12,032 30,334 29,538 Less accumulated depreciation (15,056) (15,844) Premises and equipment, net $ 15,278 $ 13,694
Depreciation expense amounted to $1,533,000 in 1996, $1,515,000 in 1995, and $1,572,000 in 1994. NOTE 7 SHORT-TERM BORROWINGS Short-term interest bearing liabilities, including Securities Sold Under Agreements to Repurchase, with maturities of less than one year and their related average interest rates for the years ended December 31, 1996, 1995 and 1994 were as follows:
($000 Omitted) 1996 1995 1994 Average Average Average Amount outstanding at Dec. 31, Amount Int. Rate Amount Int. Rate Amount Int. Rate Securities Sold Under Agreement to Repurchase $ 1,016 4.85% $ 400 5.23% $ 1,418 3.53% Other 2,830 5.15% 2,860 5.15% 3,000 5.21% Total $ 3,846 5.07% $ 3,260 5.16% $ 4,418 4.75% Maximum amount outstanding at any month end $ 14,997 5.55% $ 13,225 5.63% $ 26,129 4.44% Average amount outstanding during the year $ 3,536 5.12% $ 8,220 6.47% $ 5,855 4.03%
NOTE 8 LONG-TERM DEBT Long-term debt at December 31, 1996 and 1995 consisted of:
($000 Omitted) 1996 1995 IDA Revenue Bonds $ -- $ 1,805 Fixed Rate Note 96 123 Federal Home Loan Bank 25,334 20,580 ESOP Loan 808 967 Total long-term debt $ 26,238 $ 23,475
Contractual principal payments due under long-term debt:
($000 Omitted) 1997 $ 462 1998 492 1999 522 2000 6,604 2001 10,347 2002 and years thereafter 7,811
The fixed rate note was issued in connection with the purchase of an operational facility. The note carries an 8% interest rate and matures in 1999. The ESOP loan is a floating rate loan which carried a rate of 8.25% at December 31, 1996, and matures in 2000. The Federal Home Loan Bank of New York debt consists of four separate advances with terms as follows; a $6,000,000 note with a fixed rate of 5.94% maturing in December of the year 2000; an amortizing advance with a current balance of $7,283,000 with a rate of 6.67% and a final maturity in October of the year 2005; an amortizing advance with a current balance of $2,051,000, a rate of 6.97% and a final maturity in April of the year 2009, and a $10,000,000 note with a fixed rate of 6.44% which matures in the year 2001. During 1996 the outstanding IDA bonds were called in accordance with the terms of the Bond agreement. NOTE 9 INCOME TAXES Deferred income tax assets and liabilities are computed based on temporary differences between the financial reporting basis and tax basis of assets and liabilities that result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. The components of the income tax provision are presented as follows:
($000 Omitted) 1996 1995 1994 Current tax expense: Federal $ 5,190 $ 1,162 $ 3,077 State 1,417 392 949 Total current tax expense 6,607 1,554 4,026 Deferred tax (benefit)/expense: Federal (932) 1,489 (210) State -- -- -- Total deferred tax (benefit)/expense (932) 1,489 (210) Total income taxes expense $ 5,675 $ 3,043 $ 3,816
A reconciliation from income taxes at the statutory rate to the effective tax included in the Consolidated Statement of Income for the years ended December 31, 1996, 1995 and 1994, is as follows:
($000 Omitted) 1996 1995 1994 % Pretax % Pretax % Pretax Amount Income Amount Income Amount Income Tax expense at statutory rate $ 5,596 35% $ 3,851 34% $ 3,768 34% Effect of tax exempt interest income (408) (3) (699) (6) (635) (6) State income taxes, net of federal income tax benefit 921 6 259 2 626 6 Deferred tax valuation reserve decrease (143) (1) (425) (3) (29) -- Other, net (291) (2) 57 -- 86 -- Total income tax expense $ 5,675 35% $ 3,043 27% $ 3,816 34%
Under Statement 109, the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996, 1995 and 1994 were as follows:
($000 Omitted) 1996 1995 1994 Deductible Taxable Deductible Taxable Deductible Taxable Temporary Temporary Temporary Temporary Temporary Temporary Differences Differences Differences Differences Differences Differences Pension and deferred remuneration $ 2,598 $ -- $ 2,235 $ -- $ 2,089 $ -- Deferred loan fees, net 211 -- 394 -- 409 -- Provision for loan losses 3,906 -- 3,700 -- 5,900 -- Valuation of other real estate 415 -- 395 -- 293 -- Unused AMT credit carry forward -- -- -- -- 425 -- Lease financing -- -- -- 14 -- 33 Depreciation -- 372 -- 351 -- 387 Prepaid expenses -- 183 -- 291 -- 715 Other, net 287 -- 5 -- 6 -- Total 7,417 555 6,729 656 9,122 1,135 Valuation reserve (1,311) -- (1,454) -- (1,879) -- Deferred tax asset 6,106 -- 5,275 -- 7,243 -- Deferred tax liability -- $ 555 -- $ 656 -- $ 1,135 Net deferred tax asset at December 31, 5,551 4,619 6,108 Net deferred tax asset at January 1, 4,619 6,108 5,898 Deferred tax benefit/(expense) year ended December 31, $ 932 $(1,489) $ 210
The net deferred tax asset, as shown above, does not include the deferred tax liability of $17,000 and $316,000 at December 31, 1996 and 1995, respectively, or the deferred tax asset of $2,572,000 at December 31, 1994 related to the tax effects of the unrealized appreciation in 1996 and 1995 and depreciation in 1994 of the available for sale investment portfolio. The valuation reserve, established by management at December 31, 1996, 1995 and 1994 considered the historical level of taxable income in the prior years as well as the time period that the items giving rise to the net deferred tax asset will turn around. The net deferred tax asset at December 31, 1996, 1995 and 1994 does not reflect the potential state deferred tax benefit of the net deductible temporary differences noted above. NOTE 10 OTHER OPERATING EXPENSES The components of Other Operating Expenses are as follows:
($000 Omitted) 1996 1995 1994 Data processing $ 2,421 $ 2,092 $ 2,092 Advertising 907 729 878 Supplies and printing 819 1,038 760 Other 5,060 5,558 6,184 Total $ 9,207 $ 9,417 $ 9,914
NOTE 11 DIVIDEND RESTRICTIONS Under the National Bank Act, the approval of the Office of the Comptroller of the Currency ("OCC") is required if dividends declared by subsidiary bank in any year exceed the net profits of that year, as defined, combined with the retained net profit for the two preceding years. At December 31, 1996, Evergreen's subsidiary bank could, without approval of the OCC, declare dividends aggregating $7,028,000, plus 1997 income. NOTE 12 STOCKHOLDERS' EQUITY During 1985 the Company adopted its Incentive Stock Option Plan, under which up to 405,000 shares of common stock may be granted. During 1989, the Company adopted its stock incentive plan under which up to 270,000 shares of common stock may be issued. During 1995 the Company adopted its Stock Incentive Plan under which up to 600,000 shares of common stock may be issued. Also during 1995 the Company adopted its Director's Stock Option Plan under which up to 60,000 shares of common stock may be issued. Payment for shares purchased under these plans may be made in cash or common stock of the Company at fair market value. All stock options have ten year terms and, except for opportunity shares, vest and become fully exercisable one year from the date of grant. Opportunity shares become vested when the market price of the Company stock reaches $20.75 or after five years, whichever occurs first. The unexercised options have not been included in the calculation of earnings per share because the effect is immaterial. Of the 546,432 options outstanding at December 31, 1996, 297,500 are exercisable. At December 31, 1996 there were 389,100 additional shares available for grant under the Plans. The following table shows the activity for the option plans for the years ended December 31, 1996 and 1995:
$ 5.57 2,000 2,000 -- -- -- -- -- -- 2,000 2,000 $ 6.25 57,000 67,000 -- -- 23,000 10,000 -- -- 34,000 57,000 $ 6.36 8,850 8,850 -- -- 450 -- -- -- 8,400 8,850 $ 6.38 600 600 -- -- -- -- -- -- 600 600 $ 7.13 128,500 177,000 -- -- 24,000 48,500 -- -- 104,500 128,500 $ 7.25 3,000 7,000 -- -- -- 4,000 -- -- 3,000 3,000 $ 7.65 33,000 -- -- 38,000 11,000 3,000 -- 2,000 22,000 33,000 $ 8.06 90,000 102,000 -- -- -- 12,000 -- -- 90,000 90,000 $ 8.38 6,000 -- -- 6,000 2,400 -- -- -- 3,600 6,000 $ 8.59 17,850 17,850 -- -- 9,450 -- -- -- 8,400 17,850 $ 8.72 21,000 -- -- 21,000 -- -- -- -- 21,000 21,000 $ 10.98 -- -- 4,800 -- -- -- -- -- 4,800 -- $ 11.25 -- -- 98,500 -- -- -- -- -- 98,500 -- $ 15.75 -- -- 145,632 -- -- -- -- -- 145,632 --
The per share weighted average fair value of stock options granted during 1996 and 1995 was $3.71 and $2.01 on the date of grant using the Black Scholes option pricing model. The weighted average assumptions used for 1996 and 1995 included an expected dividend yield of 3.63% and 3.37%, respectively, risk free interest rates of 5.64% and 6.42%, respectively, expected lives of 4.9 and 4.7 years, respectively and an expected stock volatility of 32.8% and 35.3%, respectively. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly no compensation cost has been recognized for stock options granted in the financial statements. Had the Company determined compensation costs based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income and earnings per share, net of tax effect, would have been reduced to the pro forma amounts indicated below:
($000 Omitted) 1996 1995 Net Income - As Reported $ 10,313 $ 8,380 - Pro Forma 9,758 8,320 Earnings Per Share - As Reported 1.12 .89 - Pro Forma 1.06 .88
Pro forma net income and earnings per share reflect all options granted in 1996 and 1995 as if they vested within one year. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is reflected in the pro forma amounts presented. During 1996 the Company granted certain executive officers the right to receive 16,000 shares of common stock. In accordance with the terms of the grant the officers will receive 1/3 of the shares granted in each 1997, 1998 and 1999 depending on their continued employment through those years. In March 1995, the Company announced a program to repurchase common shares in an amount not to exceed 5% of the then outstanding shares, at an aggregate purchase price not to exceed $4.75 million. Under the program shares were repurchased from time to time, at managements discretion, in the open market or through negotiated transactions. The Company completed this program in the second quarter of 1996 having purchased approximately 437,000 shares at a cost of approximately $4.7 million. On July 18, 1996 The Company announced a new repurchase program authorizing purchases of an additional 4% of issued shares or approximately 386,000 shares, at market prices. Since the implementation of the program the Company has purchased 114,000 shares at a cost of $1,643,000. On August 15, 1996 The Company's Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend. The effect of the transaction on the Consolidated Statements of Financial Condition was to increase common stock and reduce retained earnings by $16,056,000. The closing price per share for the Company's stock was $16.38 at December 31, 1996. Regulatory Capital Requirements OCC capital regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 1996, the Bank was required to maintain a minimum leverage ratio of Tier I (core) capital to total adjusted assets of 3.00%; and minimum ratios of Tier I capital and total capital to risk weighted assets of 4.00% and 8.00%, respectively. The Federal Reserve Board ("FRB") has adopted similar requirements for the consolidated capital of bank holding companies. Under its prompt corrective action regulations, the OCC is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an under capitalized institution. Such actions could have a direct material effect on an institution's financial statements. The regulations establish a framework for the classification of banks into five categories: well capitalized, adequately capitalized, under capitalized, significantly under capitalized and critically under capitalized. Generally, an institution is considered well capitalized if it has a Tier I (core) capital ratio of at least 5.0% (based on total adjusted assets), a Tier I risk based capital ratio of at least 6.0%, and a total risked based capital ratio of at least 10.0%. The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCC about capital components, risk weighting and other factors. As of December 31, 1996, the Bank and Company meet all capital adequacy requirements to which they are subject. Further, the most recent OCC notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank's capital classification. The following is a summary of actual capital amounts and ratios as of December 31, 1996 for the Bank and the Company (on a consolidated basis), compared to the requirements for minimum capital adequacy and for classification as well capitalized.
Requirements For Minimum Classification Capital As Well Actual Adequacy Capitalized Amount Ratio Ratio Ratio Tier I (core) capital: Evergreen Bank, N.A. $ 81,067 8.8% 3.0% 5.0% Evergreen Bancorp, Inc. 85,152 9.2 3.0 5.0 Tier I Risk Based Capital: Evergreen Bank, N.A. $ 81,067 13.2% 4.0% 6.0% Evergreen Bancorp, Inc. 85,152 13.7 4.0 6.0 Total Risk Based Capital: Evergreen Bank, N.A. $ 88,816 14.4% 8.0% 10.0% Evergreen Bancorp, Inc. 93,005 14.9 8.0 10.0
NOTE 13 EMPLOYEE BENEFIT PLANS The Company maintains a trusteed non-contributory pension plan covering substantially all full-time employees. Assuming retirement at age 65 after 30 years or more of service, the benefits are computed as the sum of forty three and one-half percent of average compensation, as defined in the plans, for the highest three consecutive years in the final ten years of service ("compensation base") plus fifteen percent of such compensation base in excess of covered compensation. The annual benefit is proportionately reduced for each year of credited service less than thirty years. The amounts contributed to the plan are determined annually on the basis of (a) the maximum amount that can be deducted for federal income tax purposes or (b) the amount certified by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Assets of the plan are primarily invested in common stock and government securities. The following table sets forth the plan's funded status and amounts recognized in the Company's statements of condition at December 31, 1996, 1995 and 1994.
($000 Omitted) 1996 1995 1994 Actuarial Present Value of Benefit Obligations: Accumulated benefit obligation, including vested benefits of $9,451,000 in 1996, $9,834,000 in 1995, and $8,080,000 in 1994 $ (9,547) $ (9,886) $ (8,116) Projected benefit obligation for service rendered to date $ (11,496) $ (12,298) $ (10,382) Plan assets at fair value 13,777 12,239 10,045 Plan assets in excess/(deficit) of projected benefit obligation 2,281 (59) (337) Unrecognized prior service cost 144 153 162 Unrecognized net (gain) from past experiences different from that assumed (3,846) (1,519) (992) Unrecognized net asset at January 1, 1987 being recognized over 22.5 years (191) (206) (222) Accrued Pension Cost $ (1,612) $ (1,631) $ (1,389) Net Pension Cost for 1996, 1995 and 1994 Included the Following Components: Service cost-benefits earned during the period $ 591 $ 414 $ 510 Interest cost on projected benefit obligation 794 794 750 Actual return on plan assets (2,005) (881) (706) Net amortization and deferral 1,001 (13) (6) Net Periodic Pension Cost $ 381 $ 314 $ 548
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.5 percent and 4.0 percent for 1996, 7.0 percent and 4.0 percent for 1995, and 8.0 percent and 4.5 percent for 1994. The expected long-term rate of return on assets was 8.0 percent in 1996 and 1995 and 9.0 percent in 1994. During 1995, in addition to the net periodic pension cost, the Company recognized pension expense of $137,000 from curtailments and special termination benefits associated with the Company's reduction in force. The Company also maintains a profit sharing plan covering all employees. For the years 1996, 1995 and 1994 there was no provision charged to operations for the profit sharing plan. There are also executive supplemental retirement plans. The plans' funded status and amounts recognized in the Company's consolidated financial statements are as follows:
($000 Omitted) 1996 1995 1994 Actuarial Present Value of Benefit Obligations: Accumulated benefit obligation $ (1,820) $ (1,509) $ (1,358) Projected benefit obligation for service rendered to date $ (1,957) $ (1,509) $ (1,358) Plan assets at fair value -- -- -- Projected benefit obligation in excess of plan assets (1,957) (1,509) (1,358) Unrecognized prior service cost 359 -- -- Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 176 250 128 Unrecognized net obligations at the beginning of the year being recognized over 15 years 82 99 115 Additional liability recognized (480) (349) (243) Accrued Pension Cost $ (1,820) $ (1,509) $ (1,358) Net Pension Cost for 1996, 1995 and 1994 Included the Following Components: Service cost-benefits earned during the period $ 212 $ 76 $ -- Interest cost on projected benefit obligation 119 97 91 Net amortization 70 16 21 Net Periodic Pension Cost $ 401 $ 189 $ 112
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5 percent, 7.0 percent and 8.0 percent for 1996, 1995 and 1994 respectively. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 4.0 percent for 1996 and 1995. In 1994 there was no assumed increase in compensation levels. In addition to the Company's non-contributory defined benefit retirement plan, the Company provides a defined benefit postretirement plan which provides medical benefits to employees, who have at least attained 55 years of age and 15 years of service (provided the sum of age and service is at least 75), as well as life insurance benefits to employees who, at a minimum, have attained 55 years of age and have 10 years of service. The postretirement health care portion of the plan is contributory, with participant contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. While the amount of a participants contribution varies depending upon age and service, the Company has set a maximum dollar amount it will pay for medical benefits regardless of age or service. The accounting for the plan is based on the level of cost sharing as of January 1, 1996. The funding policy of the plan is to pay claims and/or insurance premiums as they come due. The Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106) as of January 1, 1993. As permitted under the transition provisions of SFAS No. 106, the Company has opted to amortize the accumulated postretirement benefit obligation as of the January 1, 1993 adoption date (the transition obligation) over a period of twenty years, as a component of net periodic postretirement benefit cost. The following table presents the amounts recognized in the Company's consolidated Statement of Financial Condition as of
($000) Omitted December 31, 1996 1995 1994 Accumulated Postretirement Benefit Obligation: Retirees $ (1,804) $ (1,716) $ (1,680) Fully eligible active plan participants (98) (170) (166) Other active plan participants (299) (294) (288) (2,201) (2,180) (2,134) Plan assets at fair value -- -- -- Accumulated postretirement benefit obligation (2,201) (2,180) (2,134) Unrecognized transition obligation 1,736 1,844 1,952 Unrecognized past service costs (152) (166) (180) Unrecognized gain from changes in assumptions (27) 3 3 Accrued postretirement benefit cost included in other liabilities $ (644) $ (499) $ (359) Net Period Postretirement Benefit Cost for the Years Ended December 31, 1996, 1995 and 1994 Include the Following Components: Service cost $ 36 $ 34 $ 34 Interest cost 150 143 136 Net amortization and deferral of actual results differing from assumptions (14) (14) (3) Net amortization of transition amount 108 108 108 Net periodic postretirement benefit cost $ 280 $ 271 $ 275
The discount rate used in determining the accumulated postretirement benefit obligation was 7.5%, 7.0%, and 7.0% at December 31, 1996, 1995 and 1994, respectively. For measurement purposes, a 6.0%, annual rate of increase in the per capita cost of covered health care benefits were assumed for pre-age 65 medical coverage for each of the years 1996, 1995 and 1994, respectively. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, by approximately 7.3% and the net periodic postretirement benefit cost by approximately 9.7%. The Company has an Employees Stock Purchase Plan which all employees are eligible to join after six months of service. Employees may authorize the bank to withhold up to $200 biweekly from salary to be deposited with the plan's agent. The plan provides that the Company contribute an amount equal to 33% of each participant's contribution up to a maximum employee investment of $100 biweekly. Company contributions under the plan amounted to $101,000 for 1996, $79,000 for 1995, and $93,000 for 1994. In 1984, the Company established a 401(k) plan. All employees are eligible to join after specific service requirements. The Company contributed 25% of the total contribution made by employees for the year. Total 401(k) expense for 1996 was $132,000, the expense for 1995 and 1994 totaled $69,000 and $68,000, respectively. NOTE 14 EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) On December 15, 1989, the Company established an Employee Stock Ownership Plan (ESOP) which purchased 200,000 newly issued and 119,400 outstanding shares of the Company's common stock. Funds for the purchase of these shares were obtained through a borrowing from an unrelated financial institution. The shares issued to the ESOP and the related borrowing are reflected in the Company's statements of financial condition as common stock subscribed and long term debt. During 1996, a portion of the borrowing was paid off by the Company releasing approximately 33,000 shares which were allocated to participating employees.
($ 000 Omitted) 1996 1995 Administration $ 19 $ 18 Interest expense 110 131 Employer contribution 310 396
NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES The Company (through its subsidiary bank) is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the statement of financial condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Unless otherwise noted, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral, if any, required by the Company upon the extension of credit is based on management's credit evaluation of the customer. Mortgage and construction loan commitments are secured by a first lien on real estate. Collateral on extensions of credit for commercial loans varies but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial property. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support borrowing arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company grants commercial, consumer and residential loans to customers throughout its marketing area. Although the Company has a diversified loan portfolio, a substantial portion of its debtor's ability to honor their contracts is dependent upon the real estate and construction related sectors of economy and the tourism industry. Variable rate mortgage loans are granted with terms which set various interest rate caps for annual and life of the loan interest rate changes. There are no legal proceedings against the Company or its subsidiaries in 1996 or 1995 which in the opinion of management would result in a liability which would have a significant effect on the consolidated financial position of the Company. Contract amounts of financial instruments that represent credit risk as of December 31, 1996 and 1995 are as follows:
($000 Omitted) December 31, 1996 1995 Commercial Commitments $ 51,918 $ 50,500 Unused Home Equity Lines 37,814 29,074 Unused Overdraft Lines 6,879 6,653 Mortgage Commitments 3,502 3,316 Standby Letters of Credit 6,680 7,647 Total $ 106,793 $ 97,190
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Board issued Statement No. 107, Disclosures about Fair Value of Financial Instruments, (SFAS 107), which requires that the Company disclose estimated fair values for its financial instruments. SFAS No. 107 defines fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. SFAS No. 107 defines a financial instrument as cash, evidence of ownership interest in an entity, or a contract that imposes on one entity a contractual obligation to deliver cash or another financial instrument to a second entity or to exchange other financial instruments on potentially unfavorable terms with a second entity and conveys to that second entity a contractual right to receive cash or another financial instrument from the first entity or to exchange other financial instruments on potentially favorable terms with the first entity. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgements regarding future expected net cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing, on and off balance sheet, financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include the deferred tax assets and property, plant and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates of fair value under SFAS No. 107. The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31,
($000) Omitted 1996 1995 Footnote Carrying Estimated Carrying Estimated Number Value Fair Value Value Fair Value Derivatives None -- -- -- -- Trading instruments None -- -- -- -- Nontrading instruments: Cash and cash equivalents 16 $ 56,130 $ 56,130 $ 43,621 $ 43,621 Loans (net) 4 642,495 648,266 580,083 593,646 Securities 3 197,168 198,156 213,913 215,300 Deposit Liabilities 16 (800,856) (800,631) (750,224) (752,784) Short-Term Borrowings and Long-Term Debt 16 (30,084) (29,688) (26,735) (27,197)
Securities The carrying amounts for short-term investments approximate fair value because they mature in 90 days or less and do not present unanticipated credit concerns. The fair value of longer-term investments and mortgage backed securities, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The estimated fair value of certain state and municipal securities is not readily available through market sources, therefore, the fair value estimates are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. See Note 3 Securities for detail disclosure of investment and mortgage-backed securities. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, consumer, real estate, and other loans. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The following table presents information for loans at December 31, 1996 and 1995:
($000 Omitted) 1996 1995 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Commercial $ 224,955 $ 220,206 $ 230,373 $ 227,262 Real Estate Mortgage 283,098 285,854 246,567 250,444 Installment 146,528 141,894 114,874 115,548 Other 307 312 384 392 Loans (net of unearned income) 654,888 648,266 592,198 593,646 Less: allowance for loan losses (12,393) -- (12,115) -- Total $ 642,495 $ 648,266 $ 580,083 $ 593,646
The estimated fair value of performing commercial loans, lease finance receivables and installment loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the contractual term of the loans to maturity. Performing real estate loans fair value is estimated based on dealer quotations for conforming loans adjusted for a factor based on the Company's loans primarily being non-conforming. The fair value of the loans not readily available through market sources is estimated by discounting anticipated cash flows using an appropriate current discount rate to determine their fair value. Estimated fair value for significant non-performing loans is based on recent external appraisals and discounting of cash flows. Estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. Deposit Liabilities and Long-Term Debt Under SFAS 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW accounts, money market and checking accounts, is estimated to be the amount payable on demand as of December 31, 1996 and 1995. The estimated fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The estimated fair value of long-term debt is based on the discounted value of contractual cash flows. The discount rate is estimated using the current rates offered to the Company for debt with the same remaining maturities. Other Financial Instruments The fair value of cash and cash equivalents, accrued interest receivable, accrued interest payable and short-term borrowings are estimated to be book value at December 31, 1996 and 1995, respectively. Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The estimated fair value of financial guarantees written and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties. Fees, such as these, are not a major part of the Company's business and in the Company's business territory are not a "normal business practice", therefore, book value approximates fair value. The following table presents information for deposits and long- term debt December 31,
($000 Omitted) 1996 1995 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Non-interest bearing demand $ 92,737 $ 92,737 $ 97,380 $ 97,380 Savings and NOW 261,064 261,064 258,296 258,296 Money Market Deposit Accounts 89,698 89,698 81,922 81,922 Certificates of Deposit: Maturing in six months or less 181,947 181,962 177,546 178,085 Maturing between six months and one year 56,146 56,121 64,977 65,203 Maturing between one and three years 94,660 94,528 42,560 42,870 Maturing beyond three years 24,604 24,521 27,543 29,028 Short-Term Borrowings and Long-Term Debt 30,084 29,688 26,735 27,197
NOTE 17 PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS Condensed Statements of Income
($000 Omitted) Years Ended December 31, 1996 1995 1994 Income Dividends from Banking Subsidiary $ 8,900 $ 4,200 $ 272 Interest on Securities and Time Deposits 29 43 43 Interest on Securities Purchased Under Agreement to Resell 89 43 10 Net Securities Transactions -- -- 25 Other Income 20 3 10,045 Total Income 9,038 4,289 10,395 Expenses Salaries and Employee Benefits 644 605 6,466 Other Expenses 533 668 4,579 Total Expenses 1,177 1,273 11,045 Income/(Loss) Before Income Tax Benefit and Equity in Undistributed Net Income of Subsidiaries 7,861 3,016 (650) Income Tax Benefit 382 406 295 Income /(Loss) Before Equity in Undistributed Net Income of Subsidiaries 8,243 3,422 (355) Equity in Undistributed Net Income of Subsidiaries 2,070 4,958 7,620 Net Income $ 10,313 $ 8,380 $ 7,265
Condensed Statements of Condition
($000 Omitted) December 31, 1996 1995 Assets Cash $ 50 $ 50 Investments in Subsidiaries 81,353 79,734 Securities 258 508 Securities Purchased Under Agreement to Resell and Time Deposits in Banks 1,788 905 Premises and Equipment 6,544 5,696 Other Assets 1,767 3,894 Total Assets $ 91,760 $ 90,787 Liabilities Long-Term Debt $ 904 $ 2,895 Other Liabilities 5,417 4,847 Total Liabilities 6,321 7,742 Stockholders' Equity 85,439 83,045 Total Liabilities and Stockholders' Equity $ 91,760 $ 90,787
Parent Company Only Statements of Cash Flows
($000 Omitted) Years Ended December 31, 1996 1995 1994 Cash Flows from Operating Activities: Net Income $ 10,313 $ 8,380 $ 7,265 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Loss/(Gain) on Sale of Assets 2 (3) (25) Decrease in Interest Receivable 5 -- 2 Net Amortization 5 5 3 Depreciation 211 228 212 Increase/(Decrease) in Accrued Expenses 353 (57) 1,221 Increase/(Decrease) in Accrued Taxes Payable 217 787 (1,043) (Increase)/Decrease in Prepaid Expenses (43) 76 (131) Decrease/(Increase) in Taxes Receivable 2,290 (1,172) (599) Increase in Cash Surrender Value (130) (95) (62) Undistributed Earnings of Affiliates (2,070) (4,958) (7,620) Liquidation of Subsidiary -- 120 -- Net Cash Provided/(Used) By Operating Activities 11,153 3,311 (777) Cash Flows From Investing Activities: Proceeds From Sales of Investment Securities 250 -- 440 Net Change in Short-Term Investments (883) (905) 1,900 Proceeds from Sales of Fixed Assets -- 71 -- Capital Expenditures (1,060) (70) (238) Net Cash (Used)/Provided by Investing Activities (1,693) (904) 2,102 Cash Flows From Financing Activities: Principal Payments on Long-Term Debt (1,832) (260) (295) Payments for Purchase of Treasury Shares (4,386) (1,985) -- Proceeds from Issuance of Common Stock 737 691 400 Dividends Paid (3,979) (2,126) (236) Net Cash Used by Financing Activities (9,460) (3,680) (131) Net (Decrease)/Increase in Cash and Cash Equivalents -- (1,273) 1,194 Cash and Cash Equivalents Beginning of Year 50 1,323 129 Cash and Cash Equivalents End of Year $ 50 $ 50 $ 1,323 Cash and Cash Equivalents are cash in demand deposit accounts at the subsidiary bank. Supplemental disclosure of Cash Flows: Interest Paid $ 186 $ 242 $ 242
Supplemental Schedule of Non-Cash Financing Activities: Payments were made on the Company's ESOP loan in the amount of $159,000, $153,000, and $144,000 in 1996, 1995 and 1994, respectively. Basis of Presentation Investments in subsidiaries are recorded using the equity method of accounting and represent 100% ownership of Evergreen Bank, N.A. and Evergreen Venture Capital Corp. The Parent Company recognizes income and expenses using the accrual method of accounting. The Statement of Changes in Stockholders' Equity and the specifics of the Stockholders' Equity section of the Statement of Condition are not included since such amounts would be repetitive of those presented in the Consolidated Financial Statements. NOTE 18 UNAUDITED INTERIM FINANCIAL INFORMATION Following is a summary of unaudited quarterly financial information for each quarter of 1996 and 1995.
($000 Omitted) (Except Per Share Data) 1996 Quarters Ended 1995 Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 Interest Income $ 18,151 $ 17,887 $ 17,296 $ 17,199 $ 17,169 $ 17,025 $ 16,903 $ 16,074 Net Interest Income 10,406 10,665 10,180 9,933 9,837 9,995 9,900 9,867 Provision for Loan Losses 360 360 360 360 360 360 540 540 Income Before Income Taxes 4,161 4,200 3,854 3,773 3,380 2,251 2,746 3,046 Net Income 2,721 2,694 2,519 2,379 2,467 2,050 1,831 2,032 Per Share: Net Income .30 .29 .27 .26 .26 .22 .20 .21
Independent Auditors' report KPMG Peat Marwick LLP Certified Public Accountants 74 North Pearl Street Albany, New York 12207 The Board of Directors and Stockholders Evergreen Bancorp, Inc.: We have audited the accompanying consolidated statements of condition of Evergreen Bancorp, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Evergreen Bancorp, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP January 24, 1997 Evergreen Bancorp 237 Glen Street, Glens Falls, New York 12801 518-792-1151 4510-AR-97 EX-21 6 Exhibit 21 EVERGREEN BANCORP, INC. 1996 ANNUAL REPORT ON FORM 10-K SUBSIDIARIES OF THE REGISTRANT
Name of Significant Subsidiary % Owned Jurisdiction of Incorporation Evergreen Bank, National Association 100 United States Evergreen Realty Funding Corp. 100 United States Subsidiaries of the Registrant that are inactive have been omitted. Entity is a Subsidiary of Evergreen Bank, National association.
EX-23 7 Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Evergreen Bancorp, Inc.: We consent to incorporation by reference in the Registration Statements on Form S-8 (No. 33-27062), Form S-8 (No. 2-71111) and Form S-8 (No. 33-4488) of Evergreen Bancorp, Inc. of our report dated January 24, 1997, relating to the consolidated statements of condition of Evergreen Bancorp, Inc. and subsidiaries as December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996 which report appears in the December 31, 1996 Annual Report on Form 10-K of Evergreen Bancorp, Inc. /S/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Albany, NY 12207 March 21, 1997 EX-27 8
Exhibit 27 EVERGREEN BANCORP, INC. FINANCIAL DATA SCHEDULE
9 12-MOS DEC-31-1996 DEC-31-1996 33,195 235 22,700 0 177,140 20,028 21,016 654,888 12,393 928,649 800,856 3,846 12,270 26,238 38,900 0 0 46,539 928,649 56,794 12,923 816 70,533 27,564 29,349 41,184 1,440 (6) 30,143 15,988 15,988 0 0 10,313 1.10 1.09 4.98 3,792 1,414 133 0 12,115 1,714 552 12,393 0 0 12,393
-----END PRIVACY-ENHANCED MESSAGE-----